[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36442-36444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89037; File No. SR-OCC-2020-006]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Administrative Updates to The Options Clearing Corporation's Risk 
Management Policies

June 10, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 27, 2020, the Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by OCC. OCC filed the proposed rule change pursuant 
to Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder so that the proposal was effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by OCC would make conforming edits to the 
following policies: OCC's Risk Management Framework Policy, OCC's 
Default Management Policy and OCC's Clearing Fund Methodology Policy. 
In each case, the conforming edits would ensure that descriptions of 
OCC's process for replenishing operating capital and OCC's waterfall of 
default resources are aligned with changes that took effect with the 
approval of OCC's Capital Management Policy.\5\ Further conforming 
edits to the Risk Management Framework Policy would establish that the 
Capital Management Policy must detail the principles used to determine, 
monitor, and measure OCC's capital levels such that OCC maintains 
liquid net assets funded by equity (``LNAFBE'') consistent with the 
requirements of Rule 17Ad-22(e)(15),\6\ aligned with the current 
Capital Management Policy.\7\ The proposed rule change would also add 
one footnote to the Clearing Fund Methodology Policy, which would 
simply clarify that the Capital Management Policy's changes to OCC's 
waterfall of default resources would not change OCC's definition of 
``pre-funded financial resources,'' as used for purposes of the 
calculating OCC's Clearing Fund.
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    \5\ Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 
(Jan. 30, 2020) (SR-OCC-2019-007).
    \6\ 17 CFR 240.17Ad-22(e)(15).
    \7\ See supra note 5.
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    The Risk Management Framework Policy, Default Management Policy and 
Clearing Fund Methodology Policy are included as confidential Exhibits 
5A, 5B and 5C, respectively. Material proposed to be added is marked by 
underlining and material proposed to be deleted is marked by 
strikethrough text. The proposed rule change is available on OCC's 
website at https://www.theocc.com/about/publications/bylaws.jsp. All 
terms with initial capitalization that are not otherwise defined herein 
have the same meaning as set forth in the OCC By-Laws and Rules.\8\
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    \8\ OCC's By-Laws and Rules can be found on OCC's public 
website: http://optionsclearing.com/about/publications/bylaws.jsp.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(1) Purpose
Background
    On February 13, 2019, the Commission disapproved OCC's Capital 
Plan.\9\ The Capital Plan had provided for OCC's operating capital 
structure and had included a contingency for replenishing OCC's 
operating capital, if necessary, by raising additional capital from the 
options exchanges that have equity ownership interests in OCC.\10\ As a 
result of the disapproval of the Capital Plan, OCC subsequently 
proposed its ``Capital Management Policy,'' which proposed a new 
operating capital structure, a new process for replenishing OCC's 
operating capital and certain changes to OCC's ``default waterfall'' 
(i.e., the resources available to OCC in the event of a Clearing 
Member's suspension).\11\ On January 24, 2020, the Commission approved 
OCC's Capital Management Policy.\12\
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    \9\ Exchange Act Release No. 85121 (Feb. 13, 2019), 84 FR 5157 
(Feb. 20, 2019) (SR-OCC-2015-02).
    \10\ Exchange Act Release No. 74452 (Mar. 6, 2015), 80 FR 13058 
(Mar. 12, 2015) (SR-OCC-2015-02). The contingency in the Capital 
Plan for replenishing OCC's operating capital was referred to as 
``Replenishment Capital.''
    \11\ Exchange Act Release No. 86725 (Aug. 21, 2019), 84 FR 44944 
(Aug. 27, 2019) (SR-OCC-2019-007).
    \12\ See supra note 5.
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    OCC's Risk Management Framework Policy, Default Management Policy 
and Clearing Fund Methodology Policy each include discrete references 
to aspects of the disapproved Capital Plan or to OCC's default 
waterfall prior to the changes implemented by the Capital Management 
Policy. Specifically, OCC's Risk Management Framework Policy contains a 
paragraph summarizing the disapproved Capital Plan and its appendix 
includes two references to the disapproved Capital Plan. OCC's Default 
Management Policy includes a summary of the default waterfall predating 
the approval of the Capital Management Policy and a list of OCC's 
``Recovery Tools'' for default scenarios, which includes Replenishment 
Capital. OCC's Clearing Fund Methodology Policy contains two paragraphs 
that summarize OCC's default waterfall as it existed prior to the 
approval of the Capital Management Policy. Each of these now-outdated 
references needs to be revised to conform to the changes implemented by 
the Capital Management Policy.
Proposed Changes
Proposed Changes to the Risk Management Framework Policy
    OCC's Risk Management Framework Policy includes a paragraph 
summarizing the disapproved Capital Plan and its appendix includes two 
references to the disapproved Capital Plan. Accordingly, the 
disapproval of the Capital Plan and adoption of the Capital Management 
Policy requires that conforming changes be made to OCC's Risk 
Management Framework Policy. The proposed rule change would effectively 
replace in its entirety a short paragraph that summarizes the 
disapproved Capital Plan with a short paragraph summarizing the Capital 
Management Policy. Specifically, the

[[Page 36443]]

revised paragraph would require that OCC maintain a Capital Management 
Policy that details the principles used to determine, monitor, and 
manage OCC's capital levels such that OCC maintains sufficient LNAFBE 
in a manner consistent with the requirements of Rule 17Ad-
22(e)(15).\13\ The proposed rule change also would amend the appendix 
of the Risk Management Framework Policy to replace two references to 
the Capital Plan with references to the Capital Management Policy.
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    \13\ 17 CFR 240.17Ad-22(e)(15).
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Proposed Changes to the Default Management Policy
    OCC's Default Management Policy includes a summary of the default 
waterfall and a list of OCC's ``Recovery Tools,'' each of which 
predates the approval of the Capital Management Policy. Accordingly, 
the implementation of the Capital Management Policy requires conforming 
changes to OCC's Default Management Policy. The proposed rule change 
would revise a list in the Default Management Policy that summarizes 
the default waterfall. As revised, the list would: (1) Include a 
summary description--immediately following the use of margin, deposits 
in lieu of margin and the Clearing Fund deposits of the suspended 
Clearing Member--of OCC's use of current and retained earnings greater 
than 110% of OCC's annually-established Target Capital Requirement, as 
implemented by the Capital Management Policy, and (2) describe the 
contribution of unvested portions of OCC's EDCP, in proportion to any 
charges against the mutualized portion of OCC's Clearing Fund, as 
implemented by the Capital Management Policy.
    Also, the proposed rule change would revise a list in the Default 
Management Policy that summarizes OCC's Recovery Tools. As revised, the 
list would delete the use of OCC's current and/or retained earnings 
from the list of OCC's Recovery Tools. As implemented by the Capital 
Management Policy, OCC's current and retained earnings greater than 
110% of OCC's annually-established Target Capital Requirement would be 
mandatorily contributed in advance of any charges against the 
mutualized portion of OCC's Clearing Fund, and thusly, would not be 
available as a recovery tool for the purpose of managing a Clearing 
Member default after OCC charges a loss to the Clearing Fund.
Proposed Changes to the Clearing Fund Methodology Policy
    The Clearing Fund Methodology Policy contains two paragraphs 
summarizing the process for levying charges against OCC's Clearing Fund 
and for Clearing Member's to replenish OCC's Clearing Fund, as each 
process existed prior to the implementation of the Capital Management 
Policy. Accordingly, the adoption of the Capital Management Policy 
requires conforming changes to OCC's Clearing Fund Methodology Policy. 
As revised, the first paragraph would describe OCC's use of current and 
retained earnings greater than 110% of OCC's annually-established 
Target Capital Requirement before OCC levies charges against its 
Clearing Fund, as implemented by the Capital Management Policy (this 
paragraph would continue to immediately follow a reference to the use 
of the margin and Clearing Fund deposits of the suspended Clearing 
Member). The second paragraph would be revised to describe the 
contribution of unvested portions of OCC's EDCP, in proportion to any 
charges against the mutualized portion of OCC's Clearing Fund, as 
implemented by the Capital Management Policy.
    In addition to the foregoing revisions, the proposed rule change 
also would add a footnote making clear that OCC does not consider 
assessment powers, available current and retained earnings exceeding 
110% of the Target Capital Requirement or available unvested portions 
of OCC's EDCP to be ``pre-funded financial resources'' for purposes of 
sizing or measuring the sufficiency of the Clearing Fund. This change 
would simply clarify that the Capital Management Policy's changes to 
OCC's waterfall of default resources would not change OCC's definition 
of ``pre-funded financial resources,'' as used for purposes of the 
calculating OCC's Clearing Fund.
(2) Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act \14\ because the proposed change to 
update OCC's Risk Management Framework Policy, Default Management 
Policy and Clearing Fund Methodology Policy ultimately would protect 
investors and the public interest. OCC's Risk Management Framework 
Policy is designed to enable OCC to identify, measure, monitor and 
manage the range of risks that arise in or are borne by OCC. OCC's 
Default Management Policy is designed to facilitate OCC's authority and 
operational capacity to take timely action to contain losses arising 
from the suspension of a Clearing Member. OCC's Clearing Fund 
Methodology Policy is designed to summarize the manner by which OCC 
determines the level of Clearing Fund resources to cover a wide range 
of foreseeable stress scenarios. OCC believes that making conforming 
edits to the Risk Management Framework Policy, Default Management 
Policy and Clearing Fund Methodology Policy would improve the 
possibility of OCC effectively addressing a variety of potential risks. 
In turn, OCC believes this would improve its ability to ultimately 
maintain market and public confidence during a time of unprecedented 
stress. In this regard, OCC believes the proposed rule change 
ultimately would protect investors and the public interest in a manner 
consistent with Section 17A(b)(3)(F) of the Act.\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC also believes that the proposed rule change is consistent with 
Rules 17Ad-22(e)(3)(i) \16\ and 17Ad-22(e)(13).\17\ The proposed 
conforming edits to the Risk Management Framework Policy would improve 
the accuracy of the policy's descriptions of OCC's capital structure 
and replace outdated references to the Capital Plan. Each of these 
conforming changes would improve the accuracy of OCC's Risk Management 
Framework Policy. In this regard, OCC believes its proposed rule change 
is consistent with Rule 17Ad-22(e)(3)(i).\18\ Similarly, proposed 
conforming edits to the Default Management Policy would improve the 
accuracy of the policy's descriptions of OCC's default waterfall and 
recovery tools. The improved accuracy of the Default Management Policy 
would facilitate OCC's operational capacity to take timely action to 
contain losses arising from the suspension of a Clearing Member. In 
this regard, OCC believes its proposed rule change is consistent with 
Rule 17Ad-22(e)(13).\19\
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    \16\ 17 CFR 240.17Ad-22(e)(3)(i).
    \17\ 17 CFR 240.17Ad-22(e)(13).
    \18\ 17 CFR 240.17Ad-22(e)(3)(i).
    \19\ 17 CFR 240.17Ad-22(e)(13).
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    OCC also believes that the proposed rule change is consistent with 
Rule 17Ad-22(e)(4).\20\ The proposed conforming edits to the Clearing 
Fund Methodology Policy would improve the accuracy of the policy's 
descriptions of OCC's default waterfall and would clarify the resources 
that would be counted as ``pre-funded financial resources'' in 
determining the sizing

[[Page 36444]]

and sufficiency of OCC's Clearing Fund. Together, the improved accuracy 
and clarification of these proposed conforming edits would facilitate 
OCC's ability to, among other things, effectively manage its credit 
exposures to participants. In this regard, OCC believes its proposed 
rule change is consistent with Rule 17Ad-22(e)(4).\21\
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    \20\ 17 CFR 240.17Ad-22(e)(4).
    \21\ Id.
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    The proposed rule change is not inconsistent with the existing 
rules of OCC, including any other rules proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \22\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC does not 
believe that the proposed rule change would impact or impose any burden 
on competition.\23\ The proposed rule change would update OCC's Risk 
Management Framework Policy, Default Management Policy and Clearing 
Fund Methodology Policy. The proposed changes to the Risk Management 
Framework Policy, Default Management Policy and Clearing Fund 
Methodology Policy would simply recognize the disapproval of OCC's 
Capital Plan and its subsequent replacement with the adopted Capital 
Management Policy, and in the case of the Clearing Fund Methodology 
Policy, add a clarifying footnote. None of the proposed updates to the 
Risk Management Framework Policy, Default Management Policy or Clearing 
Fund Methodology Policy would affect Clearing Members' access to OCC's 
services or impose any direct burdens on clearing members. Accordingly, 
the proposed rule change would not unfairly inhibit access to OCC's 
services or disadvantage or favor any particular user in relationship 
to another user.
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    \22\ 15 U.S.C. 78q-1(b)(3)(I).
    \23\ Id.
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    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impact or impose a burden on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A)(iii) of the Act, \24\ and Rule 19b-
4(f)(6) \25\ thereunder, the proposed rule change is filed for 
immediate effectiveness because it does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) by its terms would not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate. Additionally, OCC 
provided the Commission with written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change or such shorter time as designated 
by the Commission.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2020-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2020-006. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2020-006 and 
should be submitted on or before July 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12893 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P