[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20485-20488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07341]
[[Page 20485]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94587; File No. SR-OCC-2022-004]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by The Options Clearing
Corporation Concerning Settlement Timing
April 1, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on March 22, 2022, The Options Clearing
Corporation (``OCC'' or ``Corporation'') 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
primarily by OCC. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change by OCC would revise the required
settlement time from 9:00 a.m. Central Time (``CT'') to 8:00 a.m. CT.
In order to make this change, OCC is proposing changes to the OCC By-
Laws (``By-Laws'') and Rules. The proposed changes to OCC's By-Laws and
Rules are included as Exhibits 5A-5C to file number SR-OCC-2022-004.
Material proposed to be added is underlined and material proposed to be
deleted is marked in strikethrough text. 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.\3\
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\3\ OCC's By-Laws and Rules can be found on OCC's website:
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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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
OCC is filing this proposed rule change to change the time frame
for collecting Margin \4\ and Clearing Fund deficits as well as
increases in the Clearing Fund cash requirement (``Settlement Funds'').
The proposed changes are generally intended to shorten the collection
period for Settlement Fund deficits and align the time for satisfying
start of day settlement to 8:00 a.m. CT (``SOD Settlement Time''). OCC
believes the proposed changes will reduce operational complexity by
creating a more uniform settlement time for Clearing Fund deficits. The
earlier SOD Settlement Time will also provide OCC with additional time
to address a default event and implement protective actions. To provide
increased transparency, the proposal also grants OCC discretion to
extend funding deadlines when warranted by the circumstances (e.g.,
operational or system difficulties).
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\4\ Current OCC Rule 706(b) allows OCC to specify the settlement
time for cross-margin accounts with Participating CCOs. As of the
date of this filing, OCC only maintains cross-margin accounts with
one Participating CCO, the Chicago Mercantile Exchange (``CME'').
OCC's Operations Manual specifies that the settlement time for OCC/
CME cross margin debits is 7:30 a.m. CT. This filing will not change
the start-of-day settlement time for OCC/CME cross-margin debits.
For the avoidance of doubt, the settlement time for OCC's internal
cross-margin program under Article VI, Section 25 of OCC's By-Laws
will be 8:00 a.m. CT.
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The contents of the proposed rule change are summarized as follows.
Background
Under OCC's Rules, there are different windows for the collection
of Settlement Funds depending on the reason for the deficit, and the
settlement time for satisfying such deficits may vary. For example, OCC
Rule 1005(a) currently requires Clearing Members to satisfy any general
deficits within one hour of receiving notice from OCC; OCC Rule 1005(b)
currently requires Clearing Members to satisfy any deficits related to
a monthly or intra-month resizing of the Clearing Fund by 9:00 a.m. CT
on the second business day following notice from OCC; and whenever an
amount is paid out of the Clearing Fund, OCC Rule 1006(h) requires
Clearing Members to replenish the Clearing Fund following a charge
thereto by 9:00 a.m. CT on the first business day following notice from
OCC. In certain cases, such as the monthly Clearing Fund sizing
process, the current Rules provide a two day period for Clearing
Members to deposit any additional required Clearing Fund assets, while
simultaneously Clearing Members are eligible to withdraw any excess
contributions based upon the new requirement. To address these issues,
OCC proposes to change OCC's rules concerning the collection of
Settlement Funds. The proposed changes would, in general, allow OCC to
reduce operational complexity by creating a more uniform settlement
time for Clearing Fund deficits.
In addition, OCC proposes to align the collection of Settlement
Funds with a consistent SOD Settlement Time. OCC's current SOD
Settlement Time is 9:00 a.m. CT; however, the Board approved changing
the SOD Settlement Time to 8:00 a.m. CT. By aligning the SOD Settlement
Time for margin and Clearing Fund deficiencies, OCC believes the
proposed change would provide a clear and consistent process for
collecting Settlement Funds. Moving to an earlier settlement time would
also provide OCC with more time to address a default event and
implement necessary protective actions, including securing funds from
its liquidity providers.
Changes to By-Laws
Currently, two definitions in OCC's By-Laws (Article I,
Definitions; Article XV, Foreign Currency Options, Definitions) refer
to the term ``settlement time'' as 9:00 a.m. CT (10:00 a.m. Eastern
Time (``ET'')). OCC proposes moving the definition in Article I of
OCC's By-Laws to Chapter I, Rule 101 of OCC's Rules. This defined term
does not appear elsewhere in the By-Laws, but is routinely used in
OCC's Rules. OCC also proposes updating both definitions to instead
provide for ``settlement time'' to be 8:00 a.m. CT (9:00 a.m. ET).
Additionally, OCC proposes to clarify in the definition that would move
to OCC's Rules that ``settlement time'' does not include settlements
related to any cross-margin program with a Participating CCO. OCC Rule
706 allows OCC to specify the settlement time for cross-margin accounts
with Participating CCOs. This filing will not change the start-of-day
settlement time for the OCC/CME cross-margin account, which is
currently 7:30 a.m. CT, but will clarify any potential ambiguity about
the start-of-day settlement time for these accounts.
Changes to Rules
Daily Margin Report
OCC Rule 605 currently requires Clearing Members to satisfy margin
deficits by 9:00 a.m. CT (10:00 a.m. ET).
[[Page 20486]]
OCC proposes to update Rule 605 to reference the above referenced
defined term ``Settlement Time.''
Interpretation and Policy .01 to Rule 605 currently provides that
the Daily Margin Report will not include the amount of margin required
for variance futures and requires OCC to advise Clearing Members of
margin requirements for variance futures by 9:00 a.m. CT (10:00 a.m.
ET). When OCC clears variance futures, the margin requirements for such
products would be included in the Daily Margin Report. Accordingly, OCC
proposes to delete Interpretation and Policy .01 to Rule 605.
Monthly and Intra-Month Resizing
OCC Rule 1005(b) currently requires that Clearing Members satisfy
any deficits due to a monthly or intra-month Clearing Fund resizing by
the SOD Settlement Time on the second business day following
notification of the resizing. The two-day collection period was
intended to provide Clearing Members with sufficient notice of any
changes to their Clearing Fund contribution requirements. However, this
two-day collection period complicates the monitoring of OCC's prefunded
credit and liquidity resources.
To address these issues, Management proposes to amend Rule 1005(b)
to require that deficits due to the standard monthly resizing of the
Clearing Fund be satisfied by the SOD Settlement Time on the first
business day of each month. The proposed change would reduce the time
to collect Clearing Fund deficits required to meet the new monthly
Clearing Fund size. This change would reduce operational complexity
related to the monitoring of OCC's prefunded credit and liquidity
resources by providing transparency and certainty to OCC around OCC's
available liquidity resources during the resizing process. Management
also proposes to shorten the collection period for intra-month resizing
to the next SOD Settlement Time following notification of the re-sizing
to align with the monthly resizing period and other Clearing Fund
deficit collection times and help ensure that OCC maintains adequate
prefunded financial resources at all times. To provide additional
transparency, Rule 1005(b) also grants OCC discretion to extend funding
deadlines when warranted by the circumstances (e.g., operational or
system difficulties).
General Deficits
OCC Rule 1005(a) currently requires that general Clearing Fund
deficits (e.g., deficits caused by a decrease in the value of a
Clearing Member's contribution or due to an adjusted contribution
pursuant to Rule 1004 \5\) must be satisfied within one hour of being
notified of the deficit. As a practical matter, these deficits are
currently generally collected in the morning each business day but
outside of the start of day settlement cycle, which means that OCC
currently processes two separate collections from certain Clearing
Members.
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\5\ Under Rule 1004, Clearing Fund contributions may be adjusted
due to a Clearing Member merger, consolidation, position transfer,
business expansion, membership approval or other similar event.
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OCC proposes to revise its rules to align the collection of general
Clearing Fund deficits with the proposed SOD Settlement Time to provide
consistency in settlement times throughout OCC's rules. Under revised
Rule 1005(a), OCC would collect a general deficit arising under Rule
1005(a) at the Settlement Time, provided that it notified the Clearing
Member of such deficit at least one hour prior to the Settlement Time
on the day the notice was provided. Notice of general deficits under
Rule 1005(a) would typically be provided to Clearing Members through
OCC's overnight reporting process but may also be issued in response to
market conditions or adjustments arising from mergers, consolidations,
position transfers, business expansions, membership approval or other
similar events. To achieve the operational efficiency contemplated by
the proposal, the proposed revisions to Rule 1005(a) would align the
collection period for general deficits to the Settlement Time in the
ordinary course, and continue to provide Clearing Members with one hour
to satisfy a deficit if notice was not provided at least one hour
before the Settlement Time on a particular day. To provide additional
transparency, Rule 1005(a) also grants OCC discretion to extend funding
deadlines when warranted by the circumstances (e.g., operational or
system difficulties).
Adjustments to Clearing Fund Contributions
Rule 1004 provides that any deficiency arising from an adjustment
due to a Clearing Member merger, consolidation, position transfer,
business expansion, membership approval or other similar event shall be
satisfied in accordance with Rule 1005(a). Rule 1004 currently provides
an exception that allows a Clearing Member to satisfy an obligation
that would be due on the first business day of a calendar month to be
satisfied on the second business day if the deficit coincides with a
regular monthly sizing collection. The proposal would eliminate this
exception because regular monthly sizing deficits would no longer be
collected two business days after notification under the proposed
formulation of Rule 1005.
Replenishment and Assessments
OCC Rule 1006(h) currently requires that Clearing Members make good
any charges to the Clearing Fund, whether in the form of replenishments
or assessments, by 9:00 a.m. the following business day. OCC proposes
to amend Rule 1006(h) to align the collection period for replenishments
and assessments with the proposed SOD Settlement Time. OCC believes
that using the defined term ``Settlement Time'' rather than stating a
specific time in Rule 1006(h) will help achieve the consistency
intended by this proposal. As described above, aligning the time for
satisfying settlement and Clearing Fund obligations to the new
definition of Settlement Time will reduce operational complexity by
creating a more uniform settlement time. Moving to the earlier time
(i.e., 8:00 a.m. CT) would also provide OCC with more time to address a
default event and implement necessary protective actions, including
securing funds from its liquidity providers. OCC also proposes to make
corresponding changes to Rule 1006(h)(B), which reiterates that each
Clearing Member shall have and shall at all times maintain the ability
to make good any deficiency described in Rule 1006(h) during a cooling-
off period.
OCC also proposes to amend Rule 1006(h)(A) and Rule 1006(h)(B) to
allow the Corporation to specify a later time for which Clearing
Members must make good on any charges to the Clearing Fund. The purpose
of this change is to provide increased transparency by granting OCC
discretion to extend funding deadlines when warranted by the
circumstances (e.g., operational or system difficulties).
Deficits Due to Amendment of OCC's Rules
Currently, under Rule 1002(e), if a Clearing Member's contribution
to the Clearing Fund increases due to an amendment of OCC's Rules, the
increase shall not become effective until the Clearing Member is given
at least two business days prior written notice of the amendment. This
notification period provides time for any Clearing Member to notify OCC
in writing that it wishes to terminate its clearing membership and
close out or transfer its open positions before the effective date of
the
[[Page 20487]]
amendment. Clearing Members that do not notify OCC of such termination
must satisfy the increased contribution by 9:00 a.m. CT on the second
business day following notification of the amendment.
OCC proposes to allow a five-business day notification period to
allow Clearing Members additional time to determine whether to
terminate clearing membership as a result of any such rule change and
close out or transfer all open positions before the effective date of
the amendment. The purpose of this change is to update Rule 1002(e) to
better reflect OCC's current practice pursuant to which Clearing
Members are generally afforded more than five-business days' notice of
any change in Clearing Fund requirements that result from an amendment
of OCC's Rules through the regulatory filing process. As this change
codifies an existing practice, OCC does not believe it will modify
Clearing Member behavior or otherwise have an adverse impact on OCC.
OCC also proposes to revise Rule 1002(e) to align with the proposed
SOD Settlement Time. As described above, this change is intended to
reduce operational complexity by creating a more uniform settlement
time for Clearing Fund deficits, including those described in Rule
1002(e), that aligns with the current collection period for other
obligations to OCC.
Temporary Increase in Clearing Fund Cash Requirement
Interpretation and Policy .03 to Rule 1002 requires Clearing
Members to satisfy any increase in their required cash contribution
resulting from an increase in overall Clearing Fund Cash Requirement no
later than the second business day following notification of the
increase. OCC proposes to revise Rule 1002 to require that Clearing
Members satisfy an increase in required cash contributions by the first
SOD Settlement Time following notification of the increase. The purpose
of this change is to reduce operational complexity by creating a more
uniform settlement time that aligns with the current collection period
for other obligations to OCC.
Conforming Changes to Policies and Agreements
In connection with the proposed changes described above, OCC will
need to make conforming changes to the Clearing Fund Methodology
Policy. These changes include updating the policy to reflect the timing
for satisfying an increase to the Clearing Fund Cash Requirements and
eliminating the policy language describing the exception set forth in
Rule 1004 as described more fully above. These changes are intended to
update the Clearing Fund Methodology Policy to conform with the
proposed changes to OCC's rules described above and support the reduced
operational complexity that OCC expects to achieve by creating a more
uniform SOD Settlement Time.
(2) Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Act \6\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(A) of the Act \7\ requires, among other things, that a
clearing agency be so organized and have the capacity to be able to
facilitate the prompt and accurate clearance and settlement of
securities transactions and derivatives agreements, contracts, and
transactions for which it is responsible. OCC believes the proposed
rule change is consistent with this requirement because the change
would improve OCC's capacity to facilitate clearance and settlement by
allowing OCC to collect financial resources consistent with its
calculated requirements as soon as reasonably possible. OCC believes
this change will facilitate the prompt and accurate settlement of the
transactions for which it is responsible by harmonizing various
settlement deadlines thereby reducing operational complexity. The
change would also facilitate the prompt and accurate settlement of
transactions by providing OCC assurance about available funds earlier
on each business day.
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(A).
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OCC also believes that the proposed rule change is consistent with
the requirement in Rule 17Ad-22(e)(3)(i) \8\ to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to maintain a sound risk management framework for managing
legal, credit, liquidity, operational, general business, investment,
custody and other risks that arise in or are borne by OCC. OCC believes
the proposed SOD Settlement Time changes will contribute to OCC's sound
risk management framework for managing the risks borne by OCC. For
example, OCC believes the proposed changes will reduce its liquidity
risk by assuring start of day settlement requirements are met earlier
on each business day. Additionally, OCC believes adding consistency to
its start of day settlement time requirements will reduce operational
risk by simplifying the requirements around settlement for both
Clearing Members and OCC. While cross-margin deficits will still be
required to be met by 7:30 a.m. CT, all other Settlement Funds will be
required by 8:00 a.m. CT. OCC believes this reduction in complexity
around required settlement timing will reduce risk and contribute to
OCC's sound risk management framework. The proposal would also improve
OCC's process for addressing delays arising from operational issues or
system difficulties by granting OCC discretion to extend certain
funding deadlines when warranted by the circumstances.
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\8\ 17 CFR 240.17Ad-22(e)(3)(i).
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The proposal is also consistent with the requirement in Rule 17Ad-
22(e)(8) to establish, implement, maintain, and enforce policies and
procedures reasonably designed to define the point at which settlement
is final to be no later than the end of the day on which the payment or
obligation is due. Under the proposal, settlement finality for
transactions cleared by OCC occurs when a settlement bank either
accepts or confirms the settlement instruction. Moving to the earlier
time would promote settlement finality by allowing OCC to more quickly
identify issues that could potentially impact its ability to settle
transactions (e.g., a Clearing Member default) and providing OCC with
additional time to take protective actions, including securing funds
from its liquidity providers.
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 Exchange Act 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.\9\ OCC does not
believe that the proposed rule change would impact or impose any burden
on competition. In connection with these changes, OCC will continue to
provide daily reporting to Clearing Members with projected requirements
to provide notice and transparency. While the proposed rule changes
would reduce the time that Clearing Members have to respond to start of
day settlement requirements, OCC does not believe the proposed change
would present an undue burden on OCC's Clearing Members.
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\9\ 15 U.S.C. 78q-1(b)(3)(I).
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Additionally, the proposed rule changes would apply to all Clearing
Members consistently and would not
[[Page 20488]]
provide any Clearing Member with a competitive advantage over any other
Clearing Member. Further, the proposed rule change would not affect
Clearing Member's 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.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
OCC shall post notice on its website of proposed changes that are
implemented. The proposal shall not take effect until all regulatory
actions required with respect to the proposal are completed.
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-2022-004 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2022-004. 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/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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-2022-004 and
should be submitted on or before April 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07341 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P