[Federal Register Volume 87, Number 206 (Wednesday, October 26, 2022)]
[Notices]
[Pages 64824-64828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23230]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96113; File No. SR-OCC-2021-802]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Partial Amendments No. 1, 2, 3, and 4 and Notice of 
No Objection to Advance Notice, as Modified by Partial Amendments No. 
1, 2, 3, and 4 Relating to OCC's Adoption of Cloud Infrastructure for 
New Clearing, Risk Management, and Data Management Applications

October 20, 2022.

I. Introduction

    On October 8, 2021, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
advance notice SR-OCC-2021-802 (``Advance Notice'') pursuant to Section 
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled Payment, Clearing and Settlement 
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule 
19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 1934 
(``Exchange Act''),\3\ in connection with a proposed adoption of third-
party-hosted cloud infrastructure (also generally referred to as the 
``Cloud'') for OCC's new clearing, risk management, and data management 
applications. On November 2, 2021, the Commission published notice of 
the Advance Notice in the Federal Register to solicit public comment 
and to extend the review period for the Advance Notice.\4\ The 
Commission has received no comments regarding the changes proposed in 
the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 93433 (Oct. 27, 2021), 
86 FR 60503 (Nov. 2, 2021) (File No. SR-OCC-2021-802) (``Notice of 
Filing'').
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    On November 16, 2021, OCC filed Partial Amendment No. 1 to the 
Advance Notice.\5\ On December 13, 2021, OCC filed Partial Amendment 
No. 2 to the Advance Notice.\6\ On July 1, 2022, OCC filed Partial 
Amendment No. 3 to the Advance Notice.\7\ On September 12, 2022, OCC 
filed Partial Amendment No. 4 to the Advance Notice.\8\
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    \5\ Partial Amendment No. 1 appended an Exhibit 2 to documents 
previously filed as part of the Advance Notice on October 8, 2021. 
The Exhibit 2 consists of a communication from OCC to its Clearing 
Members concerning the changes discussed in the Advance Notice. 
Partial Amendment No. 1 did not change the purpose of or basis for 
the Advance Notice.
    \6\ Partial Amendment No. 2 replaced confidential Exhibits 3f 
and 3g previously filed as part of the Advance Notice on October 8, 
2021 with revised confidential Exhibits 3f and 3g and added new 
confidential Exhibit 3gg to the Advance Notice. Exhibits 3f and 3gg 
are two of the documents that collectively comprise the agreement 
with the Cloud service provider (``CSP'') and were updated as OCC 
further negotiated and modified the terms of that agreement. Exhibit 
3g provides a summary of the terms and conditions of OCC's agreement 
with the CSP designed to enable OCC to comply with Regulation SCI. 
Partial Amendment No. 2 did not change the purpose of or basis for 
the Advance Notice.
    \7\ Partial Amendment No. 3 replaced the revised confidential 
Exhibits 3f and 3g that were previously filed in connection with 
Partial Amendment No. 2 with further revised confidential Exhibits 
3f and 3g and added new confidential Exhibit 3hh to the Advance 
Notice. Exhibit 3hh is a Gantt chart regarding OCC's Cloud 
transition plan. Partial Amendment No. 3 did not change the purpose 
of or basis for the Advance Notice.
    \8\ Partial Amendment No. 4 again replaced confidential Exhibit 
3f filed as part of the Advance Notice, as modified by Partial 
Amendments Nos. 2 and 3, with revised confidential Exhibit 3f. 
Partial Amendment No. 4 did not change the purpose of or basis for 
the Advance Notice.
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    On January 27, 2022, the Commission requested that OCC provide it 
with additional information regarding the Advance Notice, pursuant to 
Section 806(e)(1)(D) of the Clearing Supervision Act,\9\ which tolled 
the Commission's period of review of the Advance Notice until 120 days 
\10\ from the date the requested information was received by the 
Commission.\11\ The Commission received OCC's response to the 
Commission's request for additional information on March 3, 2022.\12\ 
On

[[Page 64825]]

June 14, 2022, the Commission made a second request for OCC to provide 
additional information regarding the Advance Notice, which tolled the 
Commission's period of review of the Advance Notice until 120 days \13\ 
from the date the requested information was received by the 
Commission.\14\ OCC responded to the request, and the Commission 
received the information on June 22, 2022.\15\
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    \9\ 12 U.S.C. 5465(e)(1)(D).
    \10\ The Commission may extend the review period for an 
additional 60 days (to 120 days total) for proposed changes that 
raise novel or complex issues. See 12 U.S.C. 5465(e)(1)(H).
    \11\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum 
from Office of Clearance and Settlement, Division of Trading and 
Markets, titled ``Commission's Request for Additional Information'' 
(Jan. 27, 2022), available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20113044-265605.pdf.
    \12\ See Memorandum from Office of Clearance and Settlement, 
Division of Trading and Markets, titled ``Response to the 
Commission's Request for Additional Information'' (Mar. 4, 2022), 
available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20118637-271511.pdf.
    \13\ See supra note 10.
    \14\ See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum 
from Office of Clearance and Settlement, Division of Trading and 
Markets, titled ``Commission's Second Request for Additional 
Information'' (June 14, 2022), available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20132534-303027.pdf.
    \15\ See Memorandum from Office of Clearance and Settlement, 
Division of Trading and Markets, titled ``Response to the 
Commission's Request for Additional Information'' (June 23, 2022), 
available at https://www.sec.gov/comments/sr-occ-2021-802/srocc2021802-20138832-308537.pdf.
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    The Commission is publishing this notice to solicit comments on 
Partial Amendments No. 1, 2, 3, and 4 from interested persons and, for 
the reasons discussed below, is hereby providing notice of no objection 
to the Advance Notice.\16\
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    \16\ References to the Advance Notice from this point forward 
refer to the Advance Notice as modified by Partial Amendments Nos. 
1, 2, 3, and 4.
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II. Background \17\
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    \17\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
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    OCC is the only clearing agency for standardized U.S. securities 
options listed on Commission-registered national securities exchanges 
(``listed options''). In addition to clearing and settling listed 
options, OCC serves other financial markets, including the commodity 
futures, commodity options, security futures, securities lending, and 
the over-the-counter options markets. Further, OCC provides central 
counterparty (``CCP'') clearing services for all of these markets and 
performs critical functions in the clearance and settlement process. 
OCC's role as the sole CCP for these markets is operationally complex 
and makes OCC an integral part of the national system for clearance and 
settlement.
    The current iterations of OCC's core clearing, risk management, and 
data management applications (``ENCORE'') were launched in 2000 and 
designed to operate in on-premises data centers.\18\ As part of a 
larger technology initiative it calls ``Renaissance,'' OCC now proposes 
essentially to migrate ENCORE's functions to the virtual equivalent of 
a traditional on-premises data center (a ``Virtual Private Cloud'') 
hosted by a third party CSP by utilizing Cloud-based hardware and 
systems software instead of its current on-premises hardware and 
systems software. OCC refers to the migration of ENCORE's functionality 
to a Virtual Private Cloud as the adoption of a ``Cloud 
Infrastructure.'' OCC's proposed adoption of a Cloud Infrastructure 
would offer more resiliency,\19\ security, and scalability than OCC's 
current on-premises infrastructure, in part, because the on-premises 
data centers require the acquisition and installation of additional 
hardware and systems software to accommodate scaled resources or new 
applications, while the Virtual Private Cloud does not. Although OCC is 
not proposing changes to ENCORE's functionality at this time (only to 
migrate that functionality to a Virtual Private Cloud, utilizing cloud-
based hardware and systems software), OCC's goal is to eventually 
retire ENCORE and implement new, improved clearing, risk management, 
and data management applications to replace ENCORE. In part because of 
the improved resiliency, security, and scalability noted above, the 
adoption of Cloud Infrastructure is a necessary building block for that 
goal.
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    \18\ See Notice of Filing, 86 FR at 60504. ENCORE receives trade 
and post-trade data from various sources on a transaction-by-
transaction basis; maintains clearing member positions; calculates 
margin and clearing fund requirements; and provides reporting to OCC 
staff, regulators, and clearing members.
    \19\ In this context, ``resiliency'' is the ``ability to 
anticipate, withstand, recover from, and adapt to adverse 
conditions, stresses, attacks, or compromises on systems that 
include cyber resources.'' Systems Security Engineering: Cyber 
Resiliency Considerations for Engineering of Trustworthy Secure 
Systems, Spec. Publ. NIST SP No. 800-160, vol. 2 (2018).
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    The proposed migration of ENCORE's functions to a Virtual Private 
Cloud would include scalable resources that would: (i) handle various 
computationally intensive applications with load-balancing and resource 
management (``Compute''); (ii) provide configurable storage 
(``Storage''); and (iii) host network resources and services 
(``Network''). At the same time, reliance on a single CSP for OCC's 
core clearing, risk management, and data management applications also 
introduces certain risks. To mitigate those risks, OCC also proposes to 
retain a physical on-premises data center as a backup to the primary 
Cloud system, which would be utilized in the unlikely event of a multi-
region outage of the Compute, Storage, and Network services at the CSP 
that affect OCC operations. Taken together, the move to a Cloud 
Infrastructure combined with the proposed backup on-premises data 
center would affect various aspects of OCC's operations including (i) 
resiliency, (ii) security, and (iii) scalability while mitigating one 
of the primary risks associated with relying on a single CSP. The move 
to a Cloud Infrastructure also would introduce additional risks 
associated with a migration to a Cloud Infrastructure, which OCC has 
identified and addressed through various controls, mitigation efforts, 
and policies and procedures. A summary of each of these aspects of 
OCC's operations, as well as the primary attendant risks associated 
with the proposed migration to a Cloud Infrastructure, is provided 
below.

A. Resiliency

    OCC currently operates ENCORE in two on-premises data centers 
located in Texas and Illinois. OCC proposes to provision Compute, 
Storage, and Network resources in two separate, logically isolated 
Virtual Private Clouds that are capable of operating autonomously from 
each other and are located in geographically diverse regions.\20\ 
Specifically, OCC would operate in three availability zones within each 
region, effectively providing for six levels of redundancy within a 
Cloud Infrastructure. The two Virtual Private Clouds would run in a 
``hot/warm'' configuration. The ``hot'' Virtual Private Cloud would be 
operational and accept data traffic, while the ``warm'' Virtual Private 
Cloud would have applications on stand-by while simultaneously 
receiving the same incoming data and receiving replicated data from the 
``hot'' Virtual Private Cloud. OCC believes that this proposed systems 
architecture would significantly reduce operational complexity, 
mitigate the risk of human error, and provide increased resiliency and 
assured capacity.\21\
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    \20\ In this context, ``separate'' refers to the physical 
separation of the hardware housing the Virtual Private Clouds. 
``Logically isolated'' is a similar concept from a network 
perspective, where the Virtual Private Clouds are virtually 
``separated'' from each other on the network. The purpose of 
physically and logically separating the Virtual Private Clouds is to 
minimize the degree to which one event could impair both Clouds at 
the same time. This is similar to the concept of locating OCC's 
current data centers far enough apart that a natural or manmade 
disaster affecting one data center is unlikely to affect the other.
    \21\ Notice of Filing, 86 FR at 60505.
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    In addition to the Virtual Private Clouds, OCC would operate an on-
premises backup data center that would be separate from the Cloud 
Infrastructure. Like the ``warm'' Virtual

[[Page 64826]]

Private Cloud, the on-premises data center would receive the same 
incoming data and replicated data from the ``hot'' Virtual Private 
Cloud. The on-premises data center would provide continuity of 
operations in the event that OCC loses access to its Cloud 
Infrastructure. For example, OCC might rely on the on-premises data 
center to maintain continuity of services in response to either a brief 
operational disruption of OCC's Virtual Private Clouds or a longer 
outage resulting from termination of OCC's relationship with the 
CSP.\22\
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    \22\ In the Notice of Filing, OCC specifically addresses the 
potential risk of its CSP terminating its relationship with OCC. See 
id. at 60511. The CSP may not unilaterally terminate the 
relationship with OCC absent good cause or without sufficient notice 
to allow OCC to transition to an alternate CSP or to the on-premises 
solution for its Compute, Storage, and Network needs. In the 
additional information it provided on March 3, 2022, OCC represents 
that, in the event the CSP ceases to support OCC's proposed Cloud 
Infrastructure, the on-premises data center would be capable of 
independently operating OCC's core clearing, risk management, and 
data management applications until such time as OCC is able to 
implement a new Cloud Infrastructure with another CSP.
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B. Security

    OCC has developed a Cloud security program to allow OCC to manage 
the security of the core applications that would run on the Cloud 
Infrastructure. OCC's Cloud security program also would provide OCC 
with tools to assess and monitor the CSP's management of the Cloud 
Infrastructure's security.\23\ As described below, the proposed Cloud 
security program focuses on four elements: (i) access controls; (ii) 
data governance; (iii) configuration management; and (iv) testing.
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    \23\ OCC is not proposing to change or remove its current 
physical and cyber security standards, which OCC states are designed 
to align with the National Institute of Standards and Technology 
(``NIST''), Cyber Security Framework, and Center for internet 
Security benchmarks. See Notice of Filing, 86 FR at 60505.
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    OCC is also proposing to implement tools provided by the CSP and 
selected third parties that are not currently available for use in 
OCC's on-premises data centers.\24\
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    \24\ For example, OCC intends to implement Cloud security 
capabilities designed to automate and standardize how OCC deploys 
and monitors IT system configurations as well as how OCC encrypts 
data. The proposed Cloud Infrastructure would also allow OCC to take 
advantage of services for setting up credentials and end-to-end 
configuration change management and scanning.
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1. Access Controls
    OCC proposes to enforce a strict separation of duties and least-
privileged access \25\ for infrastructure, applications, and data to 
protect the confidentiality, availability, and integrity of the data. 
Using third-party tools, OCC would automate appropriate role-based 
access to the core applications running in the Cloud. For the on-
premises data center, OCC would implement additional risk management 
measures. Specifically, OCC would explicitly set up the infrastructure 
for all connectivity to and from the on-premises data center and rely 
on heavily monitored ``jump hosts'' (e.g., data feeds in and out, 
mechanisms for the delivery of the software, and a minimum management 
interface that requires multi-factor authentication for access). OCC 
would also limit access to approved users of the on-premises data 
center via dedicated private circuits.
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    \25\ ``Least-privileged access'' means users will have only the 
permissions needed to perform their work, and no more.
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2. Data Governance
    OCC's Enterprise Security Standards describe the data governance 
framework applicable to OCC's proposed Cloud Infrastructure, such as 
data moving between systems within the Cloud.\26\ For example, the 
Enterprise Security Standards require any system related to the Cloud 
Infrastructure to: (i) store data and information in the United States 
throughout its lifecycle; (ii) be able to retrieve and access the data 
and information throughout its lifecycle; (iii) encrypt data in the 
Cloud with key pairs kept and owned by OCC; (iv) comply with United 
States federal and applicable state data regulations regarding data 
location; and (v) enable secure disposition of non-records. Other OCC 
policies, such as its existing Information Classification and Handling 
Policy,\27\ establish the overall data governance framework applied to 
the management, use, and governance of OCC information accessed, 
stored, or transmitted through the Cloud Infrastructure.
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    \26\ OCC provided its Enterprise Security Standards in a 
confidential exhibit to File No. SR-OCC-2021-802.
    \27\ OCC provided its Information Classification and Handling 
Policy in a confidential exhibit to File No. SR-OCC-2021-802.
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3. Configuration Management
    To improve configuration management, OCC proposes to rely on pre-
established system configurations, specifically the use of automated 
delivery of business and security capability via ``Infrastructure as 
Code,'' \28\ to consistently and transparently deploy security controls 
on demand. OCC would also employ continuous configuration monitoring 
and periodic vulnerability scanning. Further, OCC would perform regular 
reviews and testing of its systems running in the Cloud while also 
relying on regular reviews and testing reports provided by the CSP.\29\ 
OCC also proposes to use third-party solutions and CSP tools to track 
metrics, monitor log files, set alarms, and act on changes to OCC's 
core applications and the environment in which they operate.
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    \28\ ``Infrastructure as Code'' is the process of managing and 
setting up computer data centers through machine-readable definition 
files, rather than through physical hardware configuration or 
interactive configuration tools.
    \29\ As confidential exhibits to File No. SR-OCC-2021-802, OCC 
provided documents governing the CSP's obligations to provide such 
information to OCC. See supra note 6.
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4. Testing
    OCC proposes the use of various security testing techniques for the 
Cloud Infrastructure. Through a risk-based analysis, an OCC team 
dedicated to security testing would determine what types of security 
testing techniques are appropriate for new assets and applications. 
Such techniques include automated security testing; \30\ manual 
penetration testing; \31\ and Blue Team testing.\32\ OCC would employ 
processes for managing and remediating the results of its security 
testing.
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    \30\ Automated security testing uses industry standard security 
testing tools and/or other security engineering techniques 
specifically configured for each test.
    \31\ Manual penetration testing uses information gathered from 
automated testing or other sources to identify vulnerabilities and 
deliver payloads with the intent to break, change, or gain access to 
the unauthorized area within a system.
    \32\ Blue Team testing identifies security threats and risks in 
the operating environment and analyzes the network, system, and 
Software-as-a-Service environments and their current state of 
security readiness to ensure that they are as secure as possible 
before deploying to a production environment. Software-as-a-Service 
is a software licensing and delivery model in which software is 
licensed on a subscription basis and is centrally hosted.
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    Moving to a third-party-hosted Cloud infrastructure does present 
the risk that OCC would be overly reliant on the CSP to provide test 
results reliably and consistently. However, as indicated in 
confidential information provided by OCC, the CSP agreement provides 
assurances that the CSP would provide OCC with test cases, test 
planning, and auditable evidence of testing execution, including test 
results.\33\ These test results would allow OCC to work with the CSP to 
make any changes, as needed, to rectify any technical issues that 
arise. Additionally, the CSP agreement includes provisions related to 
business continuity testing and intrusion reporting to facilitate the 
flow of security information to OCC.
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    \33\ As confidential exhibits to File No. SR-OCC-2021-802, OCC 
provided documents governing the CSP's obligations to provide such 
information to OCC. See supra note 6.

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[[Page 64827]]

C. Scalability

    OCC's proposal to migrate from their current on-premises 
infrastructure to the Cloud represents a tradeoff in risk management. 
Accommodating scaled resources or new applications in OCC's current on-
premises data centers would require OCC to acquire and install 
additional hardware and software. The availability of on-demand scaling 
in a Virtual Private Cloud could present a risk if OCC were not to 
receive resources from the CSP when requested. However, based on the 
confidential information provided by OCC in connection with the Advance 
Notice, OCC will contract with the CSP for at least as much capacity as 
it maintains in its current on-premises facilities, as well as for a 
plan to provide additional capacity.
    Increasing the capability of OCC's current on-premises data 
centers, which are designed to handle a capacity in excess of prior 
peak transaction volumes, would require the acquisition and 
installation of additional hardware and software. In contrast, 
operating in a Cloud Infrastructure would allow OCC to quickly 
provision or de-provision Compute, Storage, or Network resources to 
meet demands, including elevated trade volumes. Moving to a third-
party-hosted Cloud Infrastructure does present a novel risk: that the 
CSP does not deliver the additional capacity that OCC might need at a 
moment's notice. However, OCC asserts that the fact that it will 
contract with the CSP for at least as much capacity as OCC currently 
maintains in its current on-premises facilities, combined with the 
CSP's contractual obligation to provide additional capacity to OCC on 
demand, would mitigate this risk significantly.\34\
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    \34\ As confidential exhibits to File No. SR-OCC-2021-802, OCC 
provided documents governing the CSP's obligations to provide 
capacity to OCC. See supra note 6.
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    The Cloud Infrastructure would also provide more flexibility for 
OCC to model and create development and test environments for 
backtesting and stress testing, as well as other systems development 
needs because of OCC's ability to increase capacity on demand under the 
express terms of the contract with the CSP. OCC also states that the 
increased scalability of the Cloud Infrastructure would allow OCC to 
run certain backtesting processes at a fraction of the time currently 
required.\35\
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    \35\ See Notice of Filing, 86 FR at 60505.
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III. Discussion and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, the stated purpose of the Clearing 
Supervision Act is instructive: to mitigate systemic risk in the 
financial system and promote financial stability by, among other 
things, promoting uniform risk management standards for systemically 
important financial market utilities (``SIFMUs'') and strengthening the 
liquidity of SIFMUs.\36\
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    \36\ See 12 U.S.C. 5461(b).
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    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe regulations containing risk management 
standards for the payment, clearing, and settlement activities of 
designated clearing entities engaged in designated activities for which 
the Commission is the supervisory agency.\37\ Section 805(b) of the 
Clearing Supervision Act provides the following objectives and 
principles for the Commission's risk management standards prescribed 
under Section 805(a): \38\
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    \37\ 12 U.S.C. 5464(a)(2).
    \38\ 12 U.S.C. 5464(b).
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     to promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk 
management standards may address such areas as risk management and 
default policies and procedures, among other areas.\39\
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    \39\ 12 U.S.C. 5464(c).
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    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and Section 17A of the 
Exchange Act (the ``Clearing Agency Rules'').\40\ The Clearing Agency 
Rules require, among other things, each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to meet certain minimum 
requirements for its operations and risk management practices on an 
ongoing basis.\41\ As such, it is appropriate for the Commission to 
review advance notices against the Clearing Agency Rules and the 
objectives and principles of these risk management standards as 
described in Section 805(b) of the Clearing Supervision Act. As 
discussed below, the Commission believes the changes proposed in the 
Advance Notice are consistent with the objectives and principles 
described in Section 805(b) of the Clearing Supervision Act,\42\ and in 
the Clearing Agency Rules, in particular Rule 17Ad-22(e)(17)(ii).\43\
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    \40\ 17 CFR 240.17Ad-22. See Exchange Act Release No. 68080 
(Oct. 22, 2012), 77 FR 66220 (Nov. 2, 2012) (S7-08-11). See also 
Exchange Act Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70806 
(Oct. 13, 2016) (S7-03-14) (``Covered Clearing Agency Standards''). 
OCC is a ``covered clearing agency'' as defined in Rule 17Ad-
22(a)(5).
    \41\ 17 CFR 240.17Ad-22.
    \42\ 12 U.S.C. 5464(b).
    \43\ 17 CFR 240.17Ad-22(e)(17)(ii).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    The Commission believes that the proposal contained in OCC's 
Advance Notice is consistent with the stated objectives and principles 
of Section 805(b) of the Clearing Supervision Act. Specifically, as 
discussed below, the Commission believes that the changes proposed in 
the Advance Notice are consistent with promoting robust risk 
management, promoting safety and soundness, reducing systemic risks, 
and supporting the stability of the broader financial system.\44\
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    \44\ 12 U.S.C. 5464(b).
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    The Commission believes that OCC's proposal to host its core 
clearing, risk management, and data management applications in a Cloud 
Infrastructure is consistent with robust risk management, specifically 
operational risk management, and the promotion of safety and soundness. 
The Commission believes that, when supported by the appropriate legal 
agreements and system configurations, OCC's proposed Cloud 
Infrastructure may provide opportunities for improvements in 
resiliency, security, and scalability compared to infrastructures in 
traditional, on-premises data centers. Based on a careful review of the 
complete record, including the confidential information provided by 
OCC, the Commission believes the proposed systems architecture--
comprising of a virtual multi-zone Cloud Infrastructure, with an on-
premises data center as a physical backup--would provide a level of 
security and resiliency to the OCC's applications beyond that provided 
by OCC's current on-premises-only infrastructure. The Commission 
further believes that the legal agreements underlying the relationship 
between OCC and the CSP are designed to support OCC's ability to comply 
with its regulatory obligations related to the management of 
operational risk. Additionally, the inclusion of an on-premises backup 
provides an additional layer of redundancy to mitigate the low-
probability risk of a multi-region outage at a single CSP.
    Moreover, the Commission believes that, to the extent the proposed 
changes are consistent with promoting OCC's robust risk management as 
well as safety and soundness, they are also consistent with supporting 
the stability of the

[[Page 64828]]

broader financial system. OCC has been designated as a SIFMU, in part, 
because its failure or disruption could increase the risk of 
significant liquidity or credit problems spreading among financial 
institutions or markets.\45\ The Commission believes that the proposed 
changes would support OCC's ability to continue providing services to 
the U.S. options markets by establishing multiple backup systems across 
the proposed Cloud Infrastructure and an on-premises backup while also 
allowing OCC to quickly set up additional capacity or applications as 
necessary. OCC's continued operations would, in turn, help support the 
stability of the financial system by reducing the risk of significant 
operational problems spreading among market participants that rely on 
OCC's central role in the options market.
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    \45\ See Financial Stability Oversight Council (``FSOC'') 2012 
Annual Report, Appendix A, https://home.treasury.gov/system/files/261/here.pdf (last visited Feb. 17, 2022).
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    Accordingly, and for the reasons stated above, the Commission 
believes the changes proposed in the Advance Notice are consistent with 
Section 805(b) of the Clearing Supervision Act.\46\
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    \46\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(17)(ii) Under the Exchange Act

    Rule 17Ad-22(e)(17)(ii) under the Exchange Act requires that a 
covered clearing agency establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to manage the 
covered clearing agency's operational risks by ensuring that systems 
have a high degree of security, resiliency, operational reliability, 
and adequate, scalable capacity.\47\
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    \47\ 17 CFR 240.17Ad-22(e)(17)(ii).
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    As described in Section II.A. above, OCC proposes to increase the 
resiliency of its systems by migrating from two on-premises data 
centers to two separate, logically isolated Virtual Private Clouds with 
an on-premises backup data center. As described in Section II.B. above, 
OCC proposes to expand its existing physical and cyber security program 
with a focus on: (i) access controls; (ii) data governance; (iii) 
configuration management; and (iv) testing, as well as the 
implementation of additional tools not currently available for use in 
OCC's on-premises data centers. As described in Section II.C. above, 
operating in a Cloud Infrastructure would allow OCC to quickly scale 
resources to meet elevated trade volumes as well as run risk management 
processes, such as backtesting, more quickly than is currently 
possible.
    Accordingly, the Commission believes that the changes proposed in 
the Advance Notice are consistent with Rule 17Ad-22(e)(17)(ii) under 
the Exchange Act.\48\
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    \48\ Id.
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IV. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act, that the Commission does not object to 
Advance Notice (SR-OCC-2021-802), as modified by Partial Amendments No. 
1, 2, 3, and 4 and that OCC is authorized to implement the proposed 
change as of the date of this notice.

    By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23230 Filed 10-25-22; 8:45 am]
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