[Federal Register Volume 88, Number 58 (Monday, March 27, 2023)]
[Notices]
[Pages 18205-18207]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06195]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97178; File No. SR-OCC-2022-012]


Self-Regulatory Organizations; Options Clearing Corporation; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change Concerning the Options Clearing 
Corporation's Collateral Haircuts and Standards for Clearing Banks and 
Letters of Credit

March 21, 2023.

I. Introduction

    On December 5, 2022, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2022-

[[Page 18206]]

012 (``Proposed Rule Change'') pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
\2\ thereunder to change rules, policies, and procedures regarding 
collateral haircuts, minimum standards for clearing banks and letter-
of-credit issuers, and concentration limits for letters of credit.\3\ 
The Proposed Rule Change was published for public comment in the 
Federal Register on December 23, 2022.\4\ The Commission has received 
comments regarding the Proposed Rule Change.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, at 87 FR at 79015.
    \4\ Securities Exchange Act Release No. 96533 (Dec. 19, 2022), 
87 FR 79015 (Dec. 23, 2022) (File No. SR-OCC-2022-012) (``Notice of 
Filing'').
    \5\ Comments on the Proposed Rule Change are available at 
https://www.sec.gov/comments/sr-occ-2022-012/srocc2022012.htm.
---------------------------------------------------------------------------

    On February 3, 2023, pursuant to Section 19(b)(2) of the Exchange 
Act,\6\ the Commission designated a longer period within which to 
approve, disapprove, or institute proceedings to determine whether to 
approve or disapprove the Proposed Rule Change.\7\ This order 
institutes proceedings, pursuant to Section 19(b)(2)(B) of the Exchange 
Act,\8\ to determine whether to approve or disapprove the Proposed Rule 
Change.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2).
    \7\ Securities Exchange Act Release No. 96797 (Feb. 3, 2023), 88 
FR 8505 (Feb. 9, 2023) (File No. SR-OCC-2022-012).
    \8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Summary of the Proposed Rule Change

    OCC is a central counterparty (``CCP''), which means it interposes 
itself as the buyer to every seller and seller to every buyer for 
financial transactions. As the CCP for the listed options markets in 
the U.S.,\9\ as well as for certain futures, OCC is exposed to certain 
risks arising from its relationships with its members as well as the 
banks that support OCC's clearance and settlement services. Such risks 
include credit risk because OCC is obligated to perform on the 
contracts it clears even where one of its members defaults. OCC manages 
credit risk, in part, by collecting collateral from members (i.e., 
margin and Clearing Fund resources) sufficient to cover OCC's credit 
exposure to Clearing Members under a wide range of stress scenarios. In 
doing so, OCC requires its Clearing Members to deposit collateral as 
margin to support obligations on short options, futures contracts, and 
other obligations arising within the members' accounts at OCC. OCC also 
requires its members to deposit collateral serving as Clearing Fund 
assets to protect OCC, should the margin of a defaulting member be 
insufficient to address the potential losses from the defaulting 
member's positions. OCC imposes a haircut to collateral to address the 
risk that such collateral may be worth less in the future than at the 
time it was pledged to OCC. With regard to risks posed by the banks 
that support OCC's clearance and settlement services, OCC maintains 
standards for third-party relationships, such as those with banks 
through which OCC conducts settlement (``Clearing Banks''), and banks 
that issue letters of credit that Clearing Members may deposit as 
margin collateral.
---------------------------------------------------------------------------

    \9\ OCC describes itself as ``the sole clearing agency for 
standardized equity options listed on a national securities exchange 
registered with the Commission (`listed options').'' See Notice of 
Filing supra note 4, 87 FR at 79015.
---------------------------------------------------------------------------

    As described in the Notice of Filing,\10\ OCC proposes to revise 
its rules, including certain policies,\11\ to make the following three 
changes related to the management of collateral haircuts and banking 
relationships:
---------------------------------------------------------------------------

    \10\ See Notice of Filing supra note 4.
    \11\ These policies include the Collateral Risk Management 
Policy, Margin Policy, and System for Theoretical Analysis and 
Numerical Simulation Methodology Description. Id.

    (1) Replace the current processes for applying haircuts to 
Government and Government-Sponsored Enterprise (``GSE'') debt 
securities provided as collateral \12\ with a new process for 
applying fixed collateral haircuts that it would set and adjust from 
time to time, based on a process defined in OCC's Collateral Risk 
Management Policy;
---------------------------------------------------------------------------

    \12\ Generally, OCC defines, by rule, specific haircuts for 
Government and GSE debt securities. For margin collateral 
specifically, OCC currently also has authority to value such 
securities using Monte Carlo simulations as part of its margin 
methodology.
---------------------------------------------------------------------------

    (2) Codify internal standards for Clearing Banks and letter-of-
credit issuers in OCC's Rules to provide transparency on minimum 
standards for banking relationships that are critical to OCC's 
clearance and settlement services; and
    (3) Authorize OCC to set more restrictive concentration limits 
for letters of credit than those limits currently codified in its 
Rules.

III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \13\ to determine whether the Proposed 
Rule Change should be approved or disapproved. Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the Proposed Rule Change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
providing the Commission with arguments to support the Commission's 
analysis as to whether to approve or disapprove the Proposed Rule 
Change.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\14\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of, and input from commenters with respect to, the 
Proposed Rule Change's consistency with Section 17A of the Exchange 
Act,\15\ and the rules thereunder, including the following provisions:
---------------------------------------------------------------------------

    \14\ Id.
    \15\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

     Section 17A(b)(3)(F) of the Exchange Act,\16\ which 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts, and 
transactions; and to assure the safeguarding of securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible; and
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

     Section 17A(b)(3)(I) of the Exchange Act,\17\ which 
requires that the rules of a clearing agency do not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with Sections 17A(b)(3)(F) and (I) of the 
Exchange Act,\18\ or any other provision of the Exchange Act, or the 
rules and regulations thereunder. Although there do not appear to be 
any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4(g) under the Exchange

[[Page 18207]]

Act,\19\ any request for an opportunity to make an oral 
presentation.\20\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(F) and (I).
    \19\ 17 CFR 240.19b-4(g).
    \20\ Section 19(b)(2) of the Exchange Act grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by April 11, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
April 25, 2023.
    The Commission asks that commenters address the sufficiency of 
OCC's statements in support of the Proposed Rule Change, which are set 
forth in the Notice of Filing,\21\ in addition to any other comments 
they may wish to submit about the Proposed Rule Change.
---------------------------------------------------------------------------

    \21\ See Notice of Filing, supra note 4.
---------------------------------------------------------------------------

    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-2022-012 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-2022-012. 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-2022-012 and 
should be submitted on or before April 11, 2023. Rebuttal comments 
should be submitted by April 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(31).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06195 Filed 3-24-23; 8:45 am]
BILLING CODE 8011-01-P