[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Notices]
[Pages 55492-55497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17445]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98093; File No. SR-OCC-2023-006]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Concerning Amendments to The Options Clearing Corporation's Capital 
Management Policy and Cash and Investment Management Policy

August 9, 2023.
    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 August 3, 2023, 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 primarily by OCC. OCC 
filed the proposed rule change pursuant to section 19(b)(3)(A)(i) of 
the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ such that the proposed 
rule change was immediately effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would make certain administrative and 
clarifying amendments to OCC's Capital Management Policy and Cash and 
Investment Management Policy. Specifically, the proposed changes would: 
(1) provide that Management will, at a minimum, review OCC's fee 
schedule at each regularly scheduled Compensation and Performance 
Committee (``CPC'') meeting, consistent with recent updates to the 
OCC's Board of Director (``Board'') and Board-level committee 
(``Committee'') charters, which require each Committee meet at least 
four times per year, rather than quarterly as the Capital Management 
Policy currently provides; (2) make certain other edits and additions 
to the Capital Management Policy for clarity and consistency with OCC's 
other policies, and (3) amend the Cash and Investment Management Policy 
to better align the text of that policy to OCC Rules 604(a) and 
1002(c), which provide separate treatment for cash deposited by 
Clearing Members in respect of margin requirements and Clearing Fund 
deposits, respectively.
    The proposed changes are included in confidential Exhibit 5 to File 
No. SR-OCC-2023-006. 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 OCC's By-Laws and Rules.\5\
---------------------------------------------------------------------------

    \5\ OCC's current By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
---------------------------------------------------------------------------

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

    As the sole clearing agency for standardized equity options listed 
on national securities exchanges registered with the Commission, and 
with respect to OCC's clearance and settlement of futures and stock 
loan transactions, OCC maintains policies and procedures to manage the 
risks borne by OCC as a central counterparty. One such risk that OCC 
manages is general business risk--that is, the risk of potential 
impairment to OCC's financial position resulting from a decline in 
revenues or an increase in expenses. In order to manage this risk and 
help to ensure that OCC can continue operations and services as a going 
concern if general business losses materialize, OCC has filed, and the 
Commission has approved,\6\ OCC's

[[Page 55493]]

Capital Management Policy, which provides the framework by which OCC 
manages its capital and plans for replenishment of capital if 
necessary. Other risks OCC manages include custody and investment risk. 
To manage risks associated with holding and investing OCC's own cash 
and the cash collected from Clearing Members,\7\ OCC has filed, and the 
Commission has approved,\8\ OCC's Cash and Investment Management 
Policy.
---------------------------------------------------------------------------

    \6\ See Order Approving Proposed Rule Change to Establish OCC's 
Persistent Minimum Skin-In-The-Game, Exchange Act Release No. 92038 
(May 27, 2021), 86 FR 29861 (June 3, 2021) (SR-OCC-2021-003); Order 
Approving Proposed Rule Change, as Modified by Partial Amendment No. 
1, Concerning a Proposed Capital Management Policy That Would 
Support the Option Clearing Corporation's Function as a Systemically 
Important Financial Market Utility, Exchange Act Release No. 88029 
(Jan. 24, 2020), 85 FR 5500 (Jan. 30, 2020) (SR-OCC-2019-007); see 
also Notice of Filing of Partial Amendment No. 1 and Notice of No 
Objection to Advance Notice, as Modified by Partial Amendment No. 1, 
Concerning a Proposed Capital Management Policy That Would Support 
the Option Clearing Corporation's Function as a Systemically 
Important Financial Market Utility, Exchange Act Release No. 87257 
(Oct. 8, 2019), 84 FR 55194 (Oct. 15, 2019) (SR-OCC-2019-805).
    \7\ OCC's investment of collateral deposited by Clearing Members 
is limited to the investment of margin cash in overnight reverse 
repurchase transactions in U.S. Government securities. See Exchange 
Act Release No. 93916 (Jan. 6, 2022), 87 FR 1819, 1820 (Jan. 12, 
2022) (SR-OCC-2021-014). OCC's management of risks related to 
holding non-cash collateral deposited by Clearing Members is 
addressed in other policies and procedures, including OCC's 
Collateral Risk Management Policy. See, e.g., Exchange Act Release 
No. 82311 (Dec. 13, 2017), 82 FR 60252 (Dec. 19, 2017) (SR-OCC-2017-
008) (approving OCC's Collateral Risk Management Policy).
    \8\ See Order Granting Approval of Proposed Rule Change 
Concerning the Option Clearing Corporation's Cash and Investment 
Management, Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR 
11776 (Mar. 2, 2022) (SR-OCC-2021-014); see also Notice of No 
Objection to Advance Notice Concerning the Option Clearing 
Corporation's Cash and Investment Management, Exchange Act No. 94270 
(Feb. 17, 2022), 87 FR 10262 (Feb. 23, 2022) (SR-OCC-2021-803).
---------------------------------------------------------------------------

    Regulations applicable to OCC require such risk management policies 
to be reviewed on a specified periodic basis and approved by the Board 
annually.\9\ Through annual reviews of its Capital Management Policy in 
2021 and its Cash and Investment Management Policy in 2022, OCC's 
management recommended, and the Board approved, certain administrative 
and clarifying amendments to the Capital Management Policy and Cash and 
Investment Management Policy. This proposed rule change primarily aims 
to align the Capital Management Policy to the already revised cadence 
of meetings reflected in the CPC charter, as well as to make 
administrative edits, including textual revisions to clarify meaning, a 
typographical correction, and a description conforming to OCC's current 
template \10\ format. With respect to the Cash and Investment 
Management Policy, this proposed rule change would better align that 
policy's text with OCC's Rules 604(a) and 1002(c), which provide 
separate treatment for cash deposited by Clearing Members in respect of 
margin requirements and Clearing Fund deposits, respectively. This 
proposed rule change would not alter other practices and procedures 
described in the Capital Management Policy and the Cash and Investment 
Management Policy and would not alter the rights or obligations of 
Clearing Members or other market participants. Accordingly, OCC does 
not believe such administrative changes to OCC's internal policies 
would have any effect on Clearing Members or other market participants.
---------------------------------------------------------------------------

    \9\ See 17 CFR 240.17Ad-22(e)(3)(i).
    \10\ See infra note 12.
---------------------------------------------------------------------------

(1) Purpose
    OCC is proposing to make certain administrative and clarifying 
amendments to OCC's Capital Management Policy, and Cash and Investment 
Management Policy identified and approved by the Board as part of the 
annual review of such policies. Specifically, as discussed in more 
detail below, the proposed changes to the Capital Management Policy 
would: (1) provide that Management will, at a minimum, review the fee 
schedule at each regularly scheduled CPC meeting, rather than 
quarterly, which would align the frequency of such reviews with recent 
updates to the Board and Committee charters that require each Committee 
to meet at least four times per year, not necessarily quarterly; \11\ 
and (2) make certain other administrative edits and additions for 
clarity and consistency with OCC's other policies, including to (i) 
clarify the ways in which OCC may hold additional financial resources 
for capital needs, (ii) modify verbiage to avoid confusion with 
concepts addressed by other OCC rules, and (iii) conform the Capital 
Management Policy to OCC's current template \12\ for its rule-filed 
policies. The proposed changes to the Cash and Investment Management 
Policy would clarify that interest earned on Clearing Fund cash, as 
opposed to margin cash, held at a Federal Reserve Bank would accrue to 
the benefit of Clearing Members, less a cash management fee, consistent 
with OCC Rule 1002(c) and the intended meaning of the Cash and 
Investment Management Policy as expressed in the rule filing that 
established that policy.\13\ Interest or gain on investment of margin 
cash would continue to accrue to OCC in accordance with existing OCC 
Rule 604(a).
---------------------------------------------------------------------------

    \11\ See Exchange Act Release No. 94988 (May 26, 2022), 87 FR 
33535, 33537-8 (June 2, 2022) (SR-OCC-2022-002); see also CPC 
Charter, Section II.B, available at https://www.theocc.com/company-information/documents-and-archives/board-charters (``The Committee 
shall meet at least four times a year.'').
    \12\ ``Template'' here refers to the format and organizational 
structure for OCC's internal policies. Previous OCC filings have 
made similar changes across other policies to conform them to OCC's 
standard template. See, e.g., Exchange Act Release No. 96566 (Dec. 
22, 2022), 87 FR 80207, 80210 (Dec. 29, 2022) (SR-OCC-2022-010) 
(approving conforming changes across risk policies to remove policy-
specific sections concerning policy exceptions and violations in 
connection with adoption of a section in OCC's Risk Management 
Framework that uniformly covered those processes); Exchange Act 
Release No. 93436 (Oct. 27, 2021), 86 FR 60499, 60500 (Nov. 2, 2021) 
(SR-OCC-2021-010) (removing non-substantive items from OCC's rule-
filed policies, including repeated document titles, certain 
introductory information, related policies and standards, related 
procedures, and revision history).
    \13\ See infra note 25 and accompanying text.
---------------------------------------------------------------------------

Background
Capital Management Policy
    Under the Capital Management Policy, OCC determines its Target 
Capital Requirement, monitors its levels of shareholders' equity 
(``Equity'') and liquid net assets funded by equity (``LNAFBE'') to 
help ensure adequate financial resources are available for general 
business obligations, and manages Equity levels, including by adjusting 
OCC's fee schedule as appropriate and establishing a plan for accessing 
additional capital should OCC's Equity fall below certain thresholds 
(the ``Replenishment Plan'').\14\ In addition, OCC's Rules \15\ and 
Capital Management Policy \16\ provide for OCC's skin-in-the-game, 
including a Minimum Corporate Contribution \17\ and the use of LNAFBE 
in excess of 110% of the Target Capital Requirement (i.e., the ``Early 
Warning'' \18\ threshold under OCC's

[[Page 55494]]

Replenishment Plan) to cover losses arising from a Clearing Member's 
default.
---------------------------------------------------------------------------

    \14\ See Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 
5500, 5501-03 (Jan. 30, 2020) (SR-OCC-2019-007).
    \15\ See OCC Rule 1006(e)(i).
    \16\ See Exchange Act Release No. 92038 (May 27, 2021), 86 FR 
29861 (June 3, 2021) (SR-OCC-2021-003) (order approving changes to 
OCC's Capital Management Policy and OCC Rule 1006(e) to establish 
OCC's persistent minimum skin-in-the-game).
    \17\ OCC Rule 101(M)(1) defines the term ``Minimum Corporate 
Contribution'' to mean the minimum level of OCC funds maintained 
exclusively to cover credit losses or liquidity shortfalls. The 
Minimum Corporate Contribution is determined by the Board from time 
to time.
    \18\ The Capital Management Policy defines ``Early Warning'' as 
when Equity less the Minimum Corporate Contribution falls below 110% 
of the Target Capital Requirement. Management reviews the Early 
Warning threshold on an annual basis. See Exchange Act Release No. 
88029, 85 FR at 5502.
---------------------------------------------------------------------------

Target Capital Requirement
    Pursuant to the Capital Management Policy, the Target Capital 
Requirement is based on two components: (1) the amount of LNAFBE 
determined by OCC to be necessary to ensure compliance with OCC's 
regulatory obligations, including Rule 17Ad-22(e)(15) under the 
Exchange Act \19\ and (2) any additional amounts determined to be 
necessary and appropriate for capital expenditures approved by OCC's 
Board.\20\ With respect to the first component, OCC must set its Target 
Capital Requirement at a level sufficient to maintain LNAFBE at least 
equal to the greater of: (1) six months of OCC's current operating 
expenses, (2) the amount determined by the Board to be sufficient to 
ensure a recovery or orderly wind-down of critical operations and 
services (``RWD Amount''),\21\ and (3) the amount determined by the 
Board to be sufficient for OCC to continue operations and services as a 
going concern if general business losses materialize. With respect to 
the second component, the Capital Management Policy authorizes the 
Board to increase the Target Capital Requirement by an amount to be 
retained for capital expenditures. Alternatively, the Board may 
determine to fund capital expenditures out of funds in excess of the 
Target Capital Requirement. In making such a determination, the Board 
would consider factors including, but not limited to, the amount of 
funding required, the amount of Equity proposed to be retained, the 
potential impact of the investment on OCC's operations, and the 
duration of time over which funds would be accumulated.
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17Ad-22(e)(15).
    \20\ In setting the Target Capital Requirement, OCC considers, 
but is not bound by, its projected rolling twelve-months' operating 
expenses pursuant to OCC's interpretation of the Commodity Futures 
Trading Commission (``CFTC'') Regulation 39.11(a)(2). See 17 CFR 
39.11(a)(2). Unlike SEC Rule 17Ad-22(e)(15) and CFTC Regulation 
39.11(e)(2), which concern the liquidity of the financial resources 
to meet six-months' of operating expenses, the financial resources 
OCC may count toward the CFTC's twelve-months' requirement is not 
limited to LNAFBE or ``unencumbered, liquid financial assets.'' See 
17 CFR 39.11(e)(2). OCC may count its ``own capital'' (i.e., Equity) 
and ``[a]ny other financial resource deemed acceptable by the 
[CFTC]'' toward the twelve-months' requirement. See 17 CFR 
39.11(b)(2). Accordingly, the Capital Management Policy does not 
require OCC to set its Target Capital Requirement--the amount of 
LNAFBE it must maintain to meet its regulatory obligations--to equal 
twelve-months' operating expenses.
    \21\ Management recommends an RWD Amount calculated on an annual 
basis pursuant to the Capital Management Procedure based on the 
assumptions in OCC's Recovery and Orderly Wind-down Plan. See 
Exchange Act Release No. 88029, 85 FR at 5509.
---------------------------------------------------------------------------

    On an annual basis, OCC's Chief Financial Officer (``CFO'') 
recommends a Target Capital Requirement for the coming year to OCC 
management.\22\ Management reviews the CFO's recommendation and, as 
appropriate, recommends the Target Capital Requirement to the CPC. The 
CPC then reviews and, as appropriate, recommends the proposal to the 
Board, which reviews and, as appropriate, approves the Target Capital 
Requirement for the coming year.
---------------------------------------------------------------------------

    \22\ The CFO's recommendation is prepared in accordance with 
OCC's Capital Management Procedure, which provides additional detail 
supporting the Capital Management Policy. See Exchange Act Release 
No. 86725 (Aug. 21, 2019), 84 FR 44944, 44945 (Aug. 27, 2019) (SR-
OCC-2019-007).
---------------------------------------------------------------------------

Fee Schedule
    OCC's fee structure is designed by the Board in accordance with 
Article IX, Section 9 of OCC's By-Laws. The current Capital Management 
Policy provides that, on a quarterly basis, management will review 
OCC's fee schedule and, considering factors including, but not limited 
to, projected operating expenses, projected volumes, anticipated 
cashflows and capital needs, recommend to the Board, or a Board-level 
Committee to which the Board has delegated authority,\23\ whether a fee 
increase, decrease or waiver should be made. If OCC's Equity is above, 
in the aggregate, 110% of its Target Capital Requirement and other 
approved capital needs, the Board may use such tools as it determines 
appropriate to lower costs for Clearing Members, including lowering 
fees, fee holidays or refunds.\24\ On an annual basis, management 
reviews the operating margin level and, considering historical volume 
variance and other relevant factors (including, but not limited to, 
variance in revenue other than from clearing fees, such as interest 
income), recommends to the Board, or a Committee to which the Board has 
delegated authority, whether any changes should be made to OCC's 
defined operating margin.
---------------------------------------------------------------------------

    \23\ The Board has delegated such authority to the CPC under the 
CPC Charter. See supra note 11.
    \24\ When determining which, if any, tools would be appropriate, 
the Board considers factors including, but not limited to, 
projecting future volume, expenses, cashflow, capital needs and the 
possibility and amount of unfunded obligations. During this process, 
Equity must always remain above the ``Early Warning'' threshold. See 
Exchange Act Release No. 87257 (Oct. 8, 2019), 84 FR 55194, 55196 
(Oct. 15, 2019) (SR-OCC-2019-805).
---------------------------------------------------------------------------

Cash and Investment Management Policy
    Among other things, OCC's Cash and Investment Management Policy 
provides for how OCC may invest its own cash and cash deposited by 
Clearing Members in respect of margin requirements or Clearing Fund 
deposits. In recent filings, OCC explained that the policy would 
provide that ``[i]nterest earned on Clearing Fund cash deposits held at 
a Federal Reserve Bank would accrue to the benefit of Clearing Members, 
less a cash management fee.'' \25\ However, the proposed text of the 
policy submitted with the filing inadvertently did not qualify the 
scope as limited to Clearing Fund cash deposits. OCC Rule 1002(c) 
provides that interest on Clearing Fund cash deposits held at a Federal 
Reserve Bank accrue to Clearing Members less a cash management fee, 
consistent with the text of the policy.\26\ In contrast, under OCC Rule 
604(a), interest earned on investments of cash deposited by Clearing 
Members in respect of margin requirements accrues to the benefit of 
OCC.\27\ No change to Rule 604(a) was intended by the proposed 
implementation of OCC's Cash and Investment Management Policy.\28\
---------------------------------------------------------------------------

    \25\ See Exchange Act Release No. 93916 (Jan. 6, 2022), 87 FR 
1819, 1821 (Jan. 12, 2022) (SR-OCC-2021-014); Exchange Act Release 
No. 93915 (Jan. 6, 2022), 87 FR 1814, 1815 (Jan. 12, 2022) (SR-OCC-
2021-803) (emphasis added).
    \26\ See OCC Rule 1002(c) (``Interest earned on cash deposits 
held at a Federal Reserve Bank shall accrue to the benefit of 
Clearing Members (calculated daily based on each Clearing Member's 
pro rata share of Clearing Fund cash deposits), provided that each 
such Clearing Member has provided OCC with all tax documentation as 
OCC may from time to time require in order to effectuate such 
payment, and all other interest earned on investments will accrue to 
the benefit of [OCC].''). See also, Exchange Act Release No. 82657 
(Feb. 8, 2018), 83 FR 6651 (Feb. 14, 2018) (SR-OCC-2018-005) 
(implementing a cash management fee to cover administrative and 
other operational expenses incurred by OCC in connection with 
passing through to Clearing Members the interest earned on Clearing 
Fund cash deposits held at an OCC account at a Federal Reserve 
Bank).
    \27\ OCC Rule 604(a) (``Clearing Members may deposit U.S. 
dollars in accordance with procedures acceptable to [OCC]. Funds so 
deposited may from time to time be partially or wholly invested by 
[OCC] for its account in Government securities, and any interest or 
gain received or accrued on the investment of such funds shall 
belong to [OCC].'')
    \28\ See Exchange Act Release No. 93916, 87 FR at 1820 (``OCC 
does not propose to amend [Rule 604(a)] by this proposed rule 
change.'').
---------------------------------------------------------------------------

Proposed Changes
(1) Fee Schedule Review
    Currently, the Capital Management Policy requires management to 
review the fee schedule with the CPC ``[o]n a quarterly basis.'' The 
proposed changes would amend this language to instead

[[Page 55495]]

require management to review the fee schedule ``[a]t regularly 
scheduled CPC meetings.'' This change would align the fee schedule 
review with the cadence of meetings prescribed in the Board and 
Committee Charters, which OCC recently amended.\29\ While regular 
meetings generally occur on a quarterly basis, the proposed change 
would avoid the need to call special meetings to address the routine 
review of the fee schedule if a regularly scheduled meeting happens to 
fall at the beginning of the next quarter or the end of the last 
quarter. For this reason, OCC aligned other periodic reviews identified 
in the Committee Charters to occur at each regularly scheduled meeting, 
as opposed to quarterly.\30\ OCC proposes to do the same with respect 
to the cadence of fee schedule reviews in the Capital Management 
Policy.
---------------------------------------------------------------------------

    \29\ See supra note 11.
    \30\ See Exchange Act Release No. 94988, 87 FR at 33537-38 
(approving amendments to the Audit Committee, Technology Committee 
and CPC Charters to align the cadence of periodic reviews to each 
regular meeting of the Committee, rather than ``quarterly'').
---------------------------------------------------------------------------

(2) Additional Textual Changes
    The proposed changes would also make other textual edits and 
additions to the Capital Management Policy for clarity and consistency 
with OCC's other policies. For one, OCC would amend the provision 
concerning management of OCC's Equity to facilitate capital 
expenditures to clarify OCC's intent that either of the two options 
identified for doing so--(1) increasing the Target Capital Requirement 
or (2) retaining the additional Equity as an amount in excess of the 
Target Capital Requirement--is available to the Board. The textual 
edits would state more generally at the outset that OCC may retain 
additional Equity generated from revenue for capital expenditures 
following a recommendation by Management and Board approval. Retention 
of such additional Equity generated from revenue is already implicit in 
the Capital Management Policy's provisions for setting the fee schedule 
and determining whether to employ other tools to lower costs for 
Clearing Members (e.g., a clearing fee refund or holiday), both of 
which consider OCC's capital needs as a factor. The proposed changes 
would also more expressly provide that option (2) is available as an 
alternative to option (1). The principal difference between the two 
options is that any excess capital retained under option (2) is 
available as skin-in-the-game in the event of a default loss. In 
addition, adding that such additional Equity would be ``generated from 
revenue'' would also clarify the source of the funds OCC may retain as 
additional Equity, which under OCC's Capital Management Policy would be 
generated from fees or interest income--not from capital contributions 
from OCC's stockholders that were part of the Capital Plan that 
predated the Capital Management Policy.\31\
---------------------------------------------------------------------------

    \31\ See Exchange Act Release No. 74452 (Mar. 6, 2015), 80 FR 
13058 (Mar. 12, 2015) (SR-OCC-2015-02), disapproved on remand by 
Exchange Act Release No. 85121 (Feb. 13, 2019), 84 FR 5157 (Feb. 20, 
2019) (SR-OCC-2015-02).
---------------------------------------------------------------------------

    The Capital Management Policy also currently provides that in 
determining whether to retain additional Equity for capital 
expenditures, the Board will consider the potential impact of the 
``investment'' on OCC's operations. The proposed changes would amend 
this language to instead provide that the Board will consider the 
potential impact of the ``retention of additional Equity'' on OCC's 
operations, consistent with the terminology that OCC proposes to use 
throughout that paragraph of the Capital Management Policy. Use of the 
term ``investment'' in reference to the retention of Equity may lead to 
confusion when compared to OCC's Cash and Investment Management Policy, 
which addresses guidelines for investing OCC's own cash and cash 
deposited by Clearing Members, as discussed above. ``Investment'' in 
that context is a separate concept from OCC's determination whether to 
retain additional Equity to meet its capital needs, rather than, for 
example, determining to use tools to decrease the cost of membership 
through a fee decrease, fee holiday or fee refund.
    OCC is also proposing formatting edits to conform the Capital 
Management Policy to OCC's current template format for its policies and 
procedures. Specifically, the proposed changes would add a new 
introductory paragraph at the outset of the Capital Management Policy 
that addresses the policy's applicability and scope. This new 
introductory paragraph would clarify that the policy applies to the 
quantification, monitoring and management of OCC's Equity, as well as 
identify the OCC departments that have roles in those processes, 
including, primarily, Accounting and Finance, as well as Member 
Services, Corporate Risk Management, Legal, and Financial Risk 
Management business units. Finally, OCC would correct a typo by 
deleting a duplicative word in one of the footnotes to the Capital 
Management Policy, and such change would have no impact on the meaning 
of the footnote.\32\
---------------------------------------------------------------------------

    \32\ Currently, the relevant footnote states that OCC management 
makes a recommendation that is ``based calculated on an annual 
basis'' pursuant to an underlying procedure. OCC proposes to remove 
the extraneous word ``based'' from the footnote.
---------------------------------------------------------------------------

(3) Cash and Investment Management Policy Correction
    Finally, this proposed change would conform the text of the Cash 
and Investment Management Policy to the intended meaning by inserting 
``Clearing Fund'' before ``cash deposits'' when stating that 
``[i]nterest earned on cash deposits held at a Federal Reserve Bank 
shall accrue to the benefit of Clearing Members less a cash management 
fee.'' The term ``Clearing Fund'' was inadvertently omitted from the 
text of the policy, even though that was the intent of the change as 
described in the associated regulatory filings described above.\33\ 
This change would thereby align the policy statement with OCC Rules 
604(a) and 1002(c), which provide different treatment for interest 
earned on margin cash and Clearing Fund cash deposited at a Federal 
Reserve Bank.
---------------------------------------------------------------------------

    \33\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------

(2) Statutory Basis
    OCC believes the proposed changes are consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a registered clearing agency. In particular, 
OCC believes the proposed changes are consistent with section 
17A(b)(3)(F) of the Exchange Act,\34\ and Rules 17Ad-22(e)(1),\35\ 
17Ad-22(e)(2),\36\ and 17Ad-22(e)(3) \37\ thereunder for the reasons 
described below.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(F).
    \35\ 17 CFR 240.17Ad-22(e)(1).
    \36\ 17 CFR 240.17Ad-22(e)(2).
    \37\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Exchange Act requires, among other 
things, that OCC's rules must be designed to promote the prompt and 
accurate clearance and settlement of securities transactions, assure 
the safeguarding of securities and funds which are in the custody or 
control of OCC or for which it is responsible, and protect investors 
and the public interest.\38\ OCC believes the Capital Management Policy 
is reasonably designed to ensure that it has sufficient capital to 
avoid disruptions of its clearance and settlement services in the event 
OCC experiences a non-default loss--and the potential harm to investors 
and the public interest that such a disruption could cause--by, among 
other things, providing that the

[[Page 55496]]

Board or the CPC periodically reviews OCC's schedule of fees. Updating 
the Capital Management Policy to align the cadence of those reviews to 
the Board-determined cadence for regular Board and CPC meetings will 
enhance the efficiency and effectiveness of the Board and CPC's 
oversight of OCC's fee schedule by reflecting the Board's determination 
about the appropriate cadence of those reviews. In addition, the 
proposed changes to the Capital Management Policy would clarify the 
options available to OCC to retain additional Equity for capital 
expenditures, either through the Target Capital Requirement or outside 
of it, which would help to protect investors and the public interest by 
ensuring that OCC has a clear framework for retaining additional Equity 
for capital expenditures that promotes OCC's ability to provide prompt 
and accurate clearance and settlement services. Similarly, amending the 
Cash and Investment Management Policy to align the policy with OCC 
Rules 604(a) and 1002(c) would help avoid any ambiguity concerning the 
treatment of interest on Clearing Fund cash deposited at a Federal 
Reserve Bank that OCC has committed to pass through to Clearing 
Members, thereby ensuring that OCC has a clear and transparent 
framework for ensuring the safeguarding of funds in its custody or 
control. For these reasons, OCC believes the proposed changes promote 
the prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of OCC or for which it is responsible, and 
protect investors and the public interest.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(1) under the Exchange Act requires that OCC 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for a well-founded, clear, 
transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions.\39\ The proposed changes to 
OCC's Cash and Investment Management Policy are designed to conform the 
text of the policy with OCC's Rules,\40\ thereby improving the clarity 
and transparency of OCC rules and helping to support OCC's legal basis 
for its cash management and investment activities. Accordingly, OCC 
believes that the changes to the Cash and Investment Management Policy 
are consistent with Rule 17Ad-22(e)(1).\41\
---------------------------------------------------------------------------

    \39\ 17 CFR 240.17Ad-22(e)(1).
    \40\ See supra note 25 and accompanying text.
    \41\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2) under the Exchange Act requires, in part, that 
OCC establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and specify clear and direct lines of 
responsibility.\42\ As noted above, the proposed changes to the Capital 
Management Policy would align the cadence of the fee schedule review to 
the CPC Charter, which provides for at least four regularly scheduled 
meetings each year, but does not require those meetings be scheduled in 
each fiscal quarter. For that reason, OCC previously amended its 
Committee Charters to align the cadence of other periodic reviews to 
occur at each ``regularly scheduled'' meeting, rather than 
quarterly.\43\ The Commission concluded that such similar changes were 
consistent with Rule 17Ad-22(e)(2) by, among other things, improving 
the alignment of OCC's governance documents and thereby ``creat[ing] 
stronger clarity and transparency.'' \44\ In addition, the proposed 
change to conform OCC's Capital Management Policy to the latest Board-
approved format would add an Applicability and Scope section that would 
identify the OCC business units with responsibilities under that 
policy, thereby helping to delineate clear and direct lines of 
responsibility with respect to the processes set forth therein.
---------------------------------------------------------------------------

    \42\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
    \43\ See supra note 30 and accompanying text.
    \44\ See Exchange Act Release No. 94988, 87 FR at 33541.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(3)(i) under the Exchange Act requires, in part, 
that OCC establish, implement, maintain, and enforce written policies 
and procedures reasonably designed to maintain a sound risk management 
framework for comprehensively managing general business risk and 
investment risk, among other risks, including risk management policies 
designed to identify, measure, monitor, and manage the range of risks 
that arise in or are borne by OCC, that are subject to review on a 
specified periodic basis and approved by the Board annually.\45\ The 
proposed changes to the Capital Management Policy and the Cash and 
Investment Management Policy arose from annual reviews of policies 
designed to address general business risk and investment risk, 
respectively. OCC believes those changes are consistent with Rule 17Ad-
22(e)(3)(i) \46\ because by helping to maintain consistency across 
OCC's rules and conforming those policies to the versions last approved 
by the Board, the proposed changes support the maintenance of OCC's 
risk management policies consistent with regulatory expectations.
---------------------------------------------------------------------------

    \45\ 17 CFR 240.17Ad-22(e)(3)(i).
    \46\ Id.
---------------------------------------------------------------------------

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

    Section 17A(b)(3)(I) of the Exchange Act \47\ 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 proposal would impose any burden on 
competition because the proposal would implement changes to the Capital 
Management Policy and the Cash and Investment Management Policy that 
would apply equally to all Clearing Member users of OCC's services. The 
proposed changes would not inhibit access to OCC's services in any way 
and would not disadvantage or favor any particular user in relation to 
another user. Accordingly, OCC does not believe that the proposed rule 
changes would have any impact or impose a burden on competition.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

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

    Written comments 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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) \48\ of the Act and paragraph (f) of Rule 19b-4 
thereunder.\49\ 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.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.\50\
---------------------------------------------------------------------------

    \50\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation 40.6.

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

[[Page 55497]]

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-2023-006 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-2023-006. 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 a.m. and 3 
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.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-OCC-2023-006 and should 
be submitted on or before September 5, 2023.
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17445 Filed 8-14-23; 8:45 am]
BILLING CODE 8011-01-P