[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32469-32471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08948]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100009; File No. SR-OCC-2024-001]


Self-Regulatory Organizations; Options Clearing Corporation; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change by the Options Clearing Corporation 
Concerning Its Process for Adjusting Certain Parameters in Its 
Proprietary System for Calculating Margin Requirements During Periods 
When the Products It Clears and the Markets It Serves Experience High 
Volatility

April 22, 2024.

I. Introduction

    On January 10, 2024, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2024-001 pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
\2\ thereunder to codify OCC's process for adjusting certain parameters 
in its proprietary system for calculating margin requirements during 
periods when the products OCC clears and the markets it serves 
experience high volatility.\3\ The proposed rule change was published 
for public comment in the Federal Register on January 25, 2024.\4\ The 
Commission has received comments regarding the proposed rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, at 89 FR 5062.
    \4\ Securities Exchange Act Release No. 99393 (Jan. 19, 2024), 
89 FR 5062 (Jan. 25, 2024) (File No. SR-OCC-2024-001) (``Notice of 
Filing'').
    \5\ Comments on the proposed rule change are available at 
https://www.sec.gov/comments/sr-occ-2024-001/srocc2024001.htm.
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    On February 23, 2024, 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 (hereinafter defined as ``Proposed Rule Change'').
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    \6\ 15 U.S.C. 78s(b)(2).
    \7\ Securities Exchange Act Release No. 99594 (Feb. 23, 2024), 
89 FR 14909 (Feb. 29, 2024) (File No. SR-OCC-2024-001).
    \8\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 32470]]

II. Summary of the Proposed Rule Change

    OCC is a central counterparty (``CCP''), which means that as part 
of its function as a clearing agency, it interposes itself as the buyer 
to every seller and the seller to every buyer for financial 
transactions. As the CCP for the listed options markets and for certain 
futures in the United States, OCC is exposed to the risk that one or 
more of its Clearing Members may fail to make a payment or to deliver 
securities. OCC addresses such risk exposure, in part, by requiring its 
members to provide collateral, including margin collateral. Margin is 
the collateral that CCPs collect to cover potential changes in a 
member's positions over a set period of time. Typically, margin is 
designed to cover such exposures during normal market conditions, which 
means that margin collateral should be sufficient to cover exposures at 
least 99 out of 100 days.
    OCC's methodology for calculating margin collateral is called the 
System for Theoretical Analysis and Numerical Simulations (``STANS''). 
The STANS Methodology Description is a single document describing OCC's 
system for calculating daily and intra-day margin requirements for its 
Clearing Members.\9\ The STANS Methodology Description briefly 
discusses margin methodology parameter controls that OCC uses during 
periods of high volatility.\10\ The STANS Methodology Description does 
not, however, describe OCC's process for implementing, changing, and 
terminating the high-volatility parameter controls. As such, OCC is 
filing the Proposed Rule Change to codify and describe this process. 
More specifically, OCC proposes to amend its existing Margin Policy to 
include material details regarding its high-volatility parameter 
control setting process. Although the Proposed Rule Change would amend 
OCC's Margin Policy, the proposal does not significantly change OCC's 
existing high-volatility parameter control setting practices.
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    \9\ See Securities Exchange Act Release No. 91079 (Feb. 8, 
2021), 86 FR 9410 (Feb. 12, 2021) (File No. SR-OCC-2020-016) 
(``STANS Methodology Approval'').
    \10\ See Securities Exchange Act Release No. 90763 (Dec. 21, 
2020), 85 FR 85788, 85793 (Dec. 29, 2020) (File No. SR-OCC-2020-016) 
(``The STANS Methodology Description would also describe the 
controls that may be placed on the GJR-GARCH parameters after their 
initial calibration. GARCH volatility forecasting models can be very 
reactive in certain market environments. As a result, OCC may 
implement parameter controls for risk factors and classes of risk 
factors, which are subject to periodic review and approval by the 
[Model Risk Working Group].'').
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    Proposed additions to the Margin Policy regarding OCC's high-
volatility control setting process include the following: (1) setting 
and reviewing regular and high-volatility control settings; (2) 
monitoring the volatility of products being cleared and markets served, 
and establishing thresholds to escalate the results of such monitoring 
to senior decisionmakers; and (3) internal governance for implementing 
and terminating high-volatility control settings.

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 \11\ 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.
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    \11\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\12\ 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,\13\ and the rules thereunder, including the following provisions:
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    \12\ Id.
    \13\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Exchange Act,\14\ 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;
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(2) of the Exchange Act,\15\ which requires 
that a covered clearing agency provide for governance arrangements 
that, among other things, specify clear and direct lines of 
responsibility; and
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    \15\ 17 CFR 240.17Ad-22(e)(2).
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     Rule 17Ad-22(e)(6) of the Exchange Act,\16\ which requires 
that a covered clearing agency establish, implement, maintain, and 
enforce written policies and procedures reasonably designed to cover, 
if the covered clearing agency provides central counterparty services, 
its credit exposures to its participants by establishing a risk-based 
margin system that, among other things, (1) considers, and produces 
margin levels commensurate with, the risks and particular attributes of 
each relevant product, portfolio, and market,\17\ and (2) calculates 
sufficient margin to cover its potential future exposure to 
participants in the interval between the last margin collection and the 
close out of positions following a participant default.\18\
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    \16\ 17 CFR 240.17Ad-22(e)(6).
    \17\ 17 CFR 240.17Ad-22(e)(6)(i).
    \18\ 17 CFR 240.17Ad-22(e)(6)(iii).
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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 Section 17A(b)(3)(F),\19\ Rule 17Ad-
22(e)(2),\20\ and Rule 17Ad-22(e)(6) \21\ of the Exchange Act, 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 Act,\22\ any 
request for an opportunity to make an oral presentation.\23\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(e)(2).
    \21\ 17 CFR 240.17Ad-22(e)(6).
    \22\ 17 CFR 240.19b-4(g).
    \23\ 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).

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[[Page 32471]]

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by May 17, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
May 31, 2024.
    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,\24\ in addition to any other comments 
they may wish to submit about the Proposed Rule Change.
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    \24\ See Notice of Filing, supra note 4.
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    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-2024-001 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-2024-001. 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 (https://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-2024-001 and 
should be submitted on or before May 17, 2024. Rebuttal comments should 
be submitted by May 31, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(31).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08948 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P