[Federal Register Volume 89, Number 99 (Tuesday, May 21, 2024)]
[Notices]
[Pages 44752-44757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100147; File No. SR-OCC-2024-006]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change by The Options Clearing 
Corporation Concerning Amendments to Its Rules and Comprehensive Stress 
Testing & Clearing Fund Methodology, and Liquidity Risk Management 
Description

May 15, 2024.
    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 May 2, 2024, The Options Clearing Corporation 
(``OCC'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared primarily by OCC. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would (1) implement additional stress 
scenarios designed to test the sufficiency of its prefunded financial 
resources and (2) amend OCC's Rules to provide greater context and 
detail on margin collection and Clearing Fund sizing that may result 
from this type of sufficiency stress testing. The proposed changes to 
OCC's (A) Comprehensive Stress Testing & Clearing Fund Methodology, and 
Liquidity Risk Management Description (``Methodology Description''); 
and (B) Rules are included in Exhibits 5A and 5B [sic] to filing SR-
OCC-2024-006. Material proposed to be added is underlined and material 
proposed to be deleted is marked in strikethrough text. All capitalized 
terms not defined herein have the same meaning as set forth in the OCC 
By-Laws and Rules.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    As the sole clearing agency for standardized equity options listed 
on a national securities exchange registered with the Commission, and 
for the other products it clears, OCC is exposed to certain risks, 
including credit risk and liquidity risk arising from its Clearing 
Members' cleared contracts, for which OCC becomes the buyer to every 
seller and the seller to every buyer. The management of credit and 
liquidity risks are essential elements of OCC's risk management 
framework. Given the critical role OCC plays within the U.S. financial 
markets, it is vital that OCC maintains sufficient financial resources 
to cover its exposures under normal and stressed conditions and 
adequate resources to satisfy liquidity needs

[[Page 44753]]

arising from its settlement obligations. OCC manages its credit risk 
related to Clearing Members by collecting margin and Clearing Fund 
resources based on a Clearing Member's risk profile. OCC manages its 
liquidity risk by maintaining a reliable and diverse set of committed 
resources and liquidity providers, establishing a contingent funding 
plan for additional resources, and performing stress testing that 
covers a wide range of scenarios.
    OCC performs daily stress testing of its financial resources using 
a wide range of scenarios. OCC's stress testing inventory contains, 
among others, scenarios \4\ designed to measure the potential exposures 
that Clearing Member Group portfolios present relative to OCC's credit 
and liquidity resources and determine potential calls for additional 
collateral, either as margin or as Clearing Fund collateral, or adjust 
the forms of collateral on deposit (``Sufficiency Scenarios''); and 
monitor and assess the size of OCC's prefunded financial resources 
against a wide range of stress scenarios for informational and risk 
monitoring purposes (``Informational Scenarios''). OCC's stress tests 
are used for evaluating both credit and liquidity risk, and the output 
of these scenarios is also used for liquidity resource evaluation. 
Informational Scenarios are not used directly to size the Clearing Fund 
or drive calls for additional financial resources from OCC's Clearing 
Members. Informational Scenarios may be re-categorized as Adequacy, 
Sufficiency, or Sizing scenarios upon the approval of OCC's Risk 
Committee.
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    \4\ OCC's stress testing inventory also contains scenarios 
designed to assess whether the resources collected are adequate to 
cover OCC's risk tolerance of a 1-in-50 year statistical market 
event over a two-year lookback period (``Adequacy Scenarios'') and 
to inform the size of OCC's financial resources (``Sizing 
Scenarios'').
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    As part of the regular review of stress scenario output, OCC 
identified two of its existing Informational Scenarios that generated 
exposures that were consistently higher than those generated by the 
corresponding Sufficiency Scenarios. Such Informational Scenarios are 
variations of existing Sufficiency Scenarios representing the most 
extreme market rally and decline moves in 2008. The proposed scenarios 
differ from the existing scenarios in terms of how individual risk 
factor price shocks are determined, as further described below. OCC 
proposes to elevate these Informational Scenarios to Sufficiency 
Scenarios by amending a list in the Methodology Description,\5\ which 
is filed as a rule with the Commission.\6\ Such list represents a 
subset of Adequacy, Sizing, and Sufficiency Scenarios that have been 
implemented in OCC's stress testing system. OCC believes that the 
proposed rule change would enhance its ability to manage risks by 
considering a different approach to the determination of price shocks 
to evaluate how such an event could occur under current market 
conditions. While the proposed change to implement additional 
Sufficiency Scenarios could have an impact on Clearing Members if OCC 
called for additional financial resources based on the results of the 
new Sufficiency Scenarios in accordance with OCC's Rules, OCC believes 
the proposed Sufficiency Scenarios would generate stress test exposures 
that are generally in line with its current, most impactful Sufficiency 
Scenarios.\7\
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    \5\ The Methodology Description describes the Comprehensive 
Stress Testing & Clearing Fund Methodology, and Liquidity Risk 
Management that OCC uses to analyze the adequacy of its financial 
resources and to challenge its risk management framework.
    \6\ See Exchange Act Release Nos. 90827 (Dec. 30, 2020), 86 FR 
659 (Jan. 6, 2021) (SR-OCC-2020-015); 89014 (June 4, 2020), 85 FR 
35446 (June 10, 2020) (SR-OCC-2020-003); 87718 (Dec. 11, 2019), 84 
FR 68992 (Dec. 17, 2019) (SR-OCC-2019-010); 87717 (Dec. 11, 2019), 
84 FR 68985 (Dec. 17, 2019) (SR-OCC-2019-009); 83735 (July 27, 
2018), 83 FR 37855 (Aug. 2, 2018) (SR-OCC-2018-008).
    \7\ See infra note 17 and accompanying text.
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    Based on the results of the Sufficiency Scenarios, OCC may call for 
additional financial resources from its Clearing Members. For example, 
the results of OCC's Sufficiency Stress Tests may require the 
collection of intra-day margin from a Clearing Member Group under OCC 
Rule 609 \8\ or an intra-month resizing of the Clearing Fund under OCC 
Rule 1001(c).\9\ While these Rules provide the authority or requirement 
to call for additional resources based on the Sufficiency Stress Tests, 
details about how the calculations related to the relevant thresholds 
are made are documented in OCC's Clearing Fund Methodology Policy,\10\ 
which is itself filed as a rule with the Commission.\11\ Based on 
feedback received from staff of the Commission, OCC proposes to amend 
Rules 609 and 1001(c) to provide additional context and detail about 
the circumstances in which OCC would exercise this authority to call 
for additional resources. OCC does not believe the proposed changes to 
the Rules would have any effect on Clearing Members because the changes 
would merely incorporate additional detail already in effect under the 
Commission-approved Clearing Fund Methodology Policy.
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    \8\ See OCC Rule 609(a)(5) (providing that OCC may require the 
deposit of intra-day margin when a Sufficiency Stress Test 
identifies an exposure that exceeds 75% of the current Clearing Fund 
requirement less deficits).
    \9\ See OCC Rule 1001(c) (providing that if a Sufficiency Stress 
Test identifies a breach that exceeds 90% of the size of the 
Clearing Fund requirement (less any margin collected as a result of 
a Sufficiency Stress Test breach pursuant to Rule 609), the 
calculated size of the Clearing Fund shall be increased by the 
greater of $1 billion or 125% of the difference between the relevant 
risk exposure and the then-current Clearing Fund size).
    \10\ OCC's Clearing Fund Methodology Policy summarizes the 
manner in which OCC determines the level of financial resources 
necessary to satisfy the regulatory requirements and the Board's 
direction with respect to the additional financial resources 
necessary to withstand a wide range of foreseeable stress scenarios 
including, but are not limited to, the default of the two Clearing 
Member Groups that would potentially cause the largest aggregate 
credit exposure in extreme but plausible market conditions.
    \11\ See Exchange Act Release Nos. 96566 (Dec. 22, 2022), 87 FR 
80207 (Dec. 29, 2022) (SR-OCC-2022-010); 94950 (May 19, 2022), 87 FR 
31916 (May 25, 2022) (SR-OCC-2022-004); 93436 (Oct. 27, 2021), 86 FR 
60499 (Nov. 2, 2021) (SR-OCC-2021-010); 92038 (May 27, 2021), 86 FR 
29861 (June 3, 2021) (SR-OCC-2021-003); 89037 (June 10, 2020), 85 FR 
36442 (June 16, 2020) (SR-OCC-2020-006); 89014 (June 4, 2020), 85 FR 
35446 (June 10, 2020) (SR-OCC-2020-003); 87718 (Dec. 11, 2019), 84 
FR 68992 (Dec. 17, 2019) (SR-OCC-2019-010); 86436 (July 23, 2019), 
84 FR 36632 (July 29, 2019) (SR-OCC-2019-006); 83735 (July 27, 
2018), 83 FR 37855 (Aug. 2, 2018) (SR-OCC-2018-008).
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(1) Purpose
    OCC is proposing to (1) take two of its existing informational 
stress scenarios and add them to the list of stress scenarios designed 
to test the sufficiency of OCC's prefunded financial resources in the 
Methodology Description and (2) amend Rules 609 and 1001(c) to provide 
greater context and detail in the Rules on margin collection and 
Clearing Fund sizing that may result from this type of sufficiency 
stress testing.
Proposed Changes to the Methodology Description
    OCC proposes to elevate two of its existing Informational Scenarios 
to Sufficiency Scenarios. OCC's inventory of Sufficiency Scenarios 
under the Methodology Description consists of historical scenarios 
designed to replicate historical events, including the most extreme 
market rally and decline moves (``Largest Rally/Decline'') in 2008 and 
2020, under current market conditions. The proposed Sufficiency 
Scenarios are a variation of the existing Largest Rally/Decline 
Sufficiency Scenarios from 2008.
    Price shocks are applied to individual securities or risk factors 
to replicate historical events under the Methodology Description. The 
existing Sufficiency Scenarios are historically based scenarios that 
employ a waterfall approach to determine which price

[[Page 44754]]

shocks to apply to risk factors.\12\ To start, the actual return of the 
risk factor during the historical event is utilized as the price shock, 
if available. If unavailable,\13\ a proxy market return from a 
corresponding sector is utilized as the price shock. Finally, if data 
is unavailable for both actual and sector returns, the price shock is 
determined by the ``beta'' \14\ of the risk factor to its assigned risk 
driver \15\ multiplied by the corresponding risk driver shock (the 
``risk driver beta derived price shock''). The risk driver shock is the 
actual return of a given risk driver from the historical event. For 
example, the risk driver beta derived price shock for equity security 
ABC would be derived by multiplying ABC's historical beta to SPX (its 
risk driver) by the SPX risk driver shock.
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    \12\ A ``risk factor'' is a product or attribute whose 
historical data is used to estimate and simulate the risk for an 
associated product. Risk factors include the returns on individual 
equity securities, returns on equity indexes, and returns on implied 
volatility risk factors, among others.
    \13\ An actual return may be unavailable as not all current risk 
factors existed during a given historical period. For example, TSLA, 
a current risk factor, was not a risk factor in 2008.
    \14\ The ``beta'' is the sensitivity of a security with respect 
to its corresponding risk driver (i.e., the sensitivity of the price 
of the security relative to the price of the risk driver).
    \15\ The main risk drivers are price and volatility for equity 
securities. For example, the Cboe S&P 500 Index (``SPX'') and Cboe 
Volatility Index (``VIX'') are the main risk drivers for shocks of 
the equity risk factors. Other relevant risk drivers are utilized, 
including but not limited to, risk drivers to cover U.S. and 
Canadian Government Security collateral positions, risk drivers to 
cover commodity-based exchange traded funds and risk drivers to 
cover commodity-based futures products.
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    The proposed Sufficiency Scenarios, which are currently classified 
as Informational, are a variation of the existing Largest Rally/Decline 
from 2008 Sufficiency Scenarios, the only difference being the 
determination of price shocks applied to individual risk factors. 
Namely, unlike the existing Largest Rally/Decline from 2008 Sufficiency 
Scenarios, the proposed Sufficiency Scenarios would not utilize the 
waterfall approach described above to apply price shocks. Instead, the 
proposed scenarios would directly apply the risk driver beta derived 
price shock. This approach is consistent with other statistical 
scenarios, including the Sizing Scenarios, which directly apply risk 
driver beta derived price shocks. Given that these existing 
Informational Scenarios generated exposures that were consistently 
higher than those generated by the corresponding Sufficiency 
Scenarios,\16\ OCC proposes to elevate these Informational Scenarios to 
Sufficiency Scenarios. To effect such changes, OCC would update the 
list of scenarios contained in the Methodology Description to include 
the proposed Sufficiency Scenarios. Additionally, OCC proposes to make 
minor typographical edits to correct the formatting of footnotes 
throughout the text of the Methodology Description.
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    \16\ See infra note 17.
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    Elevating the subject Informational Scenarios to Sufficiency 
Scenarios will serve to enhance the existing suite of Sufficiency 
Scenarios by considering a different determination of price shocks to 
evaluate how such an event could occur under current market conditions. 
In their current state as Informational Scenarios, these scenarios do 
not drive the size of the Clearing Fund or calls for additional 
resources. However, as Sufficiency Scenarios, they would be used to 
measure the exposure of OCC's Clearing Fund to the portfolios of 
individual Clearing Member Groups and determine whether any such 
exposure is sufficiently large as to necessitate OCC calling for 
additional resources in the form of margin or an intra-month resizing 
of the Clearing Fund. The proposed rule change would enable OCC to test 
the sufficiency of its financial resources under a wider range of 
relevant stress scenarios and respond quickly when OCC believes 
additional financial resources are necessary. The proposed rule change 
would thereby improve OCC's ability to measure, monitor and manage its 
exposures to its participants and enhance OCC's ability to manage risks 
in its role as a systemically important financial market utility. OCC's 
analysis indicates that the proposed Sufficiency Scenarios generate 
stress test exposures that are generally in line with its current, most 
impactful Sufficiency Scenarios.\17\
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    \17\ OCC has provided data and analysis concerning the proposed 
rule change in Confidential Exhibit 3A [sic] to SR-OCC-2024-006, 
including the performance of the proposed scenarios relative to the 
existing 2008 scenarios, an assessment of the risk drivers for which 
the proposed scenarios produce more conservative results, and an 
evaluation of the impact the proposed scenarios would have had on 
collection of additional financial resources.
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Proposed Changes to the Rules
    OCC proposes to provide further context and detail in the Rules on 
current Sufficiency Stress Test practices. As described above, 
Sufficiency Stress Tests are run through OCC's Sufficiency Scenarios, 
which, under the proposal, would include the proposed Sufficiency 
Scenarios. The results of OCC's Sufficiency Stress Tests may require 
the collection of intra-day margin from a Clearing Member Group or an 
intra-month resizing of the Clearing Fund. For example, pursuant to OCC 
Rule 609(a)(5),\18\ if any of OCC's Sufficiency Scenarios identify 
exposures that exceed 75% of the current Clearing Fund requirement less 
deficits, OCC may require additional margin deposits (``intra-day 
margin'') from the Clearing Member Group(s) driving the breach. 
Additionally, pursuant to Rule 1001(c),\19\ if a Sufficiency Scenario 
identifies a breach that exceeds 90% of the current Clearing Fund 
requirement (after subtracting any margin collected in accordance with 
a breach of the 75% threshold), OCC will promptly take action to 
initiate an increase in the size of the Clearing Fund on an intra-month 
basis to ensure that it continues to maintain sufficient prefunded 
financial resources.\20\
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    \18\ See Exchange Act Release No. 83406 (June 11, 2018), 83 FR 
28018, 28025 (June 15, 2018).
    \19\ Id. at 28025-26.
    \20\ In addition to these Rules, which provide OCC authority to 
call for additional financial resources to mitigate credit risk 
identified under the Sufficiency Scenarios, OCC also may address 
liquidity risk identified under such Sufficiency Scenarios. See, 
e.g., OCC Rules 601(g) & 609(b) (providing OCC authority to require 
the Clearing Member Group to provide additional cash collateral 
(``Required Cash Deposits'') if OCC forecasts that a Clearing 
Member's potential settlement obligations, including potential 
settlement obligations under stressed market conditions, could be in 
excess of OCC's liquidity resources to satisfy such obligations).
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    OCC proposes to amend Rule 609 to address the case where a Clearing 
Member is subject to multiple intra-day margin calls over the course of 
a month (i.e., between resizing of the Clearing Fund, which is 
typically conducted monthly). Under OCC Rule 609(a)(5), if any of OCC's 
Sufficiency Scenarios identify exposures that exceed 75% of the current 
Clearing Fund requirement less deficits, OCC may require intra-day 
margin deposits from the Clearing Member Group(s) driving the breach. 
Currently, prior to the issuance of such margin call, OCC confirms the 
margin call amount against any existing intra-day margin call amounts 
for the monthly period under OCC Rule 609(a)(5). If the margin call 
amount is greater, a new margin call is issued for that amount.\21\ The 
new margin call remains in effect until the next monthly resizing of 
the Clearing Fund or it is superseded by a larger margin call amount. 
Accordingly, OCC proposes language in the Rule to specify that, if a 
Clearing Member Group is subject to intra-day margin calls under more 
than one Sufficiency Stress Test, the largest call will be applied and 
remain in effect until the next monthly resizing. This

[[Page 44755]]

proposed language is consistent with the language in OCC's Clearing 
Fund Methodology Policy.\22\
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    \21\ For the avoidance of doubt, a new margin call is not issued 
if the margin call amount is equal to, or smaller than, an existing 
margin call amount for the monthly period.
    \22\ The Clearing Fund Methodology Policy states that, if a 
Clearing Member Group's Clearing Fund draws exceed the 75% threshold 
in more than one Sufficiency Stress Test scenario, the Clearing 
Member Group ``shall be subject to the largest margin call.'' See 
supra note 18 at 28025.
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    OCC also proposes minor changes for clarity and readability in Rule 
609(a)(5). For example, OCC proposes replacing ``such that'' with 
``from.'' Additionally, OCC proposes to remove ``less deficits'' in 
reference to OCC's Sufficiency Scenarios identifying exposures that 
exceed 75% of the current Clearing Fund requirement less deficits. Such 
language was relevant when OCC's Rules provided a two-day period for 
Clearing Members to deposit additional required Clearing Fund 
assets.\23\ OCC has since shortened this collection period following 
Clearing Fund resizing from two business days to the next Settlement 
Time, making the reference to ``less deficits'' unnecessary as OCC 
considers such deficits covered.\24\ The removal of such language is 
also consistent with the Commission-approved Clearing Fund Methodology 
Policy.\25\ OCC believes such changes would provide additional 
transparency in the Rules by including greater context and detail, 
would not change current practices, and would promote consistency 
between OCC Rules and related policies.
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    \23\ See Exchange Act Release No. 94950 (May 19, 2022), 87 FR 
31916, 31918 (May 25, 2022) (File No. SR-OCC-2022-004) (describing 
the then-current process that allows members two business days to 
meet routine funding obligations related to the Clearing Fund).
    \24\ Id. (describing the changes designed to require funding by 
the next Settlement Time, effectively requiring funding by the 
business day following notice of an obligation).
    \25\ A conforming reference to remove ``less deficits'' was made 
to OCC's Clearing Fund Methodology Policy in reference to OCC's 
Sufficiency Scenarios identifying exposures that exceed 75% of the 
current Clearing Fund requirement as part of File No. SR-OCC-2022-
004. Id. (``These changes are intended to conform the Clearing Fund 
Methodology Policy with the proposed changes to OCC's Rules and 
support the reduced operational complexity that OCC expects to 
achieve by creating a more uniform settlement time.'').
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    OCC also proposes to amend Rule 1001(c) to provide additional 
transparency and clarity regarding intra-month Clearing Fund sizing 
adjustments. Under OCC Rule 1001(c), if a Sufficiency Scenario 
identifies a breach that exceeds 90% of the size of the Clearing Fund 
requirement (after subtracting any margin ``collected'' in accordance 
with a breach of the 75% threshold), OCC will promptly take action to 
initiate an increase in the size of the Clearing Fund on an intra-month 
basis. OCC proposes to amend the parenthetical to more clearly include 
amounts to be collected from a breach of the 75% threshold by adding 
``or to be collected.'' This change would provide greater clarity to 
reflect that any margin calls issued pursuant to Rule 609(a)(5) are 
also subtracted in the calculation in Rule 1001(c).\26\ Such change 
would conform with OCC's current practices set out in the Clearing Fund 
Methodology Policy, which does not limit the parenthetical in Rule 
1001(c) to previously collected margin call amounts.\27\
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    \26\ In practice deficits due to an intra-month resizing are due 
by the first Settlement Time following notification or such later 
time as provided by OCC pursuant to Rule 1005(b).
    \27\ The current Commission-approved Clearing Fund Methodology 
Policy, which OCC has provided as Exhibit 3B [sic] to File No. SR-
OCC-2024-006, states that, if a Sufficiency Stress Test identifies a 
Clearing Fund draw that exceeds 90% of the current Clearing Fund 
requirement ``after subtracting margin calls resulting from a breach 
of [the 75% threshold],'' OCC will promptly act to initiate an 
intra-month increase in the Clearing Fund size.
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    OCC believes the proposed changes are intended to better align the 
descriptions in the Rules with OCC's current practices for the 
collection of intra-day margin or an intra-month resizing of the 
Clearing Fund resulting from OCC's Sufficiency Stress Tests. These 
changes would have no impact on Clearing Members and would not affect 
the Clearing Fund size, as they are consistent with the Commission-
approved Clearing Fund Methodology Policy.
Implementation Timeframe
    OCC expects to implement the proposed changes no later than sixty 
days from the date that OCC receives all necessary regulatory approvals 
for the filing in light of the technical system changes that are 
required to implement the additional stress scenarios. OCC will 
announce the implementation date of the proposed changes by an 
Information Memorandum posted to its public website at least seven days 
prior to implementation.\28\
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    \28\ Implementation of this rule change will be delayed until 
this change is deemed certified under CFTC Regulation 40.6.
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(2) Statutory Basis
    OCC believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. In particular, OCC believes 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \29\ and Rule 17Ad-22(e)(4) \30\ and Rule 17Ad-22(e)(7) \31\ 
thereunder, for the reasons described below.
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    \29\ 15 U.S.C. 78q-1(b)(3)(F).
    \30\ 17 CFR 240.17Ad-22(e)(4).
    \31\ 17 CFR 240.17Ad-22(e)(7).
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    Section 17A(b)(3)(F) of the Exchange Act \32\ requires, among other 
things, that the rules of a clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities and 
derivatives transactions and, in general, protect investors and the 
public interest. OCC proposes to (1) implement additional Sufficiency 
Scenarios in the Methodology Description and (2) provide greater 
context and detail in the OCC Rules on margin collection and Clearing 
Fund sizing that may result from this type of sufficiency stress 
testing. The proposed rule change would enhance OCC's framework for 
measuring, monitoring, and managing its credit risks. Implementation of 
the additional Sufficiency Scenarios would enable OCC to test the 
sufficiency of its prefunded financial resources under a wider range of 
stress scenarios and respond quickly when OCC believes the collection 
of additional financial resources is necessary. The ability to 
appropriately size and test the sufficiency of prefunded financial 
resources is critical to ensuring that OCC can continue to provide 
prompt and accurate clearance and settlement of securities and 
derivatives transactions in the event of a Clearing Member default and 
manage the risks associated with its role as a systemically important 
financial market utility. Amending the Methodology Description to 
incorporate the proposed Sufficiency Scenarios and make minor 
typographical edits would help ensure that such document remains clear 
and effective so that the requirements under this document continue to 
be carried out properly. Additionally, the proposed changes to the OCC 
Rules would enhance clarity and transparency regarding OCC practices on 
intra-day margin collection and intra-month Clearing Fund sizing 
adjustments resulting from Sufficiency Stress Tests. Such changes would 
promote understanding of the Rules by market participants and ensure 
consistency of the Rules with existing policies to reduce potential 
confusion, which would promote the prompt and accurate clearance and 
settlement of securities and derivatives transactions and, in general, 
protect investors and the public interest. Accordingly, OCC believes 
the proposed rule change is

[[Page 44756]]

consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\33\
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    \32\ 15 U.S.C. 78q-1(b)(3)(F).
    \33\ Id.
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    Rule 17Ad-22(e)(4)(iii) \34\ requires, in part, that a covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes, 
including by maintaining additional financial resources (beyond those 
collected as margin) at the minimum to enable it to cover a wide range 
of foreseeable stress scenarios that include, but are not limited to, 
the default of the participant family that would potentially cause the 
largest aggregate credit exposure for the covered clearing agency in 
extreme but plausible market conditions. Rule 17Ad-22(e)(4)(vi)(A) \35\ 
further requires, in part, that such policies and procedures are 
reasonably designed to test the sufficiency of the covered clearing 
agency's total financial resources available to meet the minimum 
financial resource requirements under Rule 17Ad-22(e)(4)(iii) \36\ by 
conducting stress testing of its total financial resources once each 
day using standard predetermined parameters and assumptions. As 
described above, OCC's Sufficiency Stress Tests are run through OCC's 
Sufficiency Scenarios, which, under the proposal, would include the 
proposed Sufficiency Scenarios. The results of Sufficiency Stress Tests 
may require collection of intra-day margin from a Clearing Member Group 
or an intra-month resizing of the Clearing Fund. The proposed changes 
would thus enable OCC to test the sufficiency of its prefunded 
financial resources under a wider range of stress scenarios, respond 
quickly to collect additional financial resources from its Clearing 
Members if the Sufficiency Scenario exposures breach the predetermined 
thresholds established in OCC's Rules and Clearing Fund Methodology 
Policy, and promote clarity and transparency on its Sufficiency Stress 
Tests in the OCC Rules. Moreover, the proposed Sufficiency Scenarios 
were constructed in accordance with OCC's existing Methodology 
Description using standard predetermined parameters and assumptions. As 
a result, OCC believes the proposed rule change is designed to further 
OCC's compliance with the requirements of Rules 17Ad-22(e)(4)(iii) and 
(vi)(A).\37\
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    \34\ 17 CFR 240.17Ad-22(e)(4)(iii).
    \35\ 17 CFR 240.17Ad-22(e)(4)(vi)(A).
    \36\ 17 CFR 240. 17Ad-22(e)(4)(iii).
    \37\ 17 CFR 240.17Ad-22(e)(4)(iii) and (vi)(A).
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    Rule 17Ad-22(e)(7)(vi) \38\ requires, in part, that a covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to effectively measure, 
monitor, and manage the liquidity risk that arises in or is borne by 
the covered clearing agency, including measuring, monitoring, and 
managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity by determining the amount and 
regularly testing the sufficiency of the liquid resources held for 
purposes of meeting the minimum liquid resource requirement. The 
proposed changes would allow OCC to test the sufficiency of its liquid 
resources under a wider range of stress scenarios and respond quickly 
to collect additional liquid resources from its Clearing Members if the 
Sufficiency Scenario output breaches the predetermined threshold 
established in OCC's Liquidity Risk Management Framework. The inclusion 
of the proposed scenarios as Sufficiency Scenarios would increase the 
likelihood that OCC maintains sufficient liquid resources at all times. 
OCC thus believes the proposed rule change is consistent with the 
requirements of Rules 17Ad-22(e)(7)(vi).\39\
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    \38\ 17 CFR 240.17Ad-22(e)(7)(vi).
    \39\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Exchange Act \40\ 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 Exchange 
Act. The proposed changes to the OCC Rules would have no impact on 
Clearing Members and would not affect the Clearing Fund size as they 
are consistent with current OCC policies, as described above. Such 
changes would enhance clarity and transparency regarding OCC practices 
for the collection of intra-day margin and intra-month resizing of the 
Clearing Fund resulting from Sufficiency Stress Tests by providing 
further detail and context in the Rules. While the proposed change to 
implement additional Sufficiency Scenarios could have an impact on 
certain Clearing Members, OCC does not believe that the proposed rule 
change would impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC's analysis 
indicates that the proposed Sufficiency Scenarios generate stress test 
exposures that are generally in line with its current, most impactful 
Sufficiency Scenarios.\41\ OCC notes, however, that the results of 
these proposed scenarios may vary depending on the composition of each 
individual Clearing Member's portfolio at a given point in time. As a 
result, the proposed scenarios could from time to time result in more 
frequent or larger sufficiency stress test margin calls.
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    \40\ 15 U.S.C. 78q-1(b)(3)(I).
    \41\ OCC has provided data and analysis concerning the proposed 
rule change in Confidential Exhibit 3A [sic] to SR-OCC-2024-006.
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    The implementation of the new Sufficiency Scenarios would enable 
OCC to test the sufficiency of its financial resources under a wider 
range of relevant stress scenarios and respond quickly when OCC 
believes additional financial resources are required. The proposed 
changes are designed to improve OCC's ability to measure, monitor and 
manage its credit exposures to its participants consistent with its 
regulatory requirements under Rule 17Ad-22(e)(4),\42\ to effectively 
measure, monitor, and manage the liquidity risk that arises in or is 
borne by OCC under Rule 17Ad-22(e)(7),\43\ and to enhance OCC's ability 
to manage risks in its role as a systemically important financial 
market utility. Moreover, the proposed Sufficiency Scenarios were 
constructed in accordance with OCC's approved stress testing 
methodology using standard predetermined parameters and assumptions. 
These scenarios provide diversification in terms of how price shocks 
are applied to individual risk factors and would help capture risks 
that OCC's current inventory of Sufficiency Scenarios may not capture. 
Accordingly, OCC believes that any impact on competition or OCC's 
Clearing Members would be necessary and appropriate in furtherance of 
the protection of investors and the public interest under the Act. For 
the foregoing reasons, OCC believes that the proposed rule change is in 
the public interest, would be consistent with the requirements of the 
Exchange Act applicable to clearing agencies, and would not impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.\44\
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    \42\ 17 CFR 240.17Ad-22(e)(4).
    \43\ 17 CFR 240.17Ad-22(e)(7).
    \44\ 15 U.S.C. 78s(b)(1).

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[[Page 44757]]

(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

    Within 45 days of the date of publication of the notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-OCC-2024-006 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-2024-006. 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 (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-2024-006 and 
should be submitted on or before June 11, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11078 Filed 5-20-24; 8:45 am]
BILLING CODE 8011-01-P