[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58836-58838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15905]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100528; File No. SR-OCC-2024-008]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by 
The Options Clearing Corporation Concerning the Modification of Its 
Margin Methodology, System for Theoretical Analysis and Numerical 
(STANS), To Conform Its Margin Model to the Contract Specifications for 
a New Exchange Product

July 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 July 3, 2024, 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) \3\ of 
the Act and paragraph (f) or Rule 19b-4 \4\ thereunder. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would modify OCC's margin methodology, 
the System for Theoretical Analysis and Numerical Simulations 
(``STANS''), to conform its margin model to the contract specifications 
for a new exchange-traded futures contract based on the expected 
realized variance of an underlying interest (such contracts being 
``variance futures,'' and such model being the ``Variance Futures 
Model'') that the Cboe Future Exchange (``CFE'') intends to list. OCC 
filed the proposed pursuant to Section 19(b)(3)(A) \5\ of the Act and 
Rule 19b-4(f)(4)(i) \6\ thereunder so that the proposal was effective 
upon filing with the Commission.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(4)(i).
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    The proposed changes to the STANS Methodology Description are 
contained in confidential Exhibit 5 of filing SR-OCC-2024-008. 
Amendments to the existing text are underlined and material proposed to 
be deleted is marked by strikethrough text. The proposed changes are 
described in detail in Item 3 below. Replacement text specific to the 
proposed input descriptions of the daily settlement price calculation 
in Section 2.1.6 (Variance Futures), is presented without marking. The 
proposed rule change does not require any changes to the text of OCC's 
By-Laws or Rules. All terms with initial capitalization that are not 
otherwise defined herein have the same meaning as set forth in the OCC 
By-Laws and Rules.\7\
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    \7\ 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

    In its capacity as a derivatives clearing organization (``DCO'') 
registered with the Commodity Futures Trading Commission (``CFTC''), 
OCC clears certain futures products on behalf of CFTC-registered 
designated contract markets (``DCMs''), including CFE. Such futures 
products included CFE-listed variance futures based on the realized 
variance in the S&P 500 Index. To support this product, OCC developed 
and implemented a Variance Futures Model as part of STANS,\8\ OCC's

[[Page 58837]]

proprietary risk management system for measuring the exposure of 
portfolios of options and futures cleared by OCC, including variance 
futures.\9\ OCC most recently updated that model in 2022.\10\ CFE 
delisted its variance futures the same year, with the intent of 
relisting such futures at a future date.\11\
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    \8\ See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR 
9410, 9411 (Feb. 12, 2021) (File No. SR-OCC-2020-016) (noting the 
model to price variance futures as among the model components 
addressed by the STANS Methodology Description). OCC makes its STANS 
Methodology description available to Clearing Members. An overview 
of the STANS methodology is on OCC's public website: https://www.theocc.com/Risk-Management/Margin-Methodology.
    \9\ Pursuant to OCC Rule 601(e)(1), OCC also calculates initial 
margin requirements for segregated futures accounts on a gross basis 
using the Standard Portfolio Analysis of Risk Margin Calculation 
System (``SPAN''). Commodity Futures Trading Commission (``CFTC'') 
Rule 39.13(g)(8), requires, in relevant part, that a derivatives 
clearing organization (``DCO'') collect initial margin for customer 
segregated futures accounts on a gross basis. While OCC uses SPAN to 
calculate initial margin requirements for segregated futures 
accounts on a gross basis, OCC believes that margin requirements 
calculated on a net basis (i.e., permitting offsets between 
different customers' positions held by a Clearing Member in a 
segregated futures account using STANS) affords OCC additional 
protections at the clearinghouse level against risks associated with 
liquidating a Clearing Member's segregated futures account. As a 
result, OCC calculates margin requirements for segregated futures 
accounts using both SPAN on a gross basis and STANS on a net basis, 
and if at any time OCC staff observes a segregated futures account 
where initial margin calculated pursuant to STANS on a net basis 
exceeds the initial margin calculated pursuant to SPAN on a gross 
basis, OCC collateralizes this risk exposure by applying an 
additional margin charge in the amount of such difference to the 
account. See Exchange Act Release No. 72331 (June 5, 2014), 79 FR 
33607 (June 11, 2014) (File No. SR-OCC-2014-13).
    \10\ See Exchange Act Release No. 95319 (July 19, 2022), 87 FR 
44167, 44170 (July 25, 2022) (SR-OCC-2022-001).
    \11\ See Cboe, Update--CFE April 2022 Contract Listing Changes 
(Apr. 14, 2022), https://cdn.cboe.com/resources/product_update/2022/Update-New-CFE-Contracts-Added-in-April-2022.pdf.
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    CFE now intends to re-list its S&P 500 variance futures product 
with a different product design.\12\ As discussed in more detail below, 
OCC proposes to amend its STANS Methodology Description to conform the 
description of the Variance Futures Model with the new product design. 
Specifically, OCC would simplify the description of the daily 
settlement of variance futures products to include configurable 
parameters to reflect changes in CFE's standardized formula for 
calculating the final settlement value for the new product. OCC does 
not believe this change would have any impact on Clearing Members 
because there is no open interest in variance futures currently. 
Rather, this change would serve to ensure that CFE's new product aligns 
with OCC's rules related to the clearance and settlement of variance 
futures.
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    \12\ See Cboe, Variance Futures (last updated Mar. 6, 2024), 
https://cdn.cboe.com/resources/participant_resources/New_Cboe_Variance_Futures_Product_Overview.pdf.
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(1) Purpose
    Variance futures are commodity futures for which the underlying 
interest is a variance.\13\ The underlying variance is calculated using 
historical daily closing values of the reference variable. When a 
variance futures contract is listed, it defines the initial variance 
strike. This initial variance strike represents the estimated future 
variance at contract expiration. The final settlement value is 
determined based on a standardized formula for calculating the realized 
variance of the S&P 500 measured from the time of initial listing until 
expiration of the contract. At maturity, the buyer of the contract pays 
the amount of predefined strike to the seller and the seller pays the 
realized variances. Therefore, the buyer profits if the realized 
variance at maturity exceeds the predefined variance strike. S&P 500 
variance futures are exchange-traded futures contracts based on the 
realized variance of the S&P 500.
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    \13\ A variance is a statistical measure of the variability of 
price returns relative to an average (mean) price return. 
Accordingly, OCC believes that an underlying variance is a 
``commodity'' within the definition of Section 1a(4) of the 
Commodity Exchange Act (``CEA''), which defines ``commodity'' to 
include ``all . . . rights, and interests in which contracts for 
future delivery are presently or in the future dealt in.'' 7 U.S.C. 
1a(9). OCC believes a variance is neither a ``security'' nor a 
``narrow-based security index'' as defined in Section 3(a)(10) and 
Section 3(a)(55)(A) of the Exchange Act, respectively, and therefore 
is within the exclusive jurisdiction of the CFTC. OCC clears this 
product in its capacity as a DCO registered under Section 5b of the 
CEA. See Exchange Act Release No. 49925 (June 28, 2004), 69 FR 40447 
(July 2, 2004) (File No. SR-OCC-2004-08).
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    CFE's proposed S&P 500 Variance Futures have a final settlement 
value that will be determined by a standardized formula for calculating 
the realized variance of the S&P 500. Compared to the previous variance 
futures delisted by CFE in April 2022, the proposed contract has a 
simpler settlement definition:
    1. Rather than the previous contract's settlement being based on 
the difference of the realized variance from a fixed delivery variance 
strike, the proposed variance future settlement is based only on the 
realized variance--equivalent to setting the delivery variance strike 
to 0.
    2. Rather than using an interest rate-based factor to discount the 
variance, the proposed variance future settlement has no scaling--
equivalent to scaling by 1.
    3. Rather than including a term for the accumulation of interest on 
daily variation margin, the proposed variance future settlement has no 
term included--equivalent to setting the term to 0.
    4. Rather than recentering the value around 1000, the proposed 
variance future settlement does not recenter--equivalent to setting 
this term to 0.
    5. Rather than scale the variance calculation by 10,000, the 
proposed variance future settlement does not scale the variance--
equivalent to scaling by 1.
    The current STANS Methodology Description explicitly details the 
terms and specific values of these parameters based on product 
specifications for the variance futures that CFE delisted in 2022. OCC 
proposes to instead define these terms as parameters within the STANS 
Methodology Description that would be determined by the specifications 
of the products that the applicable DCM is authorized to list, rather 
than as set values in the STANS Methodology Description. As amended, 
the STANS Methodology Description would ensure that OCC's Variance 
Futures Model is consistent with CFE's new product design. In addition, 
by setting the values as configurable parameters based on the DCM's 
contract specifications, OCC would be able to accommodate potential 
variance futures products that may be listed in the future with 
different contract specifications. Other than allowing OCC to conform 
the settlement calculation to the DCM's contract specification, the 
change would have no effect on OCC's Variance Futures Model, as 
addressed in detail in the 2022 filing that established OCC's current 
model approach for such products.\14\
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    \14\ See Exchange Act Release No. 94165 (Feb. 7, 2022), 87 FR 
8072, 8077-8078 (Feb. 11, 2022) (SR-OCC-2022-001).
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(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Exchange Act \15\ and the rules and regulations thereunder 
applicable to OCC. Section 17A(b)(3)(F) of the Act \16\ requires, in 
part, that the rules of a clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivative agreements, contracts and 
transactions for which it is responsible. As described above, some 
inputs used in the Variance Futures Model for the calculation of the 
contract daily settlement were set in the STANS Methodology Description 
using specific values based on CFE's previous contract specifications 
for the variance futures it delisted in April 2022. The proposed 
changes would allow OCC to align those values with the contract

[[Page 58838]]

specifications for CFE's new product, thereby ensuring that OCC may 
clear and settle the new variance futures CFE intends to list based on 
the updated contract specifications. Accordingly, OCC believes the 
changes made to the inputs are designed to promote the prompt and 
accurate clearance and settlement of variance futures contracts for 
which OCC is responsible, in accordance with Section 17A(b)(3)(F) of 
the Exchange Act.\17\
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    \15\ 15 U.S.C. 78q-1.
    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \18\ 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. The proposed 
change would conform OCC's Variance Futures Model to CFE's new contract 
specification for the S&P 500 variance futures it intends to list. The 
Variance Futures Model, which is part of OCC's STANS margin 
methodology, would be used to calculate margin requirements for all 
Clearing Members. The proposed changes would not inhibit access to 
OCC's services in any way, would apply to all Clearing Members 
uniformly, and would not disadvantage or favor any particular user in 
relationship to another user. Accordingly, OCC does not believe that 
the proposed rule change would unfairly inhibit access to OCC's 
services or impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.
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    \18\ 15 U.S.C. 78q-1(b)(3)(I).
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(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 change and none have been received. OCC will 
notify the Commission of any written comments received by OCC.

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) of the Act \19\ and paragraph (f) of Rule 19b-4 \20\ 
thereunder. 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.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f).
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    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.\21\
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    \21\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation 40.6.
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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-2024-008 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-2024-008. 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-2024-008 and 
should be submitted on or before August 9, 2024.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15905 Filed 7-18-24; 8:45 am]
BILLING CODE 8011-01-P