[Federal Register Volume 89, Number 155 (Monday, August 12, 2024)]
[Notices]
[Pages 65695-65700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17847]



[[Page 65695]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100664; File No. SR-OCC-2024-010]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change by the Options Clearing 
Corporation To Establish a Margin Add-On Charge That Would Be Applied 
to All Clearing Member Accounts To Help Mitigate the Risks Arising From 
Intraday and Overnight Trading Activity

August 6, 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 25, 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 establish a margin add-on charge 
that would be applied to all Clearing Member accounts to help mitigate 
the risks arising from intraday and overnight trading activity.
    Proposed changes to OCC's Rules are contained in Exhibit 5A that 
OCC provided as part of File No. SR-OCC-2024-010. Proposed changes to 
OCC's Margin Policy are contained in confidential Exhibit 5B that OCC 
provided as part of File No. SR-OCC-2024-010. Material proposed to be 
added is marked by underlining and material proposed to be deleted is 
marked with strikethrough text. 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.\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

    OCC is the sole clearing agency for standardized equity options 
listed on national securities exchanges registered with the Commission. 
OCC also clears stock loan and futures transactions. In its role as a 
clearing agency, OCC guarantees the performance of its Clearing Members 
for all transactions cleared by OCC by becoming the buyer to every 
seller and the seller to every buyer (or the lender to every borrower 
and the borrower to every lender, in the case of stock loan 
transactions). These clearing activities could expose OCC to financial 
risks if a Clearing Member fails to fulfil its obligations to OCC. In 
its role as guarantor for all transactions cleared through OCC, one of 
the more material risks related to a Clearing Member's failure to 
perform is credit risk arising from the activity of the Clearing 
Members whose performance OCC guarantees. OCC manages these financial 
risks through financial safeguards, including the collection of margin 
collateral from Clearing Members designed to, among other things, 
address the market risk associated with a Clearing Member's positions 
during the period of time OCC has determined it would take to liquidate 
those positions.
    At the start of each business day, OCC collects margin requirements 
for each marginable account calculated by OCC's proprietary System for 
Theoretical Analysis and Numerical Simulation (``STANS'') based on the 
account's end-of-day positions from the previous business day. OCC also 
makes intraday margin calls in defined circumstances. For example, 
pursuant to OCC Rule 609 and OCC's Margin Policy, which has been filed 
with and approved as a rule by the Commission,\4\ OCC requires the 
deposit of intraday margin to reflect changes in the value of 
securities deposited by the Clearing Member as margin when certain 
defined thresholds are breached.\5\ OCC also issues intraday margin 
calls when unrealized losses observed for an account based on positions 
from extended trading hours (``ETH'') \6\ exceed certain thresholds.\7\ 
In addition, OCC maintains broad authority under OCC Rule 609 to issue 
intraday margin calls or otherwise set a Clearing Member's margin 
requirement in other circumstances, including as a protective measure 
pursuant to Rule 307.\8\
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    \4\ See Exchange Act Release Nos. 99169 (Dec. 14, 2023), 88 FR 
88163 (Dec. 20, 2023) (SR-OCC-2023-008); 98101 (Aug. 10, 2023), 88 
FR 55775 (Aug. 16, 2023) (SR-OCC-2022-012); 96566 (Dec. 22, 2022), 
87 FR 80207 (Dec. 29, 2022) (SR-OCC-2022-010); 91079 (Feb. 8, 2021), 
86 FR 9410 (Feb. 12, 2021) (SR-OCC-2020-016); 90797 (Dec. 23, 2020), 
85 FR 86592 (Dec. 30, 2020) (SR-OCC-2020-014); 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); 86119 
(June 17, 2019), 84 FR 29267 (June 21, 2019) (SR-OCC-2019-004); 
83799 (Aug. 8, 2018), 83 FR 40379 (Aug. 14, 2018) (SR-OCC-2018-010); 
82658 (Feb. 7, 2018), 83 FR 6646 (Feb. 14, 2018) (SR-OCC-2017-007).
    \5\ See OCC Rule 609(a) (``[OCC] may require the deposit of 
additional margin (`intra-day margin') by any Clearing Member in any 
account at any time during any business day to reflect changes in: . 
. . (3) the value of securities deposited by the Clearing Member as 
margin . . . .''); Exchange Act Release No. 82658, supra note 4, 83 
FR at 6648 (``Pursuant to the Margin Policy, OCC issues margin calls 
during standard trading hours when unrealized losses exceeding 50% 
of an account's total risk charges are observed for that account 
based on start-of-day positions.'').
    \6\ ETH refers to trades executed in extended and overnight 
trading sessions offered by exchanges for which OCC provides 
clearance and settlement services. See Exchange Act Release No. 
73343 (Oct. 14, 2014), 79 FR 62684 (Oct. 20, 2014) (SR-OCC-2014-
805).
    \7\ See Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR 
61060, 61064 (Dec. 26, 2017) (SR-OCC-2017-007) (codifying in the 
Margin Policy the ETH intraday margin call OCC would issue prior to 
9:00 a.m. Central Time when: (1) unrealized losses observed for an 
account, based on new ETH positions, exceed 25% of that account's 
total risk charges and (2) the overall Clearing Member portfolio is 
also experiencing losses).
    \8\ See OCC Rule 307C(b) (providing for protective measures in 
the form of requiring Clearing Members to adjust the amount or 
composition of margin, including but not limited to requiring the 
deposit of additional margin).
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    Since the time these existing margin collection processes were 
established, OCC has observed a significant increase in contract volume 
and, in particular, volume in option contracts traded on the day of 
their expiration--so-called ``zero-days-to-expiration'' or ``0DTE'' 
options.\9\ Currently, 0DTE option trading volume can spike to up to 
40% of total trading volume on Friday expirations.\10\ This increase in 
0DTE options trading has coincided with the proliferation of option 
expiries. Traditionally, listed options expired on the third Friday of 
the month.\11\ In 2005,

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the Chicago Board Options Exchange (``Cboe''), one of the participant 
exchanges for which OCC provides clearance and settlement services, 
began listing weekly options on the S&P 500 Index (``SPX'') expiring 
each Friday of the month, and subsequently introduced Monday and 
Wednesday weekly SPX expirations in 2016 before adding Tuesday and 
Thursday weekly SPX expirations in 2022.\12\ Weekly and daily 
expiration cycles were introduced to options on other indexes, single-
name stocks, and exchange traded products (e.g., ETFs). As a result, 
options now expire every trading day of the year.
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    \9\ OCC has provided a confidential Exhibit 3A to File No. SR-
OCC-2024-010 a 2023 study it conducted of its risk exposure to 
short-dated options.
    \10\ Id. at 3-4.
    \11\ Originally, options expiries occurred on the Saturday 
following the third Friday before the industry moved to Friday 
expirations in 2013. See Exchange Act Release No. 69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013) (File No. SR-OCC-2013-04).
    \12\ See Cboe, The Rise of SPX & 0DTE Options, at 5 (July 27, 
2023), available at https://go.cboe.com/l/77532/2023-07-27/ffc83k.
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    The increase in 0DTE options trading poses challenges to OCC's risk 
management, particularly with respect to the management of OCC's 
overnight and intraday risk exposure to its Clearing Members in between 
the collections of margin at the start of each business day. Because 
OCC's STANS margin calculation is based on end-of-day positions, the 
margin requirement may not account for 0DTE options trading activity, 
since the Clearing Member would have either traded out of or exercised 
the options position, or the option would have expired by the end of 
the day. In addition, OCC's portfolio revaluation process for purposes 
of determining intraday margin calls to address the change in value of 
margin collateral is based on a Clearing Member's start-of-day 
collateral deposits, which would not include margin for 0DTE options 
positions.
    In order to mitigate OCC's overnight and intraday risk exposures, 
OCC proposes to implement a margin add-on charge (the ``Intraday Risk 
Charge''). OCC would calculate this charge using the system currently 
employed to monitor Clearing Members' overnight trading activity. 
Through OCC's Watch Level surveillance under its Third-Party Risk 
Management Framework, OCC has also used this system to identify 
patterns of risk increasing activity in 0DTE options for purposes of 
considering and calculating protective measures in the form of 
additional margin for particular Clearing Members when certain 
thresholds have been breached relative to a Clearing Member's net 
capital. This filing would extend that approach to all Clearing Members 
(without regard to net capital thresholds) and with respect to all 
products OCC clears.
(1) Purpose
Proposed Changes
    OCC proposes to capture the risks associated with overnight and 
intraday activity by: (1) establishing an Intraday Risk Charge add-on, 
and (2) establishing monitoring and escalation criteria for Clearing 
Members whose intraday activity exceeds certain thresholds relative to 
its Intraday Risk Charge (``Intraday Monitoring Thresholds'').
1. Intraday Risk Charge Add-On
    OCC proposes to establish the Intraday Risk Charge to help mitigate 
the increased credit exposure presented by the intraday and overnight 
trading activities of its Clearing Members. OCC would calculate the 
charge based on the increased risk identified through OCC's current 
intraday margin system, which recalculates the STANS margin risk using 
portfolio position sets updated every 20 minutes between 8:30 a.m. and 
6:30 p.m. Central Time, and at-least every hour during ETH 
sessions.\13\ OCC considers that 20 minutes is sufficient time under 
OCC's current system capabilities to provide consistent and reliable 
snapshot results at a steady cadence during regular trading hours with 
heavy trading activity. Outside of regular trading hours and during 
overnight trading, hourly intervals between snapshots were deemed more 
appropriate because of the significantly lower trading activity.\14\ 
OCC currently employs and will continue to use this system for ETH 
monitoring, including to determine when to issue an ETH margin call. 
This system calculates a forecasted margin requirement as if the 
positions at that point in time were present during the previous 
night's margin calculation. Results that show an increase to the prior 
night's margin requirement based on the STANS expected shortfall \15\ 
and stress test components \16\ are considered risk increasing.
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    \13\ OCC's current ETH monitoring captures snapshots every hour 
for purposes of determining whether a Clearing Member's overnight 
activity exceeds certain defined thresholds relative to certain 
dollar values and a Clearing Member's net capital. See Exchange Act 
Release No. 74268, 8919 (Feb. 12, 2015), 80 FR 8917 (Feb. 19, 2015) 
(SR-OCC-2014-24) (describing the escalation thresholds for overnight 
monitoring).
    \14\ In relation to this proposed rule change, OCC also proposes 
to revise its ETH monitoring schedule to capture snapshots every 20 
minutes to align risk capture intervals over the entire trading day. 
Specifically, when the proposal is implemented, snapshots will run 
every 20 minutes throughout a 24-hour cycle beginning on Sunday 
afternoon at approximately 4:00 p.m. and ending on Friday evening at 
approximately 5:50 p.m. Central Time, with no snapshots taken in 
between Friday evening and the following Sunday afternoon due to the 
lack of any clearing activity.
    \15\ The STANS expected shortfall component is established as 
the estimated average of potential losses higher than the 99% value-
at-risk (``VaR'') threshold. The term ``VaR'' refers to a 
statistical technique that, generally speaking, is used in risk 
management to measure the potential risk of loss for a given set of 
assets over a particular time horizon.
    \16\ The STANS stress test component includes additional 
calculations related to (i) concentration, which is intended to 
consider extreme idiosyncratic moves in concentrated positions, and 
(ii) dependence, in which the expected shortfall calculations 
described above are performed twice again, once assuming perfect 
correlation among the various risk factors and once assuming no 
correlation among the various risk factors. After performing these 
concentration and dependence calculations, STANS takes the higher of 
the two factors and combines it with the empirical expected 
shortfall to create a more conservative margin requirement for the 
account.
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    OCC proposes to use outputs from the previous night's daily STANS 
methodology calculation, incorporating current portfolio changes, to 
monitor that day's peak intraday risk increases (i.e., an average of 
the largest risk increase calculated on each business day of the 
lookback period). The Intraday Risk Charge would be calculated monthly 
as at least the average of the peak intraday risk increases; provided 
however, that OCC may adjust the Intraday Risk Charge as described 
further below. The Intraday Risk Charge would be calculated on the 
first business day of the month and would be based on data and STANS 
outputs generated over the lookback period, which will be set as the 
previous month. OCC considers the one-month lookback period, a 
timeframe that includes one monthly and multiple weekly standard 
expirations, to be a conservative approach that would react faster to 
recent changes in the risk behavior of Clearing Members compared to a 
more extended lookback period and produces more relevant forecasts for 
the next monitoring cycle.
    OCC proposes to use the average of the peak intraday risk increases 
as the baseline charge to help address certain limitations of the 
present system, the most impactful of which is the use of the previous 
day's theoretical scenarios that do not take into account new 
underlying prices. The calculation of the peak intraday activity would 
capture all products that OCC clears, including 0DTE options. The 
Intraday Risk Charge would apply to all margin accounts other than 
cross-margin accounts for OCC's cross-margining program with the 
Chicago Mercantile Exchange (``CME''), which do not currently support 
intraday position feeds. OCC would retain authority to increase the 
amount of the charge for a particular Clearing Member beyond the 
average of the peaks, either when adjusting the Intraday Risk Charge on 
a monthly basis or on an intra-month

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basis, when conditions would warrant a different approach consistent 
with maintaining sufficient financial resources to cover OCC's intraday 
credit exposure. Conditions that would cause OCC to increase the 
Intraday Risk Charge above the minimum amount include when OCC 
determines it maintains insufficient margin resources to cover the 
pattern or distribution of risk increases over the previous lookback 
period, or in cases of an account's business expansion. OCC would also 
have authority to decrease the amount of the charge, which would be 
limited to a Clearing Member's business reduction, termination of 
account(s), transfer of positions to different account(s), or the 
imposition of protective measures under Rule 307B. Such charge 
adjustments may apply to particular or all Clearing Members.
    OCC has reviewed the potential impact of the proposed changes on 
all Clearing Members over a one (1) year period. OCC has observed that 
the proposed add-on would have generated an average margin increase of 
less than 5% in the aggregate.\17\ Of the ten firms that would have 
been most impacted, which collectively represent approximately 68% of 
the additional margin that would have been assessed, the average daily 
margin percentage increases range from approximately 3% to 35%, based 
on data from October 2023.
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    \17\ OCC has included as confidential Exhibit 3C to File No. SR-
OCC-2024-010 assessment of the impact of the Intraday Risk Charge on 
OCC's Clearing Members.
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    To establish this new charge, OCC proposes to amend Rule 601 by 
adding a new paragraph (i). OCC proposes to define the Intraday Risk 
Charge under proposed Rule 601(i)(1) to mean the additional margin 
assets required from a Clearing Member to mitigate any increased risk 
exposure to OCC not otherwise covered by the margin requirements 
already calculated in accordance with Rule 601 and OCC's policies and 
procedures. OCC would assess this add-on charge as needed to cover 
uncollateralized risk from overnight and intraday trading activities. 
Proposed Rule 601(i)(2) would provide the method of calculation for the 
proposed Intraday Risk Charge add-on, which would generally be set as 
the average of the peak intraday risk increases from overnight and 
intraday positions over the preceding month.\18\ Under proposed Rule 
601(i)(3), OCC would retain authority to adjust the Intraday Risk 
Charge if OCC determines that circumstances particular to a Clearing 
Member's activity would warrant a different approach consistent with 
maintaining sufficient financial resources to cover OCC's intraday 
credit exposure. Any adjustment under this Rule to decrease the amount 
of the Intraday Risk Charge calculated from the previous month's 
intraday risk increases would be limited to a Clearing Member's 
business reduction, termination of account(s), transfer of positions to 
different account(s), or the imposition of protective measures under 
Rule 307B. Rule 601(i)(3) would also provide that OCC retains the 
authority to adjust the Intraday Risk Charge more frequently than 
monthly.
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    \18\ A lookback of one month was selected to represent a 
complete monthly options expiration cycle.
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    OCC would also amend its Margin Policy to describe material aspects 
of the Intraday Risk Charge. The new charge would be added to the 
``Add-On Charges'' section. That addition would provide that 
periodically throughout each trading day and during extended trading 
hours, OCC's systems measure the intraday exposure to each margin 
account for which intraday position information is available to 
identify intraday risk increases above the baseline STANS risk 
measurement. The Margin Policy would define ``risk increases'' in this 
context as results that show an increase to a portfolio's prior night 
calculated risk measurement based on the STANS expected shortfall and 
stress test components. Clearing Members trading during ETH hours will 
still be obligated to pay an ETH margin add-on charge, and any ETH 
related risk controls will continue to operate independently from the 
proposed Intraday Risk Charge changes.\19\
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    \19\ Under OCC's current ETH procedures, any Clearing Member 
that clears overnight activity must pay an ETH margin add-on equal 
to the lesser of $10 million or 10% of the firm's net capital. See 
Exchange Act Release No. 74268, supra note 13, 80 FR at 8918.
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    The Margin Policy would further provide that on at least a monthly 
basis, OCC's Financial Risk Management department (``FRM'') reviews and 
verifies the daily peak increases based on a referenced procedure 
maintained by FRM's Market Risk business unit.\20\ This verification of 
risk-increasing activity is intended to address certain known 
limitations in OCC's existing intraday system.\21\ For example, the 
system does not take into account options affected by corporate action 
adjustments and newly listed option series or strikes, which do not 
receive adjusted metrics until the next overnight margin calculation 
process. In addition, the 20-minute snapshot generated by the system 
may not capture a complete trade in a single snapshot, which may result 
in a misalignment of the peak calculation for an account. The snapshot 
timing may also cause collateral movements to be recorded as risk-
increasing deposits instead of being risk-reducing movements. Pursuant 
to the referenced procedures, Market Risk would verify the peak daily 
results to prevent erroneous results from affecting the calculation of 
the Intraday Risk Charge. This verification process is similar to, and 
would proceed in a similar manner as, Market Risk's long-standing 
process for verifying results from OCC's system for monitoring a 
portfolio's unrealized losses based on current prices and start-of-day 
positions for purposes of charging intraday margin calls.\22\
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    \20\ OCC has provided as confidential Exhibit 3B to File No. SR-
OCC-2024-010 a copy of the referenced procedure, the Market Risk 
Monitoring Procedure, marked to indicate changes that OCC intends to 
implement upon regulatory approval of this proposal.
    \21\ As addressed in the Market Risk Monitoring Procedure, if a 
peak generated by the system is determined to represent non-trade 
activity, it would be excluded. For example, if a peak was 
determined to be the result of a Reg SCI system disruption, the 
previous month's average peak would be used as that day's peak daily 
increase. As another example, peaks could be excluded if they were 
the result of position and collateral transfers between accounts, 
which the system assumes are risk increasing (e.g., the transfer of 
positions from E*Trade to Morgan Stanley resulting from the merger 
of those Clearing Members).
    \22\ OCC has provided as confidential Exhibit 3D to File No. SR-
OCC-2024-010 a copy of OCC's current Portfolio Revaluation 
Monitoring Procedure, evidencing Market Risk's process for verifying 
results prior to issuing intraday margin calls when an account 
exhibits unrealized losses exceeding 50% of that account's total 
risk charges based upon start-of-day positions.
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    With respect to governance related to imposing the monthly Intraday 
Risk Charge, the Margin Policy would provide that OCC may impose the 
Intraday Risk Charge in the amount of the average of the verified peak 
daily risk increases over the prior month with FRM Officer \23\ 
approval. Adjustments to the charge can occur at the time of the 
monthly review or on an intramonth basis, e.g., in response to the 
intraday monitoring thresholds discussed below. Reductions would be 
limited to persistent changes in clearing activity that would reduce 
the risk profile of the account, e.g., business reduction, account 
terminations transfer of positions to different account(s), or the 
imposition of protective measures under Rule 307B. Any changes that 
would

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increase the charge over the minimum calculated may result from changes 
in the pattern or distribution of risk increases over the previous 
lookback period or persistent changes in clearing activity that would 
increase the risk profile of the account, e.g. business expansions. If 
the FRM Officer recommends any changes to an Intraday Risk Charge, the 
Model Risk Working Group (``MRWG'') must review and is authorized to 
escalate the recommendation to the Office of the Chief Executive 
Officer, who must review and is authorized to approve the changes.\24\ 
The Margin Policy vests review responsibility and escalation authority 
to the MRWG because it is a cross-functional group responsible for 
assisting OCC's management in overseeing OCC's model-related risk 
comprised of representatives from relevant OCC business units. OCC 
believes that the MRWG is the appropriate decisionmaker to consider 
whether a higher Intraday Risk Charge is warranted because it is 
composed of the subject matter experts most familiar with the 
performance of and risks associated with OCC's margin models, including 
personnel in OCC's Model Risk Management business unit, who, under 
OCC's Risk Management Framework, are responsible for evaluating model 
parameters and assumptions and providing effective and independent 
challenge through OCC's model lifecycle.\25\
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    \23\ Officers are identified in OCC's By-Laws. See OCC By-Law 
Art IV. In this context, an FRM Officer would include any member of 
FRM appointed by the Chief Executive Officer or Chief Operating 
Officer, including a Managing Director, Executive Director or 
Executive Principal. Id., at Sec.  9.
    \24\ Such changes to the Intraday Risk Charge must be based on 
the current charge being insufficient as defined in Exhibit 5A and 
confidential Exhibit 5B provided as part of File No. SR-OCC-2024-
010.
    \25\ See Exchange Act Release No. 95842, 87 FR at 58416 (File 
No. SR-OCC-2022-010) (filing to establish OCC's Risk Management 
Framework). OCC Risk Management Framework is available on OCC's 
public website: https://www.theocc.com/risk-management/risk-management-framework.
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2. Intraday Monitoring Thresholds
    OCC also proposes to establish monitoring and escalation criteria 
when a Clearing Member's intraday risk increase departs significantly 
from the activity that set the Intraday Risk Charge. This new 
monitoring regime would be separate and independent from any existing 
ETH-related risk controls and would be run in parallel. OCC proposes to 
add the new approach to the section of the Margin Policy that currently 
addresses margin calls and adjustments. The Margin Policy would provide 
that FRM would establish and maintain ``Intraday Risk Charge Monitoring 
Thresholds'' in referenced market risk procedures for verified intraday 
risk increases that are greater than statistical measures above a 
Clearing Member's Intraday Risk Charge. Generally, the new credit risk 
thresholds would be specified as a set of levels based on standard 
deviations from a Clearing Member's Intraday Risk Charge. The Margin 
Policy would further provide that on an at-least daily basis, FRM would 
review the intraday risk increases generated by the intraday risk 
system against the Intraday Risk Change Monitoring Thresholds. If a 
verified intraday risk increase breach is greater than the thresholds, 
the Margin Policy would provide that an FRM Officer may issue a margin 
call,\26\ make a margin adjustment to lock up excess collateral, or 
recommend protective measures under Rule 307. The Margin Policy would 
further provide that any margin call would be calculated as the 
difference between the reviewed intraday risk increase and the Intraday 
Risk Charge.\27\ The intraday margin calls would only be increasing 
financial resources to OCC. Generally, the intraday margin call would 
be released the next business day. Based upon a review of intraday 
margin runs during 2023, OCC estimates collections of approximately 
$80.5 million per day and issuing on average five margin calls each day 
for $16.1 million.
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    \26\ Margin calls in this context are demands by OCC to Clearing 
Members for the deposit of additional margin in immediately 
available funds to increase their margin resources to meet increased 
margin requirements. Margin calls are issued subject to OCC's 
policies and procedures.
    \27\ OCC may issue an intraday margin call if the account 
remains in breach of the thresholds at or around 12:00 p.m. based on 
the risk increase that is the difference between the reviewed 
intraday risk increase and the Intraday Risk Charge. OCC may 
determine that a margin call is not warranted if the risk increase 
can be attributed to one or more intraday events or actions 
including but not limited to portfolio level changes resulting from 
positive offsetting P&L amounts or positive offsetting asset values 
for options and collateral, or from non-risk increasing events such 
as the substitution of collateral or the pledging of additional 
valued securities within the same account. In addition, OCC may 
determine that a margin call is not warranted if the risk increase 
in the account is the result of a corporate action, or the result of 
position transfers between accounts such as delayed CMTA's from 
execution only accounts, or when a P&L unrealized loss generates a 
margin call that exceeds the intraday margin call.
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    With respect to governance related to the Intraday Risk Charge 
Monitoring Thresholds, the Margin Policy would also provide that FRM 
coordinates a review of those thresholds, as well as the calculation 
and lookback period, on an at least annual basis, or on an ad-hoc 
basis, as needed. OCC retains the authority to adjust the Intraday Risk 
Charge Monitoring Thresholds, as well as the calculation and lookback 
period, based on the review of intraday risk posed by that Clearing 
Member's portfolio changes. Any such adjustment to the Intraday Risk 
Charge Monitoring Thresholds, calculation, or lookback period may apply 
to particular or all Clearing Members depending on an analysis of the 
activity generating peak intraday margin numbers, the number of 
breaches above the monitoring thresholds, and overall market activity 
and trends within the lookback period. The review would be presented to 
the MRWG, which must review and is authorized to escalate any 
recommended changes to the Office of the Chief Executive Officer, who 
must review and is authorized to approve them. OCC's Risk Committee 
will be notified of all changes. As discussed above,\28\ OCC believes 
that the MRWG is the appropriate decisionmaker to consider any changes 
to the Monitoring Thresholds because it is composed of the subject 
matter experts most familiar with the performance of and risks 
associated with OCC's margin models.
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    \28\ See supra note 25 and accompanying text.
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Implementation Timeframe
    OCC will release and implement the proposed changes into production 
within one hundred and twenty (120) days after the date that OCC 
receives all necessary regulatory approvals for the proposed changes. 
OCC will announce the implementation date of the proposed change by an 
Information Memorandum posted to its public website at least 2 weeks 
prior to implementation.
(2) Statutory Basis
    OCC believes that the proposed changes are consistent with Section 
17A(b)(3)(F) of the Exchange Act \29\ and SEC Rule 17Ad-22(e)(6)(ii) 
thereunder.\30\ Section 17A(b)(3)(F) of the Act \31\ 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 introduce a new Intraday Risk Charge 
add-on with certain associated monitoring procedures and establish new 
risk-based credit risk monitoring thresholds. The proposed rule change 
as described above would enhance OCC's framework for measuring, 
monitoring, and managing its credit risk. Currently, OCC may be exposed 
to increased credit exposure from uncollateralized overnight and 
intraday trading activity, including that of 0DTE options that is not 
otherwise collateralized and

[[Page 65699]]

captured by OCC's current margin system at the start of each business 
day. OCC believes the proposed changes would enable OCC to mitigate the 
credit exposure resulting from the increased risk of overnight and 
intraday trading that includes 0DTE option contracts by using the 
system it currently operates to monitor overnight trading activity. The 
Intraday Risk Charge would provide OCC with additional margin resources 
to help mitigate this risk and allow OCC to continue to provide prompt 
and accurate clearance and settlement services of securities and 
derivatives transactions without disruption in the event of a Clearing 
Member default. Given OCC's designation as a systemically important 
financial market utility,\32\ OCC believes that changes that promote 
the prompt and accurate clearance and settlement thereby is in the 
public interest and the interests of investors. For these reasons, OCC 
believes the proposed changes are designed to promote the prompt and 
accurate clearance and settlement of securities transactions in 
accordance with Section 17A(b)(3)(F) of the Exchange Act.\33\
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    \29\ 15 U.S.C. 78q-1(b)(3)(F).
    \30\ 17 CFR 240.17Ad-22(e)(6)(ii).
    \31\ 15 U.S.C. 78q-1(b)(3)(F).
    \32\ The Financial Stability Oversight Council designated OCC as 
a SIFMU under Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010, 12 U.S.C. 5463.
    \33\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(6)(ii) requires OCC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to cover its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum, marks 
participant positions to market and collects margin, including 
variation margin or equivalent charges if relevant, at least daily and 
includes the authority and operational capacity to make intraday margin 
calls in defined circumstances.\34\ As discussed above, the Intraday 
Risk Charge would be applied daily to each marginable account based on 
that account's intraday risk increases from the previous month. Through 
the proposed Intraday Monitoring Thresholds, OCC would monitor accounts 
for intraday and overnight activity that deviates from the risk 
increasing activity that set the Intraday Risk Charge the previous 
month and would be authorized to issue a margin call or take other 
action to protect OCC in such defined circumstances. Accordingly, OCC 
believes that the proposal is consistent with Rule 17Ad-
22(e)(6)(ii).\35\
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    \34\ 17 CFR 240.17Ad-22(e)(6)(ii).
    \35\ Id.
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    For the above reasons, OCC believes that the proposed rule change 
is consistent with Section 17A of the Exchange Act \36\ and the rules 
and regulations thereunder applicable to OCC.
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    \36\ 15 U.S.C. 78q-1.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) requires that the rules of a clearing agency 
do not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\37\ The proposed introduction 
of the new Intraday Risk Charge add-on and establishment of new credit 
risk monitoring thresholds would be used by OCC to manage its credit 
risk across all Clearing Members. Accordingly, OCC does not believe 
that the proposed rule change would unfairly hinder access to OCC's 
services.
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    \37\ 15 U.S.C. 78q-1(b)(3)(I).
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    While the proposed rule change may impact different accounts to a 
greater or lesser degree depending on each Clearing Member's trading 
activity, including portfolios containing a greater volume of 0DTE 
option positions, 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 Exchange Act. As discussed above, 
OCC is obligated under the Exchange Act and the regulations thereunder 
to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, among 
other things, (i) considers, and produces margin levels commensurate 
with the risks and particular attributes of each relevant product, 
portfolio, and market, and (ii) marks participant positions to market 
and collects margin, including variation margin or equivalent charges 
if relevant, at least daily and includes the authority and operational 
capacity to make intraday margin calls in defined circumstances.\38\ 
Overall, the impact analysis from the proposed baseline approach 
indicates there would be on average a small add-on included across all 
Clearing Member margin requirements, with the more significant add-on 
charges attributed to Clearing Members in a manner that ties with their 
overnight and intraday trading activities and the increased risk they 
present to OCC.
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    \38\ See 17 CFR 240.17Ad-22(e)(6)(i)-(ii).
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    Moreover, the proposed rule change relates to risk management 
changes designed to mitigate OCC's credit exposure from the increased 
risk generated from Clearing Member trading activities during the 
overnight session and intraday trading that includes 0DTE option 
contracts. As noted above, the risk exposure from the significant 
increase in intraday trading activity of 0DTE options may not be 
adequately captured under OCC's current margin system. OCC believes the 
Intraday Risk Charge would be a risk-based approach suitable to 
capturing the increased intraday risk exposure presented to OCC from 
such trading activities. Furthermore, the proposed rule change would be 
applied uniformly across all Clearing Members and affect all cleared 
products, including 0DTE option contracts and ETH eligible products, 
and provide greater clarity to all market participants on margin 
requirements for overnight and intraday trading. Accordingly, OCC 
believes that the proposed rule change would not impose any burden or 
impact on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.

(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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this 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:

[[Page 65700]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-OCC-2024-010 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-2024-010. 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-regulations/self-regulatory-organization-rulemaking). 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-2024-010 and 
should be submitted on or before September 3, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-17847 Filed 8-9-24; 8:45 am]
BILLING CODE 8011-01-P