[Federal Register Volume 90, Number 104 (Monday, June 2, 2025)]
[Notices]
[Pages 23403-23409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-09847]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103123; File No. SR-OCC-2025-007]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by the Options Clearing
Corporation Concerning Updates to Its Portfolio Revaluation Process for
Purposes of Determining Intraday Margin Calls in Order To Better Manage
OCC's Intraday Risk Exposure to Its Clearing Members
May 27, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 23404]]
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on May 15, 2025, The Options Clearing Corporation
(``OCC'' or ``Corporation'') 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 make updates to its portfolio
revaluation process for purposes of determining intraday margin calls
in order to better manage OCC's intraday risk exposure to its Clearing
Members.
The proposed changes are included in Exhibit 5 [sic] to File No.
SR-OCC-2025-007. Material proposed to be added is underlined and
material proposed to be deleted is marked in strikethrough text. All
terms with initial capitalization that are not otherwise defined herein
have the same meaning as set forth in 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
(1) Purpose
Background
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission.
OCC also clears certain 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.
OCC has established a proprietary system, the System for
Theoretical Analysis and Numerical Simulation (``STANS''), that runs
various models used to calculate each Clearing Member's margin
requirements. At the start of each business day, OCC collects margin
requirements for each marginable account calculated by STANS based on
the account's end-of-day positions \4\ from the previous business day.
OCC also makes intraday margin calls in defined circumstances. OCC's
Rules grant it the authority to issue intraday margin calls based on
intraday market volatility, changes in the size of a Clearing Member's
positions, the value of securities deposited as margin, or otherwise to
protect OCC, other Clearing Members or the general public, among other
bases identified in Rule 609.\5\
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\4\ The term ``end-of-day positions'' refers to the positions
held by Clearing Members after the markets have closed each business
day.
\5\ See OCC Rule 609(a).
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In particular, OCC requires the deposit of intraday margin to
reflect changes in the value of securities deposited as margin by the
Clearing Member when certain thresholds are breached pursuant to OCC
Rule 609 \6\ and OCC's Margin Policy.\7\ OCC maintains a portfolio
revaluation process to monitor intraday price movements on Clearing
Member positions for purposes of issuing margin calls and collecting
additional margin assets when necessary.\8\ Throughout the day, the
portfolio revaluation process revalues Clearing Member start-of-day
positions \9\ with current prices to calculate updated account profit
and loss (``P&L'') for purposes of issuing intraday margin calls.\10\
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\6\ See OCC Rule 609(a)(3). (``The Corporation 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 [. . .] the value of securities deposited by the Clearing
Member as margin.'')
\7\ OCC's Margin Policy has been filed with and approved as a
rule by the Commission. 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-2018-011); 82658 (Feb. 7, 2018), 83 FR 6646 (Feb. 14,
2018) (SR-OCC-2017-007).
\8\ The requirement that OCC engage in portfolio revaluation and
revalue Clearing Member accounts using updated price data for
purposes of issuing intraday margin calls is codified in the Margin
Policy. 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 revaluation of Clearing Member accounts using
updated price data in accordance with the Portfolio Revaluation
Monitoring Procedure, including the issuance of a margin call during
standard equity trading hours when unrealized losses are observed
for an account, based on start-of-day positions, exceeding 50% of
that account's total risk charges). The details of the portfolio
revaluation process are set out in the Portfolio Revaluation
Monitoring Procedure, which is included as Exhibit 3A to File No.
SR-OCC-2024-00X.
\9\ The term ``start-of-day positions'' refers to Clearing
Member end-of-day positions from the prior trading day adjusted for
corporate actions, but which does not include any positions
generated from overnight extended trading hours.
\10\ OCC also issues margin calls when unrealized losses
observed for an account based on positions from extended trading
hours (``ETH'') exceed a certain threshold (``ETH margin calls'').
Id. (codifying in the Margin Policy the ETH margin call that OCC
would issue when unrealized losses observed for an account, based on
new ETH positions, exceed 25% of that account's total risk charges
and the overall Clearing Member portfolio is also experiencing
losses).
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OCC collects margin in line with requirements at the start of each
business day based on an account's end-of-day positions from the
previous business day. However, OCC's exposure to its Clearing Members
may change as a result of intraday changes in both prices and
positions. To mitigate intraday risk exposure to its Clearing Members,
OCC currently utilizes its portfolio revaluation process to determine
intraday margin calls between the collection of margin at the start of
each business day. Because the portfolio revaluation process is based
on a Clearing Member's start-of-day positions, it does not consider
exposure changes resulting from intraday position changes. To help
mitigate such exposure
[[Page 23405]]
changes, OCC proposes to enhance its portfolio revaluation process to
incorporate current positions \11\ when determining to issue intraday
margin calls. Instead of portfolio revaluation, the enhanced process
would more aptly be referred to as Intraday Profit and Loss (``Intraday
P&L'' or ``IPL''). The IPL process would calculate P&L values for each
Clearing Member's portfolio throughout the day by monitoring both
changes in market prices and member positions. The proposed IPL process
would also provide OCC the authority to issue intraday margin calls to
cover increased exposures arising from changes in prices, positions or
both. Under the proposed IPL process, OCC would measure the change in
risk posed by member portfolios by calculating near real-time P&L
values on current Clearing Member positions, which would allow OCC to
better monitor intraday exposure and collect intraday margin when an
applicable threshold is breached. For example, the proposed changes
would allow OCC to account for any risk-reducing or risk-increasing
trades and collect financial resources in proportion to such risk.\12\
For the avoidance of doubt, such changes would have no impact on OCC's
calculation of STANS margin requirements or other models.
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\11\ The term ``current positions'' refers to Clearing Member
positions at a certain point in time during the regular trading
hours (``RTH''), which includes positions from the start-of-day and
those generated during ETH and RTH.
\12\ The proposed rule change would not change the current
thresholds for intraday or ETH margin calls that are set out in the
Margin Policy.
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As noted earlier, OCC already has the authority to issue intraday
margin calls under Rule 609 to maintain sufficient financial resources
to cover its credit exposures.\13\ Under the existing portfolio
revaluation process, OCC can issue margin calls consistent with OCC's
policies and procedures, to address the credit exposure from any
unrealized losses in a Clearing Member's account above and beyond
certain predetermined thresholds based on current market prices applied
to a Clearing Member's start-of-day positions. This process measures a
Clearing Member's-profits and losses throughout the trading day.
However, the process is limited, as currently designed, because it only
considers a static snapshot of the account, comprised of a Clearing
Member's start-of-day positions. This proposed rule change would not
amend the purpose of the existing process, i.e., measuring a Clearing
Member's intraday profits and losses; rather, it would introduce an
improvement to the calculations by incorporating a Clearing Member's
current positions in place of a Clearing Member's static start-of-day
positions in the calculations. The proposed change from using static
start-of-day positions to using current positions as inputs would allow
OCC to account for both realized and unrealized losses due to market
movements, the product of which will represent a near real-time
determination of losses held across all Clearing Member accounts.
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\13\ See supra note 6.
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Margin calls issued under OCC's other intraday margin proposal
recently approved by the Commission, File No. SR-OCC-2024-010 (the
``2024 Proposal''),\14\ address a different type of exposure. Margin
calls issued under this proposed rule change, File No. SR-OCC-2025-007,
address losses on current positions caused by market movements to limit
OCC's exposure to intraday losses before the next start-of-day margin
collection. In contrast, margin calls issued under the 2024 Proposal
address the increase in the risk of losses (i.e., risk exposures) to
minimize under-margining due to intraday trading activity that is not
captured by start-of-day margin requirements calculated for the
account. Like the current proposed rule change, under the 2024
Proposal, OCC can call for additional financial resources intraday by
issuing intraday margin calls consistent with Rule 609 and OCC's
policies and procedures. Under the 2024 Proposal, margin calls, if
assessed, would target the increase in risk exposures resulting from
intraday trading activities that breach certain risk-based statistical
thresholds in individual Clearing Member accounts. Both proposals
considered together would allow OCC to issue two separate margin calls
on the same day to a Clearing Member, each targeting a specific type of
exposure presented to OCC. Margin calls issued under this proposal are
additional financial resources used to cover realized and unrealized
losses. In contrast, margin calls issued under the 2024 Proposal are
additional financial resources used to cover increased risk exposures.
Both margin calls would encompass the Clearing Member's intraday
trading activity for that day.
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\14\ See Exchange Act Release Nos. 102768 (Apr. 3, 2025), 90 FR
15274 (Apr. 9, 2025) (File No. SR-OCC-2024-010) (Order approving OCC
proposal to establish a margin add-on charge that would be applied
to all Clearing Member accounts); 102202 (Jan. 15, 2025), 90 FR 7722
(Jan. 22, 2025) (File No. SR-OCC-2024-010); 100664 (Aug. 6, 2024),
89 FR 65695 (Aug. 12, 2024) (File No. SR-OCC-2024-010).
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To illustrate this scenario, consider a hypothetical Clearing
Member account that on a given trading day starts with a certain profit
and loss threshold (as currently is the case in OCC's portfolio
revaluation process), and an intraday monitoring threshold unique to
that account's historic activity determined under the 2024 Proposal.
Suppose further that early in the trading day the Clearing Member sells
out of the money naked call options on an underlying equity or index.
If later in the day the underlying price increases substantially, the
call option may turn deep in the money causing potential outsized
losses to the Clearing Member. By midday, the loss on that trade in the
Clearing Member account may exceed the loss threshold for the account
on that day. This would result in a margin call being issued to the
Clearing Member requesting additional financial resources under this
proposal based on the losses in the account. This same trade could
increase the Clearing Member's intraday risk exposure to OCC since it
would constitute a new position held in that account. The resulting
increase in risk exposure could exceed the intraday monitoring
threshold for the account on that day and compel OCC to seek additional
financial resources to cover this rise in intraday risk by issuing a
separate margin call under the 2024 Proposal. The margin call issued
under this proposal would cover the losses in the Clearing Member
account at that point in time, and the margin call issued under the
2024 proposal would cover potential future losses. In practice, the
example envisaged above would apply to current positions to account for
intraday losses and increases in intraday risk exposures in Clearing
Member accounts.
Proposed Changes
OCC proposes to help mitigate its intraday risk exposure to its
Clearing Members by updating its portfolio revaluation process to use
current positions instead of start-of-day positions for purposes of
determining intraday margin calls, as further described below. The
proposed rule change is designed to allow OCC to better monitor
intraday risk exposure to its Clearing Members and collect margin on an
intraday basis in consideration of both position and price changes.
OCC utilizes its portfolio revaluation process to address the
change in value of margin collateral. For purposes of charging intraday
margin calls, OCC's portfolio revaluation process monitors a Clearing
Member account's unrealized losses based on start-of-day positions.
Start-of-day positions are revalued with
[[Page 23406]]
current prices at set intervals (``revaluation runs'' or ``runs'')
during standard equity trading hours to calculate updated account P&L.
In accordance with OCC's Margin Policy, intraday margin calls are
issued when unrealized losses are observed for an account, based on
start-of-day positions, exceeding the threshold of 50% of that
account's total risk charges.\15\ OCC has established a minimum value
of $500,000 \16\ below which OCC will not issue an intraday margin call
and a standard time for processing margin calls.\17\ Intraday margin
calls are generally issued at a single collection time at or around
12:00 p.m. Central Time (``CT'').\18\ OCC nonetheless retains its
authority under Rule 609(a) to issue margin calls at any time on any
business day.\19\
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\15\ See supra note 7.
\16\ The minimum margin call threshold is aligned with the
minimum Clearing Fund deposit of $500,000. See OCC Rule 1003(a).
\17\ See Exhibit 3A to File No. SR-OCC-2025-007 for the
Portfolio Revaluation Monitoring Procedure.
\18\ Id.
\19\ 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: .
. . .'').
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Under the proposed changes, the IPL process would incorporate
current positions instead of start-of-day positions in intraday margin
call P&L calculations. For purposes of charging intraday margin calls,
OCC's IPL process would measure the change in risk by calculating near
real-time P&L values on Clearing Member positions. Current positions
would be revalued with current prices every five minutes during
standard equity trading hours to calculate updated account P&L.\20\
Intraday margin calls would be issued when unrealized losses are
observed for an account, based on current positions, exceeding the 50%
threshold of that account's total risk charges, as they are issued
today. Such intraday margin calls would, in general, continue to be
issued at a single collection time at or around 12:00 p.m. CT in
accordance with the current process. OCC does not propose any changes
to the minimum margin call value or the standard time for processing
margin calls.
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\20\ OCC does not propose any changes to its process for issuing
ETH margin calls as part of this proposed rule change and the
proposed IPL process will not impact ETH margin calls.
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The proposed changes would allow OCC to collect resources from
Clearing Members intraday based on changes in both positions and
prices. Such changes are designed to allow OCC to better monitor
intraday exposure by accounting for intraday position changes and
collecting intraday margin accordingly. Because the current process
revalues start-of-day positions, it does not account for Clearing
Members engaging in risk-reducing or risk-increasing trades throughout
the trading day. By revaluing current positions, the proposed IPL
process would allow OCC to call for resources in response to intraday
position changes, such as Clearing Members building large positions or
trading out of their positions. For instance, a Clearing Member's
start-of-day positions may present unrealized losses that exceed the
threshold, whereas a Clearing Member's intraday positions may present
unrealized losses that do not exceed the threshold due to intraday
risk-reducing trades. A Clearing Member's start-of-day positions may
lead to a larger margin call under the existing process than would be
commensurate with the risks presented by its current positions.
For the avoidance of doubt, the proposed rule change would have no
impact on OCC's calculation of STANS margin requirements or other
models. OCC does not currently re-calculate STANS margin requirements
on an intraday basis for purposes of charging an intraday margin call
and does not propose to do so using this proposed rule change. The
proposed rule change relates to the threshold for intraday margin calls
when unrealized losses on a Clearing Member's account are greater than
50% of the account's total risk charges. The impact will be dependent
on a Clearing Member's trading activity and whether it is risk-reducing
or risk-increasing relative to start-of-day positions used under the
current approach.
Portfolio Revaluation Process Changes
The changes to the portfolio revaluation process are described
below. Overall, the proposed rule change is intended to help mitigate
exposure resulting from intraday changes to Clearing Member positions
that may not be captured by the existing process.
Current process: Currently, revaluation runs for standard equity
trading hours occur between 8:30 a.m. CT and 3:15 p.m. CT. Revaluation
runs provide updated account P&L pertaining to start-of-day positions
using current prices approximately every 40 minutes. OCC's system
determines whether account P&L breaches the applicable threshold and
sends an automated email to OCC's Market Risk and Default Management
team (``MRDM'') for review approximately every 40 minutes. After MRDM
verifies that unrealized losses on a Clearing Member's account are
greater than 50% of the account's total risk charges, a recommendation
for an intraday margin call for additional margin collateral is
escalated to Financial Risk Management (``FRM'') team management. FRM
management retains the authority to determine whether to approve the
issuance of such intraday margin calls at a single collection time at
or around 12:00 p.m. CT.\21\ Under the Margin Policy, such margin calls
must be approved by an OCC employee with the title of Executive
Director or above. In situations where the approver determines the
accuracy of the call may be in question or other factors indicate that
it may be prudent to confirm the margin call amount, the approver may
defer the decision to execute the margin call to a subsequent portfolio
revaluation to confirm its validity. Margin calls after 1:30 p.m. CT
must be approved by the Chief Financial Risk Officer, Chief Executive
Officer, Chief Operating Officer, or Chief Risk Officer (``Senior
Management'').\22\ OCC retains its authority under Rule 609(a) to issue
margin calls at any time on any business day.\23\
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\21\ The margin call would be issued based on the first complete
and valid revaluation run at or around 12:00 p.m. CT. If no
exceedance is detected at the time, no margin call is issued, even
if the account had an exceedance during earlier runs.
\22\ See supra note 15.
\23\ See supra note 17.
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Amended process: As amended, IPL runs for standard equity trading
hours will continue to occur between 8:30 a.m. CT and 3:15 p.m. CT. IPL
runs will provide updated account P&L pertaining to current positions
using current prices every five minutes. OCC's system will determine
whether account P&L breaches the applicable threshold and send an
automated email to MRDM for review if there is a breach at set
intervals. Such intervals will be configurable by OCC and will
initially be set every 40 minutes. After MRDM verifies that unrealized
losses on a Clearing Member's account are greater than 50% of the
account's total risk charges, a recommendation for an intraday margin
call for additional margin collateral will be escalated to FRM
management. FRM management will retain the authority to determine
whether to approve the issuance of such intraday margin calls at a
single collection time at or around 12:00 p.m. CT.\24\ Under the Margin
Policy, margin calls will continue to require approval by an OCC
employee with the title of
[[Page 23407]]
Executive Director or above. In situations where the approver
determines the accuracy of the call may be in question or other factors
indicate that it may be prudent to confirm the margin call amount, the
approver may defer the decision to execute the margin call to a
subsequent run to confirm its validity. Margin calls after 1:30 p.m. CT
will continue to require approval by Senior Management. OCC will retain
its authority under Rule 609(a) to issue margin calls at any time on
any business day.\25\
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\24\ The margin call would be issued based on the first complete
and valid IPL run at or around 12:00 p.m. CT. If no exceedance is
detected at the time, no margin call is issued, even if the account
had an exceedance during earlier runs.
\25\ See supra note 17.
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OCC also reviewed the potential impact of the proposed changes
across all Clearing Members over a one-year period from February 2024
to January 2025 summarized in the following table:
Table 1--Comparison Between Portfolio Revaluation and IPL
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Current methodology Proposed methodology
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Total Margin Call Amount......... $6,448.7 million...................... $6,991.4 million.
No. of Margin Calls.............. 93.................................... 125.
Average Call Amount.............. $69.3 million......................... $55.9 million.
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Overall, under the proposed methodology, the total number of margin
calls is expected to increase by 34%, to 125 from the current 93 margin
calls issued. However, average call amounts would be lower and reduced
by approximately 19.3%, the equivalent of a $13.4 million drop for an
average call of around $55.9 million. The minimum call amount would
remain the same starting at $500,000, but under the proposed
methodology the largest call amount would also be reduced by 21.8%, the
equivalent of a $190.6 million drop to a lower call of $682.7 million.
Depending on the member's activity on a given date, intraday margin
call amounts generated using current positions were on average lower
than those under the portfolio revaluation process. While margin calls
resulting from the proposed changes may differ across Clearing Members
due to members' activity, OCC believes that margin coverage under the
enhanced IPL process will be more commensurate with the risks presented
by its members' activity.\26\
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\26\ For the avoidance of doubt, the amended process will 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.
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Policy Changes
To effect the proposed changes, OCC would amend the Margin Policy
as follows. The current language requires FRM to ensure that OCC issues
a margin call during standard equity trading hours, as provided in
relevant procedures. OCC proposes to establish new procedures for FRM
to monitor portfolios such that that OCC will be able to issue intraday
margin calls during standard equity trading hours as portfolio
positions change. Such changes are intended to emphasize that OCC
engages in ongoing monitoring and to consider the authority provided to
FRM management to determine whether to approve the issuance of intraday
margin calls, as provided in the current procedures. OCC also proposes
to replace references to portfolio revaluation and the Portfolio
Revaluation Monitoring Procedure with references to IPL and the
Intraday Profit & Loss Monitoring Procedure.\27\ Furthermore, the
Margin Policy currently directs OCC's FRM to issue an intraday margin
call during standard equity trading hours when unrealized losses are
observed for an account, based on start-of-day positions, exceeding 50%
of that account's total risk charges. OCC proposes to remove ``start-
of-day'' to show that the IPL process uses current positions for
purposes of determining intraday margin calls. OCC also proposes to
replace ``total risk charges'' with ``total margin charges''. In this
context, ``total risk charges'' consists of expected shortfall
(``ES''),\28\ stress test charges, and add-on charges. As amended
``total margin charges'' would continue to consist of ES, stress test
charges and add-on charges. This change is intended to avoid potential
confusion with the term ``Total Risk'' which is a defined term.\29\
Given the similarity of these terms, OCC believes ``total margin
charges'' is clearer in the context of intraday margin calls.
Conforming changes are proposed in the following section when
referencing ``total risk charges''. This proposed rule change is
designed to address the risk that OCC's exposure to its Clearing
Members may change as a result of intraday position changes. Overall,
this proposed rule change would allow OCC to better monitor intraday
risk exposure to its Clearing Members and clarify that OCC can collect
margin on an intraday basis in consideration of both position and price
changes.
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\27\ The draft Intraday Profit & Loss Monitoring Procedure is
provided as confidential Exhibit 3B to SR-OCC-2025-007.
\28\ As employed by OCC, ES 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 is used in risk management to measure the potential
risk of loss for a given set of assets over a particular time
horizon.
\29\ The term ``Total Risk'' is defined as 99% ES plus the
stress test component in the STANS Methodology Description.
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Implementation Timeframe
The proposed changes are related to a larger OCC technology
initiative, Ovation. OCC will implement the proposed changes at the
time Ovation becomes OCC's system of record, which is planned to launch
in the first half of 2026.\30\ Accordingly, OCC will announce the
implementation date of the proposed changes by an Information
Memorandum posted to its public website at least 2 weeks prior to
implementation. OCC plans to launch Ovation and implement the proposed
changes no later than June 30, 2026, and OCC will announce another
intended implementation date by Information Memorandum posted to its
public website if the changes will not be implemented by that date.
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\30\ See https://www.theocc.com/Participant-Resources (linking
to reference guides and timelines for the launch of Ovation).
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(2) Statutory Basis
OCC believes the proposed changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, OCC believes
the proposed changes are consistent with Section 17A(b)(3)(F) of the
Act.\31\ Section 17A(b)(3)(F) \32\ of the Act requires, among other
things, that the rules of a clearing agency be designed to promote the
prompt and accurate clearance and settlement of securities transactions
and, in general,
[[Page 23408]]
to protect investors and the public interest. OCC believes that
incorporating current positions in its portfolio revaluation process
will help mitigate intraday risk exposure to its Clearing Members. As
described above, OCC's exposure to its Clearing Members may change as a
result of intraday changes in both prices and positions. OCC currently
utilizes its portfolio revaluation process to determine intraday margin
calls between the collection of margin at the start of each business
day. Because the portfolio revaluation process is based on a Clearing
Member's start-of-day positions, it does not consider exposure
resulting from intraday position changes. To help mitigate such
exposure, OCC proposes to incorporate current positions in the amended
IPL process to determine intraday margin calls. The IPL process would
calculate P&L values on Clearing Members' current portfolios using
current market prices and monitor portfolios as they change throughout
the day. The IPL process would measure the change in risk by
calculating and incorporating near real-time P&L values on Clearing
Member positions. This would allow OCC to better monitor intraday
exposure by accounting for intraday position changes and collecting
intraday margin accordingly, which would promote OCC's ability to
continue to provide prompt and accurate clearance and settlement
services. OCC thus believes that the proposed changes would be
beneficial to and protective of OCC and its participants and that the
proposed changes are therefore designed, in general, to protect
investors and the public interest.
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\31\ 15 U.S.C. 78q-1(b)(3)(F).
\32\ Id.
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OCC believes that the proposed changes are also consistent with the
SEC rules that apply to OCC as a covered clearing agency.\33\ In
particular, SEC Rule 17Ad-22(e)(6)(ii) \34\ 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. The proposed rule change would enhance
OCC's ability to measure, monitor, and manage its credit exposures to
its participants by utilizing the IPL process to consider current
positions instead of start-of-day positions. The proposed rule change
is intended to help mitigate exposure resulting from intraday changes
to Clearing Member positions that may not be currently captured by
existing OCC processes. Overall, this proposed rule change would allow
OCC to better monitor intraday risk exposure to its Clearing Members
and collect margin on an intraday basis in consideration of both
position and price changes. Moreover, OCC would be better positioned to
account for risk-reducing or risk-increasing trades and collect
financial resources in proportion to such risk. Such changes would help
OCC further ensure that it has sufficient information to take action to
manage intraday exposures that may arise. For the above reasons, OCC
believes that the proposed rule change is consistent with Section 17A
of the Exchange Act \35\ and the rules and regulations thereunder
applicable to OCC.
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\33\ 17 CFR 240.17Ad-22(a)(5).
\34\ 17 CFR 240.17Ad-22(e)(6)(ii).
\35\ 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.\36\ The proposed rule change is
designed to help mitigate OCC's intraday risk exposure to its Clearing
Members by utilizing the IPL process which incorporates current
positions instead of start-of-day positions for purposes of determining
intraday margin calls. The IPL process would be used by OCC across all
Clearing Members. OCC thus does not believe that the proposed rule
change would unfairly hinder access to OCC's services.
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\36\ 15 U.S.C. 78q-1(b)(3)(I).
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While the proposed rule change may impact Clearing Members
differently depending on their trading activity, 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's impact analysis indicates that
at the Clearing Member level, while the number of intraday margin calls
may increase from using current positions due to individual Clearing
Member's trading activity on a given date, intraday margin call amounts
would on average be lower than those under the portfolio revaluation
process. While margin calls resulting from the proposed changes may
differ due to Clearing Members' activity, OCC believes that margin
coverage under the enhanced IPL process will be more commensurate with
the risks presented by its Clearing Members' activity. Because the
current process revalues start-of-day positions, it does not account
for Clearing Members engaging in risk-reducing or risk-increasing
trades throughout the trading day. By revaluing current positions, the
proposed IPL process would allow OCC to call for resources in response
to intraday position changes, such as Clearing Members building large
positions or trading out of their positions. For example, the proposed
IPL process would allow for risk-reducing positions to be incorporated
into OCC's intraday margin collection cycle and would reduce intraday
margin calls for some accounts which actively risk-manage their
portfolios. Ultimately, the impact of the proposed rule change will be
dependent on a Clearing Member's trading activity and whether it is
risk-reducing or risk-increasing relative to the start-of-day positions
used under the current approach. Further, the proposed rule change is
intended to help mitigate exposure resulting from intraday changes to
Clearing Member positions that may not be currently captured by
existing OCC processes. The proposed rule change would be applied
uniformly across all Clearing Members. 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 rule change, and have not 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 selfregulatory 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
[[Page 23409]]
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-2025-007 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-2025-007. 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-2025-007 and
should be submitted on or before June 23, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2025-09847 Filed 5-30-25; 8:45 am]
BILLING CODE 8011-01-P