Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend Its Policy Statement Adopted Under Rule 205 Entitled “Back-up Communication Channel to Internet Access”, 54707-54710 [2013-21537]

Download as PDF Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices similar to services available on other markets. In this regard, the Exchange notes that The NASDAQ Stock Market LLC (‘‘NASDAQ’’) similarly makes a 40 Gb fiber connection available to users of its co-location facilities.13 Finally, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually review, and consider adjusting, its fees and credits to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 14 of the Act and subparagraph (f)(2) of Rule 19b–4 15 thereunder, because it establishes a due, fee, or other charge imposed by NYSE. At any time within 60 days of the filing of such 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 16 of the Act to determine whether the proposed rule change should be approved or disapproved. ehiers on DSK2VPTVN1PROD with NOTICES 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSE–2013–60 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2013–60. 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 Web site (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 Web site 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2013–60 and should be submitted on or before September 26, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–21574 Filed 9–4–13; 8:45 am] BILLING CODE 8011–01–P 13 See NASDAQ Rule 7034. 14 15 U.S.C. 78s(b)(3)(A). 15 17 CFR 240.19b–4(f)(2). 16 15 U.S.C. 78s(b)(2)(B). VerDate Mar<15>2010 14:10 Sep 04, 2013 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70289; File No. SR–OCC– 2013–10] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend Its Policy Statement Adopted Under Rule 205 Entitled ‘‘Back-up Communication Channel to Internet Access’’ August 29, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 23, 2013, The Options Clearing Corporation (‘‘OCC’’ or ‘‘Corporation’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change OCC proposes to make certain changes to its Policy Statement adopted under Rule 205 entitled ‘‘Back-up Communication Channel to Internet Access’’ requiring clearing members that use the Internet as their primary means to access OCC’s information and data systems to maintain a secure back-up means of communication in order to provide for business continuance in the event of an Internet outage. 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 such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose OCC Rule 205 prescribes that OCC clearing members are required to submit instructions, notices, reports, data and 1 15 17 17 Jkt 229001 PO 00000 CFR 200.30–3(a)(12). Frm 00091 Fmt 4703 Sfmt 4703 54707 2 17 E:\FR\FM\05SEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 05SEN1 ehiers on DSK2VPTVN1PROD with NOTICES 54708 Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices other items to the Corporation electronically in accordance with procedures prescribed by the Corporation. The Rule is designed to promote operational efficiency and effectiveness and reduce input errors. Position-related post-trade (e.g., exercise notices, position adjustments) and collateral transactions are common examples of instructions submitted by clearing members electronically. OCC supports the submission of these instructions through use of an Internet connection to OCC’s secured Web site. In 2006, OCC adopted a Policy Statement under Rule 205 requiring clearing members that primarily use the Internet to access OCC’s systems to maintain a secure back-up means of communication as a contingency to perform on a timely basis critical business activities in the event of an Internet outage, as well as to maintain service arrangements with two independent internet service providers.3 The Policy Statement adopted at the time required clearing members to maintain: (i) Separate service agreements with two (2) independent service providers, and (ii) an OCCapproved method for accessing OCC’s information and data systems even in the case of an Internet outage (the ‘‘Back-Up Communication Channel’’). Guidelines were established so that the Back-Up Communication Channel authorized for a particular clearing member was determined in accordance with the firm’s business profile using certain criteria. For example, a clearing member that: (i) ranked among the top twenty-five of cleared volume during a calendar year; (ii) cleared more than one account type as defined in OCC’s ByLaws and Rules; (iii) cleared two or more product types; (iv) conducted Clearing Member Trade Assignment (‘‘CMTA’’) business; (v) input a high volume of daily post-trade activity; (vi) generally utilized multiple forms of collateral; (vii) utilized most ancillary services offered by OCC; (viii) used a lease line for data transmissions, would generally be designated as a ‘‘Category A’’ firm. ‘‘Category A’’ firms were required to maintain a T1 line as an acceptable form of back-up communication channel. A clearing member that: (i) Transacted mid-level cleared volume during a calendar year; (ii) cleared only one or more account types as defined in OCC’s By-Laws and Rules; (iii) cleared one or more product types; (iv) input a moderate to small volume of post-trade 3 Securities Exchange Act Release No. 53980 (June 14, 2006), 71 FR 36155 (June 23, 2006)(SR– OCC–2006–04). VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 activity; (v) generally utilized one or two forms of collateral; (vi) may have utilized a lease line for data transmissions, were generally designated as a ‘‘Category B’’ firm. Under the Policy Statement, ‘‘Category B’’ firms were provided the option to either maintain a T1 line or ISDN connection as acceptable forms of a back-up communication channel. A clearing member that: (i) Transacted low-level cleared volume during a calendar year; (ii) cleared no more than one account type as defined in OCC’s By-Laws and Rules; (iii) cleared no more than one product type; (iv) generally utilized one or two forms of collateral; (v) input minimal amounts of post-trade activity, would generally be designated as a ‘‘Category C’’ firm. ‘‘Category C’’ firms were given the option to maintain an ISDN connection, utilize OCC equipment if the clearing member was located in or near a city where OCC maintains operational center(s), or rely upon fax transmission in the event an internet connection was not available. Recent denial of service attacks on financial institutions, along with changes in technology since the Policy Statement was first adopted, have prompted OCC to reassess the risk to operations should Internet connections supporting clearing member access to OCC’s information and data systems be interrupted. Through this assessment, OCC has determined that its existing policy should be modified to ensure it is easily understood and properly implemented by the clearing membership. OCC is now proposing to make updates to the Policy Statement intended to simplify the criteria applied to a given firm in determining the appropriate Back-Up Communication Channel. Instead of having three categories of Business Profiles that include several criteria to be applied, and offering multiple communication options available to a particular firm, the updated Policy Statement will contain two profiles. Clearing Members that rank in the top-25 of cleared volume during a calendar year or act as a facilities manager to one or more Clearing firms will be designated as a ‘‘Category A’’ firm, and will be required to maintain a T1 line as its Back-Up Communication Channel. All other firms will be designated as ‘‘Category B’’ firms, and will be required to maintain a T1 line or utilize a fax line, telephone or have ready access to an OCC office location. OCC believes the proposed changes will present minimal to no impact to clearing members. In particular, all firms that were previously designated as PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 ‘‘Category A’’ firms under the former policy will continue to be designated as ‘‘Category A’’ firms under the revised policy being proposed, and they will still be required to maintain a T1 line, as previously required. Those firms that will be designated as Category B firms under the proposed policy will now have increased flexibility under the back-up options being made available to them, in that they can select between a T1 Line, fax, telephone, or use an OCC office if they are located in a city where OCC maintains an operational center. In preparation for the revisions to the Policy Statement, OCC has acquired new fax servers that have increased bandwidth to support multiple users that may select facsimile transmission as their available back-up communication method. Meanwhile, the telephone features used by OCC’s Member Service staff are equipped so that calls are automatically routed to an available representative in the event a firm’s designated contact is unavailable. Finally, OCC has confirmed that: (i) The number of Category B firms who are located in a city where OCC maintains an office; and (ii) do not currently maintain a T1 line, is sufficiently small enough so that OCC will be able to accommodate those firms who may need to utilize OCC’s equipment in the event of an internet outage. OCC also proposes to clarify the Policy Statement by expressly adding a requirement for each clearing member to provide OCC with an annual statement that the Clearing Member: (i) Has been and continues to be in compliance with the Policy Statement; (ii) has successfully tested its ability to access OCC’s information and data systems using its Back-Up Communication Channel since the last reporting period; and (iii) will notify OCC within a reasonable period of any changes to their Internet Service Providers since the date of the last notice provided to OCC. While OCC believes that the existing policy reasonably and fairly implies that clearing members would not only remain in compliance with its requirements, but that clearing members would perform periodic testing of its Back-Up Communication Channel, we believe that the proposed modifications eliminate any ambiguity that may exist and help ensure that OCC has sufficient information to troubleshoot in case of an Internet outage, thereby helping to ensure that critical business activities can still be performed in a timely manner in such instances. (2) Statutory Basis The proposed changes to OCC’s Rules are consistent with the purposes and E:\FR\FM\05SEN1.SGM 05SEN1 Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices ehiers on DSK2VPTVN1PROD with NOTICES requirements of Section 17A(b)(3)(F) of the Securities Exchange Act of 1934 (‘‘Act’’) 4 and the rules and regulations thereunder because they are designed to promote the prompt and accurate clearance and settlement of securities transactions by simplifying the criteria used to determine the authorized BackUp Communication Channel(s) that may be used by a given clearing member in the event the Internet is not available, and reducing the administrative oversight associated with making such determinations. The updates to OCC’s Policy Statement further clarify the means by which clearing members are required to notify OCC of the Back-Up Communication Channel(s) adopted by each clearing member, along with the internet service providers being used, and confirmation that each clearing member has successfully tested its ability to access OCC’s systems, thereby helping to ensure that critical business activities can still be performed in a timely manner even in the event of an Internet outage. The proposed rule change is not inconsistent with the existing rules of OCC, including any rules proposed to be amended. (B) Clearing Agency’s Statement on Burden on Competition OCC believes that the proposed rule change will impose little to no burden on competition and in no way impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. While the updates to the Policy Statement now expressly provide for clearing members to: (i) Notify OCC of the Back-Up Communication Channel(s) adopted by each clearing member; (ii) provide OCC with the names of its internet service providers, and (iii) confirm for OCC that it has successfully tested its ability to access OCC’s systems, OCC believes that each of these measures impose little to no burden on competition, individually or collectively, and any such burden imposed will facilitate the prompt and accurate clearance and settlement of securities transactions at all times. In particular, Clearing Members are already required to maintain a secure back-up means of communication under OCC’s existing Policy Statement, as well as, maintain service arrangements with two independent internet service providers. Clearing Members are also already required under OCC Rule 215 to provide information as OCC may from time to time require. As such, OCC believes that requiring Clearing Members to provide OCC with information they are already required to 4 15 U.S.C. 78q–1(b)(3)(F). VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 maintain imposes little to no additional burden on competition. In addition, while the updated Policy Statement now expressly requires Clearing Members to confirm that it has successfully tested its ability to access OCC’s systems, OCC also believes that such requirement imposes little to no additional burden on competition and is consistent with existing regulatory requirements pertaining to business continuity planning and disaster recovery. First, OCC believes that the testing requirement itself was already implied in the existing Policy Statement to ensure the Back-Up Communication Channel was effective and operational, so the only additional requirement being imposed is an obligation to notify OCC. Again, given Clearing Members’ existing obligation to provide information that OCC may request, OCC believes such requirement imposes little to no additional burden on competition. Second, to the extent a particular Clearing Member may not have understood the existing Policy Statement to include an obligation to test its Back-Up Communication Channel, then OCC believes the Policy Statement clarifies the obligations applicable to all Clearing Members and is consistent with existing regulatory requirements pertaining to business continuity planning and disaster recovery applicable to Clearing Members. Collectively, the updates to the Policy Statement are consistent with requirements of the Act applicable to clearing agencies and are designed to promote the prompt and accurate clearance and settlement of securities transactions at all times. The updates ensure that OCC has sufficient information to troubleshoot in case of an Internet outage, and clarifies Clearing Members’ obligations to confirm their ability to successfully access OCC’s information and data systems using their Back-Up Communication Channel in the event of an Internet outage. Accordingly, OCC believes that that [sic] updates will impose little to no burden on competition and in no way impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the 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 none have been received. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 54709 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. 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 for (http://www.sec.gov/rules/ sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2013–10 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–OCC–2013–10. 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 Web site (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 Web site 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 10:00 a.m. and 3:00 p.m. Copies of the E:\FR\FM\05SEN1.SGM 05SEN1 54710 Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices filing also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at http://www.theocc.com/about/ publications/bylaws.jsp. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OCC– 2013–10 and should be submitted on or before September 26, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–21537 Filed 9–4–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70286; File No. SR– NYSEARCA–2013–82] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule and NYSE Arca Equities Fee Schedule To Provide for Fees for a 40 Gigabit Liquidity Center Network Connection in the Exchange Data Center August 29, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on August 21, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. set forth in sections A, B, and C below, of the most significant parts of such statements. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Fee Schedules in order to provide for fees for a 40 Gb LCN connection in the Exchange’s data center.4 The Exchange proposes to implement the fee change effective September 3, 2013. Users are currently able to purchase access to the Exchange’s LCN, a local area network that is available in the data center and that provides Users with access to the Exchange’s trading and execution systems via the Common Customer Gateway (‘‘CCG’’) and to the Exchanges’ proprietary market data products.5 LCN access is currently available in one and 10 Gb capacities, for which Users incur an initial and monthly fee per connection. The Exchange also recently submitted a proposal to expand its co-location services to include 40 Gb LCN connections.6 This higher-capacity LCN access is designed to have lower latency in the transmission of data between Users and the Exchange. The Exchange proposed to expand its co-location services to include 40 Gb LCN connections in order to make an additional service available to its colocation Users and thereby satisfy demand for more efficient, lowerlatency connections. The Exchange hereby proposes to establish the following fees for 40 Gb LCN connections: The Exchange proposes to amend the NYSE Arca Options Fee Schedule and, through its wholly owned subsidiary NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’), proposes to amend the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services (the ‘‘Equities Fee Schedule’’ and, together with the Options Fee Schedule, the ‘‘Fee Schedules’’) in order to provide for fees for a 40 gigabit (‘‘Gb’’) Liquidity Center Network (‘‘LCN’’) connection in the Exchange’s data center. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Type of service Description Amount of charge LCN Access ........................................................ 40 Gb Circuit .................................................... $15,000 per connection initial charge plus $20,000 monthly per connection. 5 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 The Securities and Exchange Commission (‘‘Commission’’) initially approved the Exchange’s co-location services in Securities Exchange Act Release No. 63275 (November 8, 2010), 75 FR 70048 (November 16, 2010) (SR–NYSEArca–2010–100) (the ‘‘Original Co-location Approval’’). The Exchange operates a data center in Mahwah, New Jersey (the ‘‘data center’’) from which it provides co-location services to Users. The Exchange’s colocation services allow Users to rent space in the data center so they may locate their electronic servers in close physical proximity to the Exchange’s trading and execution system. See id. at 70049. 5 For purposes of the Exchange’s co-location services, the term ‘‘User’’ includes (i) ETP Holders ehiers on DSK2VPTVN1PROD with NOTICES 1 15 VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 and Sponsored Participants that are authorized to obtain access to the NYSE Arca Marketplace pursuant to NYSE Arca Equities Rule 7.29 (see NYSE Arca Equities Rule 1.1(yy)); (ii) OTP Holders, OTP Firms and Sponsored Participants that are authorized to obtain access to the NYSE Arca System pursuant to NYSE Arca Options Rule 6.2A (see NYSE Arca Options Rule 6.1A(a)(19)); and (iii) non-ETP Holder, non-OTP Holder and non-OTP Firm broker-dealers and vendors that request to receive co-location services directly from the Exchange. See, e.g., Securities Exchange Act Release Nos. 65970 (December 15, 2011), 76 FR 79242 (December 21, 2011) (SR–NYSEArca–2011– 74) and 65971 (December 15, 2011), 76 FR 79267 (December 21, 2011) (SR–NYSEArca–2011–75). 6 See Securities Exchange Act Release No. 70173 (August 13, 2013) (SR–NYSEArca–2013–80). The Exchange did not propose making LCN content service provider access (‘‘LCN CSP Access’’) PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 available at a 40 Gb bandwidth because, at least initially, User demand was not anticipated to exist. Also, the Exchange noted that, for a 40 Gb ‘‘Bundle,’’ SFTI and optic connections would be at 10 Gb and only the LCN connections would be at 40 Gb, because 40 Gb bandwidths are not currently offered for SFTI and optic connections. The Exchange proposes to include language in the Fee Schedules to reflect this fact. The Exchange’s affiliates, NYSE MKT LLC (‘‘NYSE MKT’’) and New York Stock Exchange LLC (‘‘NYSE,’’ and together with NYSE MKT, ‘‘Affiliates’’) have filed substantially the same proposed rule change to expand their co-location services to include 40 Gb LCN connections. See Securities Exchange Act Release No. 70176 (August 13, 2013) (SR– NYSEMKT–2013–67) and Securities Exchange Act Release No. 70206 (August 15, 2013) (SR–NYSE– 2013–59). E:\FR\FM\05SEN1.SGM 05SEN1

Agencies

[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Notices]
[Pages 54707-54710]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70289; File No. SR-OCC-2013-10]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend Its Policy Statement 
Adopted Under Rule 205 Entitled ``Back-up Communication Channel to 
Internet Access''

August 29, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 23, 2013, The Options Clearing Corporation (``OCC'' or 
``Corporation'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by OCC. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to make certain changes to its Policy Statement 
adopted under Rule 205 entitled ``Back-up Communication Channel to 
Internet Access'' requiring clearing members that use the Internet as 
their primary means to access OCC's information and data systems to 
maintain a secure back-up means of communication in order to provide 
for business continuance in the event of an Internet outage.

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 such statements.

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

(1) Purpose
    OCC Rule 205 prescribes that OCC clearing members are required to 
submit instructions, notices, reports, data and

[[Page 54708]]

other items to the Corporation electronically in accordance with 
procedures prescribed by the Corporation. The Rule is designed to 
promote operational efficiency and effectiveness and reduce input 
errors. Position-related post-trade (e.g., exercise notices, position 
adjustments) and collateral transactions are common examples of 
instructions submitted by clearing members electronically.
    OCC supports the submission of these instructions through use of an 
Internet connection to OCC's secured Web site. In 2006, OCC adopted a 
Policy Statement under Rule 205 requiring clearing members that 
primarily use the Internet to access OCC's systems to maintain a secure 
back-up means of communication as a contingency to perform on a timely 
basis critical business activities in the event of an Internet outage, 
as well as to maintain service arrangements with two independent 
internet service providers.\3\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 53980 (June 14, 2006), 
71 FR 36155 (June 23, 2006)(SR-OCC-2006-04).
---------------------------------------------------------------------------

    The Policy Statement adopted at the time required clearing members 
to maintain: (i) Separate service agreements with two (2) independent 
service providers, and (ii) an OCC-approved method for accessing OCC's 
information and data systems even in the case of an Internet outage 
(the ``Back-Up Communication Channel'').
    Guidelines were established so that the Back-Up Communication 
Channel authorized for a particular clearing member was determined in 
accordance with the firm's business profile using certain criteria. For 
example, a clearing member that: (i) ranked among the top twenty-five 
of cleared volume during a calendar year; (ii) cleared more than one 
account type as defined in OCC's By-Laws and Rules; (iii) cleared two 
or more product types; (iv) conducted Clearing Member Trade Assignment 
(``CMTA'') business; (v) input a high volume of daily post-trade 
activity; (vi) generally utilized multiple forms of collateral; (vii) 
utilized most ancillary services offered by OCC; (viii) used a lease 
line for data transmissions, would generally be designated as a 
``Category A'' firm. ``Category A'' firms were required to maintain a 
T1 line as an acceptable form of back-up communication channel.
    A clearing member that: (i) Transacted mid-level cleared volume 
during a calendar year; (ii) cleared only one or more account types as 
defined in OCC's By-Laws and Rules; (iii) cleared one or more product 
types; (iv) input a moderate to small volume of post-trade activity; 
(v) generally utilized one or two forms of collateral; (vi) may have 
utilized a lease line for data transmissions, were generally designated 
as a ``Category B'' firm. Under the Policy Statement, ``Category B'' 
firms were provided the option to either maintain a T1 line or ISDN 
connection as acceptable forms of a back-up communication channel.
    A clearing member that: (i) Transacted low-level cleared volume 
during a calendar year; (ii) cleared no more than one account type as 
defined in OCC's By-Laws and Rules; (iii) cleared no more than one 
product type; (iv) generally utilized one or two forms of collateral; 
(v) input minimal amounts of post-trade activity, would generally be 
designated as a ``Category C'' firm. ``Category C'' firms were given 
the option to maintain an ISDN connection, utilize OCC equipment if the 
clearing member was located in or near a city where OCC maintains 
operational center(s), or rely upon fax transmission in the event an 
internet connection was not available.
    Recent denial of service attacks on financial institutions, along 
with changes in technology since the Policy Statement was first 
adopted, have prompted OCC to reassess the risk to operations should 
Internet connections supporting clearing member access to OCC's 
information and data systems be interrupted. Through this assessment, 
OCC has determined that its existing policy should be modified to 
ensure it is easily understood and properly implemented by the clearing 
membership.
    OCC is now proposing to make updates to the Policy Statement 
intended to simplify the criteria applied to a given firm in 
determining the appropriate Back-Up Communication Channel. Instead of 
having three categories of Business Profiles that include several 
criteria to be applied, and offering multiple communication options 
available to a particular firm, the updated Policy Statement will 
contain two profiles. Clearing Members that rank in the top-25 of 
cleared volume during a calendar year or act as a facilities manager to 
one or more Clearing firms will be designated as a ``Category A'' firm, 
and will be required to maintain a T1 line as its Back-Up Communication 
Channel. All other firms will be designated as ``Category B'' firms, 
and will be required to maintain a T1 line or utilize a fax line, 
telephone or have ready access to an OCC office location.
    OCC believes the proposed changes will present minimal to no impact 
to clearing members. In particular, all firms that were previously 
designated as ``Category A'' firms under the former policy will 
continue to be designated as ``Category A'' firms under the revised 
policy being proposed, and they will still be required to maintain a T1 
line, as previously required. Those firms that will be designated as 
Category B firms under the proposed policy will now have increased 
flexibility under the back-up options being made available to them, in 
that they can select between a T1 Line, fax, telephone, or use an OCC 
office if they are located in a city where OCC maintains an operational 
center. In preparation for the revisions to the Policy Statement, OCC 
has acquired new fax servers that have increased bandwidth to support 
multiple users that may select facsimile transmission as their 
available back-up communication method. Meanwhile, the telephone 
features used by OCC's Member Service staff are equipped so that calls 
are automatically routed to an available representative in the event a 
firm's designated contact is unavailable. Finally, OCC has confirmed 
that: (i) The number of Category B firms who are located in a city 
where OCC maintains an office; and (ii) do not currently maintain a T1 
line, is sufficiently small enough so that OCC will be able to 
accommodate those firms who may need to utilize OCC's equipment in the 
event of an internet outage.
    OCC also proposes to clarify the Policy Statement by expressly 
adding a requirement for each clearing member to provide OCC with an 
annual statement that the Clearing Member: (i) Has been and continues 
to be in compliance with the Policy Statement; (ii) has successfully 
tested its ability to access OCC's information and data systems using 
its Back-Up Communication Channel since the last reporting period; and 
(iii) will notify OCC within a reasonable period of any changes to 
their Internet Service Providers since the date of the last notice 
provided to OCC. While OCC believes that the existing policy reasonably 
and fairly implies that clearing members would not only remain in 
compliance with its requirements, but that clearing members would 
perform periodic testing of its Back-Up Communication Channel, we 
believe that the proposed modifications eliminate any ambiguity that 
may exist and help ensure that OCC has sufficient information to 
troubleshoot in case of an Internet outage, thereby helping to ensure 
that critical business activities can still be performed in a timely 
manner in such instances.
(2) Statutory Basis
    The proposed changes to OCC's Rules are consistent with the 
purposes and

[[Page 54709]]

requirements of Section 17A(b)(3)(F) of the Securities Exchange Act of 
1934 (``Act'') \4\ and the rules and regulations thereunder because 
they are designed to promote the prompt and accurate clearance and 
settlement of securities transactions by simplifying the criteria used 
to determine the authorized Back-Up Communication Channel(s) that may 
be used by a given clearing member in the event the Internet is not 
available, and reducing the administrative oversight associated with 
making such determinations. The updates to OCC's Policy Statement 
further clarify the means by which clearing members are required to 
notify OCC of the Back-Up Communication Channel(s) adopted by each 
clearing member, along with the internet service providers being used, 
and confirmation that each clearing member has successfully tested its 
ability to access OCC's systems, thereby helping to ensure that 
critical business activities can still be performed in a timely manner 
even in the event of an Internet outage. The proposed rule change is 
not inconsistent with the existing rules of OCC, including any rules 
proposed to be amended.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC believes that the proposed rule change will impose little to no 
burden on competition and in no way impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act. 
While the updates to the Policy Statement now expressly provide for 
clearing members to: (i) Notify OCC of the Back-Up Communication 
Channel(s) adopted by each clearing member; (ii) provide OCC with the 
names of its internet service providers, and (iii) confirm for OCC that 
it has successfully tested its ability to access OCC's systems, OCC 
believes that each of these measures impose little to no burden on 
competition, individually or collectively, and any such burden imposed 
will facilitate the prompt and accurate clearance and settlement of 
securities transactions at all times.
    In particular, Clearing Members are already required to maintain a 
secure back-up means of communication under OCC's existing Policy 
Statement, as well as, maintain service arrangements with two 
independent internet service providers. Clearing Members are also 
already required under OCC Rule 215 to provide information as OCC may 
from time to time require. As such, OCC believes that requiring 
Clearing Members to provide OCC with information they are already 
required to maintain imposes little to no additional burden on 
competition.
    In addition, while the updated Policy Statement now expressly 
requires Clearing Members to confirm that it has successfully tested 
its ability to access OCC's systems, OCC also believes that such 
requirement imposes little to no additional burden on competition and 
is consistent with existing regulatory requirements pertaining to 
business continuity planning and disaster recovery. First, OCC believes 
that the testing requirement itself was already implied in the existing 
Policy Statement to ensure the Back-Up Communication Channel was 
effective and operational, so the only additional requirement being 
imposed is an obligation to notify OCC. Again, given Clearing Members' 
existing obligation to provide information that OCC may request, OCC 
believes such requirement imposes little to no additional burden on 
competition. Second, to the extent a particular Clearing Member may not 
have understood the existing Policy Statement to include an obligation 
to test its Back-Up Communication Channel, then OCC believes the Policy 
Statement clarifies the obligations applicable to all Clearing Members 
and is consistent with existing regulatory requirements pertaining to 
business continuity planning and disaster recovery applicable to 
Clearing Members.
    Collectively, the updates to the Policy Statement are consistent 
with requirements of the Act applicable to clearing agencies and are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions at all times. The updates ensure that OCC has 
sufficient information to troubleshoot in case of an Internet outage, 
and clarifies Clearing Members' obligations to confirm their ability to 
successfully access OCC's information and data systems using their 
Back-Up Communication Channel in the event of an Internet outage. 
Accordingly, OCC believes that that [sic] updates will impose little to 
no burden on competition and in no way impose a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the 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 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.

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 for (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2013-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2013-10. 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 Web site (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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the

[[Page 54710]]

filing also will be available for inspection and copying at the 
principal office of OCC and on OCC's Web site at http://www.theocc.com/about/publications/bylaws.jsp. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2013-10 and should be submitted on or before 
September 26, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
Kevin M. O'Neill,
Deputy Secretary.
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    \5\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-21537 Filed 9-4-13; 8:45 am]
BILLING CODE 8011-01-P