Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice of and No Objection to an Amendment to The Options Clearing Corporation's Unsecured, Committed Credit Agreement, 9512-9515 [2014-03574]

Download as PDF 9512 Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices EMCDONALD on DSK67QTVN1PROD with NOTICES consistent with the goal of improving the confidence of investors and other stakeholders in the quality and consistency of supplemental information.9 IV. The PCAOB’s EGC Request Section 103(a)(3)(C) of the SarbanesOxley Act provides that any additional rules adopted by the PCAOB subsequent to April 5, 2012 do not apply to the audits of emerging growth companies (‘‘EGCs’’), unless the Commission determines that the application of such additional requirements is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.10 Having considered those factors, and as explained further below, the Commission finds that applying the Proposed Rules to audits of EGCs is necessary or appropriate in the public interest. The PCAOB has proposed application of its Proposed Rules to audits of all issuers, as applicable, including EGCs; and the PCAOB requested that the Commission make the determination to the extent necessary required by Section 103(a)(3)(C). To assist the Commission in making its determination, the PCAOB prepared and submitted to the Commission its own EGC analysis. The PCAOB’s EGC analysis includes discussions of: (1) The economic baseline for consideration of the Proposed Rules; (2) the PCAOB’s consideration of alternatives; (3) economic considerations; and (4) characteristics of EGCs. In its analysis, the PCAOB noted that, according to its research, the PCAOB is not aware of EGCs for which auditors would be required to apply the Proposed Rules, but that issuers may voluntarily file supplemental information to which the standard could apply. The PCAOB’s EGC analysis was included in the Commission’s public notice soliciting comment on the Proposed Rules. No comments were received on the analysis. Based on the analysis submitted, we believe the information in the record is sufficient for us to make the EGC determination in relation to this standard. Specifically, the PCAOB’s EGC analysis discussed its approach to developing the new standard and its consideration of alternatives, as well as the characteristics of EGCs and economic 9 Ibid. 10 Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended by Section 104 of the Jumpstart Our Business Startups Act (the ‘‘JOBS Act’’). The term ‘‘emerging growth company’’ is defined in Section 3(a)(80) of the Exchange Act. VerDate Mar<15>2010 16:15 Feb 18, 2014 Jkt 232001 considerations. The Commission also takes note, in particular, of the PCAOB’s analysis which explained that the PCAOB is not aware of EGCs for which auditors would be required to apply the Proposed Rules, and the only entities that are currently required to file supplemental information to which Auditing Standard No. 17 would apply are: (1) Brokers and dealers pursuant to Rule 17a–5; and (2) Form 11–K 11 filers that elect to file plan financial statements and schedules prepared in accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974.12 Nonetheless, audited supplemental information can be provided by an EGC voluntarily. Although electing to do so is rare, the Commission believes that the Proposed Rules represent an improvement over PCAOB interim auditing standard AU section 551 for auditing and reporting on such information and should therefore be applied in such circumstances. Applying the same standard to audits of EGCs who voluntarily file supplemental information would be efficient for issuers and auditors and because of its scalability should not disproportionately affect EGCs.13 Approving the Proposed Rules for audits of EGCs also ensures that PCAOB standards continue to include appropriate direction for auditors when engaged to audit supplemental information. V. Conclusion The Commission has carefully reviewed and considered the Proposed Rules and the information submitted therewith by the PCAOB, including the PCAOB’s EGC analysis and the comment letter received. In connection with the PCAOB’s filing and the Commission’s review, A. The Commission finds that the Proposed Rules are consistent with the requirements of the Sarbanes-Oxley Act and the securities laws and are necessary or appropriate in the public interest or for the protection of investors; and B. Separately, the Commission finds that the application of the Proposed 11 17 CFR 249.311. Form 11–K is used for annual reports pursuant to Exchange Act Section 15(d) with respect to employee stock purchase, savings and similar plans. 12 29 U.S.C. 1001 et seq. (1974). 13 To the extent the Commission considers in the future to amend filing requirements to require any new supplemental information to which the Proposed Rules would be applicable, the application of such requirements to EGCs could be considered in connection with any such rulemaking. PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 Rules to EGC audits is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation. It is therefore ordered, pursuant to Section 107 of the Act and Section 19(b)(2) of the Exchange Act, that the Proposed Rules (File No. PCAOB–2013– 02) be and hereby are approved. By the Commission. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–03556 Filed 2–18–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71549; File No. SR–OCC– 2014–801] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice of and No Objection to an Amendment to The Options Clearing Corporation’s Unsecured, Committed Credit Agreement February 12, 2014. Notice is hereby given that, on January 14, 2014, The Options Clearing Corporation (‘‘OCC’’) filed an advance notice with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 806(e)(1)(A) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’),1 and Rule 19b–4(n)(1)(i) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’).2 The advance notice is described in Items I, II, and III below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments from interested persons, to issue a non-objection to the changes set forth in the advance notice, and to authorize OCC to implement those changes earlier than 60 days after the filing of the advance notice. 1 12 U.S.C. 5465(e)(1)(A). The Financial Stability Oversight Council designated OCC a systemically important financial market utility on July 18, 2012. See Financial Stability Oversight Council 2012 Annual Report, Appendix A, https:// www.treasury.gov/initiatives/fsoc/Documents/ 2012%20Annual%20Report.pdf. Therefore, OCC is required to comply with Title VIII of the DoddFrank Wall Street Reform and Consumer Protection Act. 2 17 CFR 240.19b–4(n)(1)(i). E:\FR\FM\19FEN1.SGM 19FEN1 Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This advance notice concerns a proposed change to OCC’s operations (the ‘‘Change’’) in the form of an amendment to its unsecured, committed credit agreement (the ‘‘Existing Agreement’’ or the ‘‘Existing Facility’’). The Commission previously published a notice of no objection to OCC’s advance notice filing through which OCC entered into the Existing Facility.3 The Existing Facility currently provides OCC with access to additional liquidity for working capital needs and general corporate purposes. The Existing Facility also helps OCC satisfy the liquidity requirement of the Commodity Futures Trading Commission’s (‘‘CFTC’’) regulation Section 39.11(e)(2). The Existing Facility is scheduled to terminate on February 21, 2014. The Change would extend the termination date of the Existing Facility for 364 days after the renewal date, increase the commitment amount of the Existing Facility from $25 million to $35 million, and make minor, non-material, changes to the terms of the Existing Facility requested by the lender (the ‘‘Extended Agreement’’ or the ‘‘Extended Facility’’). II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, OCC included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. 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) and (B) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice EMCDONALD on DSK67QTVN1PROD with NOTICES Description of Change The Change would provide OCC with continued access to an unsecured, committed credit facility in an aggregate principal amount of $35 million until early 2015. The Extended Facility is designed to provide OCC with access to additional liquidity for working capital needs and general corporate purposes. The Extended Facility would also satisfy the liquidity requirement of CFTC regulation Section 39.11(e)(2). 3 Securities Exchange Act Release No. 34–68935 (February 13, 2013), 78 FR 12121 (February 21, 2013), (SR–OCC–2012–801). VerDate Mar<15>2010 16:15 Feb 18, 2014 Jkt 232001 OCC’s principal reason for entering into the Extended Facility is to provide OCC additional flexibility in managing its liquid assets while ensuring continued compliance with the liquidity requirements of the CFTC regulation cited above. Among other things, CFTC regulation Section 39.11(a)(2) requires a derivatives clearing organization (‘‘DCO’’) to hold an amount of financial resources that, at a minimum, exceeds the total amount that would enable the DCO to cover its operating costs for a period of at least one year, calculated on a rolling basis.4 In addition, CFTC regulation Section 39.11(e)(2) provides that these financial resources must include unencumbered, liquid financial assets (i.e., cash and/or highly liquid securities), equal to at least six months’ operating costs and that if any portion of such financial resources is not sufficiently liquid, the DCO may rely on a committed line of credit or similar facility.5 Accordingly, OCC entered into the Existing Facility with BMO Harris Bank N.A. (‘‘Lender’’) having a maximum aggregate principal loan amount not to exceed $25 million. OCC now proposes to enter into an amendment to the Existing Facility to increase the maximum aggregate principal loan amount to $35 million, extend the termination date to February 20, 2015, and make other non-material changes requested by the Lender. Attached to this filing as Exhibit 3B is a marked Summary of Terms and Conditions that are applicable to the Extended Facility.6 The marked Summary of Terms and Conditions show the changes from the Summary of Terms and Conditions applicable to the Existing Facility.7 In order to have continued access to the Existing Facility, OCC must execute an amendment to the Existing Agreement between OCC and the Lender. Ongoing conditions governing OCC’s ability to access the Extended Facility would be the same as with the Existing Facility and would include that no default or event of default may exist before or during an extension of credit by the Lender to OCC through the Extended Facility and that certain 4 17 CFR 39.11(a)(2). CFR 39.11(e)(2). 6 As OCC has requested confidential treatment of Exhibit 3B pursuant to 17 CFR 240.24b–2, Exhibit 3B will not be attached to the published version of this notice. 7 SR–OCC–2012–801, See Fn. 3 above. Other than as described in this Section II.A., the differences between the Existing Facility and the Extended Facility (that appear in the comparison attached to this filing as Exhibit 3) are non-material. As OCC has requested confidential treatment of Exhibit 3 pursuant to 17 CFR 240.24b–2, Exhibit 3 will not be attached to the published version of this notice. 5 17 PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 9513 representations of OCC must remain true and correct. Events of default would include, but not be limited to, failure to pay any interest, principal, fees or other amounts when due, default under any covenant or agreement in any loan document, repudiation or cessation of the effectiveness of any loan document, materially inaccurate or false representations or warranties, cross default with other material debt agreements, insolvency, bankruptcy and unsatisfied judgments. The Extended Facility would be available to OCC on a revolving basis for a 364-day term. Upon written or telephonic notice by OCC to the Lender of a request for funds, the Lender would disburse loaned funds to OCC in U.S. dollars. The date of any loan would be required to be a business day and the loans would be unsecured and made and evidenced by a promissory note provided by OCC. Under the Extended Facility, any loan proceeds would be required to be used by OCC to finance its working capital needs or for OCC’s general corporate purposes. As with the Existing Facility, OCC would have the ability to terminate the Extended Facility at any time. Termination within the first six months of the Extended Facility would trigger a termination fee. After six months from the date of entering the Extended Agreement with the Lender to establish the terms of the Extended Facility, OCC would be permitted to cancel the Extended Facility with no termination fee. Upon five days written notice during the term of the Extended Facility, OCC would also be permitted to reduce the overall size of the Extended Facility at any time. Any such reductions would be required to be made in an initial amount of at least $2.5 million. Thereafter, reductions would be able to be made by OCC in multiples of $1 million. In no event, however, would OCC be permitted to reduce the size of the Extended Facility to an amount that is less than the greater of either its aggregate principal amount of indebtedness outstanding with respect to loans from the Extended Facility or $15 million. The outstanding principal balance of all loans made to OCC through the Extended Facility will accrue interest equal to a base rate (generally equal to a Prime Rate, a Federal Funds Rate, or a LIBOR rate), as in effect from time to time, plus a certain applicable margin. Regardless of which method applies to a particular portion of OCC’s total outstanding loan balance, in an event of a default, the calculation of the amount of interest would be subject a 2.00% E:\FR\FM\19FEN1.SGM 19FEN1 9514 Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices EMCDONALD on DSK67QTVN1PROD with NOTICES increase above the otherwise applicable rate. The Extended Facility would involve a variety of customary fees payable by OCC to the Lender, including but not limited to: (1) A one-time upfront fee payable at closing to the Lender calculated as a percentage of the total commitment amount of the Extended Facility; (2) commitment fees payable quarterly in arrears on the average daily unused amount of the Extended Facility; (3) reasonable out-of-pocket costs and expenses of the Lender in connection with the negotiation, preparation, execution and delivery of the Extended Facility and loan documentation, and costs and expenses in connection with any default, event of default or enforcement of the Extended Facility; and (4) termination fees if OCC elects to terminate the Extended Facility prior to six months from the date of the credit agreement underlying the Extended Facility. Anticipated Effect on and Management of Risk Overall, the Extended Facility would reduce the risks to OCC, its clearing members and the options market in general because it would provide OCC with additional liquidity for working capital needs and general corporate purposes and thereby assist OCC in satisfying the CFTC’s requirements with respect to liquidity under CFTC regulation Section 39.11. Like any lending arrangement, the Extended Facility would involve risks. One of the primary risks to OCC associated with the Extended Facility is the risk that the Lender would fail to fund when OCC requests a loan, because of the Lender’s insolvency, operational deficiencies, or otherwise. Even if OCC were to draw on the Extended Facility for liquidity purposes, which it does not anticipate, OCC believes the potential funding risk associated with the Extended Facility is mitigated in several ways. First, the Lender would be a national banking association that is subject to oversight by prudential banking regulators with respect to its safety and soundness and its ability to meet its lending obligations. Furthermore, the $35 million maximum size of the Extended Facility would be relatively small when compared to the total resources available to OCC. Therefore, if the Extended Facility proved unavailable to OCC for any reason, OCC believes it readily would be able to access, or arrange for access, to other sources of liquidity if necessary. A second risk associated with the Extended Facility is the risk that OCC would default on its obligation to make VerDate Mar<15>2010 16:15 Feb 18, 2014 Jkt 232001 timely payment of principal or interest. Because the Extended Facility would be an unsecured lending arrangement, OCC would not be at risk in an event of default of the Lender’s potentially liquidating OCC assets that are used to secure loaned funds. Furthermore, OCC intends to mitigate the risk of default by never drawing on the Extended Facility. Accelerated Commission Action Requested Pursuant to Section 806(e)(1)(I) of Title VIII of the Clearing Supervision Act, OCC requests that the Commission notify OCC that it has no objection to the Change no later than February 14, 2014, which is one week prior to the February 21, 2014 termination date of the Existing Facility. OCC requests Commission action one week in advance of the effective date to ensure that there is no period of time that OCC operates without access to additional liquidity for working capital needs and general corporate purposes, and to satisfy the liquidity requirements of CFTC regulation Section 39.11(e)(2). (B) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants or Others Written comments on the advance notice were not and are not intended to be solicited with respect to the advance notice and none have been received. III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The advance notice may be implemented if the Commission does not object to the advance notice within 60 days of the later of (i) the date that the advance notice was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. OCC shall not implement the advance notice if the Commission has any objection to the advance notice. The Commission may extend the period for review by an additional 60 days if the advance notice raises novel or complex issues, subject to the Commission providing OCC with prompt written notice of the extension. An advance notice may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies OCC in writing that it does not object to the advance notice and authorizes OCC to implement the advance notice on an earlier date, subject to any conditions imposed by the Commission. PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 The clearing agency shall post notice on its Web site of proposed changes that are implemented. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing. 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 rule-comments@ sec.gov. Please include File Number SR– OCC–2014–801 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–2014–801. 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 of submission. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the advance notice that are filed with the Commission, and all written communications relating to the advance notice 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 Section, 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 such filing also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at https://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_14_ 801.pdf. 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–2014–801 and should be submitted on or before March 12, 2014. E:\FR\FM\19FEN1.SGM 19FEN1 EMCDONALD on DSK67QTVN1PROD with NOTICES Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices V. Commission’s Findings and Notice of No Objection Section 806(e)(1)(G) of the Clearing Supervision Act provides that a designated financial market utility may implement a change if it has not received an objection from the Commission within 60 days of the later of (i) the date that the Commission receives notice of the proposed change or (ii) the date the Commission receives any further information it requests for consideration of the notice. A designated financial market utility may implement a proposed change in less than 60 days from the date of receipt of the notice of the change by the Commission, or the date the Commission receives any further information it requested, if the Commission notifies the designated financial market utility in writing that it does not object to the proposed change and authorizes the designated financial market utility to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission.8 In its filing with the Commission, OCC requested that the Commission notify OCC that it has no objection to the change no later than February 14, 2014, which is one week before the February 21, 2014 termination date of the Existing Facility. OCC requested Commission action by this date, which is fewer than 60 days after OCC filed this advance notice, to ensure that there is no period of time during which OCC operates without access to additional liquidity for working capital needs and general corporate purposes, and to make certain that OCC remains in compliance with the liquidity requirements of CFTC regulation Section 39.11(e)(2) 9 at all times. The Commission does not object to the changes described in the advance notice. The Commission agrees that the Extended Facility will afford OCC continued access to additional liquidity that should help OCC meet its CFTC requirement for working capital. Moreover, the Commission believes that access to the Extended Facility affords OCC needed flexibility in meeting its daily needs for operating capital. The Commission further believes that the Extended Facility represents an important safeguard against potential disruptions to OCC’s ability to provide clearance and settlement services, and thereby enhances OCC’s safety and soundness.10 Improving OCC’s 8 12 U.S.C. 5465(e)(1)(I). CFR 39.11(e)(2). 10 See 12 U.S.C. 5464(b) (noting that the objectives of the Clearing Supervision Act include 9 17 VerDate Mar<15>2010 16:15 Feb 18, 2014 Jkt 232001 resilience furthers the objectives of the Clearing Supervision Act,11 and is consistent with the regulations adopted by the Commission thereunder.12 VI. Conclusion Pursuant to Section 806(e)(1)(I) of the Clearing Supervision Act,13 the Commission does not object to the proposed change, and hereby authorizes OCC to implement the Change (SR– OCC–2014–801) as of the date of this Order. By the Commission. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–03574 Filed 2–18–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71540; File No. SR– NYSEArca–2013–138] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to Listing and Trading of Shares of iShares Enhanced International LargeCap ETF and iShares Enhanced International Small-Cap ETF Under NYSE Arca Equities Rule 8.600 February 12, 2014. I. Introduction On December 13, 2013, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the iShares Enhanced International Large-Cap ETF (‘‘LargeCap Fund’’) and iShares Enhanced International Small-Cap ETF (‘‘SmallCap Fund,’’ each a ‘‘Fund,’’ and, collectively, ‘‘Funds’’) of the iShares U.S. ETF Trust (‘‘Trust’’). The proposed rule change was published for comment in the Federal Register on January 2, a desire to ‘‘promote the safety and soundness’’ of clearing agencies). 11 Id. 12 17 CFR 240.17Ad–22(d)(4) (requiring, pursuant to the Clearing Supervision Act, that clearing agencies (i) develop procedures to minimize ‘‘sources of operational risk,’’ (ii) implement systems that are ‘‘reliable’’ and ‘‘resilient,’’ and (iii) have ‘‘business continuity plans that allow for . . . fulfillment of [the agency’s] obligations,’’ among other things). 13 12 U.S.C. 5465(e)(1)(I). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 9515 2014.3 On February 12, 2014, the Exchange submitted Amendment No. 1 to the proposed rule change.4 The Commission received no comments on the proposal. This order grants approval of the proposed rule change, as modified by Amendment No. 1 thereto. II. Description of the Proposed Rule Change The Exchange proposes to list and trade Shares of the Funds under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares. The Shares will be offered by the Trust,5 which is registered with the Commission as an open-end management investment company. BlackRock Fund Advisors (‘‘BFA’’ or ‘‘Adviser’’) will serve as the investment adviser to the Funds. BFA is an indirect, wholly-owned subsidiary of BlackRock, Inc. BlackRock Investments, LLC will be the principal underwriter and distributor of the Funds’ Shares. State Street Bank and Trust Company will serve as administrator, custodian, and transfer agent for the Funds. The Exchange represents that the Adviser is not registered as a broker-dealer but is affiliated with multiple broker-dealers and has implemented a ‘‘fire wall’’ with respect to such broker-dealers regarding access to information concerning the composition or changes to a Fund’s portfolio.6 3 See Securities Exchange Act Release No. 71186 (December 26, 2013), 79 FR 154 (‘‘Notice’’). 4 The Exchange’s initial proposal stated that the Funds’ Indicative Optimized Portfolio Value (‘‘IOPV’’), which is the Portfolio Indicative Value as defined in NYSE Arca Equities Rule 8.600(c)(3), would be based on the current value of the securities and/or cash to be deposited in exchange for a creation unit of the Funds using market data converted into U.S. dollars at the current currency rates. In Amendment No. 1, the Exchange revised this statement and clarified that the IOPV instead will be based on the current value of the securities and other assets held by the Funds using market data converted into U.S. dollars at the current currency rates. Because Amendment No. 1 seeks to clarify the description of the IOPV and does not materially affect the substance of the proposed rule change or raise novel or unique issues, Amendment No. 1 does not require notice and comment. 5 The Exchange represents that, on October 4, 2013, the Trust filed with the Commission PostEffective Amendment No. 22 (with respect to the Large-Cap Fund, ‘‘Large-Cap Registration Statement’’) and Post-Effective Amendment No. 23 (with respect to the Small-Cap Fund, ‘‘Small-Cap Registration Statement’’) to its registration statement on Form N–1A under the Securities Act of 1933 (‘‘Securities Act’’), and under the Investment Company Act of 1940 (‘‘1940 Act’’) (File Nos. 333–179904 and 811–22649) (collectively, ‘‘Registration Statements’’). In addition, the Exchange states that the Trust has obtained certain exemptive relief under the 1940 Act. See Investment Company Act Release No. 29571 (January 24, 2011) (File No. 812–13601). 6 See Commentary .06 to NYSE Arca Equities Rule 8.600. The Exchange represents that, in the E:\FR\FM\19FEN1.SGM Continued 19FEN1

Agencies

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9512-9515]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03574]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71549; File No. SR-OCC-2014-801]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice of and No Objection to an Amendment 
to The Options Clearing Corporation's Unsecured, Committed Credit 
Agreement

February 12, 2014.
    Notice is hereby given that, on January 14, 2014, The Options 
Clearing Corporation (``OCC'') filed an advance notice with the 
Securities and Exchange Commission (``Commission'') pursuant to Section 
806(e)(1)(A) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled the Payment, Clearing, and Settlement 
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule 
19b-4(n)(1)(i) of the Securities Exchange Act of 1934 (``Exchange 
Act'').\2\ The advance notice is described in Items I, II, and III 
below, which Items have been prepared by OCC. The Commission is 
publishing this notice to solicit comments from interested persons, to 
issue a non-objection to the changes set forth in the advance notice, 
and to authorize OCC to implement those changes earlier than 60 days 
after the filing of the advance notice.
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    \1\ 12 U.S.C. 5465(e)(1)(A). The Financial Stability Oversight 
Council designated OCC a systemically important financial market 
utility on July 18, 2012. See Financial Stability Oversight Council 
2012 Annual Report, Appendix A, https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is 
required to comply with Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.
    \2\ 17 CFR 240.19b-4(n)(1)(i).

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[[Page 9513]]

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice concerns a proposed change to OCC's operations 
(the ``Change'') in the form of an amendment to its unsecured, 
committed credit agreement (the ``Existing Agreement'' or the 
``Existing Facility'').
    The Commission previously published a notice of no objection to 
OCC's advance notice filing through which OCC entered into the Existing 
Facility.\3\ The Existing Facility currently provides OCC with access 
to additional liquidity for working capital needs and general corporate 
purposes. The Existing Facility also helps OCC satisfy the liquidity 
requirement of the Commodity Futures Trading Commission's (``CFTC'') 
regulation Section 39.11(e)(2). The Existing Facility is scheduled to 
terminate on February 21, 2014. The Change would extend the termination 
date of the Existing Facility for 364 days after the renewal date, 
increase the commitment amount of the Existing Facility from $25 
million to $35 million, and make minor, non-material, changes to the 
terms of the Existing Facility requested by the lender (the ``Extended 
Agreement'' or the ``Extended Facility'').
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    \3\ Securities Exchange Act Release No. 34-68935 (February 13, 
2013), 78 FR 12121 (February 21, 2013), (SR-OCC-2012-801).
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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) and (B) 
below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

Description of Change
    The Change would provide OCC with continued access to an unsecured, 
committed credit facility in an aggregate principal amount of $35 
million until early 2015. The Extended Facility is designed to provide 
OCC with access to additional liquidity for working capital needs and 
general corporate purposes. The Extended Facility would also satisfy 
the liquidity requirement of CFTC regulation Section 39.11(e)(2).
    OCC's principal reason for entering into the Extended Facility is 
to provide OCC additional flexibility in managing its liquid assets 
while ensuring continued compliance with the liquidity requirements of 
the CFTC regulation cited above. Among other things, CFTC regulation 
Section 39.11(a)(2) requires a derivatives clearing organization 
(``DCO'') to hold an amount of financial resources that, at a minimum, 
exceeds the total amount that would enable the DCO to cover its 
operating costs for a period of at least one year, calculated on a 
rolling basis.\4\ In addition, CFTC regulation Section 39.11(e)(2) 
provides that these financial resources must include unencumbered, 
liquid financial assets (i.e., cash and/or highly liquid securities), 
equal to at least six months' operating costs and that if any portion 
of such financial resources is not sufficiently liquid, the DCO may 
rely on a committed line of credit or similar facility.\5\ Accordingly, 
OCC entered into the Existing Facility with BMO Harris Bank N.A. 
(``Lender'') having a maximum aggregate principal loan amount not to 
exceed $25 million. OCC now proposes to enter into an amendment to the 
Existing Facility to increase the maximum aggregate principal loan 
amount to $35 million, extend the termination date to February 20, 
2015, and make other non-material changes requested by the Lender. 
Attached to this filing as Exhibit 3B is a marked Summary of Terms and 
Conditions that are applicable to the Extended Facility.\6\ The marked 
Summary of Terms and Conditions show the changes from the Summary of 
Terms and Conditions applicable to the Existing Facility.\7\
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    \4\ 17 CFR 39.11(a)(2).
    \5\ 17 CFR 39.11(e)(2).
    \6\ As OCC has requested confidential treatment of Exhibit 3B 
pursuant to 17 CFR 240.24b-2, Exhibit 3B will not be attached to the 
published version of this notice.
    \7\ SR-OCC-2012-801, See Fn. 3 above. Other than as described in 
this Section II.A., the differences between the Existing Facility 
and the Extended Facility (that appear in the comparison attached to 
this filing as Exhibit 3) are non-material. As OCC has requested 
confidential treatment of Exhibit 3 pursuant to 17 CFR 240.24b-2, 
Exhibit 3 will not be attached to the published version of this 
notice.
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    In order to have continued access to the Existing Facility, OCC 
must execute an amendment to the Existing Agreement between OCC and the 
Lender. Ongoing conditions governing OCC's ability to access the 
Extended Facility would be the same as with the Existing Facility and 
would include that no default or event of default may exist before or 
during an extension of credit by the Lender to OCC through the Extended 
Facility and that certain representations of OCC must remain true and 
correct. Events of default would include, but not be limited to, 
failure to pay any interest, principal, fees or other amounts when due, 
default under any covenant or agreement in any loan document, 
repudiation or cessation of the effectiveness of any loan document, 
materially inaccurate or false representations or warranties, cross 
default with other material debt agreements, insolvency, bankruptcy and 
unsatisfied judgments.
    The Extended Facility would be available to OCC on a revolving 
basis for a 364-day term. Upon written or telephonic notice by OCC to 
the Lender of a request for funds, the Lender would disburse loaned 
funds to OCC in U.S. dollars. The date of any loan would be required to 
be a business day and the loans would be unsecured and made and 
evidenced by a promissory note provided by OCC. Under the Extended 
Facility, any loan proceeds would be required to be used by OCC to 
finance its working capital needs or for OCC's general corporate 
purposes.
    As with the Existing Facility, OCC would have the ability to 
terminate the Extended Facility at any time. Termination within the 
first six months of the Extended Facility would trigger a termination 
fee. After six months from the date of entering the Extended Agreement 
with the Lender to establish the terms of the Extended Facility, OCC 
would be permitted to cancel the Extended Facility with no termination 
fee. Upon five days written notice during the term of the Extended 
Facility, OCC would also be permitted to reduce the overall size of the 
Extended Facility at any time. Any such reductions would be required to 
be made in an initial amount of at least $2.5 million. Thereafter, 
reductions would be able to be made by OCC in multiples of $1 million. 
In no event, however, would OCC be permitted to reduce the size of the 
Extended Facility to an amount that is less than the greater of either 
its aggregate principal amount of indebtedness outstanding with respect 
to loans from the Extended Facility or $15 million.
    The outstanding principal balance of all loans made to OCC through 
the Extended Facility will accrue interest equal to a base rate 
(generally equal to a Prime Rate, a Federal Funds Rate, or a LIBOR 
rate), as in effect from time to time, plus a certain applicable 
margin. Regardless of which method applies to a particular portion of 
OCC's total outstanding loan balance, in an event of a default, the 
calculation of the amount of interest would be subject a 2.00%

[[Page 9514]]

increase above the otherwise applicable rate.
    The Extended Facility would involve a variety of customary fees 
payable by OCC to the Lender, including but not limited to: (1) A one-
time upfront fee payable at closing to the Lender calculated as a 
percentage of the total commitment amount of the Extended Facility; (2) 
commitment fees payable quarterly in arrears on the average daily 
unused amount of the Extended Facility; (3) reasonable out-of-pocket 
costs and expenses of the Lender in connection with the negotiation, 
preparation, execution and delivery of the Extended Facility and loan 
documentation, and costs and expenses in connection with any default, 
event of default or enforcement of the Extended Facility; and (4) 
termination fees if OCC elects to terminate the Extended Facility prior 
to six months from the date of the credit agreement underlying the 
Extended Facility.
Anticipated Effect on and Management of Risk
    Overall, the Extended Facility would reduce the risks to OCC, its 
clearing members and the options market in general because it would 
provide OCC with additional liquidity for working capital needs and 
general corporate purposes and thereby assist OCC in satisfying the 
CFTC's requirements with respect to liquidity under CFTC regulation 
Section 39.11.
    Like any lending arrangement, the Extended Facility would involve 
risks. One of the primary risks to OCC associated with the Extended 
Facility is the risk that the Lender would fail to fund when OCC 
requests a loan, because of the Lender's insolvency, operational 
deficiencies, or otherwise. Even if OCC were to draw on the Extended 
Facility for liquidity purposes, which it does not anticipate, OCC 
believes the potential funding risk associated with the Extended 
Facility is mitigated in several ways. First, the Lender would be a 
national banking association that is subject to oversight by prudential 
banking regulators with respect to its safety and soundness and its 
ability to meet its lending obligations. Furthermore, the $35 million 
maximum size of the Extended Facility would be relatively small when 
compared to the total resources available to OCC. Therefore, if the 
Extended Facility proved unavailable to OCC for any reason, OCC 
believes it readily would be able to access, or arrange for access, to 
other sources of liquidity if necessary.
    A second risk associated with the Extended Facility is the risk 
that OCC would default on its obligation to make timely payment of 
principal or interest. Because the Extended Facility would be an 
unsecured lending arrangement, OCC would not be at risk in an event of 
default of the Lender's potentially liquidating OCC assets that are 
used to secure loaned funds. Furthermore, OCC intends to mitigate the 
risk of default by never drawing on the Extended Facility.
Accelerated Commission Action Requested
    Pursuant to Section 806(e)(1)(I) of Title VIII of the Clearing 
Supervision Act, OCC requests that the Commission notify OCC that it 
has no objection to the Change no later than February 14, 2014, which 
is one week prior to the February 21, 2014 termination date of the 
Existing Facility. OCC requests Commission action one week in advance 
of the effective date to ensure that there is no period of time that 
OCC operates without access to additional liquidity for working capital 
needs and general corporate purposes, and to satisfy the liquidity 
requirements of CFTC regulation Section 39.11(e)(2).

(B) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants or Others

    Written comments on the advance notice were not and are not 
intended to be solicited with respect to the advance notice and none 
have been received.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The advance notice may be implemented if the Commission does not 
object to the advance notice within 60 days of the later of (i) the 
date that the advance notice was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. OCC shall not implement the advance notice if the Commission 
has any objection to the advance notice.
    The Commission may extend the period for review by an additional 60 
days if the advance notice raises novel or complex issues, subject to 
the Commission providing OCC with prompt written notice of the 
extension. An advance notice may be implemented in less than 60 days 
from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies OCC in writing that it does not object to the advance notice 
and authorizes OCC to implement the advance notice on an earlier date, 
subject to any conditions imposed by the Commission.
    The clearing agency shall post notice on its Web site of proposed 
changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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 rule-comments@sec.gov. Please include 
File Number SR-OCC-2014-801 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-2014-801. 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 of submission. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the advance notice that are 
filed with the Commission, and all written communications relating to 
the advance notice 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 Section, 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 such filing also will be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_801.pdf.
    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-2014-801 
and should be submitted on or before March 12, 2014.

[[Page 9515]]

V. Commission's Findings and Notice of No Objection

    Section 806(e)(1)(G) of the Clearing Supervision Act provides that 
a designated financial market utility may implement a change if it has 
not received an objection from the Commission within 60 days of the 
later of (i) the date that the Commission receives notice of the 
proposed change or (ii) the date the Commission receives any further 
information it requests for consideration of the notice. A designated 
financial market utility may implement a proposed change in less than 
60 days from the date of receipt of the notice of the change by the 
Commission, or the date the Commission receives any further information 
it requested, if the Commission notifies the designated financial 
market utility in writing that it does not object to the proposed 
change and authorizes the designated financial market utility to 
implement the proposed change on an earlier date, subject to any 
conditions imposed by the Commission.\8\
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    \8\ 12 U.S.C. 5465(e)(1)(I).
---------------------------------------------------------------------------

    In its filing with the Commission, OCC requested that the 
Commission notify OCC that it has no objection to the change no later 
than February 14, 2014, which is one week before the February 21, 2014 
termination date of the Existing Facility. OCC requested Commission 
action by this date, which is fewer than 60 days after OCC filed this 
advance notice, to ensure that there is no period of time during which 
OCC operates without access to additional liquidity for working capital 
needs and general corporate purposes, and to make certain that OCC 
remains in compliance with the liquidity requirements of CFTC 
regulation Section 39.11(e)(2) \9\ at all times.
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    \9\ 17 CFR 39.11(e)(2).
---------------------------------------------------------------------------

    The Commission does not object to the changes described in the 
advance notice. The Commission agrees that the Extended Facility will 
afford OCC continued access to additional liquidity that should help 
OCC meet its CFTC requirement for working capital. Moreover, the 
Commission believes that access to the Extended Facility affords OCC 
needed flexibility in meeting its daily needs for operating capital. 
The Commission further believes that the Extended Facility represents 
an important safeguard against potential disruptions to OCC's ability 
to provide clearance and settlement services, and thereby enhances 
OCC's safety and soundness.\10\ Improving OCC's resilience furthers the 
objectives of the Clearing Supervision Act,\11\ and is consistent with 
the regulations adopted by the Commission thereunder.\12\
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    \10\ See 12 U.S.C. 5464(b) (noting that the objectives of the 
Clearing Supervision Act include a desire to ``promote the safety 
and soundness'' of clearing agencies).
    \11\ Id.
    \12\ 17 CFR 240.17Ad-22(d)(4) (requiring, pursuant to the 
Clearing Supervision Act, that clearing agencies (i) develop 
procedures to minimize ``sources of operational risk,'' (ii) 
implement systems that are ``reliable'' and ``resilient,'' and (iii) 
have ``business continuity plans that allow for . . . fulfillment of 
[the agency's] obligations,'' among other things).
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VI. Conclusion

    Pursuant to Section 806(e)(1)(I) of the Clearing Supervision 
Act,\13\ the Commission does not object to the proposed change, and 
hereby authorizes OCC to implement the Change (SR-OCC-2014-801) as of 
the date of this Order.
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    \13\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03574 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P
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