Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Permit OCC To Adjust the Size of Its Clearing Fund Intra-Month and Clearing Member's Clearing Fund Contributions Intra-Month, 46490-46494 [2014-18749]

Download as PDF 46490 Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices Example 1: Same Side ABBO Terminates the Liquidity Refresh Pause Early Bid ABBO ................ MIAX Book: PLMM 6 .......... LMM 1 ............... LMM 2 ............... RMM 1 .............. Ask 1.00 (10) 1.14 (10) 1.00 1.00 1.00 1.00 1.10 1.12 1.15 1.16 (10) (10) (10) (10) (10) (10) (10) (10) • Order 1: Buy limit of 1.13 for 20 contacts with a price protection instruction of 3 MPVs.7 • NBBO at time of Order 1’s arrival = 1.00 (50) x 1.10 (10). • Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV = 1.13). • Order 1 trades 10 contracts with PLMM @1.10. • Liquidity Refresh Pause is triggered because the MBO of 1.10 8 was alone at NBBO and PLMM’s 1.10 offer was exhausted. • New MBBO = 1.10 (10) x 1.12 (10). 9 • ABB updates to 1.12 for 10 contracts; ABBO = 1.12 (10) x 1.14 (10). • Liquidity Refresh Pause is terminated early due to the ABB crossing the original NBO of 1.10. • Because no responses to the Liquidity Refresh Pause were received before it terminated early, Order 1 trades 10 contracts with LMM1 @1.12, after which Order 1 has been fully executed. • New MBBO: 1.00 (40) x 1.15 (10). New NBBO: 1.12 (10) x 1.14 (10). mstockstill on DSK4VPTVN1PROD with NOTICES III. Discussion and Commission Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.10 In 6 A ‘‘PLMM’’ is a MIAX Primary Lead Market Maker; an ‘‘LMM’’ is a MIAX Lead Market Maker; and an ‘‘RMM’’ is a MIAX Registered Market Maker. 7 Executions of non-market maker orders on MIAX are subject to the ‘‘price protection’’ provisions of Exchange Rule 515(c)(1). Price protection prevents an order from being executed beyond the price designated in the order’s price protection instructions, which are expressed in units of ‘‘MPV’’ away from the NBBO at the time of the order’s receipt, or the MBBO if the ABBO is crossing the MBBO. (The MPV is the minimum price variation, or minimum increment, by which bids and offers may be separated.) Market participants may designate or disable price protection instructions on an order by order basis. The default price protection is one MPV. When triggered, price protection cancels an order or the remaining contracts of an order. 8 ‘‘MBO’’ and ‘‘MBB’’ refer to the two components of the MBBO separately. ‘‘NBB’’ and ‘‘NBO’’ and ‘‘ABB’’ and ‘‘ABO’’ and are the equivalent conventions used for components of the ABBO and MBBO separately. 9 The remaining 10 contracts of Order 1 to buy are posted at 1.10 (the price at which the first 10 contracts were bought), which becomes the new MBB. Note that the new MBO is displayed as nonfirm. See supra note 4. 10 15 U.S.C. 78f. In approving this proposed rule change, the Commission has considered the VerDate Mar<15>2010 16:51 Aug 07, 2014 Jkt 232001 particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,11 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposal is reasonable in its rationale that terminating the Liquidity Refresh Pause, when the ABBO on the same side of the market as the initiating order crosses the original NBBO price on the opposite side of the market, could allow interest in the Liquidity Refresh Pause to execute, because a move of this kind in the ABBO indicates that conditions may be changing so as to render the initiating order and same side orders/quotes no longer marketable. Terminating the Liquidity Refresh Pause early and permitting normal trading to resume may thus provide an opportunity for the broker routing the initiating order or any remainder thereof to further pursue an execution, assuming that subsequent responses to the Liquidity Refresh Pause would be unlikely when the ABBO moves in such a manner, even if the pause were to run its full course. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (SR–MIAX–2014– 28), is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–18745 Filed 8–7–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72752; File No. SR–OCC– 2014–17] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Permit OCC To Adjust the Size of Its Clearing Fund Intra-Month and Clearing Member’s Clearing Fund Contributions Intra-Month August 4, 2014. 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 July 24, 2014, The Options Clearing Corporation (‘‘OCC’’) 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.3 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 amend its Rules to permit OCC to increase the size of its clearing fund intra-month based upon observed changes in OCC’s projected exposure and on an emergency basis. In addition, the proposed change provide [sic] that under certain circumstances OCC will increase a clearing member’s required contribution to OCC’s clearing fund intra-month. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 OCC also filed the proposals in this proposed rule change as an advance notice under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010. See SR–OCC–2014–804; 12 U.S.C. 5465(e)(1). 2 17 proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 11 15 U.S.C. 78f(b)(5). 12 15 U.S.C. 78s(b)(2). 13 17 CFR 200.30–3(a)(12). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 E:\FR\FM\08AUN1.SGM 08AUN1 Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose OCC is proposing to modify Rule 1001, which concerns the sizing of OCC’s clearing fund and the allocation of clearing member contributions thereto. First, by adding Interpretation and Policy .05, Rule 1001 would be revised to permit OCC to increase the size of its clearing fund intra-month based upon observed changes in OCC’s projected exposure or on an emergency basis. Second, by adding Interpretation and Policy .06, Rule 1001 would be revised to permit increases to a clearing member’s required contribution to the clearing fund at any time, including between regular monthly calculations, under certain circumstances. Rule 1001(b) and 1001(f) would also be revised to clarify certain terminology relating to the calculation of clearing fund contributions, and an Interpretation and Policy would be added to Article VIII, Section 2 of the By-Laws to clarify that this section, which addresses rule changes that increase a clearing member’s required clearing fund contributions, does not apply to actions taken under Interpretations and Policies .05 or .06 to Rule 1001. This proposed rule change was also filed as an Advance Notice filing (SR–OCC–2014–804). Background The primary purpose of OCC’s clearing fund is to provide a high degree of assurance that market integrity will be maintained in the event that one or more clearing members fails to meet its obligations to OCC.4 The clearing fund can also be used to meet the obligations resulting from the default of any bank or securities or commodities clearing organization to which OCC is exposed. The clearing fund supplements the financial safeguards afforded by OCC’s membership standards and margin requirements. Currently, the size of the clearing fund is adjusted monthly. On each business day OCC calculates its hypothetical exposure, at a confidence level of at least 99%, under simulated default scenarios that include an ‘‘idiosyncratic default’’ of a single clearing member group 5 and a ‘‘minor systemic event’’ involving the nearsimultaneous default of two random 4 See, Article VIII, Section 1 of OCC’s By-Laws which sets forth the purpose of the clearing fund. 5 A Clearing Member Group is a clearing member and any other clearing member that is affiliated with such clearing member. See Article 1, Section 1,C.(15) of OCC’s By-Laws. VerDate Mar<15>2010 16:51 Aug 07, 2014 Jkt 232001 clearing members. OCC then treats the greater of these two hypothetical exposures as that day’s projected peak exposure. OCC also computes the projected draws from the clearing fund that would be necessary in connection with each business day’s projected peak exposure. To determine the overall size of the clearing fund, on the first business day of each month, OCC averages these daily projected clearing fund draws over the prior month and uses that average as the required size of the clearing fund for that month. However, notwithstanding this calculation, in no event will the size of the clearing fund be set at less than 110% of the size of OCC’s committed credit facilities secured by the clearing fund, in order to assure that at all times OCC will have collateral to pledge sufficient to draw the entire amount of such facilities. OCC publishes the new clearing fund requirement on the first business day of each month and clearing members have five business days to meet the new requirement.6 The foregoing calculations and the allocations among clearing members are based on the prescribed formulas included in Rules 1001(a) and 1001(b), respectively, as supplemented by Interpretation and Policy .01 to Rule 1001. These formulas were adopted pursuant to a rule change effective April 18, 2013.7 The Rules do not, however, provide for increases to the overall size of the clearing fund between such monthly adjustments, nor do the Rules provide for adjustments to a clearing member’s required contribution between such monthly calculations. Proposed Change To Authorize Certain Adjustments to the Total Size of the Clearing Fund and Individual Clearing Members’ Required Contributions In order to mitigate the risks of an underfunding of the clearing fund, the proposed changes to the Rules would provide OCC with the authority to increase the total size of the clearing fund intra-month upon a significant and sustained increase in exposure based on daily projected clearing fund draw calculations, as described above, and on an emergency basis for the protection of OCC or in the public interest. The proposed changes would also provide OCC with the authority to increase a clearing member’s required clearing fund contribution under certain circumstances reflecting a change in the 6 See OCC Rules 1002 and 1003, respectively. Exchange Act Release No. 69403 (April 18, 2013), 78 FR 24257 (April 24, 2013) (SR– OCC–2013–02). 7 Securities PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 46491 clearing member’s financial condition or risk profile. Adjustments to the Overall Size of the Clearing Fund OCC would have the authority to increase the overall size of the clearing fund intra-month in the event that the five-day rolling average of the projected draws against the clearing fund are 150% or more of the size of the clearing fund. This threshold is intended to ensure that intra-month increases in clearing fund size are limited to occasions in which the increase in exposure is significant and prolonged. Based on OCC staff’s analysis of historical clearing fund data beginning in July 2011, the use of this 150% threshold would have resulted in only four changes to the clearing fund’s size during this period, one of which related to firm-specific changes and three of which related to increased volatility prior to and during the events related to the downgrade of the U.S. Government’s credit rating and the ongoing debt crisis of that period. In the event that the 150% threshold is exceeded over a fiveday period, OCC’s Executive Chairman or President would have the authority to approve an increase in the clearing fund’s size. The Risk Committee of OCC’s Board would be informed of such officer’s determination as soon as practicable. OCC would also provide notification to the SEC and CFTC in the same manner as if an emergency waiver or suspension of OCC’s Rules occurred.8 The Risk Committee would also be permitted to approve an increase in the clearing fund’s size on an emergency basis upon its determination that such action is necessary for the protection of OCC or in the public interest, and OCC would then provide notification to the Board of Directors, SEC and CFTC in the same manner as if an emergency waiver or suspension of OCC’s Rules occurred.9 OCC believes that these processes ensure proper management and boardlevel oversight regarding decisions to increase the clearing fund size. Upon an intra-month increase in the clearing fund’s size, clearing members would generally be given two business 8 See OCC’s By-Laws Article IX, Section 14. recommending that the Risk Committee approve an emergency increase in the size of the clearing fund, OCC would follow the process set forth in OCC’s By-Laws Article IX, Section 14 in that the Executive Chairman, Management Vice Chairman or President, in his, her or their judgment, would determine that: (1) An emergency exists, and (2) such an increase is necessary or advisable for the protection of OCC or otherwise in the public interest. 9 In E:\FR\FM\08AUN1.SGM 08AUN1 46492 Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices days to satisfy any deficit,10 and the increase would generally remain in effect until the next regular monthly calculation occurs unless the Risk Committee determines that a further increase is warranted or the 150% threshold is triggered more than once during the same month. The foregoing changes to OCC’s Rules would not affect the basic clearing fund methodology as previously approved by the SEC, nor would they affect allocation of the clearing fund among clearing members.11 OCC has discussed the proposed changes with its Financial Risk Advisory Council, a working group consisting of representatives of clearing members and exchanges formed by OCC to review and comment on various risk management proposals. They additionally were discussed with the OCC Operations Roundtable, also consisting of representatives of clearing members and exchanges, which considers operational efficiencies and improvements. No concerns were raised by either working group during the course of these discussions. mstockstill on DSK4VPTVN1PROD with NOTICES Adjustments to Individual Clearing Members’ Required Contributions The proposed rule change would also permit OCC to increase individual clearing members’ required clearing fund contributions in three circumstances. The first circumstance exists when a clearing member’s required clearing fund contribution exceeds its net capital.12 In this situation, the clearing member is placed on OCC’s ‘‘Watch Level III’’ surveillance, which is used to assess a clearing member’s ability to meet a call to replenish its clearing fund 10 Intra-month clearing fund adjustments will only occur in limited circumstances and will be due to certain events that could materially affect the overall liquidity of OCC. Based on feedback OCC received from clearing members, OCC believes that providing a clearing member with one day to absorb the increase, including determining the most effective manner in which to collateralize the increase, and a second day to fund the increase strikes the proper balance between effective risk management and not causing material disruptions to a clearing member’s business. 11 In particular, the contributions of futures-only affiliated clearing members and clearing members depositing the required minimum clearing fund contribution, respectively, would not be adjusted in connection with any increase in the clearing fund size. 12 In this context, and for clearing members that are registered broker-dealers, net capital means net capital computed in accordance with Securities Exchange Act Rule 15c3–1. For clearing members that are futures commission merchants, net capital means adjusted net capital computed in accordance with CFTC Regulation Section 1.17 and for Canadian clearing members, net capital means riskadjusted capital computed in accordance with Investment Industry Regulatory Organization of Canada Rule 17.1. VerDate Mar<15>2010 16:51 Aug 07, 2014 Jkt 232001 contribution and requires certain OCC executive officers to consider protective measures with respect to such clearing member. One such protective measure would be to add the amount of such excess to the clearing member’s required clearing fund contribution, thereby funding such difference in advance of the regular monthly calculation.13 No subsequent adjustment thereunder would be permitted under the applicable Rule provision until the earlier of the next adjustment of the clearing fund (either as a result of the next monthly adjustment or as a result of an increase in the total clearing fund pursuant to the rule changes described above) or the next required reporting of the clearing member’s net capital. The second circumstance is the merger or consolidation of two or more clearing members, in which case the variable amount of the required clearing fund contribution for the surviving clearing member would be adjusted so that it equals the sum of such amount for the surviving clearing member and the total of such amounts for all other clearing members involved in the transaction. Such adjusted amount would be substituted for the variable amount previously calculated for the surviving clearing member. The third circumstance is the transfer of positions between clearing members, in which case OCC would be able to adjust the clearing fund contributions of the transferor clearing member and the transferee clearing member after giving effect to the transfer, subject to the agreement of the two clearing members. The amount of such adjustment would affect the variable amount of each clearing member’s required clearing fund contribution and, irrespective of the amount or size of the positions transferred, each clearing member would continue to be required to maintain OCC’s minimum clearing fund contribution. Proposed Changes to By-Laws and Rules OCC is proposing to add an Interpretation and Policy .05 under Rule 1001 to provide for the authority to increase the size of the clearing fund on an intra-month basis. Subparagraph (a) of proposed Interpretation and Policy .05 would authorize OCC’s Executive Chairman or President, or the Risk Committee, to increase the clearing fund size as described above (i.e., based on 13 Pursuant to Interpretation and Policy .01 to Article VIII, Section 5 of OCC’s By-Laws, a clearing member’s clearing fund contribution is used to determine the clearing member’s share of any clearing fund deficiency resulting from a clearing member insolvency. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 the daily calculations or by the Risk Committee on an emergency basis). Proposed Interpretation and Policy .06 under Rule 1001 would provide for the authority to increase individual clearing members’ required clearing fund contributions in certain circumstances. Subparagraph (a) would provide for an increase when a clearing member’s required clearing fund contribution exceeds its net capital, subparagraph (b) would provide for an increase in the event of a merger or consolidation involving clearing members and subparagraph (c) would provide for an increase in the event of a transfer of positions between clearing members, in each case as described above. Subparagraph (b) of proposed Interpretation and Policy .05 and subparagraphs (a), (b) and (c) of proposed Interpretation and Policy .06 would provide that if the total size of the clearing fund size or an individual clearing member’s required contribution is increased, as applicable, the variable amount would be increased accordingly for each clearing member, and this increase would be effective for all purposes under OCC’s By-Laws and Rules, including each clearing member’s required contribution in the event the clearing fund is fully depleted in connection with the insolvency of a clearing member.14 However, subparagraph (b) of proposed Interpretation and Policy .05 and subparagraphs (a), (b) and (c) of proposed Interpretation and Policy .06 would specify that the variable amount would remain subject to nonstandard calculations for futures-only affiliated clearing members and clearing members that have deposited the minimum required clearing fund contribution. An example will illustrate the manner in which the total size of the clearing fund and individual clearing members’ contributions could be adjusted pursuant to Interpretation and Policy .05 to Rule 1001. The example assumes that OCC’s total clearing fund requirement is $1 million divided among five clearing members. Member One has the minimum requirement of $150,000, Member Two has a requirement of $212,500 and the other three comprise the remainder in differing amounts. If OCC determined, based on the most recent five-day rolling average of clearing fund draws, that it should resize the fund to $1.5 million, Member One would maintain the minimum requirement of $150,000 and the other four members would be 14 See Interpretation and Policy .01 to Article VIII, Section 5 of OCC’s By-Laws. E:\FR\FM\08AUN1.SGM 08AUN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices assessed the incremental amount totaling $500,000. Member Two would be assessed $125,000 because the firm’s pro rata share of the original clearing fund requirement excluding Member One’s minimum requirement equaled 25%, i.e., $212,500 divided by $850,000. Member Two’s new clearing fund requirement would be $337,500 until the next clearing fund sizing calculation. The other three members would be assessed their share of the remaining $375,000 (using a denominator of $850,000 as with Member Two) so that the total clearing fund requirement of $1.5 million is satisfied. Subparagraph (c) of proposed Interpretation and Policy .05 and subparagraph (d) of proposed Interpretation and Policy .06 would provide that as soon as practicable after any increase in the total size of the clearing fund size or an individual clearing member’s required contribution, as applicable, OCC would provide notice to the affected clearing members, and such clearing members would be required to satisfy their deficits within two business days of such notice in the case of adjustments pursuant to Interpretation and Policy .05 and one business day in the case of adjustments pursuant to Interpretation and Policy .06. If, however, any deficit would be required to be satisfied on the first, second, third or fourth business day of a calendar month, it may instead be satisfied by the fifth business day of the calendar month. These subparagraphs also set forth that a resulting change in a clearing member’s contribution to the clearing fund due to an increase in the clearing fund’s size or an individual adjustment will be reflected on one or more reports made available by OCC, but that OCC will not revise the clearing member’s Clearing Fund Statement. Subparagraph (d) of proposed Interpretation and Policy .06 would further specify that OCC may require any deficit resulting from a merger of clearing members or the transfer of positions between clearing members to be satisfied prior to the occurrence of the merger or transfer. Moreover, subparagraph (e) of proposed Interpretation and Policy .06 would clarify that the individual adjustments under subparagraphs (a), (b), and (c) of proposed Interpretation and Policy .06 may result in an adjustment to the total size of the clearing fund. To enhance the readability of the new Interpretations and Policies added to Rule 1001, the term ‘‘fixed amount’’ would be used to refer to the portion of a clearing member’s clearing fund VerDate Mar<15>2010 16:51 Aug 07, 2014 Jkt 232001 contribution calculated pursuant to clause (x) of Rule 1001(b), and the term ‘‘variable amount’’ would be used to refer to the portion of a clearing member’s clearing fund contribution calculated pursuant to clause (y) of Rule 1001(b). Rule 1001(b) and 1001(f) would be amended solely for the purpose of introducing these defined terms. Article VIII, Section 2(b) of OCC’s ByLaws provides, among other things, that if a clearing member’s clearing fund contribution is increased as a result of an amendment of the Rules, the increase will not be effective until the clearing member is given five business days’ notice of the amendment. OCC proposes to add Interpretation and Policy .01 to Article VIII, Section 2 to clarify that such section shall not apply to increases in the total size of the clearing fund pursuant to Interpretation and Policy .05 of Rule 1001, nor to an increase in an individual clearing member’s contribution pursuant to Interpretation and Policy .05 or .06 of Rule 1001. While the proposed rule change may require clearing members to increase their clearing fund contributions at any time during a month, any such increase in the overall size of the clearing fund would correspond to a material change in OCC’s projected exposure and would affect all clearing members proportionally in the same manner as a monthly adjustment, and any such increase in an individual clearing member’s required contribution would correspond to a material change in the clearing member’s business or financial condition, as well as use of OCC’s resources. OCC therefore does not believe that clearing members will have significant problems in complying with the rule change. In addition to the prior communications with clearing members described above, in connection with the filing of this rule change, OCC will inform clearing members of the proposed change via an information memorandum, in order to advise clearing members of the procedures OCC intends to implement in support of the proposed rule change, including notice procedures to advise clearing members of any increases in contribution amounts. 2. Statutory Basis OCC believes the proposed changes to OCC’s Rules are consistent with Section 17A of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’),15 and the rules and regulations thereunder, including Rule 17Ad–22,16 because the proposed modifications would help ensure that OCC maintain sufficient resources to withstand, at a minimum, a default by the participant family to which it has the largest exposure in extreme but plausible market conditions.17 OCC’s clearing fund safeguards and protects OCC, its clearing members and the securities and funds in OCC’s custody and control from the default of one its clearing members. It is critical that the size OCC’s clearing fund accurately reflect OCC’s risk profile, and each clearing member’s required clearing fund contribution accurately reflect its use of OCC’s resources. The proposed changes would provide greater certainty with respect to the clearing fund’s capitalization, thereby further assuring the safeguarding of securities and funds which are in the custody or control of OCC or for which it is responsible.18 The proposed changes are not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency’s Statement on Burden on Competition OCC does not believe that the proposed changes to the Rules would impose any burden on competition.19 Changes to the rules of a clearing agency may have an impact on the participants in a clearing agency, their customers and the markets that the clearing agency serves. The proposed changes primarily affect clearing members and OCC believes that the proposed modifications would not unfairly inhibit access to OCC’s services or disadvantage or favor any particular user in relationship to another user because the changes would affect all clearing members equally. Subject to certain exclusions already provided for in OCC’s Rules, all clearing members’ contributions to the clearing fund would be subject to increase upon an increase to the overall size of the clearing fund and an individual clearing member’s contribution to the clearing fund would be subject to increase upon a material change in its business or financial condition. While such increases may impose an increased financial burden on clearing members, any increase in the total size of the clearing fund will be calculated in accordance with the same formula used to determine regular monthly clearing fund contributions, which is tied to usage of OCC’s services, and any clearing member-specific increase will reflect a material change in the clearing member’s business or financial 17 17 CFR 240.17Ad–22(b)(3). U.S.C. 78q–1(b)(3)(F). 19 15 U.S.C. 78q–1(b)(3)(I). 15 15 U.S.C. 78q–1. 16 17 CFR 240.17Ad–22. PO 00000 Frm 00099 Fmt 4703 18 15 Sfmt 4703 46493 E:\FR\FM\08AUN1.SGM 08AUN1 46494 Federal Register / Vol. 79, No. 153 / Friday, August 8, 2014 / Notices condition.20 Accordingly, no clearing member will bear a disproportionate share of any intra-month increase in the size of the clearing fund. For the foregoing reasons, OCC believes that the proposed changes are in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies and would not impose a burden on competition because the changes would permit OCC to increase the size of its clearing fund intra-month in response to an increase in OCC’s projected exposure, and to provide for adjustments of a clearing member’s required clearing fund contribution at any time under specified circumstances reflecting a change in its financial condition or risk profile, thereby promoting the purposes of the Act and Rule 17Ad-22 thereunder as described above. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. mstockstill on DSK4VPTVN1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed.21 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. 20 See Rule 1001(b). also filed the proposals in this proposed rule change as an advance notice under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010. See supra note 3. 21 OCC VerDate Mar<15>2010 16:51 Aug 07, 2014 Jkt 232001 Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–72750; File No. SR–NYSE– 2014–40] • 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– OCC–2014–17 on the subject line. Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Establishing the NYSE Best Quote & Trades Data Feed Paper Comments August 4, 2014. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–OCC–2014–17. 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 OCC and on OCC’s Web site at http://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_14_ 17.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–2014–17 and should be submitted on or before August 29, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 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 July 21, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) 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 the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–18749 Filed 8–7–14; 8:45 am] I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to establish the NYSE Best Quote & Trades (‘‘NYSE BQT’’) data feed. 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 these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to establish the NYSE BQT data feed. The NYSE BQT data feed would provide a unified view of best bid and offer (‘‘BBO’’) and BILLING CODE 8011–01–P 1 15 22 17 PO 00000 CFR 200.30–3(a)(12). Frm 00100 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\08AUN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 08AUN1

Agencies

[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46490-46494]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18749]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72752; File No. SR-OCC-2014-17]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Permit OCC To Adjust the 
Size of Its Clearing Fund Intra-Month and Clearing Member's Clearing 
Fund Contributions Intra-Month

August 4, 2014.
    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 July 24, 2014, The Options Clearing Corporation (``OCC'') 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.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ OCC also filed the proposals in this proposed rule change as 
an advance notice under Section 806(e)(1) of Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act entitled the 
Payment, Clearing, and Settlement Supervision Act of 2010. See SR-
OCC-2014-804; 12 U.S.C. 5465(e)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to amend its Rules to permit OCC to increase the size 
of its clearing fund intra-month based upon observed changes in OCC's 
projected exposure and on an emergency basis. In addition, the proposed 
change provide [sic] that under certain circumstances OCC will increase 
a clearing member's required contribution to OCC's clearing fund intra-
month.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

[[Page 46491]]

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

1. Purpose
    OCC is proposing to modify Rule 1001, which concerns the sizing of 
OCC's clearing fund and the allocation of clearing member contributions 
thereto. First, by adding Interpretation and Policy .05, Rule 1001 
would be revised to permit OCC to increase the size of its clearing 
fund intra-month based upon observed changes in OCC's projected 
exposure or on an emergency basis. Second, by adding Interpretation and 
Policy .06, Rule 1001 would be revised to permit increases to a 
clearing member's required contribution to the clearing fund at any 
time, including between regular monthly calculations, under certain 
circumstances. Rule 1001(b) and 1001(f) would also be revised to 
clarify certain terminology relating to the calculation of clearing 
fund contributions, and an Interpretation and Policy would be added to 
Article VIII, Section 2 of the By-Laws to clarify that this section, 
which addresses rule changes that increase a clearing member's required 
clearing fund contributions, does not apply to actions taken under 
Interpretations and Policies .05 or .06 to Rule 1001. This proposed 
rule change was also filed as an Advance Notice filing (SR-OCC-2014-
804).
Background
    The primary purpose of OCC's clearing fund is to provide a high 
degree of assurance that market integrity will be maintained in the 
event that one or more clearing members fails to meet its obligations 
to OCC.\4\ The clearing fund can also be used to meet the obligations 
resulting from the default of any bank or securities or commodities 
clearing organization to which OCC is exposed. The clearing fund 
supplements the financial safeguards afforded by OCC's membership 
standards and margin requirements.
---------------------------------------------------------------------------

    \4\ See, Article VIII, Section 1 of OCC's By-Laws which sets 
forth the purpose of the clearing fund.
---------------------------------------------------------------------------

    Currently, the size of the clearing fund is adjusted monthly. On 
each business day OCC calculates its hypothetical exposure, at a 
confidence level of at least 99%, under simulated default scenarios 
that include an ``idiosyncratic default'' of a single clearing member 
group \5\ and a ``minor systemic event'' involving the near-
simultaneous default of two random clearing members. OCC then treats 
the greater of these two hypothetical exposures as that day's projected 
peak exposure. OCC also computes the projected draws from the clearing 
fund that would be necessary in connection with each business day's 
projected peak exposure. To determine the overall size of the clearing 
fund, on the first business day of each month, OCC averages these daily 
projected clearing fund draws over the prior month and uses that 
average as the required size of the clearing fund for that month. 
However, notwithstanding this calculation, in no event will the size of 
the clearing fund be set at less than 110% of the size of OCC's 
committed credit facilities secured by the clearing fund, in order to 
assure that at all times OCC will have collateral to pledge sufficient 
to draw the entire amount of such facilities. OCC publishes the new 
clearing fund requirement on the first business day of each month and 
clearing members have five business days to meet the new 
requirement.\6\
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    \5\ A Clearing Member Group is a clearing member and any other 
clearing member that is affiliated with such clearing member. See 
Article 1, Section 1,C.(15) of OCC's By-Laws.
    \6\ See OCC Rules 1002 and 1003, respectively.
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    The foregoing calculations and the allocations among clearing 
members are based on the prescribed formulas included in Rules 1001(a) 
and 1001(b), respectively, as supplemented by Interpretation and Policy 
.01 to Rule 1001. These formulas were adopted pursuant to a rule change 
effective April 18, 2013.\7\ The Rules do not, however, provide for 
increases to the overall size of the clearing fund between such monthly 
adjustments, nor do the Rules provide for adjustments to a clearing 
member's required contribution between such monthly calculations.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 69403 (April 18, 2013), 
78 FR 24257 (April 24, 2013) (SR-OCC-2013-02).
---------------------------------------------------------------------------

Proposed Change To Authorize Certain Adjustments to the Total Size of 
the Clearing Fund and Individual Clearing Members' Required 
Contributions
    In order to mitigate the risks of an underfunding of the clearing 
fund, the proposed changes to the Rules would provide OCC with the 
authority to increase the total size of the clearing fund intra-month 
upon a significant and sustained increase in exposure based on daily 
projected clearing fund draw calculations, as described above, and on 
an emergency basis for the protection of OCC or in the public interest. 
The proposed changes would also provide OCC with the authority to 
increase a clearing member's required clearing fund contribution under 
certain circumstances reflecting a change in the clearing member's 
financial condition or risk profile.
Adjustments to the Overall Size of the Clearing Fund
    OCC would have the authority to increase the overall size of the 
clearing fund intra-month in the event that the five-day rolling 
average of the projected draws against the clearing fund are 150% or 
more of the size of the clearing fund. This threshold is intended to 
ensure that intra-month increases in clearing fund size are limited to 
occasions in which the increase in exposure is significant and 
prolonged. Based on OCC staff's analysis of historical clearing fund 
data beginning in July 2011, the use of this 150% threshold would have 
resulted in only four changes to the clearing fund's size during this 
period, one of which related to firm-specific changes and three of 
which related to increased volatility prior to and during the events 
related to the downgrade of the U.S. Government's credit rating and the 
ongoing debt crisis of that period. In the event that the 150% 
threshold is exceeded over a five-day period, OCC's Executive Chairman 
or President would have the authority to approve an increase in the 
clearing fund's size. The Risk Committee of OCC's Board would be 
informed of such officer's determination as soon as practicable. OCC 
would also provide notification to the SEC and CFTC in the same manner 
as if an emergency waiver or suspension of OCC's Rules occurred.\8\
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    \8\ See OCC's By-Laws Article IX, Section 14.
---------------------------------------------------------------------------

    The Risk Committee would also be permitted to approve an increase 
in the clearing fund's size on an emergency basis upon its 
determination that such action is necessary for the protection of OCC 
or in the public interest, and OCC would then provide notification to 
the Board of Directors, SEC and CFTC in the same manner as if an 
emergency waiver or suspension of OCC's Rules occurred.\9\ OCC believes 
that these processes ensure proper management and board-level oversight 
regarding decisions to increase the clearing fund size.
---------------------------------------------------------------------------

    \9\ In recommending that the Risk Committee approve an emergency 
increase in the size of the clearing fund, OCC would follow the 
process set forth in OCC's By-Laws Article IX, Section 14 in that 
the Executive Chairman, Management Vice Chairman or President, in 
his, her or their judgment, would determine that: (1) An emergency 
exists, and (2) such an increase is necessary or advisable for the 
protection of OCC or otherwise in the public interest.
---------------------------------------------------------------------------

    Upon an intra-month increase in the clearing fund's size, clearing 
members would generally be given two business

[[Page 46492]]

days to satisfy any deficit,\10\ and the increase would generally 
remain in effect until the next regular monthly calculation occurs 
unless the Risk Committee determines that a further increase is 
warranted or the 150% threshold is triggered more than once during the 
same month. The foregoing changes to OCC's Rules would not affect the 
basic clearing fund methodology as previously approved by the SEC, nor 
would they affect allocation of the clearing fund among clearing 
members.\11\ OCC has discussed the proposed changes with its Financial 
Risk Advisory Council, a working group consisting of representatives of 
clearing members and exchanges formed by OCC to review and comment on 
various risk management proposals. They additionally were discussed 
with the OCC Operations Roundtable, also consisting of representatives 
of clearing members and exchanges, which considers operational 
efficiencies and improvements. No concerns were raised by either 
working group during the course of these discussions.
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    \10\ Intra-month clearing fund adjustments will only occur in 
limited circumstances and will be due to certain events that could 
materially affect the overall liquidity of OCC. Based on feedback 
OCC received from clearing members, OCC believes that providing a 
clearing member with one day to absorb the increase, including 
determining the most effective manner in which to collateralize the 
increase, and a second day to fund the increase strikes the proper 
balance between effective risk management and not causing material 
disruptions to a clearing member's business.
    \11\ In particular, the contributions of futures-only affiliated 
clearing members and clearing members depositing the required 
minimum clearing fund contribution, respectively, would not be 
adjusted in connection with any increase in the clearing fund size.
---------------------------------------------------------------------------

Adjustments to Individual Clearing Members' Required Contributions
    The proposed rule change would also permit OCC to increase 
individual clearing members' required clearing fund contributions in 
three circumstances. The first circumstance exists when a clearing 
member's required clearing fund contribution exceeds its net 
capital.\12\ In this situation, the clearing member is placed on OCC's 
``Watch Level III'' surveillance, which is used to assess a clearing 
member's ability to meet a call to replenish its clearing fund 
contribution and requires certain OCC executive officers to consider 
protective measures with respect to such clearing member. One such 
protective measure would be to add the amount of such excess to the 
clearing member's required clearing fund contribution, thereby funding 
such difference in advance of the regular monthly calculation.\13\ No 
subsequent adjustment thereunder would be permitted under the 
applicable Rule provision until the earlier of the next adjustment of 
the clearing fund (either as a result of the next monthly adjustment or 
as a result of an increase in the total clearing fund pursuant to the 
rule changes described above) or the next required reporting of the 
clearing member's net capital.
---------------------------------------------------------------------------

    \12\ In this context, and for clearing members that are 
registered broker-dealers, net capital means net capital computed in 
accordance with Securities Exchange Act Rule 15c3-1. For clearing 
members that are futures commission merchants, net capital means 
adjusted net capital computed in accordance with CFTC Regulation 
Section 1.17 and for Canadian clearing members, net capital means 
risk-adjusted capital computed in accordance with Investment 
Industry Regulatory Organization of Canada Rule 17.1.
    \13\ Pursuant to Interpretation and Policy .01 to Article VIII, 
Section 5 of OCC's By-Laws, a clearing member's clearing fund 
contribution is used to determine the clearing member's share of any 
clearing fund deficiency resulting from a clearing member 
insolvency.
---------------------------------------------------------------------------

    The second circumstance is the merger or consolidation of two or 
more clearing members, in which case the variable amount of the 
required clearing fund contribution for the surviving clearing member 
would be adjusted so that it equals the sum of such amount for the 
surviving clearing member and the total of such amounts for all other 
clearing members involved in the transaction. Such adjusted amount 
would be substituted for the variable amount previously calculated for 
the surviving clearing member.
    The third circumstance is the transfer of positions between 
clearing members, in which case OCC would be able to adjust the 
clearing fund contributions of the transferor clearing member and the 
transferee clearing member after giving effect to the transfer, subject 
to the agreement of the two clearing members. The amount of such 
adjustment would affect the variable amount of each clearing member's 
required clearing fund contribution and, irrespective of the amount or 
size of the positions transferred, each clearing member would continue 
to be required to maintain OCC's minimum clearing fund contribution.
Proposed Changes to By-Laws and Rules
    OCC is proposing to add an Interpretation and Policy .05 under Rule 
1001 to provide for the authority to increase the size of the clearing 
fund on an intra-month basis. Subparagraph (a) of proposed 
Interpretation and Policy .05 would authorize OCC's Executive Chairman 
or President, or the Risk Committee, to increase the clearing fund size 
as described above (i.e., based on the daily calculations or by the 
Risk Committee on an emergency basis).
    Proposed Interpretation and Policy .06 under Rule 1001 would 
provide for the authority to increase individual clearing members' 
required clearing fund contributions in certain circumstances. 
Subparagraph (a) would provide for an increase when a clearing member's 
required clearing fund contribution exceeds its net capital, 
subparagraph (b) would provide for an increase in the event of a merger 
or consolidation involving clearing members and subparagraph (c) would 
provide for an increase in the event of a transfer of positions between 
clearing members, in each case as described above.
    Subparagraph (b) of proposed Interpretation and Policy .05 and 
subparagraphs (a), (b) and (c) of proposed Interpretation and Policy 
.06 would provide that if the total size of the clearing fund size or 
an individual clearing member's required contribution is increased, as 
applicable, the variable amount would be increased accordingly for each 
clearing member, and this increase would be effective for all purposes 
under OCC's By-Laws and Rules, including each clearing member's 
required contribution in the event the clearing fund is fully depleted 
in connection with the insolvency of a clearing member.\14\ However, 
subparagraph (b) of proposed Interpretation and Policy .05 and 
subparagraphs (a), (b) and (c) of proposed Interpretation and Policy 
.06 would specify that the variable amount would remain subject to 
nonstandard calculations for futures-only affiliated clearing members 
and clearing members that have deposited the minimum required clearing 
fund contribution.
---------------------------------------------------------------------------

    \14\ See Interpretation and Policy .01 to Article VIII, Section 
5 of OCC's By-Laws.
---------------------------------------------------------------------------

    An example will illustrate the manner in which the total size of 
the clearing fund and individual clearing members' contributions could 
be adjusted pursuant to Interpretation and Policy .05 to Rule 1001. The 
example assumes that OCC's total clearing fund requirement is $1 
million divided among five clearing members. Member One has the minimum 
requirement of $150,000, Member Two has a requirement of $212,500 and 
the other three comprise the remainder in differing amounts. If OCC 
determined, based on the most recent five-day rolling average of 
clearing fund draws, that it should resize the fund to $1.5 million, 
Member One would maintain the minimum requirement of $150,000 and the 
other four members would be

[[Page 46493]]

assessed the incremental amount totaling $500,000. Member Two would be 
assessed $125,000 because the firm's pro rata share of the original 
clearing fund requirement excluding Member One's minimum requirement 
equaled 25%, i.e., $212,500 divided by $850,000. Member Two's new 
clearing fund requirement would be $337,500 until the next clearing 
fund sizing calculation. The other three members would be assessed 
their share of the remaining $375,000 (using a denominator of $850,000 
as with Member Two) so that the total clearing fund requirement of $1.5 
million is satisfied.
    Subparagraph (c) of proposed Interpretation and Policy .05 and 
subparagraph (d) of proposed Interpretation and Policy .06 would 
provide that as soon as practicable after any increase in the total 
size of the clearing fund size or an individual clearing member's 
required contribution, as applicable, OCC would provide notice to the 
affected clearing members, and such clearing members would be required 
to satisfy their deficits within two business days of such notice in 
the case of adjustments pursuant to Interpretation and Policy .05 and 
one business day in the case of adjustments pursuant to Interpretation 
and Policy .06. If, however, any deficit would be required to be 
satisfied on the first, second, third or fourth business day of a 
calendar month, it may instead be satisfied by the fifth business day 
of the calendar month. These subparagraphs also set forth that a 
resulting change in a clearing member's contribution to the clearing 
fund due to an increase in the clearing fund's size or an individual 
adjustment will be reflected on one or more reports made available by 
OCC, but that OCC will not revise the clearing member's Clearing Fund 
Statement.
    Subparagraph (d) of proposed Interpretation and Policy .06 would 
further specify that OCC may require any deficit resulting from a 
merger of clearing members or the transfer of positions between 
clearing members to be satisfied prior to the occurrence of the merger 
or transfer. Moreover, subparagraph (e) of proposed Interpretation and 
Policy .06 would clarify that the individual adjustments under 
subparagraphs (a), (b), and (c) of proposed Interpretation and Policy 
.06 may result in an adjustment to the total size of the clearing fund.
    To enhance the readability of the new Interpretations and Policies 
added to Rule 1001, the term ``fixed amount'' would be used to refer to 
the portion of a clearing member's clearing fund contribution 
calculated pursuant to clause (x) of Rule 1001(b), and the term 
``variable amount'' would be used to refer to the portion of a clearing 
member's clearing fund contribution calculated pursuant to clause (y) 
of Rule 1001(b). Rule 1001(b) and 1001(f) would be amended solely for 
the purpose of introducing these defined terms.
    Article VIII, Section 2(b) of OCC's By-Laws provides, among other 
things, that if a clearing member's clearing fund contribution is 
increased as a result of an amendment of the Rules, the increase will 
not be effective until the clearing member is given five business days' 
notice of the amendment. OCC proposes to add Interpretation and Policy 
.01 to Article VIII, Section 2 to clarify that such section shall not 
apply to increases in the total size of the clearing fund pursuant to 
Interpretation and Policy .05 of Rule 1001, nor to an increase in an 
individual clearing member's contribution pursuant to Interpretation 
and Policy .05 or .06 of Rule 1001.
    While the proposed rule change may require clearing members to 
increase their clearing fund contributions at any time during a month, 
any such increase in the overall size of the clearing fund would 
correspond to a material change in OCC's projected exposure and would 
affect all clearing members proportionally in the same manner as a 
monthly adjustment, and any such increase in an individual clearing 
member's required contribution would correspond to a material change in 
the clearing member's business or financial condition, as well as use 
of OCC's resources. OCC therefore does not believe that clearing 
members will have significant problems in complying with the rule 
change. In addition to the prior communications with clearing members 
described above, in connection with the filing of this rule change, OCC 
will inform clearing members of the proposed change via an information 
memorandum, in order to advise clearing members of the procedures OCC 
intends to implement in support of the proposed rule change, including 
notice procedures to advise clearing members of any increases in 
contribution amounts.
2. Statutory Basis
    OCC believes the proposed changes to OCC's Rules are consistent 
with Section 17A of the Securities Exchange Act of 1934, as amended 
(the ``Exchange Act''),\15\ and the rules and regulations thereunder, 
including Rule 17Ad-22,\16\ because the proposed modifications would 
help ensure that OCC maintain sufficient resources to withstand, at a 
minimum, a default by the participant family to which it has the 
largest exposure in extreme but plausible market conditions.\17\ OCC's 
clearing fund safeguards and protects OCC, its clearing members and the 
securities and funds in OCC's custody and control from the default of 
one its clearing members. It is critical that the size OCC's clearing 
fund accurately reflect OCC's risk profile, and each clearing member's 
required clearing fund contribution accurately reflect its use of OCC's 
resources. The proposed changes would provide greater certainty with 
respect to the clearing fund's capitalization, thereby further assuring 
the safeguarding of securities and funds which are in the custody or 
control of OCC or for which it is responsible.\18\ The proposed changes 
are not inconsistent with the existing rules of OCC, including any 
other rules proposed to be amended.
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    \15\ 15 U.S.C. 78q-1.
    \16\ 17 CFR 240.17Ad-22.
    \17\ 17 CFR 240.17Ad-22(b)(3).
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed changes to the Rules would 
impose any burden on competition.\19\ Changes to the rules of a 
clearing agency may have an impact on the participants in a clearing 
agency, their customers and the markets that the clearing agency 
serves. The proposed changes primarily affect clearing members and OCC 
believes that the proposed modifications would not unfairly inhibit 
access to OCC's services or disadvantage or favor any particular user 
in relationship to another user because the changes would affect all 
clearing members equally. Subject to certain exclusions already 
provided for in OCC's Rules, all clearing members' contributions to the 
clearing fund would be subject to increase upon an increase to the 
overall size of the clearing fund and an individual clearing member's 
contribution to the clearing fund would be subject to increase upon a 
material change in its business or financial condition. While such 
increases may impose an increased financial burden on clearing members, 
any increase in the total size of the clearing fund will be calculated 
in accordance with the same formula used to determine regular monthly 
clearing fund contributions, which is tied to usage of OCC's services, 
and any clearing member-specific increase will reflect a material 
change in the clearing member's business or financial

[[Page 46494]]

condition.\20\ Accordingly, no clearing member will bear a 
disproportionate share of any intra-month increase in the size of the 
clearing fund.
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    \19\ 15 U.S.C. 78q-1(b)(3)(I).
    \20\ See Rule 1001(b).
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    For the foregoing reasons, OCC believes that the proposed changes 
are in the public interest, would be consistent with the requirements 
of the Act applicable to clearing agencies and would not impose a 
burden on competition because the changes would permit OCC to increase 
the size of its clearing fund intra-month in response to an increase in 
OCC's projected exposure, and to provide for adjustments of a clearing 
member's required clearing fund contribution at any time under 
specified circumstances reflecting a change in its financial condition 
or risk profile, thereby promoting the purposes of the Act and Rule 
17Ad-22 thereunder as described above.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments on the proposed rule change 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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.\21\
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    \21\ OCC also filed the proposals in this proposed rule change 
as an advance notice under Section 806(e)(1) of Title VIII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act entitled 
the Payment, Clearing, and Settlement Supervision Act of 2010. See 
supra note 3.
---------------------------------------------------------------------------

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-OCC-2014-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-OCC-2014-17. 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 OCC and on OCC's 
Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_17.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-2014-17 and should be submitted on or before August 
29, 2014.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18749 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P