Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Concerning Extended and Overnight Trading Sessions, 8917-8921 [2015-03403]

Download as PDF Federal Register / Vol. 80, No. 33 / Thursday, February 19, 2015 / Notices venues if they deem fee structures to be unreasonable or excessive. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 8 and paragraph (f)(2) of Rule 19b–4 thereunder.9 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: emcdonald on DSK67QTVN1PROD with NOTICES 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– BYX–2015–08 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–BYX–2015–08. 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 (https://www.sec.gov/ rules/sro.shtml). Copies of the 8 15 9 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). VerDate Sep<11>2014 18:56 Feb 18, 2015 Jkt 235001 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BYX– 2015–08 and should be submitted on or before March 12, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Brent J. Fields, Secretary. [FR Doc. 2015–03401 Filed 2–18–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74268; File No. SR–OCC– 2014–24] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Concerning Extended and Overnight Trading Sessions February 12, 2015. On December 12, 2014, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2014–24 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The proposed rule change was 10 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. OCC also filed this change as an advance notice under Section 806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 2010. 12 U.S.C. 5465(e)(1). Securities Exchange Act Release No. 74073 (January 15, 2015), 80 FR 3287 (January 22, 2014) (SR–OCC–2014–812). The Commission did not receive any comments on the advance notice. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 8917 published for comment in the Federal Register on December 30, 2014.3 The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. I. Description This rule change was filed in connection with OCC’s proposed change to its operations concerning the clearance of confirmed trades executed in overnight trading sessions offered by exchanges for which OCC provides clearance and settlement services. OCC currently clears overnight trading activity for CBOE Futures Exchange, LLC (‘‘CFE’’).4 The total number of trades submitted to OCC from overnight trading sessions is nominal, typically less than 3,000 contracts per session. However, OCC has recently observed an industry trend whereby exchanges are offering overnight trading sessions beyond traditional hours. Exchanges offering overnight trading sessions have indicated to OCC that such sessions benefit market participants by providing additional price transparency and hedging opportunities for products traded in such sessions, which, in turn, promotes market stability.5 In light of this trend, OCC proposed to implement a framework for clearing trades executed in such sessions that includes: (1) Qualification criteria used to approve clearing members for overnight trading sessions, (2) systemic controls to identify trades executed during overnight trading sessions by clearing members not approved for such sessions, (3) enhancements to OCC’s overnight monitoring of trades submitted by exchanges during overnight trading sessions, (4) enhancements to OCC’s credit controls with respect to monitoring clearing members’ credit risk during overnight trading sessions, including procedures for contacting an exchange offering overnight trading sessions in order to invoke use of the exchange’s kill switch, and (5) taking appropriate disciplinary action against clearing members who attempt to clear during the overnight trading sessions without first obtaining requisite approvals. These changes (described in greater detail below) are designed to reduce and mitigate the 3 Securities Exchange Act Release No. 73907 (December 22, 2014), 79 FR 78543 (December 30, 2014) (SR–OCC–2014–24). 4 ELX Futures LP (‘‘ELX’’) previously submitted overnight trading activity to OCC, but currently does not submit trades from overnight trading sessions to OCC. OCC will re-evaluate ELX’s risk controls in the event ELX re-institutes its overnight trading sessions. 5 See CFE–2014–010 at https://cfe.cboe.com/ publish/CFErulefilings/SR-CFE-2014-010.pdf. E:\FR\FM\19FEN1.SGM 19FEN1 8918 Federal Register / Vol. 80, No. 33 / Thursday, February 19, 2015 / Notices risks associated with clearing trades executed in overnight trading sessions. In addition, the only products that will be eligible for clearing in the overnight trading sessions are index options and index futures products. OCC’s framework for determining whether to provide clearing services for overnight trading sessions offered by an exchange is designed to work in conjunction with the risk controls of the exchange that offers overnight trading sessions. OCC will confirm an exchange’s risk controls as well as its staffing levels as they relate to overnight trading sessions to determine if OCC may reasonably rely on such risk controls to the reduce risk presented to OCC by the exchange’s overnight trading sessions. Such exchange risk controls will consist of: (1) Price reasonability checks; (2) controls to prevent orders from being executed beyond a certain percentage (determined by the exchange) from the initial execution price; (3) activity based protections which focus on risk beyond price, such as a high number of trades occurring in a set period of time; and (4) kill switch capabilities, which may be initiated by the exchange and can cancel all open quotes or all orders of a particular participant. OCC believes that confirming the existence of applicable pre-trade risk controls as well as overnight staffing at the relevant exchanges is essential to mitigating risks presented to OCC from overnight trading sessions.6 OCC believes that providing clearing services to exchanges offering such sessions is consistent with OCC’s mission to provide market participants with clearing and risk management solutions that respond to changes in the marketplace. Qualification Criteria emcdonald on DSK67QTVN1PROD with NOTICES In order to mitigate risks associated with clearing for overnight trading sessions, clearing members that participate in such trading sessions will be required to provide contact information to OCC for operational and risk personnel available to be contacted by OCC during such sessions. In addition, OCC will require that clearing 6 Comparable controls are applied to futures and future option trades executed in overnight trading sessions currently cleared by OCC, although such controls have been implemented by clearing futures commission merchants (‘‘clearing FCMs’’) pursuant to Commodity Futures Trading Commission (‘‘CFTC’’) Regulation 1.73. This requires clearing FCMs to monitor for adherence to such controls during regular and overnight trading sessions. Some of the risk control measures are similar to those proposed by OCC for use in clearing securities trades in overnight trading sessions. For instance, OCC confirmed that CFE maintains kill switch capabilities. VerDate Sep<11>2014 16:58 Feb 18, 2015 Jkt 235001 members participating in an overnight trading session post additional margin in a designated account in order to mitigate the risk that OCC cannot draft a clearing member’s bank account during an overnight trading session.7 OCC also will adopt a procedure whereby, on a quarterly basis, it confirms its record of clearing members eligible for overnight trading sessions with a similar record maintained by exchanges offering such overnight trading sessions. With respect to providing operational and risk contacts, under OCC Rule 201, each clearing member is required to maintain facilities for conducting business with OCC and to have a representative authorized in the name of the clearing member to take all action necessary for conducting business with OCC be available at the facility during such hours as may be specified from time-to-time by OCC. Similarly, OCC Rules 214(c) and (d) require clearing members to ensure that they have the appropriate number of qualified personnel and to maintain the ability to process anticipated volumes and values of transactions. OCC will use this existing authority to require clearing members trading during overnight trading sessions to maintain operational and risk staff that may be contacted by OCC during such sessions. OCC will impose upon clearing members qualified to participate in overnight trading sessions additional margin requirement in an amount of the lesser of $10 million or 10% of the clearing member’s net capital (‘‘Additional Margin’’), which will be equal to the first monitoring risk threshold (described below) and which will be collected the morning before each overnight trading sessions. Clearing members must identify the proprietary account that would be charged the Additional Margin amount. The Additional Margin requirement is intended to provide OCC with additional margin assets should a clearing member’s credit risk increase during overnight trading sessions.8 OCC will adopt a process whereby each morning OCC Financial Risk Management staff will assess the Additional Margin requirement prior to participating in any future overnight 7 Clearing members will be required to designate a firm account to ensure that OCC has a general lien on the assets in the account and can use them to satisfy any obligation of the clearing member to OCC. 8 Clearing members approved for overnight trading sessions who do not meet the Additional Margin requirement for a given overnight trading session will be treated like a clearing member not approved overnight trading sessions, as described below. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 trading sessions against clearing members eligible to participate in overnight trading sessions. Clearing members that do not have sufficient excess margin on deposit with OCC to meet the Additional Margin amount will be required to deposit additional funds with OCC to satisfy the Additional Margin requirement.9 This process will be adopted under existing rule authority. Moreover, OCC also will confirm that an exchange offering overnight trading sessions has adopted a procedure whereby such exchange would contact OCC when a trader requests trading privileges during overnight trading sessions. The purpose of this contact is to verify that the trader’s clearing firm (i.e., the OCC clearing member) is approved for overnight trading sessions. If the applicable OCC clearing member is not approved for overnight trading sessions, then the clearing member must receive OCC’s approval for overnight trading sessions, or the exchange will not provide the trader trading privileges during overnight trading sessions. Moreover, OCC will confirm that an exchange offering overnight trading sessions has implemented a procedure to periodically (i.e., quarterly) validate its record of approved clearing firms against OCC’s record of clearing members approved for overnight trading sessions.10 Any discrepancies between the two records will be promptly resolved by either the clearing member obtaining approval from OCC for overnight trading sessions, or by the exchange revoking the clearing firm’s trading privileges for overnight trading sessions. Systemic Controls OCC will implement system changes so that trades submitted to OCC during overnight trading sessions that have been executed by clearing members not approved for such trading sessions will be reviewed by OCC staff after acceptance but before being processed (each such trade being a ‘‘Reviewed Trade’’). OCC will contact the submitting exchange regarding each Reviewed Trade in order to determine if the trade is a valid trade. If the exchange determines that the Reviewed Trade was in error such that, as provided in Article VI, Section 7(c) of OCC’s By-laws, new 9 Under OCC Rule 601, OCC has the discretion to fix the margin requirement for any account at an amount that it deems necessary or appropriate under the circumstances to protect the interests of clearing members, OCC and the public. 10 As discussed in more detail below, clearing members that attempt to participate in overnight trading sessions without the necessary approval will be subject to a minor rule violation fine. E:\FR\FM\19FEN1.SGM 19FEN1 Federal Register / Vol. 80, No. 33 / Thursday, February 19, 2015 / Notices emcdonald on DSK67QTVN1PROD with NOTICES or revised trade information is required to properly clear the transaction, OCC expects the exchange would instruct OCC to disregard or ‘‘bust’’ the trade. If the exchange determines that the Reviewed Trade was not in error, then OCC will clear the Reviewed Trade and take appropriate disciplinary action against the non-approved clearing member, as described below. OCC believes that clearing the Reviewed Trade is appropriate in order to avoid potentially harming the clearing member approved for overnight trading sessions that is on the opposite side of the transaction. Overnight Monitoring OCC will implement additional overnight monitoring in order to better monitor clearing members’ credit risk during overnight trading sessions. Such monitoring of credit risk is similar to existing OCC practices concerning futures cleared during overnight trading hours and includes automated processes within OCC’s clearing ENCORE to measure, by clearing member: (i) The aggregate mark-to-market amounts of a clearing member’s positions, including positions created during overnight trading, based on current prices using OCC’s Portfolio Revaluation System; (ii) the aggregate incremental margin produced by all positions resulting from transactions executed during overnight trading; and (iii) with respect to options cleared during overnight trading hours, the aggregate net trade premium positions resulting from trades executed during overnight trading (each of these measures being a ‘‘Credit Risk Number’’). Hourly credit reports would be generated by ENCORE containing the Credit Risk Numbers expressed in terms of both dollars and, except for the markto-market position values, as a percentage of net capital for each clearing member trading during overnight trading sessions. The Credit Risk Numbers are the same information used by OCC staff to evaluate clearing member exposure during regular trading hours and, in addition to OCC’s knowledge of its clearing members’ businesses, are effective measures of the risk presented to OCC by each clearing member. OCC’s Operations staff will review such reports as they are generated and, in the event that any of the Credit Risk Numbers for positions established by a clearing member during an overnight trading session exceed established thresholds, staff will alert OCC’s Market Risk staff 11 of the 11 OCC’s Member Services staff will also receive alerts in order to contact clearing members as may be necessary. VerDate Sep<11>2014 16:58 Feb 18, 2015 Jkt 235001 exceedance in accordance with established procedures, as described below. Market Risk staff will follow a standardized process concerning such exceedances, including escalation to OCC’s management, if required by such process. Given the nominal volume of trades executed in overnight trading sessions that are presently submitted for clearance, OCC does not contemplate changes in its current staffing levels that support overnight clearing activities at this time, however, OCC will periodically assess and adjust such staffing levels, as appropriate. As part of the overnight clearing activities, OCC has, however, designated an on-call Market Risk duty officer who would be responsible for reviewing issues that arise when clearing for overnight trading session and determining what measures to be taken as well as additional escalation, if necessary. With respect to OCC’s escalation thresholds, if any Credit Risk Number of a clearing member approved for overnight trading sessions is $10 million or more, or any Credit Risk Number equals 10% or more of the clearing member’s net capital, OCC’s Operations staff will be required to provide email notification to Market Risk and Member Services staff. If any Credit Risk Number of a clearing member not approved for overnight trading sessions is $10 million or more, or any Credit Risk Number equals 10% or more of the clearing member’s net capital, OCC’s Operations will also notify Market Risk and Member Services staff as well as its senior management. Such departments will take action to prevent additional trading by the non-approved clearing member, including contacting the exchange to invoke use of the exchange’s kill switch. If any Credit Risk Number of a clearing member approved for overnight trading sessions is $50 million or more, or equals 25% or more of the clearing member’s net capital, Operations staff will be required to contact, by telephone: (i) Market Risk and Member Services, (ii) the applicable exchange for secondary review, and (iii) the clearing member’s designated contacts. The oncall Market Risk duty officer also will consider if additional action is necessary, which may include contacting a designated executive officer in order to issue an intra-day margin call, increase the clearing member’s margin requirement in order to prevent the withdrawal of a specified amount of excess margin collateral, if any, the clearing member has on deposit with OCC or contacting the exchange in order to invoke the use of its kill switch. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 8919 If any Credit Risk Number is $75 million or more, or equals 50% or more of the clearing member’s net capital, Operations staff will be required to contact, by telephone, Market Risk staff, the on-call Market Risk duty officer and a designated executive officer. Such officer will be responsible for reviewing the situation and determining whether to implement credit controls, which are described in greater detail below and include: Issuing an intra-day margin call, increasing a clearing member’s margin requirement in order to prevent the withdrawal of a specified amount of excess margin collateral, if any, the clearing member has on deposit with OCC, whether further escalation is warranted in order for OCC to take protective measures pursuant to OCC Rule 305, or contact the exchange in order to invoke use of its kill switch. OCC stated that it chose the above described escalation thresholds based on its analysis of historical overnight trading activity across the futures industry. OCC believes that these thresholds strike an appropriate balance between effective risk monitoring and operational efficiency. Credit Controls In order to address credit risk associated with trading during overnight trading sessions, and as described above, OCC will collect Additional Margin from clearing members as well as monitor and analyze the impact that positions established during such sessions have on a clearing member’s overall exposure. Should the need arise based on threshold breaches described above, and pursuant to OCC Rule 609, OCC may require the deposit of additional margin (‘‘intra-day margin’’) by any clearing member that increases its incremental risk as a result of trading activity during overnight trading sessions. Accordingly, a clearing member’s positions established during such sessions will be incorporated into OCC’s intra-day margin process. Further, if a clearing member’s exposure significantly increases during a time when settlement banks are not open to process an intra-day margin call, OCC will use its current authority under OCC Rule 601 to increase a clearing member’s margin requirement, which will restrict the clearing member’s ability to withdraw excess margin collateral. The implementation of these measures is discussed more fully below. In the event that a clearing member’s exposure during overnight trading sessions causes a clearing member to exceed OCC’s intra-day margin call threshold for overnight trading sessions, OCC will require the clearing member to E:\FR\FM\19FEN1.SGM 19FEN1 8920 Federal Register / Vol. 80, No. 33 / Thursday, February 19, 2015 / Notices emcdonald on DSK67QTVN1PROD with NOTICES deposit intra-day margin equal to the increased incremental risk presented by the clearing member. Specifically, if a clearing member has a total risk charge 12 exceeding 25% (a reduction of the usual figure of 50%), as computed overnight by OCC’s STANS system, and a loss of greater than $50,000 from an overnight trading session(s), as computed by Portfolio Revaluation, OCC will initiate an intra-day margin call. OCC will know at approximately 8:30 a.m. (Central Time) if an intra-day margin call on a clearing member will be initiated based on breaches of these thresholds. This ‘‘start of business’’ margin call is in addition to daily margin OCC collects from clearing members pursuant to OCC Rule 605, any intra-day margin call that OCC may initiate as a result of regular trading sessions or special margin call that OCC may initiate. In addition to, or instead of, requiring additional intra-day margin, OCC Rule 601 13 and OCC’s Clearing Member Margin Call Policy will work together to authorize Market Risk staff to increase a clearing member’s margin requirement which may be in an amount equal to an intra-day margin call.14 (Any increased margin requirement will remain in effect until the next business day.) This action will immediately prevent clearing members from withdrawing any excess margin collateral (in the amount of the increased margin requirement) the clearing member has deposited with OCC. With respect to clearing trades executed in overnight trading sessions, and in the event OCC requires additional margin from a clearing member, Market Risk staff may use increased margin requirements as a means of collateralizing the increase in incremental risk a clearing member incurred during such sessions without having to wait for banks to open to process an intra-day margin call.15 Such action may be taken by OCC instead of, or in addition to, issuing an intra-day margin call depending on the amount of excess margin a clearing member has on deposit with OCC and the amount of the 12 Total risk charge is a number derived from STANS outputs and is the sum of expected shortfall, stress test charges and any add-on charges computed by STANS. STANS is OCC’s proprietary margin methodology. 13 In addition, OCC Rule 601 provides OCC with the authority to fix the margin requirement for any account or any class of cleared contracts at such amount as it deems necessary or appropriate under the circumstances to protect the respective interests of clearing members, OCC and the public. 14 Clearing members frequently deposit margin at OCC in excess of requirements. 15 Clearing members will be able to substitute the locked-up collateral during normal time frames (i.e., 6:00 a.m. to 5:00 p.m. (Central Time) for equity securities). VerDate Sep<11>2014 16:58 Feb 18, 2015 Jkt 235001 incremental risk presented by such clearing member. OCC believes that the expansion of its intra-day margin call process as described in the preceding paragraph, including OCC’s ability to manually increase clearing members’ margin requirements, will mitigate the risk that OCC is under-collateralized as a result of overnight trading hours. Moreover, a designated executive officer may call an exchange offering overnight trading sessions to invoke the use of its kill switch. The kill switch prevents a clearing member (or the market participant clearing through a clearing member) from executing trades on the exchange during a given overnight trading session or, if needed, stop all trading during a given overnight trading session. Finally, pursuant to OCC Rule 305, the Executive Chairman or the President of OCC, in certain situations, has the authority to impose limitations and restrictions on the transactions, positions and activities of a clearing member. This authority will be used, as needed, in the event a clearing member accumulates significant credit risk during overnight trading sessions, or a clearing member’s activities during such trading sessions otherwise warrant OCC taking protective action. Rule Enforcement Actions In order to deter clearing members from attempting to participate in overnight trading sessions without authorization as well as appropriately enforce the above described processes, OCC will ensure that any attempt by a clearing member to participate in overnight trading sessions without first obtaining the necessary approval will result in the initiation of a rule enforcement action against such clearing member. As described above, clearing members not approved for overnight trading sessions that trade during such overnight sessions will have their trades reviewed by OCC staff. Clearing members that attempt to participate in overnight trading sessions but not obtain the necessary approval to do so will be subject to a minor rule violation fine.16 In addition, if a clearing member’s operational or risk contacts for overnight trading sessions were unavailable had OCC attempted to contact such individuals, the clearing member will be subject to a minor rule violation fine. OCC has existing processes in place to monitor for clearing member violations of OCC’s rules and such processes will also apply to clearing member activity during overnight trading sessions. II. Discussion and Commission Findings Section 19(b)(2)(C) of the Act 17 directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act,18 which requires, among other things, that the rules of a clearing agency are designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. Although clearing transactions executed in overnight trading sessions may present additional risk to OCC and the markets in general, OCC’s proposal is designed to monitor and mitigate these risks and thus assure the safeguarding of securities and funds which are in OCC’s custody or control or for which it is responsible. By limiting the product set eligible for overnight trading sessions to index options and index futures products and by instituting qualification criteria for determining whether to provide clearing services for overnight trading sessions offered by a particular exchange, OCC should be able to better assure the safeguarding of securities and funds which are in its custody or control. In addition, in order to address the risks associated with extended trading hours, including those associated with OCC and clearing members’ inability to transfer funds to satisfy margin during overnight hours, OCC’s proposed framework, which includes a number of mechanisms designed to further control the risks and safeguard securities and funds, should also facilitate the safeguarding of securities and funds. These mechanisms include (i) clearing member qualification criteria; (ii) systemic controls to identify trades executed by clearing members not approved for overnight trading; (iii) enhancements to OCC’s overnight monitoring of trades submitted by exchanges during overnight trading sessions; (iv) enhancements to OCC’s credit controls with respect to monitoring clearing members’ credit risk during overnight trading sessions; and (v) disciplinary actions for unapproved clearing members who 17 15 16 See PO 00000 OCC Rule 1201(b). Frm 00078 Fmt 4703 18 15 Sfmt 4703 E:\FR\FM\19FEN1.SGM U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 19FEN1 Federal Register / Vol. 80, No. 33 / Thursday, February 19, 2015 / Notices III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 19 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,20 that the proposed rule change (SR–OCC–2014– 24) be, and it hereby is, approved. October 1, 1999, Delegation of Authority No. 236–3 of August 28, 2000 (and, as appropriate, Delegation of Authority No. 257 of April 15, 2003), I hereby determine that the object to be included in the exhibition ‘‘International Pop,’’ imported from abroad for temporary exhibition within the United States, is of cultural significance. The object is imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit object at the Walker Art Center, Minneapolis, MN, from on or about April 11, 2015, until on or about September 6, 2015, at the Dallas Museum of Art, Dallas, TX, from on or about October 11, 2015, until on or about January 17, 2016, at the Philadelphia Museum of Art, Philadelphia, PA, from on or about February 18, 2016, until on or about May 15, 2016, and at possible additional exhibitions or venues yet to be determined, is in the national interest. I have ordered that Public Notice of these Determinations be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: For further information, including the object list, contact Julie Simpson, AttorneyAdviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6467). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Brent J. Fields, Secretary. Dated: February 11, 2015. Kelly Keiderling, Principal Deputy Assistant Secretary, Bureau of Educational and Cultural Affairs, Department of State. attempt to clear during overnight trading sessions. In particular, OCC’s overnight monitoring and escalation mechanism, which includes the ability for OCC to require additional intra-day margin, increase a clearing member’s margin requirement, invoke an exchange’s kill switch, or use any combination thereof, should provide OCC with the necessary mechanisms to ensure securities and funds which are in its custody or control. The obligation for OCC and clearing members to maintain and enforce adequate staffing by employing the use of a designated an on-call Market Risk duty officer should also help assure that clearing activities and margin levels are being adequately monitoring during the overnight trading hours, which in turn should facilitate the safeguarding of securities and funds which are in the custody or control of OCC or for which it is responsible. [FR Doc. 2015–03403 Filed 2–18–15; 8:45 am] [FR Doc. 2015–03498 Filed 2–18–15; 8:45 am] BILLING CODE 8011–01–P BILLING CODE 4710–05–P DEPARTMENT OF STATE DEPARTMENT OF STATE [Public Notice 9043] [Public Notice 9042] Culturally Significant Object Imported for Exhibition Determinations: ‘‘International Pop’’ Exhibition Culturally Significant Objects Imported for Exhibition Determinations: ‘‘Ships, Clocks & Stars: The Quest for Longitude’’ Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of emcdonald on DSK67QTVN1PROD with NOTICES SUMMARY: 19 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 20 15 U.S.C. 78s(b)(2). 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:58 Feb 18, 2015 Jkt 235001 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 included in the exhibition ‘‘Ships, Clocks & Stars: The Quest for Longitude,’’ imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to loan agreements with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at the Folger Shakespeare Library, Washington, DC, from on or about March 16, 2015, until on or about August 23, 2015, the Mystic Seaport Museum, Mystic, Connecticut, from on or about September 14, 2015, until on or about March 28, 2016, and at possible additional exhibitions or venues yet to be determined, is in the national interest. I have ordered that Public Notice of these Determinations be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: For further information, including a list of the imported objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505. Dated: February 11, 2015. Kelly Keiderling, Principal Deputy Assistant Secretary, Bureau of Educational and Cultural Affairs, Department of State. [FR Doc. 2015–03497 Filed 2–18–15; 8:45 am] BILLING CODE 4710–05–P DEPARTMENT OF STATE [Public Notice 9041] Culturally Significant Objects Imported for Exhibition Determinations: ‘‘Sultans of Deccan India, 1500–1700: Opulence and Fantasy’’ Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, and Delegation of Authority No. 236–3 of August 28, 2000 (and, as appropriate, Delegation of Authority No. 257 of April 15, 2003), I hereby determine that the objects to be included in the exhibition ‘‘Sultans of Deccan India, 1500–1700: Opulence and Fantasy,’’ imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to a loan agreement with the foreign owner or SUMMARY: Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, and Delegation of Authority No. 236–3 of August 28, 2000 (and, as appropriate, Delegation of Authority No. 257 of April 15, 2003), I hereby determine that the objects to be SUMMARY: 8921 E:\FR\FM\19FEN1.SGM 19FEN1

Agencies

[Federal Register Volume 80, Number 33 (Thursday, February 19, 2015)]
[Notices]
[Pages 8917-8921]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74268; File No. SR-OCC-2014-24]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Concerning Extended and Overnight 
Trading Sessions

February 12, 2015.
    On December 12, 2014, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2014-24 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on December 30, 2014.\3\ The Commission did not 
receive any comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4. OCC also filed this change as an advance 
notice under Section 806(e)(1) of the Payment, Clearing, and 
Settlement Supervision Act of 2010. 12 U.S.C. 5465(e)(1). Securities 
Exchange Act Release No. 74073 (January 15, 2015), 80 FR 3287 
(January 22, 2014) (SR-OCC-2014-812). The Commission did not receive 
any comments on the advance notice.
    \3\ Securities Exchange Act Release No. 73907 (December 22, 
2014), 79 FR 78543 (December 30, 2014) (SR-OCC-2014-24).
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I. Description

    This rule change was filed in connection with OCC's proposed change 
to its operations concerning the clearance of confirmed trades executed 
in overnight trading sessions offered by exchanges for which OCC 
provides clearance and settlement services. OCC currently clears 
overnight trading activity for CBOE Futures Exchange, LLC (``CFE'').\4\ 
The total number of trades submitted to OCC from overnight trading 
sessions is nominal, typically less than 3,000 contracts per session. 
However, OCC has recently observed an industry trend whereby exchanges 
are offering overnight trading sessions beyond traditional hours. 
Exchanges offering overnight trading sessions have indicated to OCC 
that such sessions benefit market participants by providing additional 
price transparency and hedging opportunities for products traded in 
such sessions, which, in turn, promotes market stability.\5\ In light 
of this trend, OCC proposed to implement a framework for clearing 
trades executed in such sessions that includes: (1) Qualification 
criteria used to approve clearing members for overnight trading 
sessions, (2) systemic controls to identify trades executed during 
overnight trading sessions by clearing members not approved for such 
sessions, (3) enhancements to OCC's overnight monitoring of trades 
submitted by exchanges during overnight trading sessions, (4) 
enhancements to OCC's credit controls with respect to monitoring 
clearing members' credit risk during overnight trading sessions, 
including procedures for contacting an exchange offering overnight 
trading sessions in order to invoke use of the exchange's kill switch, 
and (5) taking appropriate disciplinary action against clearing members 
who attempt to clear during the overnight trading sessions without 
first obtaining requisite approvals. These changes (described in 
greater detail below) are designed to reduce and mitigate the

[[Page 8918]]

risks associated with clearing trades executed in overnight trading 
sessions. In addition, the only products that will be eligible for 
clearing in the overnight trading sessions are index options and index 
futures products.
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    \4\ ELX Futures LP (``ELX'') previously submitted overnight 
trading activity to OCC, but currently does not submit trades from 
overnight trading sessions to OCC. OCC will re-evaluate ELX's risk 
controls in the event ELX re-institutes its overnight trading 
sessions.
    \5\ See CFE-2014-010 at https://cfe.cboe.com/publish/CFErulefilings/SR-CFE-2014-010.pdf.
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    OCC's framework for determining whether to provide clearing 
services for overnight trading sessions offered by an exchange is 
designed to work in conjunction with the risk controls of the exchange 
that offers overnight trading sessions. OCC will confirm an exchange's 
risk controls as well as its staffing levels as they relate to 
overnight trading sessions to determine if OCC may reasonably rely on 
such risk controls to the reduce risk presented to OCC by the 
exchange's overnight trading sessions. Such exchange risk controls will 
consist of: (1) Price reasonability checks; (2) controls to prevent 
orders from being executed beyond a certain percentage (determined by 
the exchange) from the initial execution price; (3) activity based 
protections which focus on risk beyond price, such as a high number of 
trades occurring in a set period of time; and (4) kill switch 
capabilities, which may be initiated by the exchange and can cancel all 
open quotes or all orders of a particular participant. OCC believes 
that confirming the existence of applicable pre-trade risk controls as 
well as overnight staffing at the relevant exchanges is essential to 
mitigating risks presented to OCC from overnight trading sessions.\6\ 
OCC believes that providing clearing services to exchanges offering 
such sessions is consistent with OCC's mission to provide market 
participants with clearing and risk management solutions that respond 
to changes in the marketplace.
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    \6\ Comparable controls are applied to futures and future option 
trades executed in overnight trading sessions currently cleared by 
OCC, although such controls have been implemented by clearing 
futures commission merchants (``clearing FCMs'') pursuant to 
Commodity Futures Trading Commission (``CFTC'') Regulation 1.73. 
This requires clearing FCMs to monitor for adherence to such 
controls during regular and overnight trading sessions. Some of the 
risk control measures are similar to those proposed by OCC for use 
in clearing securities trades in overnight trading sessions. For 
instance, OCC confirmed that CFE maintains kill switch capabilities.
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Qualification Criteria

    In order to mitigate risks associated with clearing for overnight 
trading sessions, clearing members that participate in such trading 
sessions will be required to provide contact information to OCC for 
operational and risk personnel available to be contacted by OCC during 
such sessions. In addition, OCC will require that clearing members 
participating in an overnight trading session post additional margin in 
a designated account in order to mitigate the risk that OCC cannot 
draft a clearing member's bank account during an overnight trading 
session.\7\ OCC also will adopt a procedure whereby, on a quarterly 
basis, it confirms its record of clearing members eligible for 
overnight trading sessions with a similar record maintained by 
exchanges offering such overnight trading sessions.
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    \7\ Clearing members will be required to designate a firm 
account to ensure that OCC has a general lien on the assets in the 
account and can use them to satisfy any obligation of the clearing 
member to OCC.
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    With respect to providing operational and risk contacts, under OCC 
Rule 201, each clearing member is required to maintain facilities for 
conducting business with OCC and to have a representative authorized in 
the name of the clearing member to take all action necessary for 
conducting business with OCC be available at the facility during such 
hours as may be specified from time-to-time by OCC. Similarly, OCC 
Rules 214(c) and (d) require clearing members to ensure that they have 
the appropriate number of qualified personnel and to maintain the 
ability to process anticipated volumes and values of transactions. OCC 
will use this existing authority to require clearing members trading 
during overnight trading sessions to maintain operational and risk 
staff that may be contacted by OCC during such sessions.
    OCC will impose upon clearing members qualified to participate in 
overnight trading sessions additional margin requirement in an amount 
of the lesser of $10 million or 10% of the clearing member's net 
capital (``Additional Margin''), which will be equal to the first 
monitoring risk threshold (described below) and which will be collected 
the morning before each overnight trading sessions. Clearing members 
must identify the proprietary account that would be charged the 
Additional Margin amount. The Additional Margin requirement is intended 
to provide OCC with additional margin assets should a clearing member's 
credit risk increase during overnight trading sessions.\8\ OCC will 
adopt a process whereby each morning OCC Financial Risk Management 
staff will assess the Additional Margin requirement prior to 
participating in any future overnight trading sessions against clearing 
members eligible to participate in overnight trading sessions. Clearing 
members that do not have sufficient excess margin on deposit with OCC 
to meet the Additional Margin amount will be required to deposit 
additional funds with OCC to satisfy the Additional Margin 
requirement.\9\ This process will be adopted under existing rule 
authority.
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    \8\ Clearing members approved for overnight trading sessions who 
do not meet the Additional Margin requirement for a given overnight 
trading session will be treated like a clearing member not approved 
overnight trading sessions, as described below.
    \9\ Under OCC Rule 601, OCC has the discretion to fix the margin 
requirement for any account at an amount that it deems necessary or 
appropriate under the circumstances to protect the interests of 
clearing members, OCC and the public.
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    Moreover, OCC also will confirm that an exchange offering overnight 
trading sessions has adopted a procedure whereby such exchange would 
contact OCC when a trader requests trading privileges during overnight 
trading sessions. The purpose of this contact is to verify that the 
trader's clearing firm (i.e., the OCC clearing member) is approved for 
overnight trading sessions. If the applicable OCC clearing member is 
not approved for overnight trading sessions, then the clearing member 
must receive OCC's approval for overnight trading sessions, or the 
exchange will not provide the trader trading privileges during 
overnight trading sessions. Moreover, OCC will confirm that an exchange 
offering overnight trading sessions has implemented a procedure to 
periodically (i.e., quarterly) validate its record of approved clearing 
firms against OCC's record of clearing members approved for overnight 
trading sessions.\10\ Any discrepancies between the two records will be 
promptly resolved by either the clearing member obtaining approval from 
OCC for overnight trading sessions, or by the exchange revoking the 
clearing firm's trading privileges for overnight trading sessions.
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    \10\ As discussed in more detail below, clearing members that 
attempt to participate in overnight trading sessions without the 
necessary approval will be subject to a minor rule violation fine.
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Systemic Controls

    OCC will implement system changes so that trades submitted to OCC 
during overnight trading sessions that have been executed by clearing 
members not approved for such trading sessions will be reviewed by OCC 
staff after acceptance but before being processed (each such trade 
being a ``Reviewed Trade''). OCC will contact the submitting exchange 
regarding each Reviewed Trade in order to determine if the trade is a 
valid trade. If the exchange determines that the Reviewed Trade was in 
error such that, as provided in Article VI, Section 7(c) of OCC's By-
laws, new

[[Page 8919]]

or revised trade information is required to properly clear the 
transaction, OCC expects the exchange would instruct OCC to disregard 
or ``bust'' the trade. If the exchange determines that the Reviewed 
Trade was not in error, then OCC will clear the Reviewed Trade and take 
appropriate disciplinary action against the non-approved clearing 
member, as described below. OCC believes that clearing the Reviewed 
Trade is appropriate in order to avoid potentially harming the clearing 
member approved for overnight trading sessions that is on the opposite 
side of the transaction.

Overnight Monitoring

    OCC will implement additional overnight monitoring in order to 
better monitor clearing members' credit risk during overnight trading 
sessions. Such monitoring of credit risk is similar to existing OCC 
practices concerning futures cleared during overnight trading hours and 
includes automated processes within OCC's clearing ENCORE to measure, 
by clearing member: (i) The aggregate mark-to-market amounts of a 
clearing member's positions, including positions created during 
overnight trading, based on current prices using OCC's Portfolio 
Revaluation System; (ii) the aggregate incremental margin produced by 
all positions resulting from transactions executed during overnight 
trading; and (iii) with respect to options cleared during overnight 
trading hours, the aggregate net trade premium positions resulting from 
trades executed during overnight trading (each of these measures being 
a ``Credit Risk Number''). Hourly credit reports would be generated by 
ENCORE containing the Credit Risk Numbers expressed in terms of both 
dollars and, except for the mark-to-market position values, as a 
percentage of net capital for each clearing member trading during 
overnight trading sessions. The Credit Risk Numbers are the same 
information used by OCC staff to evaluate clearing member exposure 
during regular trading hours and, in addition to OCC's knowledge of its 
clearing members' businesses, are effective measures of the risk 
presented to OCC by each clearing member. OCC's Operations staff will 
review such reports as they are generated and, in the event that any of 
the Credit Risk Numbers for positions established by a clearing member 
during an overnight trading session exceed established thresholds, 
staff will alert OCC's Market Risk staff \11\ of the exceedance in 
accordance with established procedures, as described below.
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    \11\ OCC's Member Services staff will also receive alerts in 
order to contact clearing members as may be necessary.
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    Market Risk staff will follow a standardized process concerning 
such exceedances, including escalation to OCC's management, if required 
by such process. Given the nominal volume of trades executed in 
overnight trading sessions that are presently submitted for clearance, 
OCC does not contemplate changes in its current staffing levels that 
support overnight clearing activities at this time, however, OCC will 
periodically assess and adjust such staffing levels, as appropriate. As 
part of the overnight clearing activities, OCC has, however, designated 
an on-call Market Risk duty officer who would be responsible for 
reviewing issues that arise when clearing for overnight trading session 
and determining what measures to be taken as well as additional 
escalation, if necessary.
    With respect to OCC's escalation thresholds, if any Credit Risk 
Number of a clearing member approved for overnight trading sessions is 
$10 million or more, or any Credit Risk Number equals 10% or more of 
the clearing member's net capital, OCC's Operations staff will be 
required to provide email notification to Market Risk and Member 
Services staff. If any Credit Risk Number of a clearing member not 
approved for overnight trading sessions is $10 million or more, or any 
Credit Risk Number equals 10% or more of the clearing member's net 
capital, OCC's Operations will also notify Market Risk and Member 
Services staff as well as its senior management. Such departments will 
take action to prevent additional trading by the non-approved clearing 
member, including contacting the exchange to invoke use of the 
exchange's kill switch.
    If any Credit Risk Number of a clearing member approved for 
overnight trading sessions is $50 million or more, or equals 25% or 
more of the clearing member's net capital, Operations staff will be 
required to contact, by telephone: (i) Market Risk and Member Services, 
(ii) the applicable exchange for secondary review, and (iii) the 
clearing member's designated contacts. The on-call Market Risk duty 
officer also will consider if additional action is necessary, which may 
include contacting a designated executive officer in order to issue an 
intra-day margin call, increase the clearing member's margin 
requirement in order to prevent the withdrawal of a specified amount of 
excess margin collateral, if any, the clearing member has on deposit 
with OCC or contacting the exchange in order to invoke the use of its 
kill switch.
    If any Credit Risk Number is $75 million or more, or equals 50% or 
more of the clearing member's net capital, Operations staff will be 
required to contact, by telephone, Market Risk staff, the on-call 
Market Risk duty officer and a designated executive officer. Such 
officer will be responsible for reviewing the situation and determining 
whether to implement credit controls, which are described in greater 
detail below and include: Issuing an intra-day margin call, increasing 
a clearing member's margin requirement in order to prevent the 
withdrawal of a specified amount of excess margin collateral, if any, 
the clearing member has on deposit with OCC, whether further escalation 
is warranted in order for OCC to take protective measures pursuant to 
OCC Rule 305, or contact the exchange in order to invoke use of its 
kill switch. OCC stated that it chose the above described escalation 
thresholds based on its analysis of historical overnight trading 
activity across the futures industry. OCC believes that these 
thresholds strike an appropriate balance between effective risk 
monitoring and operational efficiency.

Credit Controls

    In order to address credit risk associated with trading during 
overnight trading sessions, and as described above, OCC will collect 
Additional Margin from clearing members as well as monitor and analyze 
the impact that positions established during such sessions have on a 
clearing member's overall exposure. Should the need arise based on 
threshold breaches described above, and pursuant to OCC Rule 609, OCC 
may require the deposit of additional margin (``intra-day margin'') by 
any clearing member that increases its incremental risk as a result of 
trading activity during overnight trading sessions. Accordingly, a 
clearing member's positions established during such sessions will be 
incorporated into OCC's intra-day margin process. Further, if a 
clearing member's exposure significantly increases during a time when 
settlement banks are not open to process an intra-day margin call, OCC 
will use its current authority under OCC Rule 601 to increase a 
clearing member's margin requirement, which will restrict the clearing 
member's ability to withdraw excess margin collateral. The 
implementation of these measures is discussed more fully below.
    In the event that a clearing member's exposure during overnight 
trading sessions causes a clearing member to exceed OCC's intra-day 
margin call threshold for overnight trading sessions, OCC will require 
the clearing member to

[[Page 8920]]

deposit intra-day margin equal to the increased incremental risk 
presented by the clearing member. Specifically, if a clearing member 
has a total risk charge \12\ exceeding 25% (a reduction of the usual 
figure of 50%), as computed overnight by OCC's STANS system, and a loss 
of greater than $50,000 from an overnight trading session(s), as 
computed by Portfolio Revaluation, OCC will initiate an intra-day 
margin call. OCC will know at approximately 8:30 a.m. (Central Time) if 
an intra-day margin call on a clearing member will be initiated based 
on breaches of these thresholds. This ``start of business'' margin call 
is in addition to daily margin OCC collects from clearing members 
pursuant to OCC Rule 605, any intra-day margin call that OCC may 
initiate as a result of regular trading sessions or special margin call 
that OCC may initiate.
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    \12\ Total risk charge is a number derived from STANS outputs 
and is the sum of expected shortfall, stress test charges and any 
add-on charges computed by STANS. STANS is OCC's proprietary margin 
methodology.
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    In addition to, or instead of, requiring additional intra-day 
margin, OCC Rule 601 \13\ and OCC's Clearing Member Margin Call Policy 
will work together to authorize Market Risk staff to increase a 
clearing member's margin requirement which may be in an amount equal to 
an intra-day margin call.\14\ (Any increased margin requirement will 
remain in effect until the next business day.) This action will 
immediately prevent clearing members from withdrawing any excess margin 
collateral (in the amount of the increased margin requirement) the 
clearing member has deposited with OCC. With respect to clearing trades 
executed in overnight trading sessions, and in the event OCC requires 
additional margin from a clearing member, Market Risk staff may use 
increased margin requirements as a means of collateralizing the 
increase in incremental risk a clearing member incurred during such 
sessions without having to wait for banks to open to process an intra-
day margin call.\15\ Such action may be taken by OCC instead of, or in 
addition to, issuing an intra-day margin call depending on the amount 
of excess margin a clearing member has on deposit with OCC and the 
amount of the incremental risk presented by such clearing member. OCC 
believes that the expansion of its intra-day margin call process as 
described in the preceding paragraph, including OCC's ability to 
manually increase clearing members' margin requirements, will mitigate 
the risk that OCC is under-collateralized as a result of overnight 
trading hours.
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    \13\ In addition, OCC Rule 601 provides OCC with the authority 
to fix the margin requirement for any account or any class of 
cleared contracts at such amount as it deems necessary or 
appropriate under the circumstances to protect the respective 
interests of clearing members, OCC and the public.
    \14\ Clearing members frequently deposit margin at OCC in excess 
of requirements.
    \15\ Clearing members will be able to substitute the locked-up 
collateral during normal time frames (i.e., 6:00 a.m. to 5:00 p.m. 
(Central Time) for equity securities).
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    Moreover, a designated executive officer may call an exchange 
offering overnight trading sessions to invoke the use of its kill 
switch. The kill switch prevents a clearing member (or the market 
participant clearing through a clearing member) from executing trades 
on the exchange during a given overnight trading session or, if needed, 
stop all trading during a given overnight trading session. Finally, 
pursuant to OCC Rule 305, the Executive Chairman or the President of 
OCC, in certain situations, has the authority to impose limitations and 
restrictions on the transactions, positions and activities of a 
clearing member. This authority will be used, as needed, in the event a 
clearing member accumulates significant credit risk during overnight 
trading sessions, or a clearing member's activities during such trading 
sessions otherwise warrant OCC taking protective action.

Rule Enforcement Actions

    In order to deter clearing members from attempting to participate 
in overnight trading sessions without authorization as well as 
appropriately enforce the above described processes, OCC will ensure 
that any attempt by a clearing member to participate in overnight 
trading sessions without first obtaining the necessary approval will 
result in the initiation of a rule enforcement action against such 
clearing member. As described above, clearing members not approved for 
overnight trading sessions that trade during such overnight sessions 
will have their trades reviewed by OCC staff. Clearing members that 
attempt to participate in overnight trading sessions but not obtain the 
necessary approval to do so will be subject to a minor rule violation 
fine.\16\ In addition, if a clearing member's operational or risk 
contacts for overnight trading sessions were unavailable had OCC 
attempted to contact such individuals, the clearing member will be 
subject to a minor rule violation fine. OCC has existing processes in 
place to monitor for clearing member violations of OCC's rules and such 
processes will also apply to clearing member activity during overnight 
trading sessions.
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    \16\ See OCC Rule 1201(b).
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \17\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to such 
organization.
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    \17\ 15 U.S.C. 78s(b)(2)(C).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act,\18\ which requires, among other 
things, that the rules of a clearing agency are designed to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. Although 
clearing transactions executed in overnight trading sessions may 
present additional risk to OCC and the markets in general, OCC's 
proposal is designed to monitor and mitigate these risks and thus 
assure the safeguarding of securities and funds which are in OCC's 
custody or control or for which it is responsible.
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    By limiting the product set eligible for overnight trading sessions 
to index options and index futures products and by instituting 
qualification criteria for determining whether to provide clearing 
services for overnight trading sessions offered by a particular 
exchange, OCC should be able to better assure the safeguarding of 
securities and funds which are in its custody or control. In addition, 
in order to address the risks associated with extended trading hours, 
including those associated with OCC and clearing members' inability to 
transfer funds to satisfy margin during overnight hours, OCC's proposed 
framework, which includes a number of mechanisms designed to further 
control the risks and safeguard securities and funds, should also 
facilitate the safeguarding of securities and funds. These mechanisms 
include (i) clearing member qualification criteria; (ii) systemic 
controls to identify trades executed by clearing members not approved 
for overnight trading; (iii) enhancements to OCC's overnight monitoring 
of trades submitted by exchanges during overnight trading sessions; 
(iv) enhancements to OCC's credit controls with respect to monitoring 
clearing members' credit risk during overnight trading sessions; and 
(v) disciplinary actions for unapproved clearing members who

[[Page 8921]]

attempt to clear during overnight trading sessions.
    In particular, OCC's overnight monitoring and escalation mechanism, 
which includes the ability for OCC to require additional intra-day 
margin, increase a clearing member's margin requirement, invoke an 
exchange's kill switch, or use any combination thereof, should provide 
OCC with the necessary mechanisms to ensure securities and funds which 
are in its custody or control. The obligation for OCC and clearing 
members to maintain and enforce adequate staffing by employing the use 
of a designated an on-call Market Risk duty officer should also help 
assure that clearing activities and margin levels are being adequately 
monitoring during the overnight trading hours, which in turn should 
facilitate the safeguarding of securities and funds which are in the 
custody or control of OCC or for which it is responsible.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \19\ and the 
rules and regulations thereunder.
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    \19\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-OCC-2014-24) be, and it 
hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03403 Filed 2-18-15; 8:45 am]
BILLING CODE 8011-01-P
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