Self-Regulatory Organizations; The Options Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change in Order To Permit OCC To Adjust the Size of Its Clearing Fund on an Intra-Month Basis, 12232-12234 [2015-05160]

Download as PDF 12232 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 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 will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2015–08 and should be submitted on or before March 27, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Brent J. Fields, Secretary. [FR Doc. 2015–05159 Filed 3–5–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74406; File No. SR–OCC– 2014–21] Self-Regulatory Organizations; The Options Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change in Order To Permit OCC To Adjust the Size of Its Clearing Fund on an Intra-Month Basis March 2, 2015. mstockstill on DSK4VPTVN1PROD with NOTICES I. Introduction On November 13, 2014, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–OCC–2014–21 (‘‘Proposed Rule Change’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange 15 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:59 Mar 05, 2015 Jkt 235001 Act’’) 1 and Rule 19b–4 thereunder.2 In the Proposed Rule Change, OCC proposes to amend its Rule 1001(a) to delete the requirement that OCC readjust the size of its clearing fund on a monthly basis.3 On December 2, 2014, the proposed rule change was published in the Federal Register.4 The Commission received no comments to the Proposed Rule Change.5 This order institutes proceedings under Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the Proposed Rule Change. II. Description of the Proposed Rule Change OCC proposed this Proposed Rule Change to permit OCC to collect additional financial resources from its clearing members by increasing the size of its clearing fund on an intra-month basis when OCC determines that such action should be taken to ensure the clearing fund has sufficient resources to protect OCC against potential losses under simulated default scenarios. Specifically, OCC’s Proposed Rule Change proposes to amend Rule 1001(a) to delete the second sentence, which states, ‘‘[s]uch [clearing fund resizing calculations] shall be made on a daily basis, and the size of the Clearing Fund shall be readjusted monthly based upon the average of such daily calculations performed during the preceding month.’’ 7 A. Background In emergency circumstances and subject to certain conditions, Article IX, Section 14, of OCC’s By-Laws permit OCC’s Board of Directors, Executive Chairman, or President to waive or suspend its by-laws, rules, policies and procedures, or any other rules issued by OCC, or extend the time fixed thereby for the doing of any act or acts for up to thirty calendar days. To extend such a wavier or suspension for more than thirty calendar days, OCC’s by-laws 1 15 U.S.C. 78s(b)(1). CFR 204.19b–4. On October 15, 2014, OCC also filed an emergency notice with the Commission to suspend the effectiveness of the second sentence of Rule 1001(a). See infra note 10 and accompanying discussion. 3 Exchange Act Release No. 73685 (November 25, 2014) 78 FR 71479 (December 2, 2014) (SR–OCC– 2014–21). 4 Id. 5 On January 5, 2015, pursuant to Section 19(b)(2)(A)(ii)(II) of the Exchange Act, as amended, OCC consented to an extension until March 2, 2015, for the Commission to approve the proposed rule change, disapprove the Proposed Rule Change, or institute proceedings to determine whether to disapprove the Proposed Rule Change. 15 U.S.C. 78s(b)(2)(A)(ii)(II). 6 15 U.S.C. 78s(b)(2)(B). 7 OCC Rule 1001(a). 2 17 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 require it to submit a proposed rule change to the Commission seeking approval of such waiver.8 Upon submission of a rule filing, the waiver may continue in effect until the Commission approves or disapproves the proposed rule change.9 Although OCC monitors the sufficiency of its clearing fund on a daily basis, OCC Rule 1001(a) provides that it may only readjust the size of the clearing fund on a monthly basis. On October 15, 2014, in order to address certain unanticipated intra-month market volatility OCC’s Executive Chairman, pursuant to emergency authority, temporarily waived the OCC Rule 1001(a) requirement that OCC readjust the size of its clearing fund on a monthly basis, allowing OCC to resize the clearing fund intra-month. OCC was concerned that its current financial resources might not meet the total financial resources required to cover the default of its largest participant family. The waiver permitted OCC to increase the size of the clearing fund for the remainder of October 2014, prior to the next monthly resizing scheduled for the first business day of November 2014. As a result of the emergency action, OCC’s clearing fund for October 2014 was increased by $1.8 billion to a total amount of $5.8 billion. B. Proposed Rule Change SR–OCC– 2014–21 OCC submitted the Proposed Rule Change, which amends its Rule 1001(a) by deleting the provision that requires OCC to readjust the size of its clearing fund on a monthly basis, allowing OCC to continue to collect additional financial resources from its clearing membership by increasing the size of its clearing fund on an intra-month basis when OCC determines such action should be taken so that the clearing fund is sufficient to protect OCC against potential loss under simulated default scenarios.10 OCC stated that it took this action to respond to the potential risk under prevailing market conditions that the clearing fund could be underfunded, which could have affected OCC’s ability to provide services in a safe and sound manner. As noted, OCC’s waiver of the provisions of the second sentence of Rule 1001(a) is permitted to continue for 8 See OCC By-Laws, Article IX, Section 14(c). 9 Id. 10 On October 15, 2014, OCC also filed an emergency notice with the Commission pursuant to Section 806(e)(2) of the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’). 12 U.S.C. 5465(e)(2). See Securities Exchange Act Release No. 73579 (November 12, 2014), 79 FR 68747 (November 18, 2014) (SR–OCC–2014–807). E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices no more than thirty calendar days unless OCC submits a proposed rule change under Section 19 of the Exchange Act seeking approval of such waiver.11 By filing this proposed rule change, OCC preserved the suspended effectiveness of the second sentence of Rule 1001(a) beyond thirty calendar days. OCC stated in its filing that it believes that the proposed rule change is appropriate: (i) To permit OCC to resize the clearing fund more frequently than monthly; and (ii) to determine the clearing fund’s size in an amount sufficient to protect OCC from loss by relying on a broader range of sound risk management practices than only the average daily calculations under Rule 1001(a) that are performed during the preceding calendar month. OCC stated that it would use this authority to adjust the size of its clearing fund on an intramonth basis only to increase the size of the Clearing Fund where appropriate, not to decrease the size of the Clearing Fund. In continued reliance on the emergency rule waiver and the emergency notice, OCC set the November 2014 clearing fund size at $7.8 billion, which included an amount determined by OCC to be sufficient to protect OCC against loss under simulated default scenarios (i.e., $6 billion), plus a prudential margin of safety (the additional $1.8 billion collected in October).12 C. Subsequent OCC Filings mstockstill on DSK4VPTVN1PROD with NOTICES On December 1, 2014, OCC filed an Advance Notice pursuant to Section 806(e)(1) of the Clearing Supervision Act and Exchange Act Rule 19b– 4(n)(1)(i)) and a corresponding proposed rule change, to establish procedures regarding the monthly resizing of the clearing fund and the addition of financial resources through intra-day margin calls and/or an intra-month increase of the clearing fund to ensure adequate financial resources.13 The monthly clearing fund sizing procedures set forth in the advance notice and proposed rule change are based on broader risk management practices and establish the procedures that OCC would use to determine the size of the clearing fund on a monthly basis. These filings, however, do not provide OCC 11 See supra note 8. Information Memorandum #35507, dated October 31, 2014, https://www.theocc.com/clearing/ clearing-infomemos/infomemos1.jsp. 13 See Exchange Release No. 74091 (January 20, 2015), 80 FR 4001 (January 26, 2015) (SR–OCC– 2014–811, as modified by Amendment No. 1); Exchange Act Release No. 73853 (December 16, 2014), 79 FR 76417 (December 22, 2014) (SR–OCC– 2014–22, as modified by Amendment No. 1). 12 See VerDate Sep<11>2014 18:59 Mar 05, 2015 Jkt 235001 with authority to resize the clearing fund intra-month. Both filings are pending consideration by the Commission.14 By their terms, the proposals as identified in this advanced notice and proposed rule change will not take effect until all regulatory actions required with respect to the proposed rule change presently at issue are completed. III. Proceedings To Determine Whether To Approve or Disapprove SR–OCC– 2014–21 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 15 to determine whether the proposed rule change should be approved or disapproved. Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the Proposed Rule Change. As noted above, institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to comment on the Proposed Rule Change, and provide the Commission with arguments to support the Commission’s analysis as to whether to approve or disapprove the Proposed Rule Change, as amended. Pursuant to Section 19(b)(2)(B) of the Exchange Act,16 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of, and input from commenters with respect to, the Proposed Rule Change’s consistency with Section 17A of the Exchange Act, and in particular, Section 17A(b)(3)(F) of the Exchange Act, which requires, among other things, that the rules of a clearing agency must: (i) Assure the safeguarding of securities and funds which are in the custody or control of a clearing agency; and (ii) to protect investors and the public interest.17 Here, the Proposed Rule Change is proposing to eliminate the currently waived second sentence of Rule 1001(a), which would result in the elimination of the monthly resizing requirement. In the absence of an alternative, OCC’s 14 On January 27, 2015, the Commission requested additional information regarding Advance Notice SR–OCC–2014–811, which tolled the review period pursuant to Section 806(e)(1) of the Clearing Supervision Act. 12 U.S.C. 5465(e)(1). OCC has also voluntarily extended the statutory review period for the review pursuant to Exchange Act Section 19(b)(2)(A)(ii)(II). 15 U.S.C. 78s(B)(2)(A)(ii)(II). 15 15 U.S.C. 78s(b)(2)(B). 16 15 U.S.C. 78s(b)(2)(B). 17 See 15 U.S.C. 78q–1(b)(3)(F). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 12233 rules are devoid of any timeframes within which OCC would be required to resize its clearing fund. OCC’s clearing fund reinforces OCC’s ability to protect against a clearing member’s default, and as such, OCC’s clearing fund size (and calculation thereof) would correlate directly with OCC’s ability to protect the clearing agency and its members against default.18 Without a robust framework and specific requirements in OCC’s rules to resize the clearing fund on an expressed and periodic basis, it is not apparent that OCC will have sufficient financial resources to manage the risks associated with the default of one or more clearing members. Furthermore, without such a provision in OCC’s rules, clearing members may not be sufficiently prepared to fund OCC’s clearing fund calls when such calls are made. With only pending proposals before the Commission for determining the clearing fund’s size,19 the Proposed Rule Change raises concerns about how OCC will safeguard securities and funds that are in its custody or control, as well as how the Proposed Rule Change will protect investors and the public interest in the absence of any clearing fund resizing requirements. Consequently, the Commission believes that significant questions remain as to whether the Proposed Rule Change is consistent with the requirements of the Exchange Act, particularly when considered in combination with OCC’s other proposed rule changes and advance notices currently pending before the Commission. Section 19(b)(2)(B) of the Exchange Act provides that proceedings to determine whether to approve or disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the Proposed Rule Change. The time for conclusion of the proceedings may be extended for up to an additional 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding or if the selfregulatory organization consents to the extension. IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the concerns identified above, as well as any others they may have with the Proposed Rule Change. In particular, the Commission invites the written views of interested 18 See https://optionsclearing.com/components/ docs/about/occ_financial_guarantee.pdf. 19 See supra note 13 and accompanying text. E:\FR\FM\06MRN1.SGM 06MRN1 12234 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices persons concerning whether the proposed rule change is inconsistent with Section 17A of the Exchange Act or any other provision of the Exchange Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.20 Interested persons are invited to submit written data, views, and arguments on or before March 27, 2015. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal on or before April 10, 2015. Comments may be submitted by any of the following methods: 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 filings also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at https://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_14_ 21.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–2014–21 and should be submitted on or before March 27, 2015. If comments are received, any rebuttal comments should be submitted on or before April 10, 2015. Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2014–21 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Brent J. Fields, Secretary. mstockstill on DSK4VPTVN1PROD with NOTICES 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–2014–21. 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 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 20 Section 19(b)(2) of the Exchange Act, as amended by the Securities Acts Amendments of 1975, Pub. L. 94–29, 89 Stat. 97 (1975), grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a selfregulatory organization. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 18:59 Mar 05, 2015 Jkt 235001 [FR Doc. 2015–05160 Filed 3–5–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74412; File No. SR–NYSE– 2014–65] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change Amending Its Continued Listing Requirements, as Set Forth in Section 802.01E of the Exchange’s Listed Company Manual, in Relation to the Late Filing of a Company’s Annual or Quarterly Report With the Securities and Exchange Commission March 2, 2015. I. Introduction On December 4, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend its continued listing requirements, set forth in section 802.01E of its Listed Company Manual, with respect to companies whose required annual or quarterly reports are late or defective. The proposed rule change was published for comment in 21 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 the Federal Register on December 17, 2014.3 On January 30, 2015, the Commission designated a longer period for Commission action on the proposed rule change, until March 17, 2015.4 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange proposes to amend section 802.01E of its Listed Company Manual (the ‘‘Late Filer Rule’’) to: (i) Expand the rule to impose a maximum period within which a company must file a late quarterly report on Form 10–Q in order to maintain its listing, and (ii) clarify the Exchange’s treatment of companies whose annual or quarterly reports are defective at the time of filing or become defective at some subsequent date. Currently, the Late Filer Rule deems a listed company to be delinquent in filing its annual report on Forms 10–K, 20–F, 40–F or N–CSR with the Commission if it fails to submit the filing by the date such report was required to be filed by the applicable form, or if a Form 12b–25 was timely filed with the Commission, the extended filing due date for the annual report. During the six-month period from the date of such delinquency, the Exchange monitors the company and the status of the delinquent annual report, including through contact with the company, until the filing delinquency is cured. If the company fails to cure such delinquency within the initial six-month period, the Exchange may, in its sole discretion, allow the company’s securities to be traded for up to an additional six-month period depending on the company’s specific circumstances. The Exchange will commence suspension and delisting procedures in accordance with Section 804.00 of the Listed Company Manual if the Exchange determines that an additional trading period of up to six months is not appropriate, or if the Exchange determines that an additional trading period of up to six months is appropriate and the company fails to file its annual report by the end of the additional period. A company is not currently subject to the compliance periods set forth in the Late Filer Rule in connection with a failure to timely file a quarterly report on Form 10–Q with the SEC.5 Moreover, 3 See Securities Exchange Act Release No. 73821 (December 11, 2014), 79 FR 75217 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 74184, 80 FR 6558 (February 5, 2015). 5 While a company is not currently subject to the compliance periods in the Late Filer Rule in connection with the failure to timely file a Form E:\FR\FM\06MRN1.SGM 06MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 44 (Friday, March 6, 2015)]
[Notices]
[Pages 12232-12234]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05160]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74406; File No. SR-OCC-2014-21]

Self-Regulatory Organizations; The Options Clearing Corporation;
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change in Order To Permit OCC To Adjust the
Size of Its Clearing Fund on an Intra-Month Basis

March 2, 2015.

I. Introduction

On November 13, 2014, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-OCC-2014-21 (``Proposed Rule Change'') pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 thereunder.\2\ In the Proposed Rule Change,
OCC proposes to amend its Rule 1001(a) to delete the requirement that
OCC readjust the size of its clearing fund on a monthly basis.\3\ On
December 2, 2014, the proposed rule change was published in the Federal
Register.\4\ The Commission received no comments to the Proposed Rule
Change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Exchange Act \6\ to determine whether to approve or disapprove
the Proposed Rule Change.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 204.19b-4. On October 15, 2014, OCC also filed an
emergency notice with the Commission to suspend the effectiveness of
the second sentence of Rule 1001(a). See infra note 10 and
accompanying discussion.
\3\ Exchange Act Release No. 73685 (November 25, 2014) 78 FR
71479 (December 2, 2014) (SR-OCC-2014-21).
\4\ Id.
\5\ On January 5, 2015, pursuant to Section 19(b)(2)(A)(ii)(II)
of the Exchange Act, as amended, OCC consented to an extension until
March 2, 2015, for the Commission to approve the proposed rule
change, disapprove the Proposed Rule Change, or institute
proceedings to determine whether to disapprove the Proposed Rule
Change. 15 U.S.C. 78s(b)(2)(A)(ii)(II).
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

OCC proposed this Proposed Rule Change to permit OCC to collect
additional financial resources from its clearing members by increasing
the size of its clearing fund on an intra-month basis when OCC
determines that such action should be taken to ensure the clearing fund
has sufficient resources to protect OCC against potential losses under
simulated default scenarios. Specifically, OCC's Proposed Rule Change
proposes to amend Rule 1001(a) to delete the second sentence, which
states, ``[s]uch [clearing fund resizing calculations] shall be made on
a daily basis, and the size of the Clearing Fund shall be readjusted
monthly based upon the average of such daily calculations performed
during the preceding month.'' \7\
---------------------------------------------------------------------------

\7\ OCC Rule 1001(a).
---------------------------------------------------------------------------

A. Background

In emergency circumstances and subject to certain conditions,
Article IX, Section 14, of OCC's By-Laws permit OCC's Board of
Directors, Executive Chairman, or President to waive or suspend its by-
laws, rules, policies and procedures, or any other rules issued by OCC,
or extend the time fixed thereby for the doing of any act or acts for
up to thirty calendar days. To extend such a wavier or suspension for
more than thirty calendar days, OCC's by-laws require it to submit a
proposed rule change to the Commission seeking approval of such
waiver.\8\ Upon submission of a rule filing, the waiver may continue in
effect until the Commission approves or disapproves the proposed rule
change.\9\
---------------------------------------------------------------------------

\8\ See OCC By-Laws, Article IX, Section 14(c).
\9\ Id.
---------------------------------------------------------------------------

Although OCC monitors the sufficiency of its clearing fund on a
daily basis, OCC Rule 1001(a) provides that it may only readjust the
size of the clearing fund on a monthly basis. On October 15, 2014, in
order to address certain unanticipated intra-month market volatility
OCC's Executive Chairman, pursuant to emergency authority, temporarily
waived the OCC Rule 1001(a) requirement that OCC readjust the size of
its clearing fund on a monthly basis, allowing OCC to resize the
clearing fund intra-month. OCC was concerned that its current financial
resources might not meet the total financial resources required to
cover the default of its largest participant family. The waiver
permitted OCC to increase the size of the clearing fund for the
remainder of October 2014, prior to the next monthly resizing scheduled
for the first business day of November 2014. As a result of the
emergency action, OCC's clearing fund for October 2014 was increased by
$1.8 billion to a total amount of $5.8 billion.

B. Proposed Rule Change SR-OCC-2014-21

OCC submitted the Proposed Rule Change, which amends its Rule
1001(a) by deleting the provision that requires OCC to readjust the
size of its clearing fund on a monthly basis, allowing OCC to continue
to collect additional financial resources from its clearing membership
by increasing the size of its clearing fund on an intra-month basis
when OCC determines such action should be taken so that the clearing
fund is sufficient to protect OCC against potential loss under
simulated default scenarios.\10\ OCC stated that it took this action to
respond to the potential risk under prevailing market conditions that
the clearing fund could be underfunded, which could have affected OCC's
ability to provide services in a safe and sound manner. As noted, OCC's
waiver of the provisions of the second sentence of Rule 1001(a) is
permitted to continue for

[[Page 12233]]

no more than thirty calendar days unless OCC submits a proposed rule
change under Section 19 of the Exchange Act seeking approval of such
waiver.\11\ By filing this proposed rule change, OCC preserved the
suspended effectiveness of the second sentence of Rule 1001(a) beyond
thirty calendar days.
---------------------------------------------------------------------------

\10\ On October 15, 2014, OCC also filed an emergency notice
with the Commission pursuant to Section 806(e)(2) of the Payment,
Clearing, and Settlement Supervision Act of 2010 (``Clearing
Supervision Act''). 12 U.S.C. 5465(e)(2). See Securities Exchange
Act Release No. 73579 (November 12, 2014), 79 FR 68747 (November 18,
2014) (SR-OCC-2014-807).
\11\ See supra note 8.
---------------------------------------------------------------------------

OCC stated in its filing that it believes that the proposed rule
change is appropriate: (i) To permit OCC to resize the clearing fund
more frequently than monthly; and (ii) to determine the clearing fund's
size in an amount sufficient to protect OCC from loss by relying on a
broader range of sound risk management practices than only the average
daily calculations under Rule 1001(a) that are performed during the
preceding calendar month. OCC stated that it would use this authority
to adjust the size of its clearing fund on an intra-month basis only to
increase the size of the Clearing Fund where appropriate, not to
decrease the size of the Clearing Fund. In continued reliance on the
emergency rule waiver and the emergency notice, OCC set the November
2014 clearing fund size at $7.8 billion, which included an amount
determined by OCC to be sufficient to protect OCC against loss under
simulated default scenarios (i.e., $6 billion), plus a prudential
margin of safety (the additional $1.8 billion collected in
October).\12\
---------------------------------------------------------------------------

\12\ See Information Memorandum #35507, dated October 31, 2014,
https://www.theocc.com/clearing/clearing-infomemos/infomemos1.jsp.
---------------------------------------------------------------------------

C. Subsequent OCC Filings

On December 1, 2014, OCC filed an Advance Notice pursuant to
Section 806(e)(1) of the Clearing Supervision Act and Exchange Act Rule
19b-4(n)(1)(i)) and a corresponding proposed rule change, to establish
procedures regarding the monthly resizing of the clearing fund and the
addition of financial resources through intra-day margin calls and/or
an intra-month increase of the clearing fund to ensure adequate
financial resources.\13\ The monthly clearing fund sizing procedures
set forth in the advance notice and proposed rule change are based on
broader risk management practices and establish the procedures that OCC
would use to determine the size of the clearing fund on a monthly
basis. These filings, however, do not provide OCC with authority to
resize the clearing fund intra-month. Both filings are pending
consideration by the Commission.\14\ By their terms, the proposals as
identified in this advanced notice and proposed rule change will not
take effect until all regulatory actions required with respect to the
proposed rule change presently at issue are completed.
---------------------------------------------------------------------------

\13\ See Exchange Release No. 74091 (January 20, 2015), 80 FR
4001 (January 26, 2015) (SR-OCC-2014-811, as modified by Amendment
No. 1); Exchange Act Release No. 73853 (December 16, 2014), 79 FR
76417 (December 22, 2014) (SR-OCC-2014-22, as modified by Amendment
No. 1).
\14\ On January 27, 2015, the Commission requested additional
information regarding Advance Notice SR-OCC-2014-811, which tolled
the review period pursuant to Section 806(e)(1) of the Clearing
Supervision Act. 12 U.S.C. 5465(e)(1). OCC has also voluntarily
extended the statutory review period for the review pursuant to
Exchange Act Section 19(b)(2)(A)(ii)(II). 15 U.S.C.
78s(B)(2)(A)(ii)(II).
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-OCC-
2014-21 and Grounds for Disapproval Under Consideration

The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \15\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the Proposed Rule Change. As noted above, institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the Proposed Rule Change,
and provide the Commission with arguments to support the Commission's
analysis as to whether to approve or disapprove the Proposed Rule
Change, as amended.
---------------------------------------------------------------------------

\15\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

Pursuant to Section 19(b)(2)(B) of the Exchange Act,\16\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of, and input from commenters with respect to, the
Proposed Rule Change's consistency with Section 17A of the Exchange
Act, and in particular, Section 17A(b)(3)(F) of the Exchange Act, which
requires, among other things, that the rules of a clearing agency must:
(i) Assure the safeguarding of securities and funds which are in the
custody or control of a clearing agency; and (ii) to protect investors
and the public interest.\17\
---------------------------------------------------------------------------

\16\ 15 U.S.C. 78s(b)(2)(B).
\17\ See 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

Here, the Proposed Rule Change is proposing to eliminate the
currently waived second sentence of Rule 1001(a), which would result in
the elimination of the monthly resizing requirement. In the absence of
an alternative, OCC's rules are devoid of any timeframes within which
OCC would be required to resize its clearing fund. OCC's clearing fund
reinforces OCC's ability to protect against a clearing member's
default, and as such, OCC's clearing fund size (and calculation
thereof) would correlate directly with OCC's ability to protect the
clearing agency and its members against default.\18\ Without a robust
framework and specific requirements in OCC's rules to resize the
clearing fund on an expressed and periodic basis, it is not apparent
that OCC will have sufficient financial resources to manage the risks
associated with the default of one or more clearing members.
Furthermore, without such a provision in OCC's rules, clearing members
may not be sufficiently prepared to fund OCC's clearing fund calls when
such calls are made.
---------------------------------------------------------------------------

\18\ See https://optionsclearing.com/components/docs/about/occ_financial_guarantee.pdf.
---------------------------------------------------------------------------

With only pending proposals before the Commission for determining
the clearing fund's size,\19\ the Proposed Rule Change raises concerns
about how OCC will safeguard securities and funds that are in its
custody or control, as well as how the Proposed Rule Change will
protect investors and the public interest in the absence of any
clearing fund resizing requirements. Consequently, the Commission
believes that significant questions remain as to whether the Proposed
Rule Change is consistent with the requirements of the Exchange Act,
particularly when considered in combination with OCC's other proposed
rule changes and advance notices currently pending before the
Commission. Section 19(b)(2)(B) of the Exchange Act provides that
proceedings to determine whether to approve or disapprove a proposed
rule change must be concluded within 180 days of the date of
publication of notice of the filing of the Proposed Rule Change. The
time for conclusion of the proceedings may be extended for up to an
additional 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding or if the self-
regulatory organization consents to the extension.
---------------------------------------------------------------------------

\19\ See supra note 13 and accompanying text.
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any others they may have with the
Proposed Rule Change. In particular, the Commission invites the written
views of interested

[[Page 12234]]

persons concerning whether the proposed rule change is inconsistent
with Section 17A of the Exchange Act or any other provision of the
Exchange Act, or the rules and regulations thereunder. Although there
do not appear to be any issues relevant to approval or disapproval
which would be facilitated by an oral presentation of views, data, and
arguments, the Commission will consider, pursuant to Rule 19b-4, any
request for an opportunity to make an oral presentation.\20\
---------------------------------------------------------------------------

\20\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Pub. L. 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
---------------------------------------------------------------------------

Interested persons are invited to submit written data, views, and
arguments on or before March 27, 2015. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal on or
before April 10, 2015. Comments may be submitted by any of the
following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-OCC-2014-21 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-2014-21. 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 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 filings also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site at https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_21.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-2014-21 and
should be submitted on or before March 27, 2015. If comments are
received, any rebuttal comments should be submitted on or before April
10, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

\21\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05160 Filed 3-5-15; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.