Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change, as Modified by Amendment 1 Thereto, To Expand the Officers Who May Declare That a Clearing Member Is Summarily Suspended, 15845-15846 [2015-06715]
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Federal Register / Vol. 80, No. 57 / Wednesday, March 25, 2015 / Notices
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca-2015–19 and should be
submitted on or before April 15, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Brent J. Fields,
Secretary.
[FR Doc. 2015–06719 Filed 3–24–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74537; File No. SR–OCC–
2015–04]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Approving Proposed Rule Change, as
Modified by Amendment 1 Thereto, To
Expand the Officers Who May Declare
That a Clearing Member Is Summarily
Suspended
March 19, 2015.
rljohnson on DSK3VPTVN1PROD with NOTICES
On January 23, 2015, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2015–04
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 February 11, 2015.3 The
Commission did not receive any
comments on the proposed rule change.
This order approves the proposed rule
change, as modified by Amendment 1.
I. Description
OCC is amending its Rules to permit
OCC to expand the officers who may
declare that a clearing member is
summarily suspended from OCC.
Currently, OCC Rule 1102 provides that
only OCC’s Board of Directors (‘‘Board’’)
and its Executive Chairman may
summarily suspend a clearing member.
OCC believes that, given the time
sensitive nature of managing a clearing
member default, it is prudent risk
management to expand the number of
officers with the authority to summarily
suspend a clearing member so that OCC
may begin its default management
process and, in turn, take protective
action as soon as possible.
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 74212
(February 5, 2015), 80 FR 7668 (February 11, 2015)
(SR–OCC–2015–04).
1 15
VerDate Sep<11>2014
15:26 Mar 24, 2015
Jkt 235001
Pursuant to OCC Rule 1102, OCC’s
Board and Executive Chairman have the
authority to summarily suspend a
clearing member. As set forth in
Interpretation and Policy .01 of Rule
1102, such action constitutes a
‘‘default’’ with respect to the clearing
member. OCC’s ability to timely and
effectively begin its clearing member
default management process serves a
key role in protecting OCC, nondefaulting clearing members and the
public from potential consequential
damage(s) that may be caused by the
default of a clearing member. In order to
provide OCC with the necessary tools to
manage a clearing member default,
Chapter XI of OCC’s Rules provides
OCC with the authority to take certain
protective action(s) once a clearing
member has been summarily suspended
(and declared to be in default).4 While
OCC believes that the authority
provided to it in Chapter XI of its Rules
is sufficiently robust to manage a
clearing member default, OCC may not
exercise such authority unless and until
a clearing member has been summarily
suspended by either the Board or the
Executive Chairman.
In order to provide greater assurance
that OCC will be able to timely and
effectively manage a clearing member
default, pursuant to its proposal as
approved, OCC is amending Rule 1102
to expand the list of officers who may
summarily suspend a clearing member
to include OCC’s President or a designee
of the Executive Chairman 5 or President
of the rank of Senior Vice President or
higher (each a ‘‘Designed Officer’’).6
OCC believes that the change will
provide it with additional operational
flexibility because more individuals will
be able to timely summarily suspend a
clearing member and thereby allow OCC
to exercise its authority to manage a
clearing member default. OCC’s clearing
member default management process is
designed to protect OCC, non-defaulting
clearing members and the public from
the defaulting clearing member without
materially impacting financial markets.7
By providing additional officers with
4 For example, OCC Rule 1106(a) provides OCC
with significant flexibility with respect actions it
may take in order to close out a defaulting clearing
member’s open long positions.
5 OCC filed Amendment No. 1 in order to correct
an inadvertent grammatical error. Specifically, a
comma after the word ‘‘Executive Chairman’’ was
removed because it caused the description of the
proposed rule change to not be consistent with the
text of the proposed rule change.
6 OCC’s proposal is similar to the summary
suspension process employed by the National
Securities Clearing Corporation (‘‘NSCC’’). See
NSCC Rule 46, Section 3.
7 A description of OCC’s default management
process is located at: https://www.theocc.com/riskmanagement/default-rules/>
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
15845
the authority to summarily suspend a
clearing member, and thereby allow
OCC to begin its default management
processes, there will be greater
assurance that OCC will timely take
action(s) necessary to protect itself, nondefaulting clearing members, and the
public from a defaulting clearing
member. OCC also is amending Rule
1102 to require notification to the Board
as soon as practicable should a
Designated Officer summarily suspend a
clearing member.8 The addition of such
a requirement will ensure that the Board
is timely informed of such suspensions.
Furthermore, pursuant to this rule
change as approved, OCC is making
conforming amendments consistent
with the above to Article VI, Section 25
of its By-Laws and OCC Rule 707, which
concern the summary suspension of
clearing members that participate in
OCC’s cross-margining programs.
Specifically, Article VI, Section of
OCC’s By-Laws and OCC Rule 707 will
explicitly state that the Board of
Directors or a Designated Officer may
summarily suspend a clearing member
based on a cross-margining related
default.
Except for the changes described
above, no other changes are proposed to
OCC’s suspension or default
management processes as set forth in
the Rules, including a clearing
member’s right to appeal a summary
suspension in accordance with OCC
Rule 1110.
II. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 9 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.
The Commission finds that the
proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act, 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.10 By expanding
the list of officers with the authority to
summarily suspend a clearing member,
OCC will be better able to ensure that
has the ability to timely begin the
clearing member default management
processes. In turn, timely beginning the
8 OCC staff will notify the Board within two hours
of the summary suspension.
9 15 U.S.C. 78s(b)(2)(C).
10 15 U.S.C. 78q–1(b)(3)(F).
E:\FR\FM\25MRN1.SGM
25MRN1
15846
Federal Register / Vol. 80, No. 57 / Wednesday, March 25, 2015 / Notices
default management process will further
the safeguarding of securities and funds
which are in the custody or control of
OCC, or for which it is responsible.
minimum capital requirements for
banks approved to issue letters of credit
that may be deposited by clearing
members as a form of margin asset.
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 11 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,12 that the
proposed rule change (SR–OCC–2015–
04), as modified by Amendment 1, be,
and it hereby is, approved.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Brent J. Fields,
Secretary.
[FR Doc. 2015–06715 Filed 3–24–15; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74536; File No. SR–OCC–
2015–007]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change To
Enhance the Measurement Used To
Establish Minimum Capital
Requirements for Banks Approved To
Issue Letters of Credit
March 19, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on March 6,
2015, The Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by OCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
rljohnson on DSK3VPTVN1PROD with NOTICES
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
OCC proposes to amend its By-Laws
and Rules in order to enhance the
measurement used to establish
VerDate Sep<11>2014
15:26 Mar 24, 2015
Jkt 235001
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
BILLING CODE 8011–01–P
11 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).
12 15 U.S.C. 78s(b)(2).
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
The purpose of this proposed rule
change is to enhance the measurement
used by OCC to establish minimum
capital requirements for banks approved
to issue letters of credit that may be
deposited by clearing members as a
form of margin asset. Currently, OCC
Rule 604 Interpretation and Policy .01
requires U.S. banks to have
$100,000,000 or more in shareholders’
equity, and non-U.S. banks to have
$200,000,000 or more in shareholders’
equity, in order to be approved as an
issuer of letters of credit that may
deposited by clearing members to meet
their margin obligation(s) at OCC. The
purpose of these minimum capital
requirements is to ensure that issuers of
letters of credit whose letters of credit
are deposited at OCC as a margin asset
by clearing members have the ability to
honor a demand for payment by OCC
under such letters of credit should a
need to do so arise, such as in the case
of a clearing member default.
The financial requirements set forth
in OCC Rule 604 Interpretation and
Policy .01 concerning issuers of letters
of credit have been in place for some
time.3 In the years since OCC adopted
OCC Rule 604 Interpretation and Policy
.01, bank financial reporting standards
have evolved and now place a greater
emphasis on Tier 1 Capital as opposed
shareholders’ equity.4 In fact, Tier 1
3 See Securities and Exchange Act Release No.
19422 (January 12, 1983), SR–OCC–1982–08 [sic].
4 Tier 1 Capital is the measure used by the Basel
Committee on Banking Supervision to measure the
financial health of a bank. The goal of the Basel
Committee on Banking Supervision is to strengthen
the regulation, supervision and risk management of
the banking sector. The Basel Committee on
Banking Supervision’s most recent set of reform
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
Capital is the primary component of a
bank’s total regulatory capital.5 Tier 1
Capital is a more conservative measure
of a bank’s financial health as it ignores
subordinated debt, intermediate-term
preferred stock, cumulative and longterm preferred stock and a portion of a
bank’s allowance for loan and lease
losses. In light of the more universal
acceptance of Tier 1 Capital for bank
financial reporting standards, OCC is
now proposing to amend OCC Rule 604
Interpretation and Policy .01 to
substitute Tier 1 Capital for
shareholders’ equity.
OCC believes that by measuring a
bank’s financial health based on Tier 1
Capital, instead of shareholders’ equity,
OCC will reduce its credit risk to banks
issuing letters of credit deposited by
clearing members as a form of margin
asset. As stated above, Tier 1 Capital is
a more conservative measure of a bank’s
financial health. Therefore, after
implementation of the proposed rule
change, should OCC need to demand
payment on a letter of credit deposited
by a clearing member as a margin asset,
such as in the case of a clearing member
default, it is less likely that the bank
issuing such letter of credit would not
perform upon its payment commitment
because the bank would be required to
hold a greater amount of capital in order
to be an OCC letter of credit bank. In
turn, credit risk presented to OCC as a
result of accepting letters of credit as a
form of margin asset is reduced.6
In order to effect the proposed rule
change, and in addition to amending
OCC Rule 604 Interpretation and Policy
.01 as described above, OCC is
proposing to add a paragraph ‘‘c’’ to
Interpretation and Policy .01 of OCC
Rule 604 in order to adopt a definition
for Tier 1 Capital that leverages the
definition of Tier 1 Capital employed by
a bank’s regulatory agency. OCC
believes that such a definition is
appropriate given that OCC accepts
letters of credit from banks regulated by
different regulatory authorities.7 In
addition, and for the reasons stated
measures, Basel III, is located at: https://
www.bis.org/publ/bcbs189.pdf.
5 See https://www.kansascityfed.org/Publicat/
BasicsforBankDirectors/
BasicsforBankDirectors.pdf.>
6 OCC does not anticipate that the proposed rule
change would impact any of the banks already
approved to issue letters of credit that may be
deposited by clearing members as a form of margin
since all such banks maintain amounts of Tier 1
Capital that exceed, as applicable, $100 million for
U.S. banks or $200 million for Non-U.S. banks.
7 See OCC Rule 604(c). For example, OCC accepts
letters of credit issued by banks regulated by The
Federal Reserve Board, The Office of the
Comptroller of the Currency, The Australian
Prudential Regulation Authority and The German
Federal Financial Supervisory Authority.
E:\FR\FM\25MRN1.SGM
25MRN1
]]>Agencies
[Federal Register Volume 80, Number 57 (Wednesday, March 25, 2015)]
[Notices]
[Pages 15845-15846]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06715]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74537; File No. SR-OCC-2015-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change, as Modified by Amendment 1
Thereto, To Expand the Officers Who May Declare That a Clearing Member
Is Summarily Suspended
March 19, 2015.
On January 23, 2015, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2015-04 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 February 11, 2015.\3\ The Commission did not
receive any comments on the proposed rule change. This order approves
the proposed rule change, as modified by Amendment 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 74212 (February 5,
2015), 80 FR 7668 (February 11, 2015) (SR-OCC-2015-04).
---------------------------------------------------------------------------
I. Description
OCC is amending its Rules to permit OCC to expand the officers who
may declare that a clearing member is summarily suspended from OCC.
Currently, OCC Rule 1102 provides that only OCC's Board of Directors
(``Board'') and its Executive Chairman may summarily suspend a clearing
member. OCC believes that, given the time sensitive nature of managing
a clearing member default, it is prudent risk management to expand the
number of officers with the authority to summarily suspend a clearing
member so that OCC may begin its default management process and, in
turn, take protective action as soon as possible.
Pursuant to OCC Rule 1102, OCC's Board and Executive Chairman have
the authority to summarily suspend a clearing member. As set forth in
Interpretation and Policy .01 of Rule 1102, such action constitutes a
``default'' with respect to the clearing member. OCC's ability to
timely and effectively begin its clearing member default management
process serves a key role in protecting OCC, non-defaulting clearing
members and the public from potential consequential damage(s) that may
be caused by the default of a clearing member. In order to provide OCC
with the necessary tools to manage a clearing member default, Chapter
XI of OCC's Rules provides OCC with the authority to take certain
protective action(s) once a clearing member has been summarily
suspended (and declared to be in default).\4\ While OCC believes that
the authority provided to it in Chapter XI of its Rules is sufficiently
robust to manage a clearing member default, OCC may not exercise such
authority unless and until a clearing member has been summarily
suspended by either the Board or the Executive Chairman.
---------------------------------------------------------------------------
\4\ For example, OCC Rule 1106(a) provides OCC with significant
flexibility with respect actions it may take in order to close out a
defaulting clearing member's open long positions.
---------------------------------------------------------------------------
In order to provide greater assurance that OCC will be able to
timely and effectively manage a clearing member default, pursuant to
its proposal as approved, OCC is amending Rule 1102 to expand the list
of officers who may summarily suspend a clearing member to include
OCC's President or a designee of the Executive Chairman \5\ or
President of the rank of Senior Vice President or higher (each a
``Designed Officer'').\6\ OCC believes that the change will provide it
with additional operational flexibility because more individuals will
be able to timely summarily suspend a clearing member and thereby allow
OCC to exercise its authority to manage a clearing member default.
OCC's clearing member default management process is designed to protect
OCC, non-defaulting clearing members and the public from the defaulting
clearing member without materially impacting financial markets.\7\ By
providing additional officers with the authority to summarily suspend a
clearing member, and thereby allow OCC to begin its default management
processes, there will be greater assurance that OCC will timely take
action(s) necessary to protect itself, non-defaulting clearing members,
and the public from a defaulting clearing member. OCC also is amending
Rule 1102 to require notification to the Board as soon as practicable
should a Designated Officer summarily suspend a clearing member.\8\ The
addition of such a requirement will ensure that the Board is timely
informed of such suspensions.
---------------------------------------------------------------------------
\5\ OCC filed Amendment No. 1 in order to correct an inadvertent
grammatical error. Specifically, a comma after the word ``Executive
Chairman'' was removed because it caused the description of the
proposed rule change to not be consistent with the text of the
proposed rule change.
\6\ OCC's proposal is similar to the summary suspension process
employed by the National Securities Clearing Corporation (``NSCC'').
See NSCC Rule 46, Section 3.
\7\ A description of OCC's default management process is located
at: https://www.theocc.com/risk-management/default-rules/>
\8\ OCC staff will notify the Board within two hours of the
summary suspension.
---------------------------------------------------------------------------
Furthermore, pursuant to this rule change as approved, OCC is
making conforming amendments consistent with the above to Article VI,
Section 25 of its By-Laws and OCC Rule 707, which concern the summary
suspension of clearing members that participate in OCC's cross-
margining programs. Specifically, Article VI, Section of OCC's By-Laws
and OCC Rule 707 will explicitly state that the Board of Directors or a
Designated Officer may summarily suspend a clearing member based on a
cross-margining related default.
Except for the changes described above, no other changes are
proposed to OCC's suspension or default management processes as set
forth in the Rules, including a clearing member's right to appeal a
summary suspension in accordance with OCC Rule 1110.
II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \9\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act, 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.\10\ By
expanding the list of officers with the authority to summarily suspend
a clearing member, OCC will be better able to ensure that has the
ability to timely begin the clearing member default management
processes. In turn, timely beginning the
[[Page 15846]]
default management process will further the safeguarding of securities
and funds which are in the custody or control of OCC, or for which it
is responsible.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
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 \11\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\11\ 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).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-OCC-2015-04), as modified by
Amendment 1, be, and it hereby is, approved.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(2).
\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Brent J. Fields,
Secretary.
[FR Doc. 2015-06715 Filed 3-24-15; 8:45 am]
BILLING CODE 8011-01-P
