Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Revise The Options Clearing Corporation's Schedule of Fees, 69885-69887 [2016-24282]
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Federal Register / Vol. 81, No. 195 / Friday, October 7, 2016 / Notices
liquidity at a rate lower than the bank
borrowing rate at times when the cash
position of the Fund is insufficient to
meet temporary cash requirements. In
addition, Funds making short-term cash
loans directly to other Funds would
earn interest at a rate higher than they
otherwise could obtain from investing
their cash in repurchase agreements or
certain other short term money market
instruments. Thus, applicants assert that
the facility would benefit both
borrowing and lending Funds.
3. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the Application. Among
others, the Adviser, through a
designated committee, would
administer the facility as a disinterested
fiduciary as part of its duties under the
investment management and
administrative agreements with the
Funds and would receive no additional
fee as compensation for its services in
connection with the administration of
the facility. The facility would be
subject to oversight and certain
approvals by the Funds’ Board,
including, among others, approval of the
interest rate formula and of the method
for allocating loans across Funds, as
well as review of the process in place to
evaluate the liquidity implications for
the Funds. A Fund’s aggregate
outstanding interfund loans will not
exceed 15% of its net assets, and the
Fund’s loan to any one Fund will not
exceed 5% of the lending Fund’s net
assets.3
4. Applicants assert that the facility
does not raise the concerns underlying
section 12(d)(1) of the Act given that the
Funds are part of the same group of
investment companies and there will be
no duplicative costs or fees to the
Funds.4 Applicants also assert that the
proposed transactions do not raise the
concerns underlying sections 17(a)(1),
17(a)(3), 17(d) and 21(b) of the Act as
the Funds would not engage in lending
transactions that unfairly benefit
insiders or are detrimental to the Funds.
Applicants state that the facility will
offer both reduced borrowing costs and
enhanced returns on loaned funds to all
participating Funds and each Fund
would have an equal opportunity to
borrow and lend on equal terms based
on an interest rate formula that is
objective and verifiable. With respect to
the relief from section 17(a)(2) of the
3 Under certain circumstances, a borrowing Fund
will be required to pledge collateral to secure the
loan.
4 Applicants state that the obligation to repay an
interfund loan could be deemed to constitute a
security for the purposes of sections 17(a)(1) and
12(d)(1) of the Act.
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Act, applicants note that any collateral
pledged to secure an interfund loan
would be subject to the same conditions
imposed by any other lender to a Fund
that imposes conditions on the quality
of or access to collateral for a borrowing
(if the lender is another Fund) or the
same or better conditions (in any other
circumstance).5
5. Applicants also believe that the
limited relief from section 18(f)(1) of the
Act that is necessary to implement the
facility (because the lending Funds are
not banks) is appropriate in light of the
conditions and safeguards described in
the application and because the Funds
would remain subject to the
requirement of section 18(f)(1) that all
borrowings of a Fund, including
combined interfund loans and bank
borrowings, have at least 300% asset
coverage.
6. Section 6(c) of the Act permits the
Commission to exempt any persons or
transactions from any provision of the
Act if such exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities, or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Section 17(b) of the Act authorizes the
Commission to grant an order
permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (a) the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (b) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (c)
the proposed transaction is consistent
with the general purposes of the Act.
Rule 17d–1(b) under the Act provides
that in passing upon an application filed
under the rule, the Commission will
consider whether the participation of
the registered investment company in a
joint enterprise, joint arrangement or
profit sharing plan on the basis
proposed is consistent with the
provisions, policies and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of the
other participants.
5 Applicants state that any pledge of securities to
secure an interfund loan could constitute a
purchase of securities for purposes of section
17(a)(2) of the Act.
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69885
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–24285 Filed 10–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79028; File No. SR–OCC–
2016–012]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Revise
The Options Clearing Corporation’s
Schedule of Fees
October 3, 2016.
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
September 30, 2016, 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. OCC filed
the proposal pursuant to Section
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder 4 so that the proposal
was effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change by OCC
would revise OCC’s Schedule of Fees
effective December 1, 2016, to
implement an increase in clearing fees
in accordance with OCC’s Fee Policy.5
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 OCC’s Fee Policy was adopted as part of OCC’s
plan for raising additional capital (‘‘Capital Plan’’),
which was put in place in light of proposed
regulatory capital requirements applicable to
systemically important financial market utilities,
such as OCC. See Securities Exchange Act Release
No. 74452 (March 6, 2015) 80 FR 13058 (March 12,
2015) (SR–OCC–2015–02). OCC also filed proposals
in the Capital Plan Filing 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). On February 26, 2015, the Commission
issued a notice of no objection to the advance notice
filing. See Exchange Act Release No. 74387
(February 26, 2015), 80 FR 12215 (March 6, 2015)
(SR–OCC–2014–813). BATS Global Markets, Inc.,
BOX Options Exchange LLC, KCG Holdings, Inc.,
2 17
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Federal Register / Vol. 81, No. 195 / Friday, October 7, 2016 / Notices
The proposed changes to the Schedule
of Fees can be found in Exhibit 5 to the
proposed rule change. All capitalized
terms not defined herein have the same
meaning as set forth in the OCC ByLaws and Rules.6
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
The purpose of this proposed rule
change is to revise OCC’s Schedule of
Fees in accordance with its Fee Policy
to set OCC’s fees at a level designed to
cover OCC’s operating expenses and
maintain a Business Risk Buffer of
25%.7 The revised fee schedule would
become effective on December 1, 2016.
By way of background, OCC
implemented its Capital Plan in 2015,8
which was put in place in light of
proposed regulatory capital
requirements applicable to systemically
important financial market utilities,
such as OCC. As part of OCC’s Capital
Plan, OCC adopted a Fee Policy
whereby OCC would set clearing fees at
a level that covers OCC’s operating
expenses plus a Business Risk Buffer of
25%.9 The purpose of the Business Risk
Buffer is to ensure that OCC
accumulates sufficient capital to cover
unexpected fluctuations in operating
expenses, business capital needs, and
regulatory capital requirements.
OCC recently reviewed its current
Schedule of Fees 10 against actual and
projected revenues and expenses for
2016 in accordance with its Fee Policy
to determine whether the Schedule of
Current fee schedule
Fees was sufficient to cover OCC’s
anticipated operating expenses and
achieve a Business Risk Buffer of 25%.
In reviewing the Schedule of Fees, OCC
analyzed: (i) Clearing fee revenues
charged on a year-to-date basis, (ii)
projected volume for the remainder of
the year, (iii) the anticipated ‘‘mix’’ of
volume among the various fee levels set
forth in the Schedule of Fees, (iv)
operating expenses incurred to date, and
(v) operating expenses projected for the
remainder of the year. Based on the
foregoing analysis, OCC determined that
the current fee schedule is set at a level
that would be insufficient to ensure that
OCC achieves its Business Risk Buffer of
25% as required under the Fee Policy.
OCC arrived at the proposed fee
schedule presented herein by
determining the figures that provide the
best opportunity for OCC to achieve
coverage of its anticipated operating
expenses plus a Business Risk Buffer of
25%.
As a result of the aforementioned
analysis, OCC proposes to revise its
Schedule of Fees as set forth below.11
Proposed fee schedule
Trades with contracts of:
Proposed fee
Trades with contracts of:
Proposed fee
1–1370 ...........................................
>1370 .............................................
$0.041 ...........................................
$55/trade .......................................
1–1100 ..........................................
>1100 ............................................
$0.050/contract.
$55/trade.
Section 17A(b)(3)(D) of the Securities
Exchange Act of 1934, as amended
(‘‘Act’’), requires that the rules of a
clearing agency provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
participants.13 The proposed fee
schedule was set in accordance with the
criteria set forth in OCC’s Capital Plan,
which was approved by the
Commission 14 and requires that OCC’s
fees be set at a level designed to cover
OCC’s operating expenses and maintain
a Business Risk Buffer of 25%. OCC
believes the proposed fee change is
reasonable because the fee increase
would be set at a level intended only to
facilitate the maintenance of OCC’s
Business Risk Buffer of 25%, which is
designed to ensure that OCC
accumulates sufficient capital to cover
unexpected fluctuations in operating
expenses, business capital needs, and
regulatory capital requirements.
Moreover, OCC believes that the
proposed fee change would result in an
equitable allocation of fees among its
participants because it would be equally
applicable to all market participants. As
Miami International Securities Exchange, LLC, and
Susquehanna International Group, LLP (collectively
‘‘Petitioners’’) each filed petitions for review of the
Approval Order, challenging the action taken by
delegated authority. The filing of the petitions
automatically stayed the Approval Order. OCC filed
a Motion to Lift the Stay on April 2, 2015, and the
Petitioners responded. The Commission
subsequently determined that the automatic stay of
delegated action should be discontinued, and the
Commission granted OCC’s Motion to Lift Stay of
the staff’s action in approving by delegated
authority File No. SR–OCC–2015–02. On February
11, 2016, the Commission issued an order setting
aside the approval order issued under delegated
authority and approved the proposed rule change
to implement the Capital Plan. See Securities
Exchange Act Release No. 77112 (February 11,
2016) 81 FR 8294 (February 18, 2016) (SR–OCC–
2015–02).
6 OCC’s By-Laws and Rules can be found on
OCC’s public Web site: https://optionsclearing.com/
about/publications/bylaws.jsp.
7 The Business Risk Buffer is equal to net income
before refunds, dividends, and taxes divided by
total revenue.
8 See supra note 5.
9 OCC’s Schedule of Fees must also meet the
requirements set forth in Article IX, Section 9 of
OCC’s By-Laws. In general, Article IX, Section 9 of
OCC’s By-Laws requires that OCC’s fee structure be
designed to: (1) Cover OCC’s operating expenses
plus a business risk buffer; (2) maintain reserves
deemed reasonably necessary by OCC’s Board of
Directors; and (3) accumulate an additional surplus
deemed advisable by the Board of Directors to
permit OCC to meet its obligations to its clearing
members and the public. Clauses 2 and 3 above will
only be invoked at the discretion of OCC’s Board
of Directors and in extraordinary circumstances.
10 OCC previously revised its Schedule of Fees
effective March 1, 2016, to implement a reduction
of clearing fees in accordance with the Fee Policy.
See Securities Exchange Act Release No. 77041
(February 3, 2016), 81 FR 6917 (February 9, 2016),
(SR–OCC–2016–001). OCC subsequently amended
its Schedule of Fees to simplify its fee structure
through: (i) The adoption of a flat clearing fee per
contract with a fixed dollar cap and (ii) the
elimination of the ‘‘scratch’’ fee. The revised fee
structure, which became effective May 2, 2016, was
designed to be revenue neutral when compared to
the previous fee structure. See Securities Exchange
Act Release No. 77336 (March 10, 2016), 81 FR
14153 (March 16, 2016), (SR–OCC–2016–005).
11 These changes are also reflected in Exhibit 5.
12 Any subsequent changes to OCC’s Schedule of
Fees would be the subject of a subsequent proposed
rule change filed with the Commission.
13 17 U.S.C. 78q–1(b)(3)(D).
14 See supra note 5.
In accordance with its Fee Policy,
OCC will continue to monitor cleared
contract volume and operating expenses
in order to determine if further revisions
to OCC’s Schedule of Fees are required
so that monies received from clearing
fees cover OCC’s operating expenses
plus a Business Risk Buffer of 25%.12
mstockstill on DSK3G9T082PROD with NOTICES
(2) Statutory Basis
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Federal Register / Vol. 81, No. 195 / Friday, October 7, 2016 / Notices
a result, OCC believes that the proposed
fee schedule provides for the equitable
allocation of reasonable fees in
accordance with Section 17A(b)(3)(D) of
the Act.15 The proposed rule change is
not inconsistent with the existing rules
of OCC, including any other rules
proposed to be amended.
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 16
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC does not
believe that the proposed rule change
would have any impact or impose a
burden on competition. Although this
proposed rule change affects clearing
members, their customers, and the
markets that OCC serves, OCC believes
that the proposed rule change would not
disadvantage or favor any particular
user of OCC’s services in relationship to
another user because the proposed
clearing fees apply equally to all users
of OCC. Accordingly, OCC does not
believe that the proposed rule change
would have any impact or impose a
burden on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments on the proposed
rule change were not and are not
intended to be solicited with respect to
the proposed rule change and none have
been received.
mstockstill on DSK3G9T082PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(ii) 17
of the Act, and Rule 19b–4(f)(2)
thereunder,18 the proposed rule change
is filed for immediate effectiveness as it
constitutes a change in fees charged to
OCC clearing members. 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.19
15 17
U.S.C. 78q–1(b)(3)(D).
U.S.C. 78q–1(b)(3)(I).
17 15 U.S.C. 78s(b)(3)(A)(ii).
18 17 CFR 240.19b–4(f)(2).
19 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Regulation § 40.6.
16 15
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17:36 Oct 06, 2016
Jkt 241001
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:
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–OCC–2016–012 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–2016–012. 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 the
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s Web site
(https://www.theocc.com/components/
docs/legal/rules_and_bylaws/
sr_occ_16_012.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–
2016–012 and should be submitted on
or before October 28, 2016.
Frm 00110
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–24282 Filed 10–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
PO 00000
69887
Sfmt 4703
[Investment Company Act Release No.
32300; File No. 812–14583]
Legg Mason Global Asset Management
Trust, et al.; Notice of Application
October 3, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to: (a) Section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule
17d–1 under the Act to permit certain
joint arrangements and transactions.
Applicants request an order that would
permit certain registered open-end
management investment companies to
participate in a joint lending and
borrowing facility.
AGENCY:
Legg Mason Global Asset
Management Trust, Legg Mason Global
Asset Management Variable Trust, Legg
Mason Partners Income Trust, Legg
Mason Partners Institutional Trust, Legg
Mason Partners Money Market Trust,
Legg Mason Partners Premium Money
Market Trust, Legg Mason Partners
Variable Income Trust, Master Portfolio
Trust, and Western Asset Funds, Inc.,
registered under the Act as open-end
management investment companies
with one or more series, and Legg
Mason Partners Fund Advisor, LLC (the
‘‘Adviser’’), registered as an investment
adviser under the Investment Advisers
Act of 1940.
FILING DATES: The application was filed
on November 27, 2015, and amended on
May 5, 2016.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
APPLICANTS:
20 17
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CFR 200.30–3(a)(12).
07OCN1
]]>Agencies
[Federal Register Volume 81, Number 195 (Friday, October 7, 2016)]
[Notices]
[Pages 69885-69887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24282]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79028; File No. SR-OCC-2016-012]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Revise The Options Clearing Corporation's Schedule of Fees
October 3, 2016.
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 September 30, 2016, 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. OCC filed the proposal pursuant to
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder
\4\ so that the proposal was effective upon filing with the Commission.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change by OCC would revise OCC's Schedule of Fees
effective December 1, 2016, to implement an increase in clearing fees
in accordance with OCC's Fee Policy.\5\
[[Page 69886]]
The proposed changes to the Schedule of Fees can be found in Exhibit 5
to the proposed rule change. All capitalized terms not defined herein
have the same meaning as set forth in the OCC By-Laws and Rules.\6\
---------------------------------------------------------------------------
\5\ OCC's Fee Policy was adopted as part of OCC's plan for
raising additional capital (``Capital Plan''), which was put in
place in light of proposed regulatory capital requirements
applicable to systemically important financial market utilities,
such as OCC. See Securities Exchange Act Release No. 74452 (March 6,
2015) 80 FR 13058 (March 12, 2015) (SR-OCC-2015-02). OCC also filed
proposals in the Capital Plan Filing 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). On February 26, 2015,
the Commission issued a notice of no objection to the advance notice
filing. See Exchange Act Release No. 74387 (February 26, 2015), 80
FR 12215 (March 6, 2015) (SR-OCC-2014-813). BATS Global Markets,
Inc., BOX Options Exchange LLC, KCG Holdings, Inc., Miami
International Securities Exchange, LLC, and Susquehanna
International Group, LLP (collectively ``Petitioners'') each filed
petitions for review of the Approval Order, challenging the action
taken by delegated authority. The filing of the petitions
automatically stayed the Approval Order. OCC filed a Motion to Lift
the Stay on April 2, 2015, and the Petitioners responded. The
Commission subsequently determined that the automatic stay of
delegated action should be discontinued, and the Commission granted
OCC's Motion to Lift Stay of the staff's action in approving by
delegated authority File No. SR-OCC-2015-02. On February 11, 2016,
the Commission issued an order setting aside the approval order
issued under delegated authority and approved the proposed rule
change to implement the Capital Plan. See Securities Exchange Act
Release No. 77112 (February 11, 2016) 81 FR 8294 (February 18, 2016)
(SR-OCC-2015-02).
\6\ OCC's By-Laws and Rules can be found on OCC's public Web
site: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
The purpose of this proposed rule change is to revise OCC's
Schedule of Fees in accordance with its Fee Policy to set OCC's fees at
a level designed to cover OCC's operating expenses and maintain a
Business Risk Buffer of 25%.\7\ The revised fee schedule would become
effective on December 1, 2016.
---------------------------------------------------------------------------
\7\ The Business Risk Buffer is equal to net income before
refunds, dividends, and taxes divided by total revenue.
---------------------------------------------------------------------------
By way of background, OCC implemented its Capital Plan in 2015,\8\
which was put in place in light of proposed regulatory capital
requirements applicable to systemically important financial market
utilities, such as OCC. As part of OCC's Capital Plan, OCC adopted a
Fee Policy whereby OCC would set clearing fees at a level that covers
OCC's operating expenses plus a Business Risk Buffer of 25%.\9\ The
purpose of the Business Risk Buffer is to ensure that OCC accumulates
sufficient capital to cover unexpected fluctuations in operating
expenses, business capital needs, and regulatory capital requirements.
---------------------------------------------------------------------------
\8\ See supra note 5.
\9\ OCC's Schedule of Fees must also meet the requirements set
forth in Article IX, Section 9 of OCC's By-Laws. In general, Article
IX, Section 9 of OCC's By-Laws requires that OCC's fee structure be
designed to: (1) Cover OCC's operating expenses plus a business risk
buffer; (2) maintain reserves deemed reasonably necessary by OCC's
Board of Directors; and (3) accumulate an additional surplus deemed
advisable by the Board of Directors to permit OCC to meet its
obligations to its clearing members and the public. Clauses 2 and 3
above will only be invoked at the discretion of OCC's Board of
Directors and in extraordinary circumstances.
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OCC recently reviewed its current Schedule of Fees \10\ against
actual and projected revenues and expenses for 2016 in accordance with
its Fee Policy to determine whether the Schedule of Fees was sufficient
to cover OCC's anticipated operating expenses and achieve a Business
Risk Buffer of 25%. In reviewing the Schedule of Fees, OCC analyzed:
(i) Clearing fee revenues charged on a year-to-date basis, (ii)
projected volume for the remainder of the year, (iii) the anticipated
``mix'' of volume among the various fee levels set forth in the
Schedule of Fees, (iv) operating expenses incurred to date, and (v)
operating expenses projected for the remainder of the year. Based on
the foregoing analysis, OCC determined that the current fee schedule is
set at a level that would be insufficient to ensure that OCC achieves
its Business Risk Buffer of 25% as required under the Fee Policy. OCC
arrived at the proposed fee schedule presented herein by determining
the figures that provide the best opportunity for OCC to achieve
coverage of its anticipated operating expenses plus a Business Risk
Buffer of 25%.
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\10\ OCC previously revised its Schedule of Fees effective March
1, 2016, to implement a reduction of clearing fees in accordance
with the Fee Policy. See Securities Exchange Act Release No. 77041
(February 3, 2016), 81 FR 6917 (February 9, 2016), (SR-OCC-2016-
001). OCC subsequently amended its Schedule of Fees to simplify its
fee structure through: (i) The adoption of a flat clearing fee per
contract with a fixed dollar cap and (ii) the elimination of the
``scratch'' fee. The revised fee structure, which became effective
May 2, 2016, was designed to be revenue neutral when compared to the
previous fee structure. See Securities Exchange Act Release No.
77336 (March 10, 2016), 81 FR 14153 (March 16, 2016), (SR-OCC-2016-
005).
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As a result of the aforementioned analysis, OCC proposes to revise
its Schedule of Fees as set forth below.\11\
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\11\ These changes are also reflected in Exhibit 5.
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Current fee schedule Proposed fee schedule
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Trades with contracts
Trades with contracts of: Proposed fee of: Proposed fee
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1-1370............................... $0.041................. 1-1100................. $0.050/contract.
>1370................................ $55/trade.............. >1100.................. $55/trade.
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In accordance with its Fee Policy, OCC will continue to monitor
cleared contract volume and operating expenses in order to determine if
further revisions to OCC's Schedule of Fees are required so that monies
received from clearing fees cover OCC's operating expenses plus a
Business Risk Buffer of 25%.\12\
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\12\ Any subsequent changes to OCC's Schedule of Fees would be
the subject of a subsequent proposed rule change filed with the
Commission.
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(2) Statutory Basis
Section 17A(b)(3)(D) of the Securities Exchange Act of 1934, as
amended (``Act''), requires that the rules of a clearing agency provide
for the equitable allocation of reasonable dues, fees, and other
charges among its participants.\13\ The proposed fee schedule was set
in accordance with the criteria set forth in OCC's Capital Plan, which
was approved by the Commission \14\ and requires that OCC's fees be set
at a level designed to cover OCC's operating expenses and maintain a
Business Risk Buffer of 25%. OCC believes the proposed fee change is
reasonable because the fee increase would be set at a level intended
only to facilitate the maintenance of OCC's Business Risk Buffer of
25%, which is designed to ensure that OCC accumulates sufficient
capital to cover unexpected fluctuations in operating expenses,
business capital needs, and regulatory capital requirements. Moreover,
OCC believes that the proposed fee change would result in an equitable
allocation of fees among its participants because it would be equally
applicable to all market participants. As
[[Page 69887]]
a result, OCC believes that the proposed fee schedule provides for the
equitable allocation of reasonable fees in accordance with Section
17A(b)(3)(D) of the Act.\15\ The proposed rule change is not
inconsistent with the existing rules of OCC, including any other rules
proposed to be amended.
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\13\ 17 U.S.C. 78q-1(b)(3)(D).
\14\ See supra note 5.
\15\ 17 U.S.C. 78q-1(b)(3)(D).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \16\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would have any impact or impose a
burden on competition. Although this proposed rule change affects
clearing members, their customers, and the markets that OCC serves, OCC
believes that the proposed rule change would not disadvantage or favor
any particular user of OCC's services in relationship to another user
because the proposed clearing fees apply equally to all users of OCC.
Accordingly, OCC does not believe that the proposed rule change would
have any impact or impose a burden on competition.
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\16\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(ii) \17\ of the Act, and Rule 19b-
4(f)(2) thereunder,\18\ the proposed rule change is filed for immediate
effectiveness as it constitutes a change in fees charged to OCC
clearing members. 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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 17 CFR 240.19b-4(f)(2).
\19\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Regulation Sec. 40.6.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-OCC-2016-012 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-2016-012. 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 the filing also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site (https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_16_012.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-2016-012 and should be submitted on or before October 28, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24282 Filed 10-6-16; 8:45 am]
BILLING CODE 8011-01-P
