Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Liquidity for Same-Day Settlement, 54430-54434 [2017-24920]

Download as PDF 54430 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 41 of the Act to determine whether the proposed rule change should be approved or disapproved. it is designed to effectuate IEX’s operation as a listing market thereby enhancing competition with the other listing markets. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 36 and Rule 19b– 4(f)(6) thereunder.37 A proposed rule change filed under Rule 19(b)–4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest.38 The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change is substantially identical to the rules of other self-regulatory organizations and thus raises no novel issues.39 Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing.40 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if 36 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 38 Rule 19b–4(f)(6) requires an SRO to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the –date of filing the proposed rule change, or such shorter time as designated by the Commission. See 17 CFR 240.19b–4(f)(6). The Exchange has satisfied this requirement. 39 See supra notes 12–13 and accompanying text and supra note 20 and accompanying text. See also Bats Rule 11.19. 40 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). sradovich on DSK3GMQ082PROD with NOTICES 37 17 VerDate Sep<11>2014 18:32 Nov 16, 2017 Jkt 244001 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– IEX–2017–39 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–IEX–2017–39. This file number should be included in 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 Section, 100 F Street NE., Washington, DC 20549–1090. Copies of the filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–IEX–2017–39 and should be submitted on or before December 8, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–24930 Filed 11–16–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82056; File No. SR–OCC– 2017–806] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Liquidity for Same-Day Settlement November 13, 2017. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled Payment, Clearing and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) of the Securities Exchange Act of 1934 (‘‘Act’’),2 notice is hereby given that on October 13, 2017, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) an advance notice 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 advance notice from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This advance notice is filed in connection with a proposed change to modify the tools available to OCC in order to provide a mechanism for addressing the risks of liquidity shortfalls, specifically, in the extraordinary situation where OCC faces a liquidity need to meet its same-day settlement obligations as a result of a bank or securities or commodities clearing organization failing to achieve daily settlement. The proposed changes to OCC’s ByLaws were submitted as Exhibit 5 of the 42 17 CFR 200.30–3(a)(12). U.S.C. 5465(e)(1). 2 17 CFR 240.19b–4(n)(1)(i). 1 12 41 15 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices filing.3 The proposed change is described in detail in Item 10 below. All terms with initial capitalization not defined herein have the same meaning as set forth in OCC’s By-Laws and Rules.4 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, OCC included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. 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 and B below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed change and none have been received. OCC will notify the Commission of any written comments received by OCC. (B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, Clearing, and Settlement Supervision Act Description of the Proposed Change The purpose of the proposed change is to modify the tools available to OCC in order to provide a mechanism for addressing the risks of liquidity shortfalls, specifically, in the extraordinary situation where OCC faces a liquidity need to meet its same-day settlement obligations as a result of a bank or securities or commodities clearing organization failing to achieve daily settlement. sradovich on DSK3GMQ082PROD with NOTICES Current Practice Presently, Article VIII, Section 5(e) of OCC’s By-Laws provides OCC with the authority to borrow against the Clearing Fund in two circumstances. First, Article VIII, Section 5(e) of OCC’s ByLaws provides OCC the authority to borrow where OCC ‘‘deems it necessary or advisable to borrow or otherwise obtain funds from third parties in order to meet obligations arising out of the 3 OCC has filed a proposed rule change with the Commission in connection with the proposed change. See SR–OCC–2017–017. 4 OCC’s By-Laws and Rules can be found on OCC’s public Web site: https://optionsclearing.com/ about/publications/bylaws.jsp. Other terms not defined herein or in the OCC By-Laws and Rules can be found in the Rules & Procedures of NSCC (‘‘NSCC Rules’’), available at https://www.dtcc.com/ ∼/media/Files/Downloads/legal/rules/nscc_ rules.pdf, as the context implies. VerDate Sep<11>2014 18:32 Nov 16, 2017 Jkt 244001 default or suspension of a Clearing Member or any action taken by the Corporation in connection therewith pursuant to Chapter XI of the Rules or otherwise.’’ Second, Article VIII, Section 5(e) of OCC’s By-Laws provides OCC the authority to borrow against the Clearing Fund where OCC ‘‘sustains a loss reimbursable out of the Clearing Fund pursuant to [Article VIII, Section 5(b) of OCC’s By-Laws] but [OCC] elects to borrow or otherwise obtain funds from third parties in lieu of immediately charging such loss to the Clearing Fund.’’ In order for a loss to be reimbursable out of the Clearing Fund under Article VIII, Section 5(b) of OCC’s By-Laws, it must arise from a situation in which any bank or securities or commodities clearing organization has failed ‘‘to perform any obligation to [OCC] when due because of its bankruptcy, insolvency, receivership, suspension of operations, or because of any similar event.’’ 5 Under either of the two aforementioned circumstances, OCC is authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, if any part of the borrowing remains outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter) such amount must be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Proposed Change While Article VIII, Section 5(e) of OCC’s By-Laws currently provides for borrowing authority in the more extreme scenarios involving a bank’s or securities or commodities clearing organization’s bankruptcy, insolvency, receivership, suspension of operations or similar event, such authority does not extend to the similar, but less extreme scenarios in which a bank or securities or commodities clearing organization might be temporarily unable to timely make daily settlement with OCC for reasons other than its bankruptcy, insolvency, receivership or suspension of operations or similar events. An example of such a related scenario would be a disruption of the ordinary 5 To the extent that a loss resulting from any of the events referred to in Article VIII, Section 5(b) is recoverable out of the Clearing Fund pursuant to Article VIII, Section 5(a), the provisions of Article VIII, Section 5(a) control and render the provisions of Article VIII, Section 5(b) inapplicable. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 54431 operations of a settlement bank that temporarily prohibits the bank from timely effecting settlement payments in accordance with OCC’s daily settlement cycle. The proposed change would expand upon the existing borrowing authority in Article VIII, Section 5(e) of OCC’s ByLaws. As expanded, OCC would be authorized to borrow (or otherwise obtain funds through any means determined to be reasonable by the Executive Chairman, COO or CAO) against the Clearing Fund in the extraordinary event that OCC faces a liquidity need in order to complete same-day settlement. As specified in the proposed rule text, the funds obtained from any such transaction can be used only for their stated purpose, namely, to satisfy a need for liquidity for same-day settlement. Consistent with the existing borrowing authority in Article VIII, Section 5(e) of OCC’s By-Laws, OCC would be authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the funds obtained would not be deemed to be charges against the Clearing Fund, irrespective of how such funds are applied, and the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, in the unlikely event that any part of the borrowing were to remain outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter), such amount would be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Like the existing borrowing authority in Article VIII, Section 5(e) of OCC’s ByLaws, OCC envisions that the proposed expanded authority only would be relevant in extraordinary circumstances and, even then, only would be used where OCC, exercising its discretion, believes the employment of this particular authority would be appropriate to address OCC’s immediate liquidity need. OCC proposes to amend Sections 1(a), 5(b) and 5(e) of Article VIII of its ByLaws in order to give effect to the expanded borrowing authority discussed herein. Section 5(e) of Article VIII of OCC’s By-Laws would be amended to permit OCC to borrow against the Clearing Fund if it reasonably believes such borrowing is necessary to meet its liquidity needs for same-day settlement as a result of the failure of any bank or securities or commodities clearing organization to achieve daily settlement. E:\FR\FM\17NON1.SGM 17NON1 54432 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES Section 1(a) of Article VIII of OCC’s By-Laws would be amended to include conforming changes that would reflect that the purpose of the Clearing Fund includes borrowing against the Clearing Fund as permitted under Section 5(e) of Article VIII of the By-Laws. Section 5(b) of Article VIII of the ByLaws would be amended to include conforming changes that would declare that any borrowing remaining outstanding for less than 30 days may be considered, in OCC’s discretion, an actual loss and the amount of any such loss then shall be charged proportionately against all Clearing Members’ computed contributions to the Clearing Fund as fixed at the time, and any borrowing remaining outstanding on the 30th day shall be considered an actual loss to the Clearing Fund and the amount of any such loss shall be charged proportionately against all Clearing Members’ computed contributions to the Clearing Fund as fixed at the time. OCC proposes to include discretionary authority to declare any borrowing outstanding for less than 30 days as an actual loss chargeable against the Clearing Fund because the proposed borrowing authority is intended only to address same-day liquidity needs, and intended to be promptly repaid upon the bank’s or securities or commodities clearing organization’s resolution of the temporary disruption. In the unlikely circumstance that a disruption of a bank or securities or commodities clearing organization is not timely resolved, OCC may need to exercise its discretion to declare an actual loss, depending on the size of the borrowing, to ensure that OCC replenishes its ‘‘Cover 1’’ financial resources.6 The requirement to recognize any borrowing outstanding after 30 days as an actual loss chargeable against the Clearing Fund would be consistent with the requirements of the borrowing authority currently permitted by Section 5(e) of Article VIII of the By-Laws. Expected Effect on and Management of Risk OCC believes the proposed change would enable it to better manage the risks associated with the failure of a settlement bank or securities or commodities clearing organization’s to achieve timely settlement. As noted 6 ‘‘Cover 1’’ financial resources refers to the requirement that a CCA maintains financial resources sufficient to enable it to cover the ‘‘default of the participant family that would potentially cause the largest aggregate credit exposure for the [CCA] in extreme but plausible market conditions.’’ 17 CFR 240.17Ad– 22(e)(7)(viii). VerDate Sep<11>2014 18:32 Nov 16, 2017 Jkt 244001 above, OCC’s By-Laws currently provide for borrowing authority in the more extreme scenarios involving a bank’s or securities or commodities clearing organization’s bankruptcy, insolvency, receivership, suspension of operations or similar event, such authority does not extend to the similar, but less extreme scenarios in which a bank or securities or commodities clearing organization might be temporarily unable to timely make daily settlement with OCC for reasons other than its bankruptcy, insolvency, receivership or suspension of operations or similar events. The proposed change would expand upon this existing borrowing authority to allow OCC to borrow (or otherwise obtain funds through any means determined to be reasonable by the Executive Chairman, COO or CAO) against the Clearing Fund in the extraordinary event that OCC faces a liquidity need in order to complete same-day settlement. As a result, the proposed change would enhance OCC’s ability to manage its liquidity risks and ensure that it is able to continue making timely settlements in the event of such a disruption. As stated above, it is conceivable, though extremely unlikely, that a bank or securities or commodities clearing organization may fail to make timely settlement with OCC as a result of a temporary disruption to its ordinary operations. The proposed change would not alter this risk, but would provide OCC with a mechanism for addressing it, should such risk ever be realized. The proposed mechanism for addressing this risk—discretionary authority to borrow from the Clearing Fund—would require OCC’s senior and executive management to exercise discretion and judiciousness and could, if ever deployed, present an arguably new, though very limited, risk to Clearing Members. Modifying OCC’s existing authority to borrow against the Clearing Fund introduces a new, and potentially competing, demand on OCC’s Clearing Fund resources in that any amount of Clearing Fund resources borrowed to address the failure of a bank or securities or commodities clearing organization to make timely settlement would subtract from the available resources to address other losses that could be charged against the Clearing Fund (most common among those, losses related to Clearing Member defaults). To manage the potential for competing demands on Clearing Fund resources, OCC would exercise discretion and judiciousness in selecting when this new borrowing authority could be prudently deployed, PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 in light of then-existing facts and circumstances. In the alternative, OCC’s could elect to deploy an alternative tool, such as OCC’s ability to extend the settlement window under Rule 505, if such tool would be more appropriate given anticipated demands on Clearing Fund resources in light of then-existing facts and circumstances. Because of the low probability that a bank or securities or commodities clearing organization would suffer a temporary disruption to its ordinary operations that could threaten its ability to make timely settlement, and the extremely low probability that such a disruption would result in the bank or securities or commodities clearing organization actually failing to make timely settlement, OCC believes that the potential for competing demands on Clearing Fund resources can be managed sufficiently through the tools available in its default management rules, policies and procedures.7 The proposed change could arguably present a new, though very limited, risk to Clearing Members in that OCC’s authority to borrow against the Clearing Fund would be expanded, albeit slightly, to permit borrowing in a new scenario where a bank or securities or commodities clearing organization fails to make timely settlement (but otherwise is not in bankruptcy, insolvency, receivership, suspension of operations or a similar state). In order for Clearing Members to be impacted by this risk, a borrowing under the proposed authority would need to be declared an actual loss by OCC prior to 30 days lapsing or remain outstanding for 30 days, at which point, such amount would be considered an actual loss to the Clearing Fund, and OCC would be required to immediately allocate such loss in accordance with Article VIII, Section 5. However, given that the proposed borrowing authority is intended to be deployed to address immediate liquidity needs arising from temporary disruptions of the ordinary operation of a bank or securities or commodities clearing organization, OCC believes that it is extremely unlikely that any amount of any such borrowing ultimately would need to be declared as an actual loss in advance of 30 days or remain outstanding for a period of 30 7 In addition, the bank or securities or commodities clearing organization would need to be in deficit for the settlement cycle in question in order for OCC to face an immediate liquidity need. Further, OCC must reasonably anticipate an imminent or near imminent failure by one or more Clearing Members for there to be a potential competing demand on Clearing Fund resources. OCC believes that the alignment of all of these occurrences represents an extraordinarily low probability occurrence. E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices days. If, however, any amount of any such borrowing in fact did remain outstanding for longer than expected, OCC believes there would be a high probability that the bank or securities or commodities clearing organization in question has actually failed, and therefore entered bankruptcy, insolvency, receivership, suspension of operations or a similar state—which events would have independently triggered the already-existing borrowing authority in Article VIII, Section 5(e). Consistency With the Clearing Supervision Act The stated purpose of the Clearing Supervision Act is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.8 Section 805(a)(2) of the Clearing Supervision Act 9 also authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like OCC, for which the Commission is the supervisory agency. Section 805(b) of the Clearing Supervision Act 10 states that the objectives and principles for risk management standards prescribed under Section 805(a) shall be to: • Promote robust risk management; • promote safety and soundness; • reduce systemic risks; and • support the stability of the broader financial system. The Commission has adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act and the Act in furtherance of these objectives and principles, including those standards adopted pursuant to the Commission rules cited below.11 For the reasons set forth below, OCC believes that the proposed change is consistent with the risk management standards promulgated under Section 805(a) of the Clearing Supervision Act.12 Rule 17Ad–22(e)(7)(viii) requires that a covered clearing agency (‘‘CCA’’) 8 12 U.S.C. 5461(b). U.S.C. 5464(a)(2). 10 12 U.S.C. 5464(b). 11 17 CFR 240.17Ad–22. See Securities Exchange Act Release Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7–08–11) (‘‘Clearing Agency Standards’’); 78961 (September 28, 2016), 81 FR 70786 (October 13, 2016) (S7–03–14) (‘‘Standards for Covered Clearing Agencies’’). The Standards for Covered Clearing Agencies became effective on December 12, 2016. OCC is a ‘‘covered clearing agency’’ as defined in Rule 17Ad–22(a)(5) and therefore is subject to section (e) of Rule 17Ad– 22. 12 12 U.S.C. 5464(b)(1) and (4). sradovich on DSK3GMQ082PROD with NOTICES 9 12 VerDate Sep<11>2014 18:32 Nov 16, 2017 Jkt 244001 address foreseeable liquidity shortfalls that would not be covered by the CCA’s liquid resources and seek to avoid unwinding, revoking, or delaying the same-day settlement of payment obligations.13 As stated above, OCC believes that it could be foreseeable, though extremely unlikely, that a bank or securities or commodities clearing organization may fail to make timely settlement with OCC as the result of an event that does not result in a loss to OCC from the bankruptcy, insolvency, resolution, suspension of operations or similar event of such bank or securities or commodities clearing organization. The proposed change would improve OCC’s ability to address such situations by expanding OCC’s borrowing authority to enable OCC to borrow against the Clearing Fund in order to avoid disrupting its ordinary settlement cycle (and thusly, to avoid imposing the same disruption on Clearing Members). III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date the proposed change was filed with the Commission or (ii) the date any additional information requested by the Commission is received. OCC shall not implement the proposed change if the Commission has any objection to the proposed change. The Commission may extend the period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. OCC shall post notice on its Web site of proposed changes that are implemented. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. 13 17 PO 00000 CFR 240.17Ad–22(e)(7)(viii). Frm 00118 Fmt 4703 Sfmt 4703 54433 IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the advance notice is consistent with the Clearing Supervision 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–2017–806 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. All submissions should refer to File Number SR–OCC–2017–806. 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 advance notice that are filed with the Commission, and all written communications relating to the advance notice between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at https://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_17_ 806.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OCC–2017–806 and should be submitted on or before December 8, 2017. E:\FR\FM\17NON1.SGM 17NON1 54434 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices By the Commission. Eduardo A. Aleman, Assistant Secretary. entirety the proposed rule change as modified by Amendment No. 1. On November 9, 2017, the Exchange filed Amendment No. 3 to the proposed rule change.6 The Commission has received no comments on the proposed rule change. The Commission is publishing this notice to solicit comments on Amendment No. 3 from interested persons, and is approving the proposed rule change, as modified by Amendment No. 3 on an accelerated basis. [FR Doc. 2017–24920 Filed 11–16–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82066; File No. SR– NYSEArca–2017–85] Self-Regulatory Organizations; NYSEArca, Inc.; Notice of Filing of Amendment No. 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend NYSE Arca Rule 8.700–E and To List and Trade Shares of the ProShares European Volatility Futures ETF II. Summary of the Proposed Rule Change, as Modified by Amendment No. 3 7 The Exchange proposes to amend NYSE Arca Rule 8.700–E to add the VSTOXX as a reference asset to the futures contracts and swaps that may be held by trusts that issue Managed Trust Securities.8 NYSE Arca Rule 8.700–E November 13, 2017. I. Introduction On July 28, 2017, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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: (1) Amend NYSE Arca Rule 8.700–E to expand the list of financial instruments that may be held by a trust that issues Managed Trust Securities; and (2) to list and trade shares (‘‘Shares’’) of the ProShares European Volatility Futures ETF (‘‘Fund’’) under proposed amended NYSE Arca Rule 8.700–E. The proposed rule change was published for comment in the Federal Register on August 16, 2017.3 On September 21, 2017, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the original filing in its entirety. On September 26, 2017, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On November 2, 2017, the Exchange filed Amendment No. 2 to the proposed rule change, which amended and replaced in its 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 81373 (August 10, 2017), 82 FR 38973. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 81721, 82 FR 45922 (October 2, 2017) (designating November 11, 2017 as the date by which the Commission will approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change). sradovich on DSK3GMQ082PROD with NOTICES 2 17 VerDate Sep<11>2014 18:32 Nov 16, 2017 Jkt 244001 6 In Amendment No. 3, the Exchange: (1) Represented that the EURO STOXX 50 Volatility Index (‘‘VSTOXX’’) levels will be widely disseminated by major market data vendors on a real-time basis throughout each trading day; (2) expanded its representation regarding when the sponsor would erect a ‘‘fire wall’’ to include the circumstance where the sponsor becomes a brokerdealer and represented that the sponsor will maintain the ‘‘fire wall’’ it implemented regarding access to information concerning the composition and/or changes to the Fund’s portfolio; (3) narrowed the list of the Fund’s permitted investments to exclude forwards; (4) described the Fund’s policies concerning swap counterparties; (5) analyzed the impacts on arbitrage of the 9 a.m. Eastern Time creation and redemption order deadline and 11:30 a.m. Eastern Time net asset value (‘‘NAV’’) calculation time; (6) represented that, to the extent that the sponsor permits an exchange of a futures contract for a related position or block trade with the Fund, such transactions will be effected on that day in the same manner for all authorized participants; (7) supplemented its description of the Fund’s NAV calculation methodology and the availability of price information for the Fund’s permitted investments; (8) modified its description of the Indicative Optimized Portfolio Value (‘‘IOPV’’) methodology; (9) provided information regarding the dissemination of the NAV and the availability of pricing for the EURO STOXX 50 Index (‘‘Index’’), VSTOXX, and the Fund’s benchmark; (10) represented that its surveillance procedures are adequate to continue to properly monitor the trading of the Managed Trust Securities that hold futures on VSTOXX (‘‘Futures Contracts’’) and/or swaps on VSTOXX in all trading sessions and to deter and detect violations of Exchange rules; (11) clarified where Futures Contracts are listed; (12) clarified the Fund’s primary investment objective; and (13) made certain technical changes. Amendment No. 3 is available on the Commission’s Web site at: https://www.sec.gov/comments/srnysearca-2017-85/nysearca201785-2678502161479.pdf. 7 Additional information regarding the Shares and the Trust, including investment strategies, risks, NAV calculation, creation and redemption procedures, fees, Trust (as defined herein) holdings, and taxes, among other information, is included in Amendment No. 3, supra note 7, and the Registration Statement, infra note 12. 8 Managed Trust Security is a security that is registered under the Securities Act of 1933 (15 U.S.C. 77a), as amended (the ‘‘Securities Act’’), and (1) is issued by a trust that (a) is a commodity pool PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 governs the listing and trading of Managed Trust Securities on the Exchange. Additionally, the Exchange proposes to list and trade the Shares under the proposed rule. A. Proposed Amendments to NYSE Arca Rule 8.700–E The Exchange proposes to amend NYSE Arca Rule 8.700–E (c)(1) to add the VSTOXX as a reference asset to the futures contracts and swaps that may be held by trusts that issue Managed Trust Securities. The VSTOXX is a non-investable index that seeks to measure the volatility of the Index over a future time horizon as implied by the price of option contracts on the Index.9 It is based on real-time prices of options on the Index listed on the Eurex Exchange (‘‘Eurex’’),10 and is designed to reflect the market expectations of near-term up to long-term volatility by measuring the square root of the implied variances across all options of a given time to expiration. The Index includes 50 stocks that are among the largest free-float market capitalization stocks from 11 Eurozone countries.11 STOXX Limited (‘‘STOXX’’) computes the Index on a real-time basis throughout each trading day, from 3:50 a.m. until 12:30 p.m. Eastern Time. The Index value is widely disseminated by major market data vendors on a real-time basis throughout each trading day. Futures Contracts are cash settled and trade exclusively on Eurex between the hours of 2:30 a.m. and 5:30 p.m. Eastern as defined in the Commodity Exchange Act (7 U.S.C. 1), and that is managed by a commodity pool operator registered with the Commodity Futures Trading Commission, and (b) holds long and/or short positions in exchange-traded futures contracts and/or certain currency forward contracts and/or swaps selected by the trust’s advisor consistent with the trust’s investment objectives, which will only include, exchange-traded futures contracts involving commodities, commodity indices, currencies, currency indices, stock indices, fixed income indices, interest rates and sovereign, private and mortgage or asset backed debt instruments, and/or forward contracts on specified currencies, and/or swaps on stock indices, fixed income indices, commodity indices, commodities, currencies, currency indices, or interest rates, each as disclosed in the trust’s prospectus as such may be amended from time to time, and cash and cash equivalents; and (2) is issued and redeemed continuously in specified aggregate amounts at the next applicable NAV. See NYSE Arca Rule 8.700– E (c)(1). 9 The VSTOXX does not measure the actual volatility of the Index. 10 Eurex is a member of the Intermarket Surveillance Group (‘‘ISG’’) and, as such, the Exchange may obtain information regarding trading in the futures contracts on VSTOXX listed by Eurex. 11 The countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. E:\FR\FM\17NON1.SGM 17NON1

Agencies

[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54430-54434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24920]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82056; File No. SR-OCC-2017-806]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice Concerning Liquidity for Same-Day 
Settlement

November 13, 2017.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) of the Securities Exchange Act of 1934 
(``Act''),\2\ notice is hereby given that on October 13, 2017, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') an advance notice 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 advance 
notice from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice is filed in connection with a proposed change 
to modify the tools available to OCC in order to provide a mechanism 
for addressing the risks of liquidity shortfalls, specifically, in the 
extraordinary situation where OCC faces a liquidity need to meet its 
same-day settlement obligations as a result of a bank or securities or 
commodities clearing organization failing to achieve daily settlement.
    The proposed changes to OCC's By-Laws were submitted as Exhibit 5 
of the

[[Page 54431]]

filing.\3\ The proposed change is described in detail in Item 10 below. 
All terms with initial capitalization not defined herein have the same 
meaning as set forth in OCC's By-Laws and Rules.\4\
---------------------------------------------------------------------------

    \3\ OCC has filed a proposed rule change with the Commission in 
connection with the proposed change. See SR-OCC-2017-017.
    \4\ OCC's By-Laws and Rules can be found on OCC's public Web 
site: https://optionsclearing.com/about/publications/bylaws.jsp. 
Other terms not defined herein or in the OCC By-Laws and Rules can 
be found in the Rules & Procedures of NSCC (``NSCC Rules''), 
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf, as the context implies.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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 and B below, 
of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed change and none have been received. OCC will 
notify the Commission of any written comments received by OCC.

(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing, and Settlement Supervision Act

Description of the Proposed Change
    The purpose of the proposed change is to modify the tools available 
to OCC in order to provide a mechanism for addressing the risks of 
liquidity shortfalls, specifically, in the extraordinary situation 
where OCC faces a liquidity need to meet its same-day settlement 
obligations as a result of a bank or securities or commodities clearing 
organization failing to achieve daily settlement.
Current Practice
    Presently, Article VIII, Section 5(e) of OCC's By-Laws provides OCC 
with the authority to borrow against the Clearing Fund in two 
circumstances. First, Article VIII, Section 5(e) of OCC's By-Laws 
provides OCC the authority to borrow where OCC ``deems it necessary or 
advisable to borrow or otherwise obtain funds from third parties in 
order to meet obligations arising out of the default or suspension of a 
Clearing Member or any action taken by the Corporation in connection 
therewith pursuant to Chapter XI of the Rules or otherwise.'' Second, 
Article VIII, Section 5(e) of OCC's By-Laws provides OCC the authority 
to borrow against the Clearing Fund where OCC ``sustains a loss 
reimbursable out of the Clearing Fund pursuant to [Article VIII, 
Section 5(b) of OCC's By-Laws] but [OCC] elects to borrow or otherwise 
obtain funds from third parties in lieu of immediately charging such 
loss to the Clearing Fund.'' In order for a loss to be reimbursable out 
of the Clearing Fund under Article VIII, Section 5(b) of OCC's By-Laws, 
it must arise from a situation in which any bank or securities or 
commodities clearing organization has failed ``to perform any 
obligation to [OCC] when due because of its bankruptcy, insolvency, 
receivership, suspension of operations, or because of any similar 
event.'' \5\
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    \5\ To the extent that a loss resulting from any of the events 
referred to in Article VIII, Section 5(b) is recoverable out of the 
Clearing Fund pursuant to Article VIII, Section 5(a), the provisions 
of Article VIII, Section 5(a) control and render the provisions of 
Article VIII, Section 5(b) inapplicable.
---------------------------------------------------------------------------

    Under either of the two aforementioned circumstances, OCC is 
authorized to borrow against the Clearing Fund for a period not to 
exceed 30 days, and during such period, the borrowing shall not affect 
the amount or timing of any charges otherwise required to be made 
against the Clearing Fund pursuant to Article VIII, Section 5. However, 
if any part of the borrowing remains outstanding after 30 days, then at 
the close of business on the 30th day (or the first Business Day 
thereafter) such amount must be considered an actual loss to the 
Clearing Fund, and OCC must immediately allocate such loss in 
accordance with Article VIII, Section 5.
Proposed Change
    While Article VIII, Section 5(e) of OCC's By-Laws currently 
provides for borrowing authority in the more extreme scenarios 
involving a bank's or securities or commodities clearing organization's 
bankruptcy, insolvency, receivership, suspension of operations or 
similar event, such authority does not extend to the similar, but less 
extreme scenarios in which a bank or securities or commodities clearing 
organization might be temporarily unable to timely make daily 
settlement with OCC for reasons other than its bankruptcy, insolvency, 
receivership or suspension of operations or similar events. An example 
of such a related scenario would be a disruption of the ordinary 
operations of a settlement bank that temporarily prohibits the bank 
from timely effecting settlement payments in accordance with OCC's 
daily settlement cycle.
    The proposed change would expand upon the existing borrowing 
authority in Article VIII, Section 5(e) of OCC's By-Laws. As expanded, 
OCC would be authorized to borrow (or otherwise obtain funds through 
any means determined to be reasonable by the Executive Chairman, COO or 
CAO) against the Clearing Fund in the extraordinary event that OCC 
faces a liquidity need in order to complete same-day settlement. As 
specified in the proposed rule text, the funds obtained from any such 
transaction can be used only for their stated purpose, namely, to 
satisfy a need for liquidity for same-day settlement. Consistent with 
the existing borrowing authority in Article VIII, Section 5(e) of OCC's 
By-Laws, OCC would be authorized to borrow against the Clearing Fund 
for a period not to exceed 30 days, and during such period, the funds 
obtained would not be deemed to be charges against the Clearing Fund, 
irrespective of how such funds are applied, and the borrowing shall not 
affect the amount or timing of any charges otherwise required to be 
made against the Clearing Fund pursuant to Article VIII, Section 5. 
However, in the unlikely event that any part of the borrowing were to 
remain outstanding after 30 days, then at the close of business on the 
30th day (or the first Business Day thereafter), such amount would be 
considered an actual loss to the Clearing Fund, and OCC must 
immediately allocate such loss in accordance with Article VIII, Section 
5.
    Like the existing borrowing authority in Article VIII, Section 5(e) 
of OCC's By-Laws, OCC envisions that the proposed expanded authority 
only would be relevant in extraordinary circumstances and, even then, 
only would be used where OCC, exercising its discretion, believes the 
employment of this particular authority would be appropriate to address 
OCC's immediate liquidity need.
    OCC proposes to amend Sections 1(a), 5(b) and 5(e) of Article VIII 
of its By-Laws in order to give effect to the expanded borrowing 
authority discussed herein. Section 5(e) of Article VIII of OCC's By-
Laws would be amended to permit OCC to borrow against the Clearing Fund 
if it reasonably believes such borrowing is necessary to meet its 
liquidity needs for same-day settlement as a result of the failure of 
any bank or securities or commodities clearing organization to achieve 
daily settlement.

[[Page 54432]]

    Section 1(a) of Article VIII of OCC's By-Laws would be amended to 
include conforming changes that would reflect that the purpose of the 
Clearing Fund includes borrowing against the Clearing Fund as permitted 
under Section 5(e) of Article VIII of the By-Laws.
    Section 5(b) of Article VIII of the By-Laws would be amended to 
include conforming changes that would declare that any borrowing 
remaining outstanding for less than 30 days may be considered, in OCC's 
discretion, an actual loss and the amount of any such loss then shall 
be charged proportionately against all Clearing Members' computed 
contributions to the Clearing Fund as fixed at the time, and any 
borrowing remaining outstanding on the 30th day shall be considered an 
actual loss to the Clearing Fund and the amount of any such loss shall 
be charged proportionately against all Clearing Members' computed 
contributions to the Clearing Fund as fixed at the time. OCC proposes 
to include discretionary authority to declare any borrowing outstanding 
for less than 30 days as an actual loss chargeable against the Clearing 
Fund because the proposed borrowing authority is intended only to 
address same-day liquidity needs, and intended to be promptly repaid 
upon the bank's or securities or commodities clearing organization's 
resolution of the temporary disruption. In the unlikely circumstance 
that a disruption of a bank or securities or commodities clearing 
organization is not timely resolved, OCC may need to exercise its 
discretion to declare an actual loss, depending on the size of the 
borrowing, to ensure that OCC replenishes its ``Cover 1'' financial 
resources.\6\ The requirement to recognize any borrowing outstanding 
after 30 days as an actual loss chargeable against the Clearing Fund 
would be consistent with the requirements of the borrowing authority 
currently permitted by Section 5(e) of Article VIII of the By-Laws.
---------------------------------------------------------------------------

    \6\ ``Cover 1'' financial resources refers to the requirement 
that a CCA maintains financial resources sufficient to enable it to 
cover the ``default of the participant family that would potentially 
cause the largest aggregate credit exposure for the [CCA] in extreme 
but plausible market conditions.'' 17 CFR 240.17Ad-22(e)(7)(viii).
---------------------------------------------------------------------------

Expected Effect on and Management of Risk
    OCC believes the proposed change would enable it to better manage 
the risks associated with the failure of a settlement bank or 
securities or commodities clearing organization's to achieve timely 
settlement. As noted above, OCC's By-Laws currently provide for 
borrowing authority in the more extreme scenarios involving a bank's or 
securities or commodities clearing organization's bankruptcy, 
insolvency, receivership, suspension of operations or similar event, 
such authority does not extend to the similar, but less extreme 
scenarios in which a bank or securities or commodities clearing 
organization might be temporarily unable to timely make daily 
settlement with OCC for reasons other than its bankruptcy, insolvency, 
receivership or suspension of operations or similar events. The 
proposed change would expand upon this existing borrowing authority to 
allow OCC to borrow (or otherwise obtain funds through any means 
determined to be reasonable by the Executive Chairman, COO or CAO) 
against the Clearing Fund in the extraordinary event that OCC faces a 
liquidity need in order to complete same-day settlement. As a result, 
the proposed change would enhance OCC's ability to manage its liquidity 
risks and ensure that it is able to continue making timely settlements 
in the event of such a disruption.
    As stated above, it is conceivable, though extremely unlikely, that 
a bank or securities or commodities clearing organization may fail to 
make timely settlement with OCC as a result of a temporary disruption 
to its ordinary operations. The proposed change would not alter this 
risk, but would provide OCC with a mechanism for addressing it, should 
such risk ever be realized. The proposed mechanism for addressing this 
risk--discretionary authority to borrow from the Clearing Fund--would 
require OCC's senior and executive management to exercise discretion 
and judiciousness and could, if ever deployed, present an arguably new, 
though very limited, risk to Clearing Members.
    Modifying OCC's existing authority to borrow against the Clearing 
Fund introduces a new, and potentially competing, demand on OCC's 
Clearing Fund resources in that any amount of Clearing Fund resources 
borrowed to address the failure of a bank or securities or commodities 
clearing organization to make timely settlement would subtract from the 
available resources to address other losses that could be charged 
against the Clearing Fund (most common among those, losses related to 
Clearing Member defaults). To manage the potential for competing 
demands on Clearing Fund resources, OCC would exercise discretion and 
judiciousness in selecting when this new borrowing authority could be 
prudently deployed, in light of then-existing facts and circumstances. 
In the alternative, OCC's could elect to deploy an alternative tool, 
such as OCC's ability to extend the settlement window under Rule 505, 
if such tool would be more appropriate given anticipated demands on 
Clearing Fund resources in light of then-existing facts and 
circumstances. Because of the low probability that a bank or securities 
or commodities clearing organization would suffer a temporary 
disruption to its ordinary operations that could threaten its ability 
to make timely settlement, and the extremely low probability that such 
a disruption would result in the bank or securities or commodities 
clearing organization actually failing to make timely settlement, OCC 
believes that the potential for competing demands on Clearing Fund 
resources can be managed sufficiently through the tools available in 
its default management rules, policies and procedures.\7\
---------------------------------------------------------------------------

    \7\ In addition, the bank or securities or commodities clearing 
organization would need to be in deficit for the settlement cycle in 
question in order for OCC to face an immediate liquidity need. 
Further, OCC must reasonably anticipate an imminent or near imminent 
failure by one or more Clearing Members for there to be a potential 
competing demand on Clearing Fund resources. OCC believes that the 
alignment of all of these occurrences represents an extraordinarily 
low probability occurrence.
---------------------------------------------------------------------------

    The proposed change could arguably present a new, though very 
limited, risk to Clearing Members in that OCC's authority to borrow 
against the Clearing Fund would be expanded, albeit slightly, to permit 
borrowing in a new scenario where a bank or securities or commodities 
clearing organization fails to make timely settlement (but otherwise is 
not in bankruptcy, insolvency, receivership, suspension of operations 
or a similar state). In order for Clearing Members to be impacted by 
this risk, a borrowing under the proposed authority would need to be 
declared an actual loss by OCC prior to 30 days lapsing or remain 
outstanding for 30 days, at which point, such amount would be 
considered an actual loss to the Clearing Fund, and OCC would be 
required to immediately allocate such loss in accordance with Article 
VIII, Section 5. However, given that the proposed borrowing authority 
is intended to be deployed to address immediate liquidity needs arising 
from temporary disruptions of the ordinary operation of a bank or 
securities or commodities clearing organization, OCC believes that it 
is extremely unlikely that any amount of any such borrowing ultimately 
would need to be declared as an actual loss in advance of 30 days or 
remain outstanding for a period of 30

[[Page 54433]]

days. If, however, any amount of any such borrowing in fact did remain 
outstanding for longer than expected, OCC believes there would be a 
high probability that the bank or securities or commodities clearing 
organization in question has actually failed, and therefore entered 
bankruptcy, insolvency, receivership, suspension of operations or a 
similar state--which events would have independently triggered the 
already-existing borrowing authority in Article VIII, Section 5(e).
Consistency With the Clearing Supervision Act
    The stated purpose of the Clearing Supervision Act is to mitigate 
systemic risk in the financial system and promote financial stability 
by, among other things, promoting uniform risk management standards for 
systemically important financial market utilities and strengthening the 
liquidity of systemically important financial market utilities.\8\ 
Section 805(a)(2) of the Clearing Supervision Act \9\ also authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like OCC, for which the Commission is the supervisory agency. Section 
805(b) of the Clearing Supervision Act \10\ states that the objectives 
and principles for risk management standards prescribed under Section 
805(a) shall be to:
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 5461(b).
    \9\ 12 U.S.C. 5464(a)(2).
    \10\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and the Act in furtherance of 
these objectives and principles, including those standards adopted 
pursuant to the Commission rules cited below.\11\ For the reasons set 
forth below, OCC believes that the proposed change is consistent with 
the risk management standards promulgated under Section 805(a) of the 
Clearing Supervision Act.\12\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release 
Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-
08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016), 
81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered 
Clearing Agencies''). The Standards for Covered Clearing Agencies 
became effective on December 12, 2016. OCC is a ``covered clearing 
agency'' as defined in Rule 17Ad-22(a)(5) and therefore is subject 
to section (e) of Rule 17Ad-22.
    \12\ 12 U.S.C. 5464(b)(1) and (4).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency 
(``CCA'') address foreseeable liquidity shortfalls that would not be 
covered by the CCA's liquid resources and seek to avoid unwinding, 
revoking, or delaying the same-day settlement of payment 
obligations.\13\ As stated above, OCC believes that it could be 
foreseeable, though extremely unlikely, that a bank or securities or 
commodities clearing organization may fail to make timely settlement 
with OCC as the result of an event that does not result in a loss to 
OCC from the bankruptcy, insolvency, resolution, suspension of 
operations or similar event of such bank or securities or commodities 
clearing organization. The proposed change would improve OCC's ability 
to address such situations by expanding OCC's borrowing authority to 
enable OCC to borrow against the Clearing Fund in order to avoid 
disrupting its ordinary settlement cycle (and thusly, to avoid imposing 
the same disruption on Clearing Members).
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(7)(viii).
---------------------------------------------------------------------------

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date the proposed change was filed with the Commission or (ii) the date 
any additional information requested by the Commission is received. OCC 
shall not implement the proposed change if the Commission has any 
objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    OCC shall post notice on its Web site of proposed changes that are 
implemented.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the advance 
notice is consistent with the Clearing Supervision 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-2017-806 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-OCC-2017-806. 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 advance notice that are filed 
with the Commission, and all written communications relating to the 
advance notice between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's Web site at 
https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_806.pdf.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2017-806 and 
should be submitted on or before December 8, 2017.


[[Page 54434]]


    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24920 Filed 11-16-17; 8:45 am]
 BILLING CODE 8011-01-P
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