Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice, as Modified by Amendment No. 1, Concerning the Adoption of a New Minimum Cash Requirement for the Clearing Fund, 59031-59035 [2017-26913]
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Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2017–18 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–MIAX–2017–18. 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 website (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 website 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
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submissions should refer to File
Number SR–MIAX–2017–18, and
should be submitted on or before
January 4, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.100
Robert W. Errett,
Deputy Secretary.
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[FR Doc. 2017–27016 Filed 12–13–17; 8:45 am]
BILLING CODE 8011–01–P
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[Release No. 34–82247; File No. SR–OCC–
2017–808]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Advance Notice, as
Modified by Amendment No. 1,
Concerning the Adoption of a New
Minimum Cash Requirement for the
Clearing Fund
December 8, 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) under the Securities
Exchange Act of 1934 (‘‘Act’’),2 notice is
hereby given that on November 14,
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. On November
22, 2017, OCC filed Amendment No. 1
to the advance notice.3 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
would (1) revise OCC’s By-Laws to
adopt a new minimum cash requirement
for the Clearing Fund; (2) revise OCC’s
By-Laws to provide for the pass-through
of interest earned on Clearing Fund cash
held in OCC’s Federal Reserve bank
account; (3) enact changes to OCC’s Fee
Policy that reflect the pass through of
interest earned on Clearing Fund cash
held in OCC’s Federal Reserve bank
account; and (4) make certain
conforming changes to OCC’s Rules and
By-Laws to affect the aforementioned
changes.
The proposed changes to OCC’s ByLaws and Rules were submitted as
Exhibits 5A and 5B of the filing, and
OCC’s Fee Policy was submitted as
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 In Amendment No. 1, OCC modified the
proposed change to Article VIII, Section 4(a) of the
By-Laws to clarify that interest earned on Clearing
Fund cash deposits held at a Federal Reserve Bank
accruing to the benefit of Clearing Members would
be calculated daily based on each Clearing
Member’s pro rata share of Clearing Fund cash.
OCC did not propose any other changes to the filing
in Amendment No. 1.
2 17
CFR 200.30–3(a)(12).
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confidential Exhibit 5C of the filing.4
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.5
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 rule 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
OCC proposes to establish a minimum
cash contribution requirement for its
Clearing Fund in order to increase the
amount of qualifying liquid resources
available to OCC to account for extreme
scenarios that may result in liquidity
demands exceeding OCC’s current
Cover 1 liquidity resources, as
calculated under the current
historically-based methodology, and
provide for a more consistent level of
cash resources in its available
prefunded financial resources. The
proposed rule change also would
provide for the pass-through of interest
income earned on such deposits to its
Clearing Members. OCC’s current
practices and the proposed changes to
such practices are described in more
detail below.
Current Practice
Presently, Article VIII, Section 3(a) of
OCC’s By-Laws provides that Clearing
Fund contributions shall be in the form
of cash and Government securities, but
neither OCC’s By-Laws nor Rules
4 OCC has filed a proposed rule change with the
Commission in connection with the proposed
change. See SR–OCC–2017–019.
5 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://optionsclearing.com/
about/publications/bylaws.jsp.
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provides a minimum cash requirement
for contributions in the Clearing Fund.
Article VIII, Section 4(a) of OCC’s ByLaws allows for OCC to invest cash
contributions to the Clearing Fund,
partially or wholly, in OCC’s account in
Government securities, and to the extent
that such contributions are not so
invested they shall be deposited by OCC
in a separate account or accounts for
Clearing Fund contributions in
approved custodians. Article VIII,
Section 4(a) of OCC’s By-Laws,
however, presently does not account for
the treatment of interest earned on cash
deposits held in the OCC’s Federal
Reserve bank account.
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Proposed Change
1. Minimum Cash Clearing Fund
Requirement
OCC proposes to establish a minimum
cash contribution requirement for its
Clearing Fund in order to increase the
amount of highly liquid resources
available to OCC to account for extreme
scenarios that may result in liquidity
demands exceeding OCC’s current
Cover 1 liquidity resources, as
calculated under the current
historically-based methodology, and
provide for a more consistent level of
cash resources in its available
prefunded financial resources.6
Specifically, the proposed rule change
would require that Clearing Members
collectively contribute $3 billion in cash
to the Clearing Fund (‘‘Cash Clearing
Fund Requirement’’). Each Clearing
Member’s proportionate share of the
Cash Clearing Fund Requirement shall
be equal in percentage to its
proportionate share of the Clearing
Fund as determined by the Clearing
Fund allocation methodology in current
Rule 1001.
OCC has historically sized its
liquidity resources based on historically
observed liquidity demands and
analysis of potential large forecasted
liquidity demands over at least the next
twelve months. OCC forecasts its future
daily settlement activity under normal
market conditions (e.g., mark-to-market
settlements, and settlements resulting
from the expiration of derivatives
contracts) and compares such demands
to its resources to ensure that at all
times it will maintain a positive
liquidity position to meet settlement
obligations.
6 OCC’s Current Cover 1 liquidity resources are
sized based on the liquidity needed to address
exposures derived solely from historical results.
Introducing the Cash Clearing Fund Requirement
would increase OCC’s liquidity resources to address
the exposures observed in a stress liquidity analysis
performed using proposed sizing stress tests for
OCC’s Clearing Fund.
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OCC has performed an analysis of its
stress liquidity demands based on a 1in-70 year hypothetical market event.
OCC started its analysis by selecting the
largest historical peak monthly
settlements that occurred over the
historical look back period of data
generated by the stress test system. It
then also selected certain large nonexpiration days to supplement the
analysis. From this it estimated the
mark-to-market and cash settled
exercise and assignment obligations for
the members driving the historical peak
demand under the proposed stress tests
scenario to determine the stressed peak
demand. Through this analysis, OCC
observed that peak stressed liquidity
demands of the largest 1 or 2 members,
which normally occur in conjunction
with certain monthly expirations, can
exceed the size OCC’s committed
liquidity facilities (which currently total
$3 billion). In these cases, while OCC
did have cash in the Clearing Fund to
supplement its liquidity resources, and
the total of credit facilities and cash in
the Clearing Fund did cover these peak
stressed liquidity demands, OCC is
unable to rely on these cash
contributions to be present at any given
time since there is no obligation on
members to maintain any amount of
their contribution in cash. As a result,
OCC believes it is necessary to increase
or otherwise ensure the availability of
highly liquid resources in the Clearing
Fund to account for extreme scenarios
that may result in liquidity demands
exceeding OCC’s Cover 1 liquidity
resources, as calculated under the
current historically-based methodology.
The proposed Cash Clearing Fund
Requirement, when taken together with
OCC’s $3 billion in committed liquidity
facilities, would provide liquidity
resources sufficient to cover 100% of
the peak stressed liquidity demands of
the largest 1 or 2 members observed in
OCC’s analysis.
In addition, the proposed changes
would allow OCC’s Executive
Chairman, Chief Administrative Officer
(‘‘CAO’’), or Chief Operating Officer
(‘‘COO’’), upon providing notice to the
Risk Committee, to temporarily increase
the amount of cash required to be
maintained in the Clearing Fund up to
an amount that includes the size of the
Clearing Fund as determined in
accordance with Rule 1001 for the
month in question for the protection of
OCC, clearing members or the general
public. Any determination by the
Executive Chairman, CAO and/or COO
to implement a temporary increase in
Clearing Fund size would (i) be based
upon then-existing facts and
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circumstances, (ii) be in furtherance of
the integrity of OCC and the stability of
the financial system, and (iii) take into
consideration the legitimate interests of
Clearing Members and market
participants.
The proposed rule change would
require that any temporary increase in
the Cash Clearing Fund Requirement be
reviewed by the Risk Committee as soon
as practicable, but in any event within
20 calendar days of the increase. In its
review, the Risk Committee shall
determine whether (1) the increase in
the minimum Cash Clearing Fund
Requirement is no longer required or (2)
OCC’s Clearing Fund contribution
requirements and other related rules
should be modified to ensure that OCC
continues to maintain sufficient liquid
resources to cover its largest aggregate
payment obligations in extreme but
plausible market conditions. In the
event that the Risk Committee would
determine to permanently increase the
Cash Clearing Fund Requirement, OCC
would initiate any regulatory approval
process required to effect such a
change.7 A Clearing Member will be
required to satisfy any increase in its
required cash contribution pursuant to
an increase in the Cash Clearing Fund
Requirement no later than one hour
before the close of the Fedwire on the
business day following OCC’s issuance
of an instruction to increase cash
contributions.
These changes would be reflected in
new paragraph (a)(i) of Section 3 of
Article VIII of OCC’s By-Laws, as well
as in new Interpretation and Policy .04
to Section 3 of Article VIII.
2. Interest Pass Through for Clearing
Fund Cash Held at the Federal Reserve
In connection with the proposed Cash
Clearing Fund Requirement,
substantially all of OCC’s Clearing Fund
deposits consisting of cash would be
held in an account established by OCC
at a Federal Reserve Bank.8 OCC
proposes that it would pass the interest
income earned in such account through
to its Clearing Members. As a result,
OCC proposes to revise Article VIII,
Section 4(a) of OCC’s By-Laws to
include a sentence to provide that any
interest earned on cash deposits held at
7 However, OCC will not decrease the Cash
Clearing Fund Requirement while the regulatory
approvals for a change in the Cash Clearing Fund
Requirement are being obtained to ensure that OCC
continues to maintain sufficient liquid resources to
cover its liquidity demands during that time.
8 OCC notes that it would retain the discretion to
maintain a small portion of Clearing Fund cash
deposits in other accounts (e.g., accounts with
commercial banks) for various reasons, including
facilitating normal substitution activity by its
Clearing Members.
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a Federal Reserve Bank shall accrue to
the benefit of Clearing Members
(calculated daily based on each Clearing
Member’s pro rata share of Clearing
Fund cash deposits), provided that such
Clearing Members have provided OCC
with all tax documentation as OCC may
from time to time require in order to
effectuate such payment.9
3. Changes to the Fee Policy to
Accommodate Interest Passed Through
to Clearing Members
In order to accommodate the pass
through of interest income, OCC would
also amend its Fee Policy to add
definitions for ‘‘Pass-Through Interest
Revenue’’ and ‘‘Operating Expenses’’ to
exclude from the calculation of the
Business Risk Buffer projected interest
revenue and expense, respectively,
related to the pass-through of earned
interest from OCC to Clearing
Members.10 OCC also proposes to add a
new example of the Business Risk
Buffer calculation reflecting this change
and make clarifying changes throughout
the Policy to incorporate the use of the
new defined terms. In addition, OCC
proposes to amend the Fee Policy to
remove references to ‘‘Proposed Rule
17Ad–22(e)(15)’’ to reflect the adoption
of the Commission’s Covered Clearing
Agency Standards.
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4. Conforming Changes
In conjunction with the
aforementioned changes, OCC is also
proposing to make four related
conforming changes. First, OCC
proposes to revise Interpretation and
Policy .01 of Rule 1001 to reflect that
the new minimum Clearing Fund size is
$3 billion (instead of $1 billion) plus
110% of the size of OCC’s committed
liquidity facilities, which conforms to
the proposed new minimum cash
requirement for the Clearing Fund.
Second, OCC proposes to amend the
definition of ‘‘Approved Custodian’’ in
Article I, Section 1 of the By-Laws to
clarify that the Federal Reserve Bank
may also be an Approved Custodian, to
the extent it is available to OCC. Third,
OCC is proposing to delete existing
Article VIII, Section 4(b), regarding the
establishment of a segregated funds
9 Article VIII, Section 4(a) currently states that all
interested gained on cash Clearing Fund deposits
belongs to OCC.
10 While interest income earned by OCC from its
Federal Reserve bank account would be passed on
to its Clearing Members, OCC anticipates that it
would charge a cash management fee to cover
associated costs (i.e., administrative and similar
costs). OCC would file a separate proposed rule
change with the Commission, subject to receiving
all necessary regulatory approvals for the proposed
changes described herein, prior to implementing
any cash management fee.
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account for cash contributions to the
Clearing Fund. The segregated funds
account allows a Clearing Member to
contribute cash to a bank or trust
company account maintained in the
name of OCC, subject to OCC’s
exclusive control, but the account also
includes the name of the Clearing
Member and any interest accrues to the
Clearing Member rather than OCC. OCC
proposes to eliminate the account type
because Clearing Members have not
expressed interest in using such an
account, no such accounts are in use
today, and moving forward,
substantially all cash Clearing Fund
contributions will held in OCC’s
account at the Federal Reserve Bank.
Fourth, OCC proposes to introduce new
language to Article VIII, Section 4(a) to
clarify that cash contributions to the
Clearing Fund that are deposited at
approved custodians may be
commingled with the Clearing Fund
contributions of different Clearing
Members.
Expected Effect on and Management of
Risk
The proposal is expected to improve
OCC’s liquidity risk management by
establishing the Cash Clearing Fund
Requirement and by permitting OCC to
temporarily increase that requirement.
The Cash Clearing Fund Requirement
would increase the amount of highly
liquid resources available to OCC to
account for extreme scenarios that may
result in liquidity demands exceeding
OCC’s current Cover 1 liquidity
resources, as calculated under the
current historically-based methodology.
The Cash Clearing Fund Requirement
also would provide a more consistent
level of cash resources in OCC’s
available prefunded financial resources,
thereby further strengthening OCC’s
liquidity risk management.
The proposed ability to allow OCC to
temporarily increase its minimum
Clearing Fund cash up to an amount
that includes the size of the Clearing
Fund as determined in accordance with
Rule 1001 is expected to enhance OCC’s
liquidity risk management by providing
a process to effectively replenish the
liquid resources that OCC may employ
during a stress event and would provide
OCC with an additional means of
addressing liquidity shortfalls that
otherwise would not be covered by
OCC’s liquid resources and would
provide a form of replenishment of
OCC’s liquid resources. OCC recognizes
that exercising its authority to increase
the minimum amount of cash in the
Clearing Fund could potentially impose
a liquidity constraint on its clearing
members, and for this reason, OCC has
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59033
limited its authority to increase the
minimum amount of cash in the
Clearing Fund to circumstances in
which such increase would protect
OCC, clearing members or the general
public and required that any such
increase be based upon then-existing
facts and circumstances, be in
furtherance of the integrity of OCC and
the stability of the financial system, and
take into consideration the legitimate
interests of clearing members and
market participants.
OCC expects that its proposal to pass
through interest earned on Clearing
Fund cash deposits at a Federal Reserve
Bank ultimately may potentially benefit
clearing members’ by providing them
with a comparatively higher rate of
return on their deposited cash (as
compared to a comparable account with
a commercial bank). This potential
increased rate of return may ultimately
strengthen the financial position of
certain of OCC’s clearing members.
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.11
Section 805(a)(2) of the Clearing
Supervision Act 12 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 13 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.14 For the
11 12
U.S.C. 5461(b).
U.S.C. 5464(a)(2).
13 12 U.S.C. 5464(b).
14 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
12 12
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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.15
Rule 17Ad–22(e)(7) 16 requires that a
covered clearing agency (‘‘CCA’’)
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to effectively
measure, monitor and manage liquidity
risk that arises in or is borne by the
CCA. Rule 17Ad–22(e)(7)(i) 17 requires
CCAs to establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
effectively measure, monitor, and
manage the liquidity risk that arises in
or is borne by OCC by maintaining
sufficient liquid resources at the
minimum in all relevant currencies to
effect same-day settlement, and where
appropriate, intraday and multiday
settlement of payment obligations with
a high degree of confidence under a
wide range of stress scenarios, that
includes but is not limited to, the
default of the participant family that
would generate the largest aggregate
payment obligation for OCC in extreme
but plausible market conditions. As
explained above, OCC has performed an
analysis of its stress liquidity demands
using proposed sizing stress tests for the
Clearing Fund and has observed that
peak stressed liquidity demands of the
largest 1 or 2 members, which normally
occur in conjunction with certain
monthly expirations, can exceed the
size OCC’s committed liquidity facilities
(which currently total $3 billion). OCC
believes that the proposed minimum $3
billion Cash Clearing Fund Requirement
will adjust OCC’s available liquidity
resources to account for extreme
scenarios that may result in liquidity
demands exceeding OCC’s Cover 1
liquidity resources. In this regard, OCC
believes the proposed Cash Clearing
Fund Requirement is designed to satisfy
the requirements of Rule 17Ad–
22(e)(7)(i).18
Further, Rule 17Ad–22(e)(7)(viii) 19
requires that a CCA address foreseeable
liquidity shortfalls that would not be
covered by its liquid resources and Rule
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.
15 12 U.S.C. 5464(b)(1) and (4).
16 17 CFR 240.17Ad–22(e)(7).
17 17 CFR 240.17Ad–22(e)(7)(i).
18 17 CFR 240.17Ad–22(e)(7)(i).
19 17 CFR 240.17Ad–22(e)(7)(viii).
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17Ad–22(e)(7)(ix) 20 requires that a CCA
describe its process to replenish any
liquid resources that it may employ
during a stress event. OCC believes that
the proposed authority to temporarily
increase the minimum cash requirement
from $3 billion up to an amount that
includes the size of the Clearing Fund
(as determined in accordance with Rule
1001 for the month in question) would
provide OCC with an additional means
of addressing liquidity shortfalls that
otherwise would not be covered by
OCC’s liquid resources. Further, because
the Clearing Fund is a resource that is
replenished in accordance with Section
6 of Article VIII of OCC’s By-Laws, to
the extent that Clearing Members are
required to replenish their required
contributions—in whole or in part—
with cash following a proportionate
charge during, the proposed change
would provide a form of replenishment
of OCC’s liquid resources. In this regard,
OCC believes the proposed authority to
require up to an all cash Clearing Fund
requirement is designed to satisfy the
requirements of Rules 17Ad–
22(e)(7)(viii) and (ix).21
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 website
of proposed changes that are
implemented.
20 17
21 17
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CFR 240.17Ad–22(e)(7)(ix).
CFR 240.17Ad–22(e)(7)(viii) and (ix).
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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–2017–808 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–2017–808. 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 website (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 website 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 website at
https://www.theocc.com/components/
docs/legal/rules_and_bylaws/sr_occ_17_
808.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–2017–808 and
E:\FR\FM\14DEN1.SGM
14DEN1
Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Notices
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
should be submitted on or before
December 29, 2017.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2017–26913 Filed 12–13–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82239; File No. SR–
NASDAQ–2017–127]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Transaction Fees at
Chapter XV, Section 2(1)
December 8, 2017.
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 December
1, 2017, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) 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 the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
sradovich on DSK3GMQ082PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s transaction fees at Chapter
XV, Section 2(1), which governs the
pricing for Nasdaq Participants using
the Nasdaq Options Market (‘‘NOM’’),
Nasdaq’s facility for executing and
routing standardized equity and index
options.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
21:28 Dec 13, 2017
Jkt 244001
1. Purpose
The Exchange proposes to amend the
Exchange’s transaction fees at Chapter
XV, Section 2(1) to introduce a new
NOM Market Maker 3 Rebate to Add
Liquidity in Non-Penny Pilot Options.
Today, the Exchange charges
Participants a $0.35 per contract NOM
Market Maker Fee for Adding Liquidity
in Non-Penny Pilot Options.4 To
incentivize Participants to add NOM
Market Maker liquidity in Non-Penny
Pilot Options, the Exchange offers
Participants an opportunity to reduce
this $0.35 per contract fee to $0.00 per
contract, provided the Participant adds
NOM Market Maker liquidity in NonPenny Pilot Options of 7,500 or more
ADV contracts per day in a month.5
In order to further incentivize NOM
Market Makers to transact in Non-Penny
Pilot Options on NOM, the Exchange
proposes to introduce a new NOM
Market Maker Rebate to Add Liquidity
in Non Penny-Pilot Options, provided
the Participant adds NOM Market Maker
liquidity in Non-Penny Pilot Options of
10,000 or more ADV contracts per day
in a month. The Participant would
receive a $0.30 per contract Rebate to
Add Liquidity in Non-Penny Pilot
Options as a NOM Market Maker.
Participants that qualify for this
proposed rebate would not be charged
the NOM Market Maker Fee for Adding
Liquidity in Non-Penny Pilot Options
by virtue of already having qualified for
the discounted fee of $0.00 in note 5
(i.e., by meeting the lower NOM Market
Maker Non-Penny volume threshold of
7,500 or more ADV contracts per day).
In essence, the Exchange is creating a
new volume threshold that is higher
than the existing threshold with this
proposal. As such, there will be two
NOM Market Maker volume-based tiers
for adding liquidity in Non-Penny Pilot
Options, the lower of which would
provide a discounted fee of $0.00 from
3 The term ‘‘NOM Market Maker’’ or (‘‘M’’) is a
Participant that has registered as a Market Maker on
NOM pursuant to Chapter VII, Section 2, and must
also remain in good standing pursuant to Chapter
VII, Section 4. In order to receive NOM Market
Maker pricing in all securities, the Participant must
be registered as a NOM Market Maker in at least one
security. See Chapter XV.
4 See Chapter XV, Section 2(1).
5 Id. at note 5.
PO 00000
Frm 00244
Fmt 4703
Sfmt 4703
59035
$0.35 for the qualifying Participant,
while the higher would provide a rebate
of $0.30 for the qualifying Participant in
lieu of the $0.35 fee. Accordingly, the
Exchange proposes to amend the
existing volume requirement for the
discounted fee in note 5 to state that
Participants that add NOM Market
Maker liquidity in Non-Penny Pilot
Options of 7,500 to 9,999 ADV contracts
per day in a month will be assessed a
$0.00 per contract Non-Penny Options
Fee for Adding Liquidity in that month.
Participants that add Non-Penny NOM
Market Maker liquidity of 10,000 or
more ADV contracts per day in a month
will not be charged a Non-Penny
Options Fee for Adding Liquidity and
will instead receive the proposed $0.30
per contract Non-Penny Rebate to Add
Liquidity. Finally, the Exchange
proposes to clarify in note 5 that the
$0.35 fee for adding liquidity will apply
unless Participants meet the proposed
volume thresholds, as described above.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,6 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,7 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The proposed change to offer
Participants that send NOM Market
Maker order flow the opportunity to
receive a $0.30 per contract Non-Penny
Rebate to Add Liquidity, provided the
Participant adds NOM Market Maker
liquidity in Non-Penny Pilot Options of
10,000 or more ADV contracts per day
in a month, is reasonable because the
Exchange seeks to further incentivize
Participants to add NOM Market Maker
liquidity in Non-Penny Pilot Options to
obtain the rebate. The Exchange believes
that its proposal will encourage
Participants to select NOM as a venue
and in turn benefit other market
participants with the opportunity to
interact with such liquidity. Other
options exchanges also offer volumebased rebates to market makers for
adding liquidity.8
The Exchange also believes that the
proposed NOM Market Maker Non6 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
8 See MIAX Pearl Fee Schedule, Section 1)a) for
the non-penny maker rebates offered to MIAX Pearl
market makers. See also Nasdaq GEMX Schedule of
Fees, Section I for the non-penny maker rebates
offered to GEMX market makers.
7 15
E:\FR\FM\14DEN1.SGM
14DEN1
]]>Agencies
[Federal Register Volume 82, Number 239 (Thursday, December 14, 2017)]
[Notices]
[Pages 59031-59035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26913]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82247; File No. SR-OCC-2017-808]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice, as Modified by Amendment No. 1,
Concerning the Adoption of a New Minimum Cash Requirement for the
Clearing Fund
December 8, 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) under the Securities Exchange Act of 1934
(``Act''),\2\ notice is hereby given that on November 14, 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. On
November 22, 2017, OCC filed Amendment No. 1 to the advance notice.\3\
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).
\3\ In Amendment No. 1, OCC modified the proposed change to
Article VIII, Section 4(a) of the By-Laws to clarify that interest
earned on Clearing Fund cash deposits held at a Federal Reserve Bank
accruing to the benefit of Clearing Members would be calculated
daily based on each Clearing Member's pro rata share of Clearing
Fund cash. OCC did not propose any other changes to the filing in
Amendment No. 1.
---------------------------------------------------------------------------
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
would (1) revise OCC's By-Laws to adopt a new minimum cash requirement
for the Clearing Fund; (2) revise OCC's By-Laws to provide for the
pass-through of interest earned on Clearing Fund cash held in OCC's
Federal Reserve bank account; (3) enact changes to OCC's Fee Policy
that reflect the pass through of interest earned on Clearing Fund cash
held in OCC's Federal Reserve bank account; and (4) make certain
conforming changes to OCC's Rules and By-Laws to affect the
aforementioned changes.
The proposed changes to OCC's By-Laws and Rules were submitted as
Exhibits 5A and 5B of the filing, and OCC's Fee Policy was submitted as
confidential Exhibit 5C of the filing.\4\ 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.\5\
---------------------------------------------------------------------------
\4\ OCC has filed a proposed rule change with the Commission in
connection with the proposed change. See SR-OCC-2017-019.
\5\ OCC's By-Laws and Rules can be found on OCC's public
website: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------
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 rule 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
OCC proposes to establish a minimum cash contribution requirement
for its Clearing Fund in order to increase the amount of qualifying
liquid resources available to OCC to account for extreme scenarios that
may result in liquidity demands exceeding OCC's current Cover 1
liquidity resources, as calculated under the current historically-based
methodology, and provide for a more consistent level of cash resources
in its available prefunded financial resources. The proposed rule
change also would provide for the pass-through of interest income
earned on such deposits to its Clearing Members. OCC's current
practices and the proposed changes to such practices are described in
more detail below.
Current Practice
Presently, Article VIII, Section 3(a) of OCC's By-Laws provides
that Clearing Fund contributions shall be in the form of cash and
Government securities, but neither OCC's By-Laws nor Rules
[[Page 59032]]
provides a minimum cash requirement for contributions in the Clearing
Fund. Article VIII, Section 4(a) of OCC's By-Laws allows for OCC to
invest cash contributions to the Clearing Fund, partially or wholly, in
OCC's account in Government securities, and to the extent that such
contributions are not so invested they shall be deposited by OCC in a
separate account or accounts for Clearing Fund contributions in
approved custodians. Article VIII, Section 4(a) of OCC's By-Laws,
however, presently does not account for the treatment of interest
earned on cash deposits held in the OCC's Federal Reserve bank account.
Proposed Change
1. Minimum Cash Clearing Fund Requirement
OCC proposes to establish a minimum cash contribution requirement
for its Clearing Fund in order to increase the amount of highly liquid
resources available to OCC to account for extreme scenarios that may
result in liquidity demands exceeding OCC's current Cover 1 liquidity
resources, as calculated under the current historically-based
methodology, and provide for a more consistent level of cash resources
in its available prefunded financial resources.\6\ Specifically, the
proposed rule change would require that Clearing Members collectively
contribute $3 billion in cash to the Clearing Fund (``Cash Clearing
Fund Requirement''). Each Clearing Member's proportionate share of the
Cash Clearing Fund Requirement shall be equal in percentage to its
proportionate share of the Clearing Fund as determined by the Clearing
Fund allocation methodology in current Rule 1001.
---------------------------------------------------------------------------
\6\ OCC's Current Cover 1 liquidity resources are sized based on
the liquidity needed to address exposures derived solely from
historical results. Introducing the Cash Clearing Fund Requirement
would increase OCC's liquidity resources to address the exposures
observed in a stress liquidity analysis performed using proposed
sizing stress tests for OCC's Clearing Fund.
---------------------------------------------------------------------------
OCC has historically sized its liquidity resources based on
historically observed liquidity demands and analysis of potential large
forecasted liquidity demands over at least the next twelve months. OCC
forecasts its future daily settlement activity under normal market
conditions (e.g., mark-to-market settlements, and settlements resulting
from the expiration of derivatives contracts) and compares such demands
to its resources to ensure that at all times it will maintain a
positive liquidity position to meet settlement obligations.
OCC has performed an analysis of its stress liquidity demands based
on a 1-in-70 year hypothetical market event. OCC started its analysis
by selecting the largest historical peak monthly settlements that
occurred over the historical look back period of data generated by the
stress test system. It then also selected certain large non-expiration
days to supplement the analysis. From this it estimated the mark-to-
market and cash settled exercise and assignment obligations for the
members driving the historical peak demand under the proposed stress
tests scenario to determine the stressed peak demand. Through this
analysis, OCC observed that peak stressed liquidity demands of the
largest 1 or 2 members, which normally occur in conjunction with
certain monthly expirations, can exceed the size OCC's committed
liquidity facilities (which currently total $3 billion). In these
cases, while OCC did have cash in the Clearing Fund to supplement its
liquidity resources, and the total of credit facilities and cash in the
Clearing Fund did cover these peak stressed liquidity demands, OCC is
unable to rely on these cash contributions to be present at any given
time since there is no obligation on members to maintain any amount of
their contribution in cash. As a result, OCC believes it is necessary
to increase or otherwise ensure the availability of highly liquid
resources in the Clearing Fund to account for extreme scenarios that
may result in liquidity demands exceeding OCC's Cover 1 liquidity
resources, as calculated under the current historically-based
methodology. The proposed Cash Clearing Fund Requirement, when taken
together with OCC's $3 billion in committed liquidity facilities, would
provide liquidity resources sufficient to cover 100% of the peak
stressed liquidity demands of the largest 1 or 2 members observed in
OCC's analysis.
In addition, the proposed changes would allow OCC's Executive
Chairman, Chief Administrative Officer (``CAO''), or Chief Operating
Officer (``COO''), upon providing notice to the Risk Committee, to
temporarily increase the amount of cash required to be maintained in
the Clearing Fund up to an amount that includes the size of the
Clearing Fund as determined in accordance with Rule 1001 for the month
in question for the protection of OCC, clearing members or the general
public. Any determination by the Executive Chairman, CAO and/or COO to
implement a temporary increase in Clearing Fund size would (i) be based
upon then-existing facts and circumstances, (ii) be in furtherance of
the integrity of OCC and the stability of the financial system, and
(iii) take into consideration the legitimate interests of Clearing
Members and market participants.
The proposed rule change would require that any temporary increase
in the Cash Clearing Fund Requirement be reviewed by the Risk Committee
as soon as practicable, but in any event within 20 calendar days of the
increase. In its review, the Risk Committee shall determine whether (1)
the increase in the minimum Cash Clearing Fund Requirement is no longer
required or (2) OCC's Clearing Fund contribution requirements and other
related rules should be modified to ensure that OCC continues to
maintain sufficient liquid resources to cover its largest aggregate
payment obligations in extreme but plausible market conditions. In the
event that the Risk Committee would determine to permanently increase
the Cash Clearing Fund Requirement, OCC would initiate any regulatory
approval process required to effect such a change.\7\ A Clearing Member
will be required to satisfy any increase in its required cash
contribution pursuant to an increase in the Cash Clearing Fund
Requirement no later than one hour before the close of the Fedwire on
the business day following OCC's issuance of an instruction to increase
cash contributions.
---------------------------------------------------------------------------
\7\ However, OCC will not decrease the Cash Clearing Fund
Requirement while the regulatory approvals for a change in the Cash
Clearing Fund Requirement are being obtained to ensure that OCC
continues to maintain sufficient liquid resources to cover its
liquidity demands during that time.
---------------------------------------------------------------------------
These changes would be reflected in new paragraph (a)(i) of Section
3 of Article VIII of OCC's By-Laws, as well as in new Interpretation
and Policy .04 to Section 3 of Article VIII.
2. Interest Pass Through for Clearing Fund Cash Held at the Federal
Reserve
In connection with the proposed Cash Clearing Fund Requirement,
substantially all of OCC's Clearing Fund deposits consisting of cash
would be held in an account established by OCC at a Federal Reserve
Bank.\8\ OCC proposes that it would pass the interest income earned in
such account through to its Clearing Members. As a result, OCC proposes
to revise Article VIII, Section 4(a) of OCC's By-Laws to include a
sentence to provide that any interest earned on cash deposits held at
[[Page 59033]]
a Federal Reserve Bank shall accrue to the benefit of Clearing Members
(calculated daily based on each Clearing Member's pro rata share of
Clearing Fund cash deposits), provided that such Clearing Members have
provided OCC with all tax documentation as OCC may from time to time
require in order to effectuate such payment.\9\
---------------------------------------------------------------------------
\8\ OCC notes that it would retain the discretion to maintain a
small portion of Clearing Fund cash deposits in other accounts
(e.g., accounts with commercial banks) for various reasons,
including facilitating normal substitution activity by its Clearing
Members.
\9\ Article VIII, Section 4(a) currently states that all
interested gained on cash Clearing Fund deposits belongs to OCC.
---------------------------------------------------------------------------
3. Changes to the Fee Policy to Accommodate Interest Passed Through to
Clearing Members
In order to accommodate the pass through of interest income, OCC
would also amend its Fee Policy to add definitions for ``Pass-Through
Interest Revenue'' and ``Operating Expenses'' to exclude from the
calculation of the Business Risk Buffer projected interest revenue and
expense, respectively, related to the pass-through of earned interest
from OCC to Clearing Members.\10\ OCC also proposes to add a new
example of the Business Risk Buffer calculation reflecting this change
and make clarifying changes throughout the Policy to incorporate the
use of the new defined terms. In addition, OCC proposes to amend the
Fee Policy to remove references to ``Proposed Rule 17Ad-22(e)(15)'' to
reflect the adoption of the Commission's Covered Clearing Agency
Standards.
---------------------------------------------------------------------------
\10\ While interest income earned by OCC from its Federal
Reserve bank account would be passed on to its Clearing Members, OCC
anticipates that it would charge a cash management fee to cover
associated costs (i.e., administrative and similar costs). OCC would
file a separate proposed rule change with the Commission, subject to
receiving all necessary regulatory approvals for the proposed
changes described herein, prior to implementing any cash management
fee.
---------------------------------------------------------------------------
4. Conforming Changes
In conjunction with the aforementioned changes, OCC is also
proposing to make four related conforming changes. First, OCC proposes
to revise Interpretation and Policy .01 of Rule 1001 to reflect that
the new minimum Clearing Fund size is $3 billion (instead of $1
billion) plus 110% of the size of OCC's committed liquidity facilities,
which conforms to the proposed new minimum cash requirement for the
Clearing Fund. Second, OCC proposes to amend the definition of
``Approved Custodian'' in Article I, Section 1 of the By-Laws to
clarify that the Federal Reserve Bank may also be an Approved
Custodian, to the extent it is available to OCC. Third, OCC is
proposing to delete existing Article VIII, Section 4(b), regarding the
establishment of a segregated funds account for cash contributions to
the Clearing Fund. The segregated funds account allows a Clearing
Member to contribute cash to a bank or trust company account maintained
in the name of OCC, subject to OCC's exclusive control, but the account
also includes the name of the Clearing Member and any interest accrues
to the Clearing Member rather than OCC. OCC proposes to eliminate the
account type because Clearing Members have not expressed interest in
using such an account, no such accounts are in use today, and moving
forward, substantially all cash Clearing Fund contributions will held
in OCC's account at the Federal Reserve Bank. Fourth, OCC proposes to
introduce new language to Article VIII, Section 4(a) to clarify that
cash contributions to the Clearing Fund that are deposited at approved
custodians may be commingled with the Clearing Fund contributions of
different Clearing Members.
Expected Effect on and Management of Risk
The proposal is expected to improve OCC's liquidity risk management
by establishing the Cash Clearing Fund Requirement and by permitting
OCC to temporarily increase that requirement. The Cash Clearing Fund
Requirement would increase the amount of highly liquid resources
available to OCC to account for extreme scenarios that may result in
liquidity demands exceeding OCC's current Cover 1 liquidity resources,
as calculated under the current historically-based methodology. The
Cash Clearing Fund Requirement also would provide a more consistent
level of cash resources in OCC's available prefunded financial
resources, thereby further strengthening OCC's liquidity risk
management.
The proposed ability to allow OCC to temporarily increase its
minimum Clearing Fund cash up to an amount that includes the size of
the Clearing Fund as determined in accordance with Rule 1001 is
expected to enhance OCC's liquidity risk management by providing a
process to effectively replenish the liquid resources that OCC may
employ during a stress event and would provide OCC with an additional
means of addressing liquidity shortfalls that otherwise would not be
covered by OCC's liquid resources and would provide a form of
replenishment of OCC's liquid resources. OCC recognizes that exercising
its authority to increase the minimum amount of cash in the Clearing
Fund could potentially impose a liquidity constraint on its clearing
members, and for this reason, OCC has limited its authority to increase
the minimum amount of cash in the Clearing Fund to circumstances in
which such increase would protect OCC, clearing members or the general
public and required that any such increase be based upon then-existing
facts and circumstances, be in furtherance of the integrity of OCC and
the stability of the financial system, and take into consideration the
legitimate interests of clearing members and market participants.
OCC expects that its proposal to pass through interest earned on
Clearing Fund cash deposits at a Federal Reserve Bank ultimately may
potentially benefit clearing members' by providing them with a
comparatively higher rate of return on their deposited cash (as
compared to a comparable account with a commercial bank). This
potential increased rate of return may ultimately strengthen the
financial position of certain of OCC's clearing members.
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.\11\
---------------------------------------------------------------------------
\11\ 12 U.S.C. 5461(b).
---------------------------------------------------------------------------
Section 805(a)(2) of the Clearing Supervision Act \12\ 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 \13\ states that the
objectives and principles for risk management standards prescribed
under Section 805(a) shall be to:
---------------------------------------------------------------------------
\12\ 12 U.S.C. 5464(a)(2).
\13\ 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.\14\ For the
[[Page 59034]]
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.\15\
---------------------------------------------------------------------------
\14\ 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.
\15\ 12 U.S.C. 5464(b)(1) and (4).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7) \16\ requires that a covered clearing agency
(``CCA'') establish, implement, maintain and enforce written policies
and procedures reasonably designed to effectively measure, monitor and
manage liquidity risk that arises in or is borne by the CCA. Rule 17Ad-
22(e)(7)(i) \17\ requires CCAs to establish, implement, maintain, and
enforce written policies and procedures reasonably designed to
effectively measure, monitor, and manage the liquidity risk that arises
in or is borne by OCC by maintaining sufficient liquid resources at the
minimum in all relevant currencies to effect same-day settlement, and
where appropriate, intraday and multiday settlement of payment
obligations with a high degree of confidence under a wide range of
stress scenarios, that includes but is not limited to, the default of
the participant family that would generate the largest aggregate
payment obligation for OCC in extreme but plausible market conditions.
As explained above, OCC has performed an analysis of its stress
liquidity demands using proposed sizing stress tests for the Clearing
Fund and has observed that peak stressed liquidity demands of the
largest 1 or 2 members, which normally occur in conjunction with
certain monthly expirations, can exceed the size OCC's committed
liquidity facilities (which currently total $3 billion). OCC believes
that the proposed minimum $3 billion Cash Clearing Fund Requirement
will adjust OCC's available liquidity resources to account for extreme
scenarios that may result in liquidity demands exceeding OCC's Cover 1
liquidity resources. In this regard, OCC believes the proposed Cash
Clearing Fund Requirement is designed to satisfy the requirements of
Rule 17Ad-22(e)(7)(i).\18\
---------------------------------------------------------------------------
\16\ 17 CFR 240.17Ad-22(e)(7).
\17\ 17 CFR 240.17Ad-22(e)(7)(i).
\18\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------
Further, Rule 17Ad-22(e)(7)(viii) \19\ requires that a CCA address
foreseeable liquidity shortfalls that would not be covered by its
liquid resources and Rule 17Ad-22(e)(7)(ix) \20\ requires that a CCA
describe its process to replenish any liquid resources that it may
employ during a stress event. OCC believes that the proposed authority
to temporarily increase the minimum cash requirement from $3 billion up
to an amount that includes the size of the Clearing Fund (as determined
in accordance with Rule 1001 for the month in question) would provide
OCC with an additional means of addressing liquidity shortfalls that
otherwise would not be covered by OCC's liquid resources. Further,
because the Clearing Fund is a resource that is replenished in
accordance with Section 6 of Article VIII of OCC's By-Laws, to the
extent that Clearing Members are required to replenish their required
contributions--in whole or in part--with cash following a proportionate
charge during, the proposed change would provide a form of
replenishment of OCC's liquid resources. In this regard, OCC believes
the proposed authority to require up to an all cash Clearing Fund
requirement is designed to satisfy the requirements of Rules 17Ad-
22(e)(7)(viii) and (ix).\21\
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\19\ 17 CFR 240.17Ad-22(e)(7)(viii).
\20\ 17 CFR 240.17Ad-22(e)(7)(ix).
\21\ 17 CFR 240.17Ad-22(e)(7)(viii) and (ix).
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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 website 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 [email protected]. Please include
File Number SR-OCC-2017-808 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-2017-808. 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 website (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 website 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 website at
https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_808.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-2017-808 and
[[Page 59035]]
should be submitted on or before December 29, 2017.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26913 Filed 12-13-17; 8:45 am]
BILLING CODE 8011-01-P
