Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation's Collateral Risk Management Policy, 60252-60253 [2017-27230]

Download as PDF 60252 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices 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 LCH SA and on LCH SA’s website at http://www.lch.com/assetclasses/cdsclear. 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–LCH SA–2017–012 and should be submitted on or before January 9, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27235 Filed 12–18–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 2:00 p.m. on Thursday, December 21, 2017. PLACE: Closed Commission Hearing Room 10800. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. Commissioner Stein, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matters of the closed meeting will be: sradovich on DSK3GMQ082PROD with NOTICES 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 Dated: December 14, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–27359 Filed 12–15–17; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82311; File No. SR–OCC– 2017–008] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation’s Collateral Risk Management Policy December 13, 2017. Sunshine Act Meetings TIME AND DATE: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. CONTACT PERSON FOR MORE INFORMATION: For further information and to ascertain what, if any, matters have been added, deleted or postponed; please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. I. Introduction On October 27, 2017, the Options Clearing Corporation (‘‘OCC’’) 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 (SR–OCC–2017–008) to formalize and update OCC’s Collateral Risk Management Policy. The proposed rule change was published for comment in the Federal Register on November 9, 2017.3 The Commission received one comment letter regarding the proposed change.4 For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change This proposed rule change would formalize and update OCC’s Collateral 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 82009 (Nov. 3, 2017), 82 FR 52079 (Nov. 9, 2017) (SR– OCC–2017–008) (‘‘Notice’’). 4 Letter from Michael Kitlas, dated November 3, 2017. See comments on the proposed rule change (SR–OCC–2017–008), https://www.sec.gov/ comments/sr-occ-2017-008/occ2017008.htm. 2 17 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 Risk Management Policy (‘‘CRM Policy’’). The CRM Policy describes the categories of risk that are considered by OCC in determining which asset classes should be acceptable forms of collateral as margin assets and Clearing Fund contributions. OCC’s assessment of an asset class generally includes an evaluation of credit risk, liquidity risk, and market risk.5 With respect to credit risk, the CRM Policy requires OCC staff to evaluate the creditworthiness of counterparties, including custodial agents and settlement banks and to monitor the health of such counterparties on an ongoing basis.6 Regarding liquidity risk, OCC gives no value to a participant for its own (or its affiliate’s) debt or equity securities, and limits the amount of a particular asset type that a participant may pledge under the CRM Policy.7 With respect to market risks, the CRM Policy provides that eligible asset classes are accepted after consideration of their liquidity, price transparency, price volatility, offset potential with contracts cleared by OCC, modeling implications and projected inventories.8 The CRM Policy describes OCC’s approach to valuing collateral and setting and applying haircuts. OCC’s pricing information, as described in the CRM Policy, feeds into OCC’s processes for establishing haircuts, daily mark-tomarket valuation of collateral, and intraday valuation of collateral. Given the importance of pricing data to inform these processes, OCC maintains redundant information feeds from multiple sources to help ensure accuracy and quality.9 The CRM Policy also summarizes OCC’s two approaches for valuing collateral: Collateral in Margins (‘‘CiM’’) and haircuts.10 Under the CiM approach, the current market value of margin assets is included as a positive asset value in the calculation of a portfolio’s net asset value within OCC’s System for Theoretical Analysis and Numerical Simulations (‘‘STANS’’). OCC then offsets this positive asset value based on, among other things, the expected shortfall and stress test charges associated with an account, resulting in a net excess or net deficit.11 For collateral that is not managed using the CiM process, the CRM Policy provides that OCC subjects such collateral to percentage haircuts established at the 5 Notice, 82 FR at 52080. 6 Id. 7 Id. 8 Id. 9 Notice, 82 FR at 52080–81. 82 FR at 52081. 11 Notice, 82 FR at 52081, note 23. 10 Notice, E:\FR\FM\19DEN1.SGM 19DEN1 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices time the collateral is accepted by OCC and that are monitored regularly to help ensure the haircuts remain adequate.12 Additionally, the CRM Policy provides that OCC’s Credit and Liquidity Working Group must review the policy’s performance and adequacy on at least an annual basis, including with respect to collateral eligibility, concentration limits, collateral haircuts and monitoring processes.13 III. Summary of Comment Received The Commission received one comment letter in response to the proposed rule change.14 The commenter stated that the proposed rule change is consistent with the Act.15 sradovich on DSK3GMQ082PROD with NOTICES IV. Discussion and Commission Findings Section 19(b)(2)(C) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.16 After carefully considering the proposed rule change and the comment letter, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to OCC. More specifically, the Commission finds that the proposal is consistent with Section 17A(b)(3)(F) of the Act and Rule 17Ad–22(e)(5) under the Act. A. Consistency With Section 17A(b)(3)(F) of the Act Section 17A(b)(3)(F) of the Act requires that the rules of a registered clearing agency be designed to do, among other things, the following: (1) Promote the prompt and accurate clearance and settlement of securities transactions; (2) assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible; and (3) in general protect investors and the public interest.17 The CRM Policy describes OCC’s process for limiting the collateral that it accepts to assets with low credit, liquidity, and market risk. The acceptance of only low-risk collateral increases the likelihood that such collateral can be liquidated in a timely manner, thereby enhancing OCC’s ability to continue to perform its critical 12 Notice, 82 FR at 52081. 13 Id. 14 See services for the financial markets while also managing a default. The CRM Policy also describes how OCC haircuts such collateral, and requires review of such haircuts at least annually. Ensuring that collateral haircuts are appropriately set and reviewed on a regular basis increases the likelihood that OCC will collect and hold collateral that can be liquidated at a value at or above the value attributed to it. This approach thereby increases the likelihood that OCC will be able to continue to meet its settlement obligations and manage the default of a clearing member by liquidating the defaulting clearing member’s collateral in a timely and effective manner. The timely liquidation of collateral at or above the expected value would, therefore, support OCC’s ability to continue to meet settlement obligations on time, promoting the prompt and accurate clearance and settlement of securities transactions. In addition, being able to successfully liquidate collateral in a timely and effective manner would reduce the likelihood of OCC having to draw on mutualized resources, including Clearing Fund contributions. As such, the Commission believes that the proposal would help assure the safeguarding of securities and funds which are in the custody or control of OCC, or for which OCC is responsible. As a result, the Commission also finds that the proposed rule change, in general, protects investors and the public interest. Accordingly, the Commission finds that the proposed rule change is consistent with Section 17A of the Act.18 B. Consistency With Rule 17Ad–22(e)(3) of the Act Rule 17Ad–22(e)(5) requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to limit the assets it accepts as collateral to those with low credit, liquidity, and market risks; set and enforce appropriately conservative haircuts and concentration limits if the covered clearing agency requires collateral to manage its or its participants’ credit exposure; and, require a review of the sufficiency of its collateral haircuts and concentration limits to be performed not less than annually.19 As discussed above, the proposed CRM Policy would address each component of Rule 17Ad–22(e)(5).20 supra note 4. 15 Id. 18 15 16 15 19 17 U.S.C. 78s(b)(2)(C). 17 15 U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 17:47 Dec 18, 2017 U.S.C. 78q–1. CFR 240.17Ad–22(e)(5). 20 Id. Jkt 244001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 60253 First, the proposed CRM Policy requires that, in determining forms of collateral as margin assets and Clearing Fund contributions, OCC evaluates the market, credit, and liquidity risk of an asset class. Second, the CRM Policy provides for the maintenance of redundant pricing information feeds from multiple sources to ensure the availability of information that is critical to OCC’s daily and intraday processes for collateral valuation. The CRM Policy further describes OCC’s processes for setting haircuts either via the use of STANS or percentage-based haircuts. Third, the proposed CRM requires at least annual review of concentration limits and collateral haircuts. The Commission finds, therefore, that the proposed rule change is consistent with Rule 17Ad–22(e)(5).21 V. Conclusion On the basis of the foregoing, the Commission finds that the proposed change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act 22 and the rules and regulations thereunder. It is therefore ordered pursuant to Section 19(b)(2) of the Act that the proposed rule change (SR–OCC–2017– 008) be, and hereby is, approved. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.23 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27230 Filed 12–18–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–420, OMB Control No. 3235–0479] Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. Extension: Rule 15c2–7 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission 21 17 CFR 240.17Ad–22(e)(5). approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 23 17 CFR 200.30–3(a)(12). 22 In E:\FR\FM\19DEN1.SGM 19DEN1

Agencies

[Federal Register Volume 82, Number 242 (Tuesday, December 19, 2017)]
[Notices]
[Pages 60252-60253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27230]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82311; File No. SR-OCC-2017-008]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Related to The Options Clearing 
Corporation's Collateral Risk Management Policy

December 13, 2017.

I. Introduction

    On October 27, 2017, the Options Clearing Corporation (``OCC'') 
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 (SR-
OCC-2017-008) to formalize and update OCC's Collateral Risk Management 
Policy. The proposed rule change was published for comment in the 
Federal Register on November 9, 2017.\3\ The Commission received one 
comment letter regarding the proposed change.\4\ For the reasons 
discussed below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82009 (Nov. 3, 2017), 82 
FR 52079 (Nov. 9, 2017) (SR-OCC-2017-008) (``Notice'').
    \4\ Letter from Michael Kitlas, dated November 3, 2017. See 
comments on the proposed rule change (SR-OCC-2017-008), https://www.sec.gov/comments/sr-occ-2017-008/occ2017008.htm.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    This proposed rule change would formalize and update OCC's 
Collateral Risk Management Policy (``CRM Policy''). The CRM Policy 
describes the categories of risk that are considered by OCC in 
determining which asset classes should be acceptable forms of 
collateral as margin assets and Clearing Fund contributions. OCC's 
assessment of an asset class generally includes an evaluation of credit 
risk, liquidity risk, and market risk.\5\ With respect to credit risk, 
the CRM Policy requires OCC staff to evaluate the creditworthiness of 
counterparties, including custodial agents and settlement banks and to 
monitor the health of such counterparties on an ongoing basis.\6\ 
Regarding liquidity risk, OCC gives no value to a participant for its 
own (or its affiliate's) debt or equity securities, and limits the 
amount of a particular asset type that a participant may pledge under 
the CRM Policy.\7\ With respect to market risks, the CRM Policy 
provides that eligible asset classes are accepted after consideration 
of their liquidity, price transparency, price volatility, offset 
potential with contracts cleared by OCC, modeling implications and 
projected inventories.\8\
---------------------------------------------------------------------------

    \5\ Notice, 82 FR at 52080.
    \6\ Id.
    \7\ Id.
    \8\ Id.
---------------------------------------------------------------------------

    The CRM Policy describes OCC's approach to valuing collateral and 
setting and applying haircuts. OCC's pricing information, as described 
in the CRM Policy, feeds into OCC's processes for establishing 
haircuts, daily mark-to-market valuation of collateral, and intraday 
valuation of collateral. Given the importance of pricing data to inform 
these processes, OCC maintains redundant information feeds from 
multiple sources to help ensure accuracy and quality.\9\
---------------------------------------------------------------------------

    \9\ Notice, 82 FR at 52080-81.
---------------------------------------------------------------------------

    The CRM Policy also summarizes OCC's two approaches for valuing 
collateral: Collateral in Margins (``CiM'') and haircuts.\10\ Under the 
CiM approach, the current market value of margin assets is included as 
a positive asset value in the calculation of a portfolio's net asset 
value within OCC's System for Theoretical Analysis and Numerical 
Simulations (``STANS''). OCC then offsets this positive asset value 
based on, among other things, the expected shortfall and stress test 
charges associated with an account, resulting in a net excess or net 
deficit.\11\ For collateral that is not managed using the CiM process, 
the CRM Policy provides that OCC subjects such collateral to percentage 
haircuts established at the

[[Page 60253]]

time the collateral is accepted by OCC and that are monitored regularly 
to help ensure the haircuts remain adequate.\12\
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    \10\ Notice, 82 FR at 52081.
    \11\ Notice, 82 FR at 52081, note 23.
    \12\ Notice, 82 FR at 52081.
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    Additionally, the CRM Policy provides that OCC's Credit and 
Liquidity Working Group must review the policy's performance and 
adequacy on at least an annual basis, including with respect to 
collateral eligibility, concentration limits, collateral haircuts and 
monitoring processes.\13\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

III. Summary of Comment Received

    The Commission received one comment letter in response to the 
proposed rule change.\14\ The commenter stated that the proposed rule 
change is consistent with the Act.\15\
---------------------------------------------------------------------------

    \14\ See supra note 4.
    \15\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\16\ After carefully considering the proposed rule change 
and the comment letter, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to OCC. More specifically, the 
Commission finds that the proposal is consistent with Section 
17A(b)(3)(F) of the Act and Rule 17Ad-22(e)(5) under the Act.
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    \16\ 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
registered clearing agency be designed to do, among other things, the 
following: (1) Promote the prompt and accurate clearance and settlement 
of securities transactions; (2) assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible; and (3) in general protect investors and 
the public interest.\17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The CRM Policy describes OCC's process for limiting the collateral 
that it accepts to assets with low credit, liquidity, and market risk. 
The acceptance of only low-risk collateral increases the likelihood 
that such collateral can be liquidated in a timely manner, thereby 
enhancing OCC's ability to continue to perform its critical services 
for the financial markets while also managing a default. The CRM Policy 
also describes how OCC haircuts such collateral, and requires review of 
such haircuts at least annually. Ensuring that collateral haircuts are 
appropriately set and reviewed on a regular basis increases the 
likelihood that OCC will collect and hold collateral that can be 
liquidated at a value at or above the value attributed to it. This 
approach thereby increases the likelihood that OCC will be able to 
continue to meet its settlement obligations and manage the default of a 
clearing member by liquidating the defaulting clearing member's 
collateral in a timely and effective manner.
    The timely liquidation of collateral at or above the expected value 
would, therefore, support OCC's ability to continue to meet settlement 
obligations on time, promoting the prompt and accurate clearance and 
settlement of securities transactions. In addition, being able to 
successfully liquidate collateral in a timely and effective manner 
would reduce the likelihood of OCC having to draw on mutualized 
resources, including Clearing Fund contributions. As such, the 
Commission believes that the proposal would help assure the 
safeguarding of securities and funds which are in the custody or 
control of OCC, or for which OCC is responsible. As a result, the 
Commission also finds that the proposed rule change, in general, 
protects investors and the public interest. Accordingly, the Commission 
finds that the proposed rule change is consistent with Section 17A of 
the Act.\18\
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    \18\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(3) of the Act

    Rule 17Ad-22(e)(5) requires that a covered clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to limit the assets it accepts as 
collateral to those with low credit, liquidity, and market risks; set 
and enforce appropriately conservative haircuts and concentration 
limits if the covered clearing agency requires collateral to manage its 
or its participants' credit exposure; and, require a review of the 
sufficiency of its collateral haircuts and concentration limits to be 
performed not less than annually.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17Ad-22(e)(5).
---------------------------------------------------------------------------

    As discussed above, the proposed CRM Policy would address each 
component of Rule 17Ad-22(e)(5).\20\ First, the proposed CRM Policy 
requires that, in determining forms of collateral as margin assets and 
Clearing Fund contributions, OCC evaluates the market, credit, and 
liquidity risk of an asset class. Second, the CRM Policy provides for 
the maintenance of redundant pricing information feeds from multiple 
sources to ensure the availability of information that is critical to 
OCC's daily and intraday processes for collateral valuation. The CRM 
Policy further describes OCC's processes for setting haircuts either 
via the use of STANS or percentage-based haircuts. Third, the proposed 
CRM requires at least annual review of concentration limits and 
collateral haircuts. The Commission finds, therefore, that the proposed 
rule change is consistent with Rule 17Ad-22(e)(5).\21\
---------------------------------------------------------------------------

    \20\ Id.
    \21\ 17 CFR 240.17Ad-22(e)(5).
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V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed change is consistent with the requirements of the Act, and in 
particular, with the requirements of Section 17A of the Act \22\ and 
the rules and regulations thereunder.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-OCC-2017-008) be, and hereby is, 
approved.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27230 Filed 12-18-17; 8:45 am]
 BILLING CODE 8011-01-P