Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Concerning Enhanced and New Tools for Recovery Scenarios, 61107-61116 [2017-27691]
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Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of a new
type of Trust Issued Receipt based on
the price of Bitcoin Futures Contracts
and that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
A. By order approve or disapprove the
proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
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:
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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–
NYSEArca–2017–139 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–NYSEArca–2017–139. 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/
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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
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–NYSEArca–2017–139 and
should be submitted on or before
January 16, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27690 Filed 12–22–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82351; File No. SR–OCC–
2017–020]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of a Proposed Rule Change
Concerning Enhanced and New Tools
for Recovery Scenarios
December 19, 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
18, 2017, The Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by OCC. The Commission is publishing
this notice to solicit comments on the
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change by the
OCC would make certain revisions to
OCC’s Rules and By-Laws to enhance
OCC’s existing tools to address the risks
of liquidity shortfalls and credit losses
and to establish new tools by which
OCC could re-establish a matched book
following a default. Each of the tools
proposed herein is contemplated to be
deployed by OCC in an extreme stress
event that has placed OCC into a
recovery or orderly wind-down
scenario.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements. All terms
with initial capitalization not defined
here have the same meaning set forth in
OCC’s By-Laws and Rules.3
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
Background
The purpose of this proposed rule
change is to make certain revisions to
OCC’s Rules and By-Laws Laws that are
designed to enhance OCC’s existing
tools to address the risks of liquidity
shortfalls and credit losses and to
establish tools by which OCC could reestablish a matched book following a
default. Each of the tools proposed
herein is contemplated to be deployed
by OCC in an extreme stress event that
has placed OCC into a recovery or
orderly wind-down scenario. Each of
the proposed revisions also is designed
to further OCC’s compliance, in whole
or in part, with the provisions of the
Commission’s rules identified
immediately below.
On September 28, 2016, the
Commission adopted amendments to
3 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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Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
Rule 17Ad–22 4 and added new Rules
17Ad–22(e)(3)(ii), (e)(4)(viii), (e)(4)(ix),
(e)(7)(ix), (e)(13), (e)(23)(i) and
(e)(23)(ii) 5 pursuant to Section 17A of
the Securities Exchange Act of 1934 6
and the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Payment, Clearing and Settlement
Supervision Act’’).7 In relevant part,
these new rules collectively require a
covered clearing agency (‘‘CCA’’), as
defined by Rule 17Ad–22(a)(5),8 to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to: (1) Maintain a
risk management framework including
plans for recovery and orderly winddown necessitated by credit losses,
liquidity shortfalls, general business risk
losses or any other losses, (2) effectively
identify, measure, monitor and manage
its credit exposures to participants and
those arising from its payment, clearing
and settlement processes, including by
addressing the allocation of credit losses
a CCA might face if its collateral and
other resources are insufficient to fully
cover its credit exposures, (3) effectively
identify, measure, monitor and manage
credit exposures, including by
describing the process to replenish any
financial resource that a CCA may use
following a default event or other event
in which use of such resource is
contemplated, (4) effectively identify,
measure, monitor and manage liquidity
risks that arises or is borne by the CCA
by, at a minimum, describing the
process for replenishing any liquid
resource that a CCA may employ during
a stress event, (5) ensure it has the
authority and operational capacity to
take timely action to contain losses and
liquidity demands and continue to meet
its obligations, (6) publicly disclose
relevant rules and material procedures,
including key aspects of its default rules
and procedures, and (7) provide
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the CCA. The
relevant portions of each of these new
requirements is restated below:
• Rule 17Ad–22(e)(3)(ii) requires that
each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [m]aintain a sound risk
management framework for
comprehensively managing legal, credit,
liquidity, operational, general business,
CFR 240.17Ad–22.
CFR 240.17Ad–22(e)(3)(ii), (e)(4)(viii),
(e)(4)(ix), (e)(7)(ix), (e)(13), (e)(23)(i) and (e)(23)(ii).
6 15 U.S.C. 78q–1.
7 12 U.S.C. 5461 et. seq.
8 17 CFR 240.17Ad–22(a)(5).
investment, custody, and other risks
that arise in or are borne by the [CCA],
which . . . [i]ncludes plans for the
recovery and orderly wind-down of the
[CCA] necessitated by credit losses,
liquidity shortfalls, losses from general
business risk, or any other losses.’’ 9
• Rule 17Ad–22(e)(4)(viii) requires
that each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [e]ffectively identify, measure,
monitor, and manage its credit
exposures to participants and those
arising from its payment, clearing, and
settlement processes, including by . . .
[a]ddressing allocation of credit losses
the [CCA] may face if its collateral and
other resources are insufficient to fully
cover its credit exposures, including the
repayment of any funds the [CCA] may
borrow from liquidity providers.’’ 10
• Rule 17Ad–22(e)(4)(ix) requires that
each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [e]ffectively identify, measure,
monitor, and manage its credit
exposures to participants and those
arising from its payment, clearing, and
settlement processes, including by . . .
[d]escribing the [CCA’s] process to
replenish any financial resources it may
use following a default or other event in
which use of such resources is
contemplated.’’ 11
• Rule 17Ad–22(e)(7)(ix) requires that
each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [e]ffectively measure, monitor, and
manage the liquidity risk that arises in
or is borne by the [CCA], including
measuring, monitoring, and managing
its settlement and funding flows on an
ongoing and timely basis, and its use of
intraday liquidity by, at a minimum,
doing the following . . . [d]escribing the
[CCA’s] process to replenish any liquid
resources that the clearing agency may
employ during a stress event.’’ 12
• Rule 17Ad–22(e)(13) requires that
each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed
to. . . [e]nsure the covered clearing
agency has the authority and
operational capacity to take timely
action to contain losses and liquidity
demands and continue to meet its
obligations . . .’’ 13
• Rule 17Ad–22(e)(23)(i) requires that
each CCA ‘‘establish, implement,
4 17
5 17
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CFR 240.17Ad–22(e)(3)(ii).
CFR 240.17Ad–22(e)(v)(viii).
11 17 CFR 240.17Ad–22(e)(4)(ix).
12 17 CFR 240.17Ad–22(e)(7)(ix).
13 17 CFR 240.17Ad–22(e)(13).
maintain and enforce written policies
and procedures reasonably designed to
. . . [p]ublicly disclos[e] all relevant
rules and material procedures,
including key aspects of its default rules
and procedures.’’ 14
• Rule 17Ad–22(e)(23)(ii) requires
that each CCA ‘‘establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
. . . [p]rovid[e] sufficient information to
enable participants to identify and
evaluate the risks, fees, and other
material costs they incur by
participating in the covered clearing
agency.’’ 15
OCC meets the definition of a CCA
and is therefore subject to the
requirements of the CCA rules,
including new Rules 17Ad–22(e)(3)(ii),
(e)(4)(viii), (e)(4)(ix), (e)(7)(ix), (e)(13),
(e)(23)(i) and (e)(23)(ii).16
Proposed Changes
Summary of Proposed Changes
In order to enhance OCC’s existing
tools to address the risks of liquidity
shortfalls and credit losses and to
establish new tools by which OCC could
re-establish a matched book following a
default, OCC is proposing to make the
following revisions to its Rules and ByLaws:
(1) Revise the existing assessment
powers in Section 6 of Article VIII of
OCC’s By-Laws, specifically to:
(a) Establish a rolling ‘‘cooling-off
period’’ that would be triggered by the
payment of a proportionate charge
against the Clearing Fund (‘‘triggering
proportionate charge’’), during which
period the aggregate liability of a
Clearing Member to replenish the
Clearing Fund (inclusive of
assessments) would be 200% of the
Clearing Member’s required
contribution as of the time immediately
preceding the triggering proportionate
charge;
(b) Clarify that a Clearing Member that
chooses to terminate its membership
status during a cooling-off period will
not be liable for replenishment of the
Clearing Fund immediately following
the expiration of such cooling-off
period, provided that the withdrawing
Clearing Member satisfies enumerated
criteria, including providing notice of
such termination by no later than the
end of the cooling-off period and by
closing-out and/or transferring of all its
open positions with OCC by no later
than the last day of the cooling-off
period; and
9 17
10 17
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14 17
CFR 240.17Ad–22(e)(23)(i).
CFR 240.17Ad–22(e)(23)(ii).
16 17 CFR 240.17Ad–22(e)(3)(ii), (e)(4)(viii),
(e)(4)(ix) and (e)(7)(ix).
15 17
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(c) Delineate between the obligation of
a Clearing Member to replenish its
contributions to the Clearing Fund and
its obligations to meet additional
‘‘assessments’’ that may be levied
following a proportionate charge to the
Clearing Fund.
(2) Adopt a new Rule 1009 that would
provide OCC with discretionary
authority to call for voluntary payments
from non-defaulting Clearing Members
in a circumstance where one or more
Clearing Members has already defaulted
and OCC has determined that it may not
have sufficient resources to satisfy its
obligations and liabilities resulting from
such default. Rule 1009 also would
establish that OCC would prioritize
compensation of Clearing Members that
made voluntary payments from any
amounts recovered from the defaulted
Clearing Members.
(3) Adopt a new Rule 1111 that would
provide authority to:
(a) Allow OCC to call for voluntary
tear-ups (‘‘Voluntary Tear-Up,’’ as
defined below) of non-defaulting
Clearing Member and/or customer
positions at any time following the
suspension or default of a Clearing
Member, with the scope of any such
Voluntary Tear-Ups being determined
by the Risk Committee of OCC’s Board
(‘‘Risk Committee’’);
(b) Allow OCC’s Board to vote to tearup the ‘‘Remaining Open Positions’’
(defined below) of a defaulted Clearing
Member, as well as any ‘‘Related Open
Positions’’ (defined below) in a
circumstance where OCC has attempted
one or more auctions of such defaulted
Clearing Member’s remaining open
positions and OCC has determined that
it may not have sufficient resources to
satisfy its obligations and liabilities
resulting from such default with the
scope of any such tear-up (‘‘Partial TearUp’’) being determined by the Risk
Committee; and
(c) Allow OCC’s Board to vote to reallocate losses, costs and fees imposed
upon holders of positions extinguished
in a Partial Tear-Up through a special
charge levied against remaining nondefaulting Clearing Members.
(4) Revise the descriptions and
authorizations in Article VIII of OCC’s
By-Laws concerning the use of the
Clearing Fund to reflect the discretion of
OCC to use remaining Clearing Fund
contributions to re-allocate losses
imposed on non-defaulting Clearing
Members and customers from a
Voluntary Tear-Up or a mandatory tearup (‘‘Partial Tear-Up,’’ as defined
below).
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Discussion of Proposed Changes
Each of the proposed revisions to
OCC’s Rules and By-Laws is described
in more detail in the following subsections:
Thus, withdrawal from clearing
membership is the only means by which
a Clearing Member currently can limit
its liability for replenishing the Clearing
Fund.
1. Proposed Changes to OCC’s
Assessment Powers
b. Proposed Changes to Assessment
Powers
OCC proposes to amend Section 6 of
Article VIII of OCC’s By-Laws to make
three primary modifications regarding
its existing authority to assess
proportionate charges against Clearing
Members’ contributions to the Clearing
Fund. First, the proposal introduces an
automatic minimum fifteen calendar
day ‘‘cooling-off’’ period that begins
when a proportionate charge is assessed
by OCC against Clearing Members’
Clearing Fund contributions. While the
cooling-off period will continue for a
minimum of fifteen consecutive
calendar days, if one or more of the
events described in clauses (i) through
(iv) of Article VIII, Section 5(a) of OCC’s
By-Laws occur(s) during that fifteen
calendar day period and result in one or
more proportionate charges against the
Clearing Fund, the cooling-off period
shall be extended through either (i) the
fifteenth calendar day from the date of
the most recent proportionate charge
resulting from the subsequent event, or
(ii) the twentieth day from the date of
the proportionate charge that initiated
the cooling-off period, whichever is
sooner.
During a cooling-off period, each
Clearing Member would have its
aggregate liability to replenish the
Clearing Fund capped at 200% of the
Clearing Member’s then-required
contribution to the Clearing Fund. Once
the cooling-off period ends each
remaining Clearing Member would be
required to replenish the Clearing Fund
in the amount necessary to meet its
then-required contribution. Once the
cooling-off period ends, any remaining
losses or expenses suffered by OCC as
a result of any event described in
clauses (i) through (iv) of Article VIII,
Section 5(a) of OCC’s By-Laws that
occurred during such cooling-off period
could not be charged against the
amounts Clearing Members have
contributed to replenish the Clearing
Fund upon the expiration of the
cooling-off period.18
Second, in connection with the
cooling-off period, the proposal would
a. Current Assessment Powers
OCC’s current assessment powers are
described in Section 6 of Article VIII of
OCC’s By-Laws. Section 6 establishes a
general requirement for each Clearing
Member to promptly make good any
deficiency in its required contribution
to the Clearing Fund whenever an
amount is paid out of its Clearing Fund
contribution (whether by proportionate
charge or otherwise).17 In this regard, a
Clearing Member’s obligation to
replenish the Clearing Fund is not
currently subject to any pre-determined
limit. Notwithstanding the foregoing, a
Clearing Member can limit the amount
of its liability for replenishing the
Clearing Fund (at an additional 100% of
the amount of its then-required Clearing
Fund contribution) by winding-down its
clearing activities and terminating its
status as a Clearing Member. Any
Clearing Member seeking to so limit its
liability for replenishing the Clearing
Fund must: (i) Notify OCC in writing
not later than the fifth business day after
the proportionate charge that it is
terminating its status as a Clearing
Member, (ii) not initiate any opening
purchase or opening writing transaction,
and, if the Clearing Member is a Market
Loan Clearing Member or a Hedge
Clearing Member, not initiate any Stock
Loan transaction, through any of its
accounts, and (iii) close out or transfer
all of its open positions as promptly as
practicable after giving notice to OCC.
17 Under Article VIII, Section 6 of OCC’s By-Laws,
OCC currently has authority to assess proportionate
charges against Clearing Members’ contributions to
the Clearing Fund in certain enumerated situations.
For example, Section 6 generally provides that if
the conditions regarding a Clearing Member default
specified in subparagraphs (a)(i) through (vi) of
Article VIII, Section 5 of OCC’s By-Laws are
satisfied, OCC will make good resulting losses or
expenses that are suffered by OCC by applying the
defaulting Clearing Member’s Clearing Fund
contribution after first applying other funds
available to OCC in the accounts of the Clearing
Member. If the sum of the obligations, however,
exceeds the total Clearing Fund contribution and
other funds of the defaulting Clearing Member
available to OCC, then OCC will charge the amount
of the remaining deficiency on a proportionate basis
against all non-defaulting Clearing Members’
required contributions to the Clearing Fund at the
time. Section 5(b) of Article VIII of OCC’s By-Laws
similarly provides for proportionate charges against
Clearing Members’ contributions to the Clearing
Fund when certain conditions are met that involve
a failure by a bank or a securities or commodities
clearing organization to perform obligations to OCC
when they are due.
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18 After a cooling-off period has ended, the
occurrence of any event described in clauses (i)
through (iv) of Article VIII, Section 5(a) of OCC’s
By-Laws that results in a proportionate charge
against the Clearing Fund would trigger a new
cooling off period, and thusly, a cap of 200% of
each Clearing Member’s then-required contribution
would again apply.
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extend the time frame within which a
Clearing Member may provide a
termination notice to OCC to avoid
liability for replenishment of the
Clearing Fund after the cooling-off
period and would modify the
obligations of such a terminating
Clearing Member for closing-out and
transferring its remaining open
positions. Specifically, to effectively
terminate its status as a Clearing
Member and not be liable for
replenishing the Clearing Fund after the
cooling-off period, a Clearing Member
would be required to: (i) Notify OCC in
writing of its intent to terminate not
later than the last day of the cooling-off
period, (ii) not initiate any opening
purchase or opening writing transaction,
and, if the Clearing Member is a Market
Loan Clearing Member or a Hedge
Clearing Member, not initiate any Stock
Loan transaction, through any of its
accounts, and (iii) close-out or transfer
all of its open positions by no later than
the last day of the cooling-off period. If
a Clearing Member fails to satisfy all of
these conditions by the end of a given
cooling-off period, it would not have
completed all of the requirements
necessary to terminate its status as a
Clearing Member under Article VIII,
Section 6 of OCC’s By-Laws and
therefore it would remain subject to the
obligation to replenish the Clearing
Fund after the end of the cooling-off
period.
Third, the proposal would clarify the
distinction between ‘‘replenishment’’ of
the Clearing Fund and a Clearing
Member’s obligation to answer
‘‘assessments.’’ In this context, the term
‘‘replenish’’ (and its variations) shall to
refer to a Clearing Member’s standing
duty, following any proportionate
charge against the Clearing Fund, to
return its Clearing Fund contribution to
the amount required from such Clearing
Member for the month in question.19
The term ‘‘assessment’’ (and its
variations) shall refer to the amount,
during any cooling-off period, that a
Clearing Member would be required to
contribute to the Clearing Fund in
excess of the amount of the Clearing
Member’s pre-funded required Clearing
Fund contribution.
19 This assumes that the proportionate charge
resulted in the Clearing Member’s actual Clearing
Fund contribution dropping below the amount of
its required contribution (i.e., that the Clearing
Member did not have excess above its required
contribution that was sufficient to cover the amount
of the proportionate charge allocated to such
Clearing Member).
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Proposed Addition of Ability To
Request Voluntary Payments
OCC proposes to add new Rule 1009,
which will provide a framework by
which OCC could receive voluntary
payments in a circumstance where a
Clearing Member has defaulted and
OCC has determined that,
notwithstanding the availability of any
remaining resources under OCC Rules
707, 1001, 1104 through 1107, 2210 and
2211,20 OCC may not have sufficient
resources to satisfy its obligations and
liabilities resulting from such default.
Under new Rule 1009, OCC will initiate
a call for voluntary payments by issuing
a ‘‘Voluntary Payment Notice’’ inviting
all non-defaulting Clearing Members to
make payments to the Clearing Fund in
addition to any amounts they are
otherwise required to contribute
pursuant to Rule 1001. The Voluntary
Payment Notice would specify the terms
applicable to any voluntary payment,
including but not limited to, that any
voluntary payment may not be
withdrawn once made, that no Clearing
Member shall be obligated to make a
voluntary payment and that OCC shall
retain full discretion to accept or reject
any voluntary payment. Rule 1009
specifies that if OCC subsequently
recovers from the defaulted Clearing
Member or the estate(s) of the defaulted
Clearing Member(s), OCC would seek to
compensate first from such recovery all
non-defaulting Clearing Members that
made voluntary payments (and if the
amount recovered from the defaulted
Clearing Member(s) is less than the
aggregate amount of voluntary
payments, non-defaulting Clearing
Members that made voluntary payments
each would receive a percentage of the
recovery that corresponds to that
Clearing Member’s percentage of the
total amount of voluntary payments
received).
Proposed Addition of Ability To
Conduct Voluntary Tear-Ups
OCC proposes to add new Rule 1111,
which, in relevant part, will establish a
framework by which non-defaulting
Clearing Members and non-defaulting
customers of Clearing Members could be
given an opportunity to voluntarily
extinguish (i.e., voluntarily tear-up)
their open positions at OCC in a
circumstance where a Clearing Member
has defaulted and OCC has determined
20 Rule 707 addresses the treatment of funds in a
Clearing Member’s X–M accounts. Rule 1001
addresses the size of OCC’s Clearing Fund and the
amount of a Clearing Member’s contribution. Rules
1104 through 1107 concern the treatment of the
portfolio of a defaulted Clearing Member. Rules
2210 and 2211 concern the treatment of Stock Loan
positions of a defaulted Clearing Member.
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that, notwithstanding the availability of
any remaining resources under OCC
Rules 707, 1001, 1104 through 1107,
2210 and 2211, OCC may not have
sufficient resources to satisfy its
obligations and liabilities resulting from
such default.
While Risk Committee approval is not
needed to commence a voluntary tearup, the Risk Committee would be
responsible for determining the
appropriate scope of each voluntary
tear-up. To ensure OCC retains
sufficient flexibility to effectively
deploy this tool in an extreme stress
event, proposed Rule 1111(c) is drafted
to provide the Risk Committee with
discretion to determine the appropriate
scope of each voluntary tear-up.21 New
Rule 1111(c) also would impose
standards designed to circumscribe the
Risk Committee’s discretion, requiring
that any determination regarding the
scope of a voluntary tear-up shall (i) be
based on 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.
Once the Risk Committee has
determined the scope of the Voluntary
Tear-Up, OCC will initiate the call for
voluntary tear-ups by issuing a
‘‘Voluntary Tear-Up Notice.’’ The
Voluntary Tear-Up Notice shall inform
all non-defaulting Clearing Members of
the opportunity to participate in a
Voluntary Tear-Up.22 The Voluntary
Tear-Up Notice would specify the terms
applicable to any voluntary tear-up,
including but not limited to, that no
Clearing Member or customers of a
Clearing Member shall be obligated to
participate in a voluntary tear-up and
that OCC shall retain full discretion to
accept or reject any voluntary tear-up.
OCC is not proposing a tear-up
process that would require the
imposition of ‘‘gains haircutting’’ (i.e.,
the reduction of unpaid gains) on a
portion of OCC’s cleared contracts.23
21 Notwithstanding the discretion that would be
afforded by the text of proposed Rule 1111(c), OCC
anticipates that the scope of voluntary tear-ups
likely would be dictated by the cleared contracts
remaining in the portfolio(s) of the defaulted
Clearing Member(s).
22 Since OCC does not know the identities of
Clearing Members’ customers, OCC would depend
on each Clearing Member to notify its customers
with positions in scope of the Voluntary Tear-Up
of the opportunity to participate in such tear-up.
23 In general, forced gains haircutting is a tool that
can be more easily applied to products whose gains
are settled at least daily, like futures through an
exchange of variation margin, and by central
counterparties with comparatively large daily
settlement flows. Listed options, which constitute
the vast majority of the contracts cleared by OCC,
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Instead, OCC has determined that its
tear-up process—for both Voluntary
Tear-Ups as well as Partial Tear-Ups—
should be initiated on a date sufficiently
in advance of the exhaustion of OCC’s
financial resources such that OCC
would be expected to have adequate
remaining resources to cover the
amount it must pay to extinguish the
positions of Clearing Members and
customers without haircutting gains.24
In OCC’s proposed tear-up process,
the holders of torn-up positions would
be assigned a Tear-Up Price and OCC
would draw on its remaining financial
resources in order to extinguish the
torn-up positions at the assigned TearUp Price without forcing a reduction in
the amount unpaid gains on such
positions. The proposed changes would
provide OCC with two separate and
non-exclusive means of equitably reallocating the losses, costs or expenses
imposed upon the holders of torn-up
positions as a result of the tear-up(s).
First, the proposed changes to Article
VIII would provide OCC discretion to
use remaining Clearing Fund
contributions to re-allocate losses
imposed on non-defaulting Clearing
Members and customers from such tearup(s). Second, Rule 1111(a) would
provide that if OCC subsequently
recovers from the defaulted Clearing
Member or the estate(s) of the defaulted
Clearing Member(s) and the amount of
such recovery exceeds the amount OCC
received in voluntary payments, then
non-defaulting Clearing Members and
non-defaulting customers that
voluntarily tore-up open positions and
incurred losses from such tear-ups
would be repaid from the amount of the
recovery in excess of the amount OCC
received in voluntary payments.25 If the
do not have daily settlement flows and any attempt
to reduce the ‘‘unrealized gains’’ of a listed options
contract would require the reduction of the option
premium that is embedded within the required
margin (such a process would effectively require
haircutting the listed option’s initial margin).
24 OCC anticipates that it would determine the
date on which to initiate Partial Tear-Ups by
monitoring its remaining financial resources against
the potential exposure of the remaining
unauctioned positions from the portfolio(s) of the
defaulted Clearing Member(s).
25 In order to effect re-allocation of the losses,
costs or expenses imposed upon the holders of tornup positions, OCC expects that after it has
completed its tear-up process and re-established a
matched book, holders of both voluntarily torn-up
and mandatorily torn-up positions would be
provided with a limited opportunity to re-establish
positions in the contracts that were voluntarily or
mandatorily extinguished. After the expiration of
such period, OCC would seek to collect the
information on the losses, costs or expenses that
had been imposed on the holders of torn-up
positions. Based on the information collected, OCC
would determine whether it can reasonably
determine the losses, costs and expenses
sufficiently to re-allocate such amounts.
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amount recovered is less than the
aggregate amount of Voluntary Tear-Up,
each non-defaulting Clearing Member
and non-defaulting customer that
incurred losses from voluntarily torn-up
positions would be repaid in an amount
proportionate to the percentage of its
total amount of losses, costs and fees
imposed on Clearing Members or
customers as a result of the Voluntary
Tear-Ups.
With respect to Voluntary Tear-Ups,
new Rule 1111(h) would clarify that no
action or omission by OCC pursuant to
and in accordance with Rule 1111 shall
constitute a default by OCC.
Proposed Addition of Ability To
Conduct Partial Tear-Ups
OCC proposes to add new Rule 1111,
which, in relevant part, will provide the
Board with discretion to extinguish the
remaining open positions of any
defaulted Clearing Member or customer
of such defaulted Clearing Member(s)
(such positions, ‘‘Remaining Open
Positions’’), as well as any related open
positions as necessary to mitigate
further disruptions to the markets
affected by the Remaining Open
Positions (such positions, ‘‘Related
Open Positions’’), in a circumstance
where a Clearing Member has defaulted
and OCC has determined that,
notwithstanding the availability of any
remaining resources under OCC Rules
707, 1001, 1104 through 1107, 2210 and
2211, OCC may not have sufficient
resources to satisfy its obligations and
liabilities resulting from such default
(such tear-ups hereinafter collectively
referred to as ‘‘Partial Tear-Ups’’). Like
the determination for Voluntary TearUps, the Risk Committee shall
determine the appropriate scope of each
Partial Tear-Up and such determination
shall (i) be based on 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. Once the Risk
Committee has determined the scope of
the Partial Tear-Up, OCC will initiate
the Partial Tear-Up process by issuing a
‘‘Partial Tear-Up Notice.’’ The Partial
Tear-Up Notice shall (i) identify the
Remaining Open Positions and Related
Open Positions designated for tear-up,
(ii) identify the open positions of nondefaulting Clearing Members and nondefaulting customers that will be subject
to Partial Tear-Up (such positions,
‘‘Tear-Up Positions’’), (iii) specify the
termination price (‘‘Partial Tear-Up
Price’’) for each position to be torn-up,
and (iv) list the date and time as of
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61111
which the Partial Tear-Up will occur.26
With regard to the date and time of a
Partial Tear-Up, Rule 1111(d) specifies
that the Risk Committee shall set the
date and time. With regard to the Partial
Tear-Up Price, OCC anticipates that it is
likely to use the last established end-ofday settlement price, in accordance with
its existing practices concerning pricing
and valuation. However, given that it is
not possible to know in advance the
precise circumstances that would cause
OCC to conduct a tear-up, Rule 1111(f)
has been drafted to allow OCC to
exercise reasonable discretion, if
necessary, in establishing the Partial
Tear-Up Price by some means other than
its existing practices concerning pricing
and valuation. Specifically, Rule 1111(f)
would require that OCC, in exercising
any such discretion, would act in good
faith and in a commercially reasonable
manner to adopt methods of valuation
expected to produce reasonably accurate
substitutes for the values that would
have been obtained from the relevant
market if it were operating normally,
including but not limited to the use of
pricing models that use the market price
of the underlying interest or the market
prices of its components. Rule 1111(f)
further specifies that OCC may consider
the same information set forth in
subpart (c) of Section 27, Article VI of
OCC’s By-Laws.27
The scope of any Partial Tear-Up will
be determined in accordance with Rule
1111(e). With respect to the
extinguishment of Remaining Open
Positions, OCC will designate Tear-Up
Positions in identical Cleared Contracts
and Cleared Securities on the opposite
side of the market and in an aggregate
amount equal to that of the Remaining
26 Since OCC does not know the identities of
Clearing Members’ customers, OCC would depend
on each Clearing Member to notify its customers
with positions in scope of the Partial Tear-Up of the
possibility of tear-up.
27 In relevant part, subpart (c) reads as follows:
‘‘In determining a close-out amount, the
Corporation may consider any information that it
deems relevant, including, but not limited to, any
of the following: (1) Prices for underlying interests
in recent transactions, as reported by the market or
markets for such interests; (2) quotations from
leading dealers in the underlying interest, setting
forth the price (which may be a dealing price or an
indicative price) that the quoting dealer would
charge or pay for a specified quantity of the
underlying interest; (3) relevant historical and
current market data for the relevant market,
provided by reputable outside sources or generated
internally; and (4) values derived from theoretical
pricing models using available prices for the
underlying interest or a related interest and other
relevant data. Amounts stated in a currency other
than U.S. Dollars shall be converted to U.S. Dollars
at the current rate of exchange, as determined by
the Corporation. A position having a positive closeout value shall be an ‘asset position’ and a position
having a negative close-out value shall be a ‘liability
position.’ ’’
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Open Positions. OCC will only
designate Tear-Up Positions in the
accounts of non-defaulting Clearing
Members (inclusive of such Clearing
Members’ customer accounts) with an
open position in the applicable Cleared
Contract or Cleared Security and of nondefaulted customers of a defaulted
Clearing Member. Tear-Up Positions
shall be designated and applied by OCC
on a pro rata basis across all the
identical positions in Cleared Contracts
and Cleared Securities on the opposite
side of the market in the accounts of
non-defaulted Clearing Members and
non-defaulted customers (including the
non-defaulted customers of defaulted
Clearing Members).
Rule 1111(e)(iii) provides that every
Partial Tear-Up position is
automatically terminated upon and with
effect from the Partial Tear-Up Time,
without the need for any further step by
any party to such Cleared Contract or
Cleared Security, and that upon
termination, either OCC or the relevant
Clearing Member (as the case may be)
shall be obligated to pay the other the
applicable Partial Tear-Up Price. Rule
1111(e)(iii) further provides that the
corresponding open position shall be
deemed terminated at the Partial TearUp Price.
Rule 1111(g) provides that to the
extent losses imposed upon nondefaulting Clearing Members and nondefaulting customers resulting from a
Partial Tear-Up can reasonably be
determined, the Board may elect to reallocate such losses among all nondefaulting Clearing Members through a
special charge to all non-defaulting
Clearing Members in an amount
corresponding to each such nondefaulting Clearing Member’s
proportionate share of the variable
amount of the Clearing Fund at the time
such Partial Tear-Up is conducted.28
With respect to Partial Tear-Ups, new
Rule 1111(h) would clarify that no
action or omission by OCC pursuant to
and in accordance with Rule 1111 shall
constitute a default by OCC.
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2. Statutory Basis
Section 17A(b)(3)(F) of the Securities
Exchange Act of 1934 (‘‘Act’’),29
requires, among other things, that the
rules of a clearing agency be designed to
foster cooperation and coordination
with persons engaged in the clearance
28 For the avoidance of doubt, the special charge
would be distinct and separate from a Clearing
Member’s obligation to satisfy Clearing Fund
assessments, and therefore, would not be subject to
the aforementioned assessment cap in the amount
of 200% of a Clearing Member’s then-required
contribution to the Clearing Fund.
29 15 U.S.C. 78q–1(b)(3)(F).
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and settlement of securities
transactions, to remove impediments to
and perfect the mechanism of a national
system for the prompt and accurate
clearance and settlement of securities
transactions, and, in general, to protect
investors and the public interest. OCC
believes that the proposed rule change
is consistent with the requirements of
Section 17A(b)(3)(F) of the Act 30 and
the rules thereunder applicable to OCC
for the reasons set forth below.
As stated above, each of the changes
is designed to provide OCC with tools
to address the risks OCC might confront
in a recovery and orderly wind-down
scenario. In this regard, the proposed
changes are designed to further address
the risks of liquidity shortfalls and
credit losses resulting from a Clearing
Member default or certain other loss
events and to establish tools to enable
OCC to re-establish a matched book and
limit OCC’s potential exposure to losses
from a Clearing Member default, in each
case as might result from an
unprecedented loss scenario that
exceeds OCC’s standard risk
management and default management
procedures. OCC’s process in crafting
the proposed changes was informed by
published guidance from OCC’s primary
regulators (the Commission and the
Commodity Futures Trading
Commission), the publications of key
international organizations (including
the Bank for International Settlements,
the International Organization of
Securities Commissions and the
Financial Stability Board) and the
publications of key industry trade
organizations. OCC’s proposal was
further informed by conversations with,
among others, OCC’s Board, OCC’s Risk
Committee, Clearing Members and
market participants.
Informed by these perspectives, OCC
has crafted the proposed changes with
the aim of enhancing its ability to
address an unprecedented loss event but
also, to the extent possible, providing a
reasonable amount of certainty to
Clearing Members, customers and other
stakeholders about the potential
consequences of such an event and the
resources and tools that would be
expected to be available to OCC in
support of its clearing operations.31
Accordingly, the proposed changes
should leave Clearing Members,
customers and other stakeholders in a
position to better evaluate the risks and
benefits of clearing in order to facilitate
30 Id.
31 OCC notes that the very nature of an extreme
stress and unprecedented loss event means that its
impact is difficult to predict and quantify in
advance.
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their own risk management, and to the
extent applicable, their own regulatory
and capital considerations. The
proposed changes also seek to avoid a
result that would force only particular
clearing participants to shoulder certain
losses in an extreme stress scenario (i.e.,
holders of positions extinguished in
Partial Tear-Ups),32 and instead leaves
OCC and its Board with discretionary
tools that could provide a more
equitable method of allocating the losses
from such an event more broadly,
consistent with the general principle of
mutualized loss upon which central
clearing rests. In this regard, OCC
believes the proposed changes foster
cooperation and coordination with
participants in the clearing system,
consistent with Section 17A(b)(3)(F) of
the Act.33
As stated above, the proposed changes
are designed to enable OCC to further
address the risks of liquidity shortfalls
and credit losses resulting from a
Clearing Member default or certain
other loss events and to re-establish a
matched book and limit OCC’s potential
exposure to losses from a Clearing
Member default, in each case as might
result from an unprecedented loss
scenario that exceeds OCC’s standard
risk management and default
management procedures. OCC believes
that the proposed changes will facilitate
its ability to fully allocate, and
ultimately extinguish, the loss so that it
has a better opportunity of withstanding
an extreme stress scenario without
sacrificing its viability as a going
concern or its ability to continue to
provide its critical clearing services. In
this regard, OCC believes that the
proposed changes remove impediments
to and perfect the mechanism of a
national system for the prompt and
accurate clearance and settlement of
securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.34
The proposed changes are designed to
enhance the stability of the clearing
system generally and are aimed at
ensuring that OCC has adequate tools
and resources to better protect market
participants from the risks of extreme
stress scenarios and unprecedented loss
events. In this regard, OCC believes that
the proposed changes are reasonably
designed to protect investors and the
public interest, consistent with Section
17A(b)(3)(F) of the Act.35
32 Absent a means of re-allocating the potential
losses, costs and fees imposed upon holders of
positions extinguished during tear-ups, the holders
of such positions would be left to individually
address such losses, costs and fees.
33 15 U.S.C. 78q–1(b)(3)(F).
34 Id.
35 Id.
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The proposed changes also are
designed to further OCC’s compliance,
in whole or in part, with the provisions
of the Commission’s rules discussed
immediately below:
Recovery and Orderly Wind-Down
In relevant part, Rule 17Ad–
22(e)(3)(ii) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . plan[ ] for
the recovery and orderly wind-down of
the [CCA] necessitated by credit losses,
liquidity shortfalls, losses from general
business risk, or any other losses.’’ 36 As
stated above, each of the proposed
changes is designed to provide OCC
with tools to address the risks OCC
might confront in a recovery and orderly
wind-down scenario.37 Consistent with
the requirements of Rule 17Ad–
22(e)(3)(ii), the proposed tools would
enable OCC to better address the risks
of liquidity shortfalls and credit losses
resulting from a Clearing Member
default or certain other loss events and,
if necessary, to ultimately re-establish a
matched book in a recovery or orderly
wind-down scenario.38 In this context,
the proposed changes serve as a critical
component of OCC’s recovery and
orderly wind-down plan. As a result, in
OCC’s view, the proposed changes are
consistent with the requirements of Rule
17Ad–22(e)(3)(ii) as to the recovery and
orderly wind-down plan.39
Allocation of Credit Losses Above
Available Resources
In relevant part, Rule 17Ad–
22(e)(4)(viii) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [a]ddress[ ]
allocation of credit losses the [CCA] may
face if its collateral and other resources
are insufficient to fully cover its credit
exposures . . .’’ 40 The proposed
changes would provide OCC with three
distinct tools that could be used to
allocate any credit losses OCC may face
in excess of collateral and other
resources available to OCC. First, new
Rule 1009 would provide a framework
by which OCC could receive voluntary
payments in a circumstance where a
Clearing Member has defaulted and
36 17
CFR 240.17Ad–22(e)(3)(ii).
the OCC’s separately filed recovery and
orderly wind-down plan identifies OCC’s
assessment powers, ability to call for voluntary
payments, ability to call for Voluntary Tear-Ups and
ability to impose Partial Tear-Ups among its
‘‘Recovery Tools.’’ OCC has filed a proposed rule
change with the Commission in connection with
this proposal. See SR–OCC–2017–021.
38 17 CFR 240.17Ad–22(e)(3)(ii).
39 17 CFR 240.17Ad–22(e)(3)(ii).
40 17 CFR 240.17Ad–22(e)(v)(viii).
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37 Indeed,
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OCC has determined that,
notwithstanding the availability of any
remaining resources under OCC Rules
707, 1001, 1104 through 1107, 2210 and
2211,41 OCC may not have sufficient
resources to satisfy its obligations and
liabilities resulting from such default.
Second, new Rule 1111 would establish
a framework by which non-defaulting
Clearing Members and non-defaulting
customers of Clearing Members could be
given an opportunity to participate in
Voluntarily Tear-Ups in a circumstance
where a Clearing Member has defaulted
and OCC has determined that,
notwithstanding the availability of any
remaining resources under OCC Rules
707, 1001, 1104 through 1107, 2210 and
2211, OCC may not have sufficient
resources to satisfy its obligations and
liabilities resulting from such default.
Finally, new Rule 1111 also would
provide the Board with discretion to
mandatorily tear-up Remaining Open
Positions and Related Open Positions,
in a circumstance where a Clearing
Member has defaulted and OCC has
determined that, notwithstanding the
availability of any remaining resources
under OCC Rules 707, 1001, 1104
through 1107, 2210 and 2211, OCC may
not have sufficient resources to satisfy
its obligations and liabilities resulting
from such default.42 In OCC’s view,
each of these tools could be deployed by
OCC, if necessary, to allocate credit
losses in excess of the collateral and
other resources available to OCC, in
accordance with Rule 17Ad–
22(e)(4)(viii).43
Replenishment of Financial Resources
Following a Default
In relevant part, Rule 17Ad–
22(e)(4)(ix) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [d]escrib[e]
the [CCA’s] process to replenish any
financial resources it may use following
a default or other event in which use of
such resources is contemplated.’’ 44
OCC’s Clearing Members have a
standing obligation to replenish the
41 Rule 707 addresses the treatment of funds in a
Clearing Member’s X–M accounts. Rule 1001
addresses the size of OCC’s Clearing Fund and the
amount of a Clearing Member’s contribution. Rules
1104 through 1107 concern the treatment of the
portfolio of a defaulted Clearing Member. Rules
2210 and 2211 concern the treatment of Stock Loan
positions of a defaulted Clearing Member.
42 Rule 1111(g), which would provide the Board
authority to equitably re-allocate losses, costs and
fees directly imposed as a result of a Partial TearUp among all non-defaulting Clearing Members
through a special charge, would serve as a
discretionary tool to redistribute the credit losses
allocated through Partial Tear-Up.
43 17 CFR 240.17Ad–22(e)(v)(viii).
44 17 CFR 240.17Ad–22(e)(4)(ix).
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61113
Clearing Fund following any
proportionate charge. The proposed
changes would establish a rolling
cooling-off period, triggered by the
payment of a proportionate charge
against the Clearing Fund, during which
period the aggregate liability of a
Clearing Member to replenish the
Clearing Fund (inclusive of
assessments) would be 200% of the
Clearing Member’s required
contribution as of the time immediately
preceding the triggering proportionate
charge. Compared to the current
requirement under which a Clearing
Member may cap its liability to
proportionate charges at an additional
100% of its then-required contribution,
a Clearing Member would instead be
permitted to cap its liability for
proportionate charges at an additional
200% of its then-required Clearing Fund
contribution.
OCC believes that the proposed
approach improves predictability for
OCC and for Clearing Members
regarding the size of Clearing Fund
contributions that are likely to be
subject to assessments for proportionate
charges. Additionally, replacing the five
business day withdrawal period with
the withdrawal period commensurate
with the cooling-off period (which, as
proposed would be a minimum of
fifteen calendar days) would give
Clearing Members a more reasonable
period in which to meet the wind-down
and termination requirements necessary
to cap their liability. OCC believes that
this would afford them greater certainty
regarding their maximum liability with
respect to the Clearing Fund during
extreme stress events, which in turn,
facilitates Clearing Members’
management of their own risk
management, and to the extent
applicable, regulatory capital
considerations. And OCC believes this
increased predictability would also be
beneficial to OCC by helping it to more
reliably understand the amount of
Clearing Fund contributions that will
likely be available to it after a
proportionate charge is assessed.45
OCC believes that the relative
certainty provided by the proposed
cooling-off period and 200% cap on
assessments ultimately could reduce the
risks of successive or ‘‘cascading’’
defaults, in which the financial
demands on remaining non-defaulting
Clearing Members to continually
replenish OCC’s Clearing Fund (and
similar guaranty funds at other CCPs to
45 Under the existing approach, it is less certain
from OCC’s standpoint regarding whether Clearing
Members would reasonably be able to cap their
liability to proportionate charges within five
business days.
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which such Clearing Members might
belong) have the effect of further
weakening such Clearing Members to
the point of default. In this regard, the
proposed changes are designed to
provide OCC, Clearing Members and
other stakeholders with sufficient time
to manage the ongoing default(s)
without further aggravating the extreme
stresses facing market participants.
OCC recognizes that the proposed
changes would limit the maximum
amount of Clearing Fund resources that
could be available to OCC in an extreme
stress scenario, which introduces the
possibility, however remote, that the
proposed 200% cap ultimately could be
reached. If during any cooling-off period
the amount of aggregate proportionate
charges against the Clearing Fund
approaches the 200% cap, the amount
remaining in the Clearing Fund may no
longer be sufficient to comply with the
applicable minimum regulatory
financial resources requirements in the
CCAs. In any such event, OCC’s existing
authority under Rule 603 would permit
OCC to call on participants for
additional initial margin, which could
ensure that OCC’s minimum financial
resources remain in excess of applicable
CCA requirements.46 OCC recognizes
that the imposition of increased margin
requirements could have an immediate
pro-cyclical impact on participants (and
consequential impacts on the broader
financial system) that is potentially
greater than the impact of replenishing
the Clearing Fund. These risks would be
limited to a specific extreme stress event
and could be mitigated by certain
factors. First, OCC, in coordination with
its regulators, would carefully evaluate
any potential increase in the context of
then-existing facts and circumstances.
Second, during the cooling-off period,
Clearing Members and their customers
will have the opportunity to reduce or
rebalance their respective portfolios in
order to mitigate their exposures to
stress losses and initial margin
increases. Finally, since initial margin is
not designed to be subject to mutualized
loss, the risk of loss faced by Clearing
Members for amounts posted as
additional margin would be
substantially less than for
replenishments of the Clearing Fund.
Given the products cleared by OCC
and the composition of its clearing
membership, OCC has determined that
a minimum 15-calendar day cooling-off
46 Rule 603 provides that ‘‘[t]he Risk Committee
may, from time to time, increase the amount of
margin which may be required in respect of a
cleared contract, open short position or exercised
contract if, in its discretion, it determines that such
increase is advisable for the protection of [OCC], the
Clearing Members or the general public.’’
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period, rolling up to a maximum of 20
calendar days, is likely to be a sufficient
amount of time for OCC to manage the
ongoing default(s) and take necessary
steps in furtherance of stabilizing the
clearing system. Further, through
conversations with Clearing Members,
OCC believes that the proposed coolingoff period is likely to be a sufficient
amount for Clearing Members (and their
customers) to orderly reduce or
rebalance their positions, in an attempt
to mitigate stress losses and exposure to
potential initial margin increases as they
navigate the stress event. Through
conversations with Clearing Members,
OCC also believes that the proposed
cooling-off period is likely to be a
sufficient amount for certain Clearing
Members to orderly close-out their
positions and transfer customer
positions as they withdraw from
clearing membership. OCC believes the
proposed cooling-off period, coupled
with the other proposed changes to
OCC’s assessment powers, is likely to
provide Clearing Members with an
adequate measure of stability and
predictability as to the potential use of
Clearing Fund resources, which OCC
believes removes the existing incentive
for Clearing Members to withdraw
following a proportionate charge.47
In light of the foregoing, OCC believes
that the proposed changes would
enhance and strengthen its process to
replenish the Clearing Fund following a
default or other event in which use of
the Clearing Fund is contemplated, in
accordance with Rule 17Ad–
22(e)(4)(ix).48
Replenishment of Liquid Resources
In relevant part, Rule 17Ad–
22(e)(7)(ix) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [d]escrib[e]
the [CCA’s] process to replenish any
liquid resources that the clearing agency
may employ during a stress event.’’ 49
Since the use any part of the cash
portion of OCC’s Clearing Fund would
constitute a depletion of one of OCC’s
liquid resources, OCC’s assessment
power, discussed above, is the primary
means of replenishing the Clearing
Fund cash that OCC used to address the
47 OCC initially considered a fixed 15-calendar
day cooling-off period; however, OCC concluded
that a fixed 15-calendar day cooling-off period may
increase the risks of successive or cascading
Clearing Member defaults and may perversely
incentivize Clearing Members to seek to withdraw
from clearing membership. Through conversations
with Clearing Members, OCC believes that these
potentially disruptive consequences are mitigated
by the proposed rolling cooling-off period.
48 17 CFR 240.17Ad–22(e)(4)(ix).
49 17 CFR 240.17Ad–22(e)(7)(ix).
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Sfmt 4703
stress event. For the same reasons stated
above, OCC believes that the proposed
changes enhance and strengthen its
process to replenish the Clearing Fund,
as necessary, following a default or
other stress event in which the Clearing
Fund is used, and therefore, OCC views
the proposed changes as consistent with
Rule 17Ad–22(e)(7)(ix).50
Timely Action To Contain Losses
In relevant part, Rule 17Ad–22(e)(13)
requires that each CCA ‘‘establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to . . . [e]nsure the
[CCA] has the authority and operational
capacity to take timely action to contain
losses and liquidity demands and
continue to meet its obligations . . .’’ 51
The proposed changes would provide
OCC with the authority to call for
Voluntary Tear-Ups and OCC’s Board
with the discretion to impose Partial
Tear-Ups, which would provide OCC
with authority necessary to extinguish
certain losses (and attendant liquidity
demands) thereby potentially enabling
OCC to continue to meet its remaining
obligations to participants. As designed,
Voluntary Tear-Ups and Partial TearUps would be initiated on a date
sufficiently in advance of the
exhaustion of OCC’s financial resources
such that OCC is expected to have
adequate resources remaining to cover
the amount it must pay to extinguish the
positions of Clearing Members and
customers without haircutting gains.
Accordingly, OCC believes that its
authority and capacity to conduct a
Partial Tear-Up should be timely,
relative to the adequacy of OCC’s
remaining financial resources. Finally,
OCC believes it has the operational and
systems capacity sufficient to support
the proposed changes, and OCC’s
policies and procedures will be updated
accordingly to reflect the existence of
these new tools. As a result, OCC
believes that the proposed changes
conform to the relevant requirements in
Rule 17Ad–22(e)(13).52
Public Disclosure of Key Aspects of
Default Rules
In relevant part, Rule 17Ad–
22(e)(23)(i) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [p]ublicly
disclos[e] all relevant rules and material
procedures, including key aspects of its
default rules and procedures.’’ 53 As
50 17
CFR 240.17Ad–22(e)(7)(ix).
CFR 240.17Ad–22(e)(13).
52 17 CFR 240.17Ad–22(e)(13).
53 17 CFR 240.17Ad–22(e)(23)(i).
51 17
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stated above, each of the tools discussed
herein are contemplated to be deployed
by OCC if an extreme stress event has
placed OCC into a recovery or orderly
wind-down scenario, and therefore, the
tools discussed herein constitute key
aspects of OCC’s default rules. By
incorporating the proposed changes into
OCC’s Rules and By-Laws, as further
supplemented by the discussion in
OCC’s public rule filing, OCC believes
that proposed changes would conform
to the relevant requirements in Rule
17Ad–22(e)(23)(i).54
Sufficient Information Regarding the
Risks, Fees and Costs of Clearing
In relevant part, Rule 17Ad–
22(e)(23)(ii) requires that each CCA
‘‘establish, implement, maintain and
enforce written policies and procedures
reasonably designed to . . . [p]rovid[e]
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the covered
clearing agency.’’ 55 The proposed
changes would clearly explain to
Clearing Members and market
participants that an extreme stress
scenario could result in the use—and
theoretically the exhaustion—of OCC’s
financial resources, inclusive of OCC’s
proposed assessment powers. Proposed
changes to Section 6, Article VIII of
OCC’s By-Laws would explain Clearing
Members’ replenishment obligation and
liability for assessments. The proposed
changes also would clearly explain,
through proposed Rules 1009 and 1111,
that as OCC nears the exhaustion of its
assessment powers, Clearing Members
may be asked for voluntary payments
and, if necessary, Clearing Members and
customers may be asked to participate
in a Voluntary Tear-Up and/or subject to
a Partial Tear-Up. Proposed Rules
1009(b) and 1111(a)(ii) also would make
clear that Clearing Members that made
voluntary payments and Clearing
Members and customers whose
tendered positions were extinguished in
the Voluntary Tear-Up would be
prioritized in the distribution of any
recovery from the defaulted Clearing
Member(s). Proposed changes to Article
VIII would clarify that the Clearing
Fund contributions remaining after OCC
has conducted a Voluntary Tear-Up or
Partial Tear-Up could be used to
compensate the non-defaulting Clearing
Members and non-defaulting customers
for the losses, costs or fees imposed
upon them as a result of such Voluntary
Tear-Up or Partial Tear-Up. Proposed
Rule 1111(g) would make clear that,
54 17
55 17
CFR 240.17Ad–22(e)(13).
CFR 240.17Ad–22(e)(23)(ii).
VerDate Sep<11>2014
20:21 Dec 22, 2017
following a Partial Tear-Up, OCC’s
Board may seek to equitably re-allocate
losses, costs and fees directly imposed
as a result of a Partial Tear-Up among
all non-defaulting Clearing Members
through a special charge. By
incorporating the proposed changes into
OCC’s Rules and By-Laws, as further
supplemented by the discussion in
OCC’s public rule filing, OCC believes
that is has provided sufficient
information to enable participants to
identify and evaluate the risks, fees, and
other material costs they could incur by
participating OCC, consistent with the
requirements in Rule 17Ad–
22(e)(23)(ii).56
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 57
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC does not
believe the proposed rule change would
have any impact or impose any burden
on competition. The primary purpose of
the proposed changes is to make certain
revisions to OCC’s Rules and By-Laws
Laws that are designed to enhance
OCC’s existing tools to address the risks
of liquidity shortfalls and credit losses
and to establish tools by which OCC
could re-establish a matched book
following a default. As explained above,
each of the tools proposed herein is
contemplated to be deployed by OCC in
an extreme stress event that has placed
OCC into a recovery or orderly winddown scenario. The proposed rule
change is intended to provide Clearing
Members, market participants and other
stakeholders with greater certainty as to
their liabilities and potential exposure
to OCC in the event of an
unprecedented loss scenario. OCC does
not believe that the proposed changes
would discriminatorily impact any
Clearing Member’s access to OCC’s
services or unnecessarily disadvantage
or favor any particular user in
relationship to another user. OCC
recognizes that the nature of a Partial
Tear-Up means that only particular
Clearing Members and market
participants holding certain positions
may be impacted; however, the risk of
Partial Tear-Ups is extremely remote,
and even then, the proposed changes
seek to provide means of equitably reallocating the losses, costs and fees
imposed by Voluntary Tear-Up or
Partial Tear-Up. Therefore, OCC
believes that the proposed changes
56 17
57 15
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U.S.C. 78q–1(b)(3)(I).
Frm 00168
Fmt 4703
Sfmt 4703
61115
would not have any impact or impose
any burden on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change 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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 Commissions 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–2017–020 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–OCC–2017–020. 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
E:\FR\FM\26DEN1.SGM
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Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices
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 such
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_
020.pdf.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal or 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–2017–020 and should
be submitted on or before January 16,
2018.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.58
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27691 Filed 12–22–17; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 10237]
Request for Information for the 2018
Trafficking in Persons Report
The Department of State (‘‘the
Department’’) requests written
information to assist in reporting on the
degree to which the United States and
foreign governments meet the minimum
standards for the elimination of
trafficking in persons (‘‘minimum
standards’’) that are prescribed by the
Trafficking Victims Protection Act of
2000, as amended (‘‘TVPA’’). This
information will assist in the
preparation of the Trafficking in Persons
Report (‘‘TIP Report’’) that the
Department submits annually to the
U.S. Congress on government efforts to
meet the minimum standards. Foreign
governments that do not meet the
minimum standards and are not making
significant efforts to do so may be
subject to restrictions on
nonhumanitarian, nontrade-related
foreign assistance from the United
States, as defined by the TVPA.
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SUMMARY:
58 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:21 Dec 22, 2017
Jkt 244001
Submissions must be made in writing to
the Office to Monitor and Combat
Trafficking in Persons at the Department
of State by January 31, 2018. Please refer
to the Addresses, Scope of Interest, and
Information Sought sections of this
Notice for additional instructions on
submission requirements.
DATES: Submissions must be received by
5 p.m. on January 31, 2018.
ADDRESSES: Written submissions and
supporting documentation may be
submitted by the following methods:
Email (preferred): tipreport@state.gov
for submissions related to foreign
governments and tipreportUS@state.gov
for submissions related to the United
States.
• Facsimile (fax): 202–312–9637.
• Mail, Express Delivery, Hand
Delivery and Messenger Service: U.S.
Department of State, Office to Monitor
and Combat Trafficking in Persons
(J/TIP), 1800 G Street NW, Suite 2201,
Washington, DC 20520. Please note that
materials submitted by mail may be
delayed due to security screenings and
processing.
Scope of Interest: The Department
requests information relevant to
assessing the United States’ and foreign
governments’ efforts to meet the
minimum standards for the elimination
of trafficking in persons during the
reporting period (April 1, 2017–March
31, 2018). The minimum standards are
listed in the Background section.
Submissions must include information
relevant to efforts to meet the minimum
standards and should include, but need
not be limited to, answering the
questions in the Information Sought
section. Only those questions for which
the submitter has direct professional
experience should be answered and that
experience should be noted. For any
critique or deficiency described, please
provide a recommendation to remedy it.
Note the country or countries that are
the focus of the submission.
Submissions may include written
narratives that answer the questions
presented in this Notice, research,
studies, statistics, fieldwork, training
materials, evaluations, assessments, and
other relevant evidence of local, state/
provincial, and federal/central
government efforts. To the extent
possible, precise dates and numbers of
officials or citizens affected should be
included.
Where applicable, written narratives
providing factual information should
provide citations of sources, and copies
of the source material should be
provided. If possible, send electronic
copies of the entire submission,
including source material. If primary
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Frm 00169
Fmt 4703
Sfmt 4703
sources are used, such as research
studies, interviews, direct observations,
or other sources of quantitative or
qualitative data, provide details on the
research or data-gathering methodology.
The Department does not include in the
TIP Report, and is therefore not seeking,
information on prostitution, migrant
smuggling, visa fraud, or child abuse,
unless such conduct occurs in the
context of trafficking in persons as
defined in the TVPA.
Confidentiality: Please provide the
name, phone number, and email address
of a single point of contact for any
submission. It is Department practice
not to identify in the TIP Report
information concerning sources to
safeguard those sources. Please note,
however, that any information
submitted to the Department may be
releasable pursuant to the provisions of
the Freedom of Information Act or other
applicable law. When applicable,
portions of submissions relevant to
efforts by other U.S. government
agencies will be shared with those
agencies.
Response: This is a request for
information only; there will be no
response to submissions.
SUPPLEMENTARY INFORMATION:
I. Background
The TIP Report: The TIP Report is the
most comprehensive worldwide report
on governments’ efforts to combat
trafficking in persons. It represents an
annually updated, global look at the
nature and scope of trafficking in
persons and the broad range of
government actions to confront and
eliminate it. The U.S. government uses
the Report to engage in diplomacy, to
encourage partnership in creating and
implementing laws and policies to
combat trafficking, and to target
resources on prevention, protection, and
prosecution programs. Worldwide, the
Report is used by international
organizations, foreign governments, and
nongovernmental organizations as a tool
to examine where resources are most
needed. Prosecuting traffickers,
protecting victims, and preventing
trafficking are the ultimate goals of the
Report and of the U.S government’s
anti-trafficking policy.
The Department prepares the TIP
Report using information from across
the U.S. government, foreign
government officials, nongovernmental
and international organizations,
published reports, and research trips to
every region. The Report focuses on
concrete actions that governments take
to fight trafficking in persons, including
prosecutions, convictions, and
sentences for traffickers, as well as
E:\FR\FM\26DEN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61107-61116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27691]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82351; File No. SR-OCC-2017-020]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Concerning Enhanced and New
Tools for Recovery Scenarios
December 19, 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 18, 2017, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by OCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change by the OCC would make certain revisions
to OCC's Rules and By-Laws to enhance OCC's existing tools to address
the risks of liquidity shortfalls and credit losses and to establish
new tools by which OCC could re-establish a matched book following a
default. Each of the tools proposed herein is contemplated to be
deployed by OCC in an extreme stress event that has placed OCC into a
recovery or orderly wind-down scenario.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements. All terms with initial capitalization not defined here have
the same meaning set forth in OCC's By-Laws and Rules.\3\
---------------------------------------------------------------------------
\3\ OCC's By-Laws and Rules can be found on OCC's public
website: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
Background
The purpose of this proposed rule change is to make certain
revisions to OCC's Rules and By-Laws Laws that are designed to enhance
OCC's existing tools to address the risks of liquidity shortfalls and
credit losses and to establish tools by which OCC could re-establish a
matched book following a default. Each of the tools proposed herein is
contemplated to be deployed by OCC in an extreme stress event that has
placed OCC into a recovery or orderly wind-down scenario. Each of the
proposed revisions also is designed to further OCC's compliance, in
whole or in part, with the provisions of the Commission's rules
identified immediately below.
On September 28, 2016, the Commission adopted amendments to
[[Page 61108]]
Rule 17Ad-22 \4\ and added new Rules 17Ad-22(e)(3)(ii), (e)(4)(viii),
(e)(4)(ix), (e)(7)(ix), (e)(13), (e)(23)(i) and (e)(23)(ii) \5\
pursuant to Section 17A of the Securities Exchange Act of 1934 \6\ and
the Payment, Clearing, and Settlement Supervision Act of 2010
(``Payment, Clearing and Settlement Supervision Act'').\7\ In relevant
part, these new rules collectively require a covered clearing agency
(``CCA''), as defined by Rule 17Ad-22(a)(5),\8\ to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to: (1) Maintain a risk management framework
including plans for recovery and orderly wind-down necessitated by
credit losses, liquidity shortfalls, general business risk losses or
any other losses, (2) effectively identify, measure, monitor and manage
its credit exposures to participants and those arising from its
payment, clearing and settlement processes, including by addressing the
allocation of credit losses a CCA might face if its collateral and
other resources are insufficient to fully cover its credit exposures,
(3) effectively identify, measure, monitor and manage credit exposures,
including by describing the process to replenish any financial resource
that a CCA may use following a default event or other event in which
use of such resource is contemplated, (4) effectively identify,
measure, monitor and manage liquidity risks that arises or is borne by
the CCA by, at a minimum, describing the process for replenishing any
liquid resource that a CCA may employ during a stress event, (5) ensure
it has the authority and operational capacity to take timely action to
contain losses and liquidity demands and continue to meet its
obligations, (6) publicly disclose relevant rules and material
procedures, including key aspects of its default rules and procedures,
and (7) provide sufficient information to enable participants to
identify and evaluate the risks, fees, and other material costs they
incur by participating in the CCA. The relevant portions of each of
these new requirements is restated below:
---------------------------------------------------------------------------
\4\ 17 CFR 240.17Ad-22.
\5\ 17 CFR 240.17Ad-22(e)(3)(ii), (e)(4)(viii), (e)(4)(ix),
(e)(7)(ix), (e)(13), (e)(23)(i) and (e)(23)(ii).
\6\ 15 U.S.C. 78q-1.
\7\ 12 U.S.C. 5461 et. seq.
\8\ 17 CFR 240.17Ad-22(a)(5).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(3)(ii) requires that each CCA ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to . . . [m]aintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the [CCA], which . . . [i]ncludes plans
for the recovery and orderly wind-down of the [CCA] necessitated by
credit losses, liquidity shortfalls, losses from general business risk,
or any other losses.'' \9\
---------------------------------------------------------------------------
\9\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(viii) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [e]ffectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes,
including by . . . [a]ddressing allocation of credit losses the [CCA]
may face if its collateral and other resources are insufficient to
fully cover its credit exposures, including the repayment of any funds
the [CCA] may borrow from liquidity providers.'' \10\
---------------------------------------------------------------------------
\10\ 17 CFR 240.17Ad-22(e)(v)(viii).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(4)(ix) requires that each CCA ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to . . . [e]ffectively identify, measure, monitor,
and manage its credit exposures to participants and those arising from
its payment, clearing, and settlement processes, including by . . .
[d]escribing the [CCA's] process to replenish any financial resources
it may use following a default or other event in which use of such
resources is contemplated.'' \11\
---------------------------------------------------------------------------
\11\ 17 CFR 240.17Ad-22(e)(4)(ix).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(7)(ix) requires that each CCA ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to . . . [e]ffectively measure, monitor, and manage
the liquidity risk that arises in or is borne by the [CCA], including
measuring, monitoring, and managing its settlement and funding flows on
an ongoing and timely basis, and its use of intraday liquidity by, at a
minimum, doing the following . . . [d]escribing the [CCA's] process to
replenish any liquid resources that the clearing agency may employ
during a stress event.'' \12\
---------------------------------------------------------------------------
\12\ 17 CFR 240.17Ad-22(e)(7)(ix).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(13) requires that each CCA ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to. . . [e]nsure the covered clearing agency has
the authority and operational capacity to take timely action to contain
losses and liquidity demands and continue to meet its obligations . .
.'' \13\
---------------------------------------------------------------------------
\13\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(23)(i) requires that each CCA ``establish,
implement, maintain and enforce written policies and procedures
reasonably designed to . . . [p]ublicly disclos[e] all relevant rules
and material procedures, including key aspects of its default rules and
procedures.'' \14\
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(e)(23)(i).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(23)(ii) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [p]rovid[e] sufficient
information to enable participants to identify and evaluate the risks,
fees, and other material costs they incur by participating in the
covered clearing agency.'' \15\
---------------------------------------------------------------------------
\15\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------
OCC meets the definition of a CCA and is therefore subject to the
requirements of the CCA rules, including new Rules 17Ad-22(e)(3)(ii),
(e)(4)(viii), (e)(4)(ix), (e)(7)(ix), (e)(13), (e)(23)(i) and
(e)(23)(ii).\16\
---------------------------------------------------------------------------
\16\ 17 CFR 240.17Ad-22(e)(3)(ii), (e)(4)(viii), (e)(4)(ix) and
(e)(7)(ix).
---------------------------------------------------------------------------
Proposed Changes
Summary of Proposed Changes
In order to enhance OCC's existing tools to address the risks of
liquidity shortfalls and credit losses and to establish new tools by
which OCC could re-establish a matched book following a default, OCC is
proposing to make the following revisions to its Rules and By-Laws:
(1) Revise the existing assessment powers in Section 6 of Article
VIII of OCC's By-Laws, specifically to:
(a) Establish a rolling ``cooling-off period'' that would be
triggered by the payment of a proportionate charge against the Clearing
Fund (``triggering proportionate charge''), during which period the
aggregate liability of a Clearing Member to replenish the Clearing Fund
(inclusive of assessments) would be 200% of the Clearing Member's
required contribution as of the time immediately preceding the
triggering proportionate charge;
(b) Clarify that a Clearing Member that chooses to terminate its
membership status during a cooling-off period will not be liable for
replenishment of the Clearing Fund immediately following the expiration
of such cooling-off period, provided that the withdrawing Clearing
Member satisfies enumerated criteria, including providing notice of
such termination by no later than the end of the cooling-off period and
by closing-out and/or transferring of all its open positions with OCC
by no later than the last day of the cooling-off period; and
[[Page 61109]]
(c) Delineate between the obligation of a Clearing Member to
replenish its contributions to the Clearing Fund and its obligations to
meet additional ``assessments'' that may be levied following a
proportionate charge to the Clearing Fund.
(2) Adopt a new Rule 1009 that would provide OCC with discretionary
authority to call for voluntary payments from non-defaulting Clearing
Members in a circumstance where one or more Clearing Members has
already defaulted and OCC has determined that it may not have
sufficient resources to satisfy its obligations and liabilities
resulting from such default. Rule 1009 also would establish that OCC
would prioritize compensation of Clearing Members that made voluntary
payments from any amounts recovered from the defaulted Clearing
Members.
(3) Adopt a new Rule 1111 that would provide authority to:
(a) Allow OCC to call for voluntary tear-ups (``Voluntary Tear-
Up,'' as defined below) of non-defaulting Clearing Member and/or
customer positions at any time following the suspension or default of a
Clearing Member, with the scope of any such Voluntary Tear-Ups being
determined by the Risk Committee of OCC's Board (``Risk Committee'');
(b) Allow OCC's Board to vote to tear-up the ``Remaining Open
Positions'' (defined below) of a defaulted Clearing Member, as well as
any ``Related Open Positions'' (defined below) in a circumstance where
OCC has attempted one or more auctions of such defaulted Clearing
Member's remaining open positions and OCC has determined that it may
not have sufficient resources to satisfy its obligations and
liabilities resulting from such default with the scope of any such
tear-up (``Partial Tear-Up'') being determined by the Risk Committee;
and
(c) Allow OCC's Board to vote to re-allocate losses, costs and fees
imposed upon holders of positions extinguished in a Partial Tear-Up
through a special charge levied against remaining non-defaulting
Clearing Members.
(4) Revise the descriptions and authorizations in Article VIII of
OCC's By-Laws concerning the use of the Clearing Fund to reflect the
discretion of OCC to use remaining Clearing Fund contributions to re-
allocate losses imposed on non-defaulting Clearing Members and
customers from a Voluntary Tear-Up or a mandatory tear-up (``Partial
Tear-Up,'' as defined below).
Discussion of Proposed Changes
Each of the proposed revisions to OCC's Rules and By-Laws is
described in more detail in the following sub-sections:
1. Proposed Changes to OCC's Assessment Powers
a. Current Assessment Powers
OCC's current assessment powers are described in Section 6 of
Article VIII of OCC's By-Laws. Section 6 establishes a general
requirement for each Clearing Member to promptly make good any
deficiency in its required contribution to the Clearing Fund whenever
an amount is paid out of its Clearing Fund contribution (whether by
proportionate charge or otherwise).\17\ In this regard, a Clearing
Member's obligation to replenish the Clearing Fund is not currently
subject to any pre-determined limit. Notwithstanding the foregoing, a
Clearing Member can limit the amount of its liability for replenishing
the Clearing Fund (at an additional 100% of the amount of its then-
required Clearing Fund contribution) by winding-down its clearing
activities and terminating its status as a Clearing Member. Any
Clearing Member seeking to so limit its liability for replenishing the
Clearing Fund must: (i) Notify OCC in writing not later than the fifth
business day after the proportionate charge that it is terminating its
status as a Clearing Member, (ii) not initiate any opening purchase or
opening writing transaction, and, if the Clearing Member is a Market
Loan Clearing Member or a Hedge Clearing Member, not initiate any Stock
Loan transaction, through any of its accounts, and (iii) close out or
transfer all of its open positions as promptly as practicable after
giving notice to OCC. Thus, withdrawal from clearing membership is the
only means by which a Clearing Member currently can limit its liability
for replenishing the Clearing Fund.
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\17\ Under Article VIII, Section 6 of OCC's By-Laws, OCC
currently has authority to assess proportionate charges against
Clearing Members' contributions to the Clearing Fund in certain
enumerated situations. For example, Section 6 generally provides
that if the conditions regarding a Clearing Member default specified
in subparagraphs (a)(i) through (vi) of Article VIII, Section 5 of
OCC's By-Laws are satisfied, OCC will make good resulting losses or
expenses that are suffered by OCC by applying the defaulting
Clearing Member's Clearing Fund contribution after first applying
other funds available to OCC in the accounts of the Clearing Member.
If the sum of the obligations, however, exceeds the total Clearing
Fund contribution and other funds of the defaulting Clearing Member
available to OCC, then OCC will charge the amount of the remaining
deficiency on a proportionate basis against all non-defaulting
Clearing Members' required contributions to the Clearing Fund at the
time. Section 5(b) of Article VIII of OCC's By-Laws similarly
provides for proportionate charges against Clearing Members'
contributions to the Clearing Fund when certain conditions are met
that involve a failure by a bank or a securities or commodities
clearing organization to perform obligations to OCC when they are
due.
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b. Proposed Changes to Assessment Powers
OCC proposes to amend Section 6 of Article VIII of OCC's By-Laws to
make three primary modifications regarding its existing authority to
assess proportionate charges against Clearing Members' contributions to
the Clearing Fund. First, the proposal introduces an automatic minimum
fifteen calendar day ``cooling-off'' period that begins when a
proportionate charge is assessed by OCC against Clearing Members'
Clearing Fund contributions. While the cooling-off period will continue
for a minimum of fifteen consecutive calendar days, if one or more of
the events described in clauses (i) through (iv) of Article VIII,
Section 5(a) of OCC's By-Laws occur(s) during that fifteen calendar day
period and result in one or more proportionate charges against the
Clearing Fund, the cooling-off period shall be extended through either
(i) the fifteenth calendar day from the date of the most recent
proportionate charge resulting from the subsequent event, or (ii) the
twentieth day from the date of the proportionate charge that initiated
the cooling-off period, whichever is sooner.
During a cooling-off period, each Clearing Member would have its
aggregate liability to replenish the Clearing Fund capped at 200% of
the Clearing Member's then-required contribution to the Clearing Fund.
Once the cooling-off period ends each remaining Clearing Member would
be required to replenish the Clearing Fund in the amount necessary to
meet its then-required contribution. Once the cooling-off period ends,
any remaining losses or expenses suffered by OCC as a result of any
event described in clauses (i) through (iv) of Article VIII, Section
5(a) of OCC's By-Laws that occurred during such cooling-off period
could not be charged against the amounts Clearing Members have
contributed to replenish the Clearing Fund upon the expiration of the
cooling-off period.\18\
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\18\ After a cooling-off period has ended, the occurrence of any
event described in clauses (i) through (iv) of Article VIII, Section
5(a) of OCC's By-Laws that results in a proportionate charge against
the Clearing Fund would trigger a new cooling off period, and
thusly, a cap of 200% of each Clearing Member's then-required
contribution would again apply.
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Second, in connection with the cooling-off period, the proposal
would
[[Page 61110]]
extend the time frame within which a Clearing Member may provide a
termination notice to OCC to avoid liability for replenishment of the
Clearing Fund after the cooling-off period and would modify the
obligations of such a terminating Clearing Member for closing-out and
transferring its remaining open positions. Specifically, to effectively
terminate its status as a Clearing Member and not be liable for
replenishing the Clearing Fund after the cooling-off period, a Clearing
Member would be required to: (i) Notify OCC in writing of its intent to
terminate not later than the last day of the cooling-off period, (ii)
not initiate any opening purchase or opening writing transaction, and,
if the Clearing Member is a Market Loan Clearing Member or a Hedge
Clearing Member, not initiate any Stock Loan transaction, through any
of its accounts, and (iii) close-out or transfer all of its open
positions by no later than the last day of the cooling-off period. If a
Clearing Member fails to satisfy all of these conditions by the end of
a given cooling-off period, it would not have completed all of the
requirements necessary to terminate its status as a Clearing Member
under Article VIII, Section 6 of OCC's By-Laws and therefore it would
remain subject to the obligation to replenish the Clearing Fund after
the end of the cooling-off period.
Third, the proposal would clarify the distinction between
``replenishment'' of the Clearing Fund and a Clearing Member's
obligation to answer ``assessments.'' In this context, the term
``replenish'' (and its variations) shall to refer to a Clearing
Member's standing duty, following any proportionate charge against the
Clearing Fund, to return its Clearing Fund contribution to the amount
required from such Clearing Member for the month in question.\19\ The
term ``assessment'' (and its variations) shall refer to the amount,
during any cooling-off period, that a Clearing Member would be required
to contribute to the Clearing Fund in excess of the amount of the
Clearing Member's pre-funded required Clearing Fund contribution.
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\19\ This assumes that the proportionate charge resulted in the
Clearing Member's actual Clearing Fund contribution dropping below
the amount of its required contribution (i.e., that the Clearing
Member did not have excess above its required contribution that was
sufficient to cover the amount of the proportionate charge allocated
to such Clearing Member).
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Proposed Addition of Ability To Request Voluntary Payments
OCC proposes to add new Rule 1009, which will provide a framework
by which OCC could receive voluntary payments in a circumstance where a
Clearing Member has defaulted and OCC has determined that,
notwithstanding the availability of any remaining resources under OCC
Rules 707, 1001, 1104 through 1107, 2210 and 2211,\20\ OCC may not have
sufficient resources to satisfy its obligations and liabilities
resulting from such default. Under new Rule 1009, OCC will initiate a
call for voluntary payments by issuing a ``Voluntary Payment Notice''
inviting all non-defaulting Clearing Members to make payments to the
Clearing Fund in addition to any amounts they are otherwise required to
contribute pursuant to Rule 1001. The Voluntary Payment Notice would
specify the terms applicable to any voluntary payment, including but
not limited to, that any voluntary payment may not be withdrawn once
made, that no Clearing Member shall be obligated to make a voluntary
payment and that OCC shall retain full discretion to accept or reject
any voluntary payment. Rule 1009 specifies that if OCC subsequently
recovers from the defaulted Clearing Member or the estate(s) of the
defaulted Clearing Member(s), OCC would seek to compensate first from
such recovery all non-defaulting Clearing Members that made voluntary
payments (and if the amount recovered from the defaulted Clearing
Member(s) is less than the aggregate amount of voluntary payments, non-
defaulting Clearing Members that made voluntary payments each would
receive a percentage of the recovery that corresponds to that Clearing
Member's percentage of the total amount of voluntary payments
received).
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\20\ Rule 707 addresses the treatment of funds in a Clearing
Member's X-M accounts. Rule 1001 addresses the size of OCC's
Clearing Fund and the amount of a Clearing Member's contribution.
Rules 1104 through 1107 concern the treatment of the portfolio of a
defaulted Clearing Member. Rules 2210 and 2211 concern the treatment
of Stock Loan positions of a defaulted Clearing Member.
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Proposed Addition of Ability To Conduct Voluntary Tear-Ups
OCC proposes to add new Rule 1111, which, in relevant part, will
establish a framework by which non-defaulting Clearing Members and non-
defaulting customers of Clearing Members could be given an opportunity
to voluntarily extinguish (i.e., voluntarily tear-up) their open
positions at OCC in a circumstance where a Clearing Member has
defaulted and OCC has determined that, notwithstanding the availability
of any remaining resources under OCC Rules 707, 1001, 1104 through
1107, 2210 and 2211, OCC may not have sufficient resources to satisfy
its obligations and liabilities resulting from such default.
While Risk Committee approval is not needed to commence a voluntary
tear-up, the Risk Committee would be responsible for determining the
appropriate scope of each voluntary tear-up. To ensure OCC retains
sufficient flexibility to effectively deploy this tool in an extreme
stress event, proposed Rule 1111(c) is drafted to provide the Risk
Committee with discretion to determine the appropriate scope of each
voluntary tear-up.\21\ New Rule 1111(c) also would impose standards
designed to circumscribe the Risk Committee's discretion, requiring
that any determination regarding the scope of a voluntary tear-up shall
(i) be based on 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.
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\21\ Notwithstanding the discretion that would be afforded by
the text of proposed Rule 1111(c), OCC anticipates that the scope of
voluntary tear-ups likely would be dictated by the cleared contracts
remaining in the portfolio(s) of the defaulted Clearing Member(s).
---------------------------------------------------------------------------
Once the Risk Committee has determined the scope of the Voluntary
Tear-Up, OCC will initiate the call for voluntary tear-ups by issuing a
``Voluntary Tear-Up Notice.'' The Voluntary Tear-Up Notice shall inform
all non-defaulting Clearing Members of the opportunity to participate
in a Voluntary Tear-Up.\22\ The Voluntary Tear-Up Notice would specify
the terms applicable to any voluntary tear-up, including but not
limited to, that no Clearing Member or customers of a Clearing Member
shall be obligated to participate in a voluntary tear-up and that OCC
shall retain full discretion to accept or reject any voluntary tear-up.
---------------------------------------------------------------------------
\22\ Since OCC does not know the identities of Clearing Members'
customers, OCC would depend on each Clearing Member to notify its
customers with positions in scope of the Voluntary Tear-Up of the
opportunity to participate in such tear-up.
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OCC is not proposing a tear-up process that would require the
imposition of ``gains haircutting'' (i.e., the reduction of unpaid
gains) on a portion of OCC's cleared contracts.\23\
[[Page 61111]]
Instead, OCC has determined that its tear-up process--for both
Voluntary Tear-Ups as well as Partial Tear-Ups--should be initiated on
a date sufficiently in advance of the exhaustion of OCC's financial
resources such that OCC would be expected to have adequate remaining
resources to cover the amount it must pay to extinguish the positions
of Clearing Members and customers without haircutting gains.\24\
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\23\ In general, forced gains haircutting is a tool that can be
more easily applied to products whose gains are settled at least
daily, like futures through an exchange of variation margin, and by
central counterparties with comparatively large daily settlement
flows. Listed options, which constitute the vast majority of the
contracts cleared by OCC, do not have daily settlement flows and any
attempt to reduce the ``unrealized gains'' of a listed options
contract would require the reduction of the option premium that is
embedded within the required margin (such a process would
effectively require haircutting the listed option's initial margin).
\24\ OCC anticipates that it would determine the date on which
to initiate Partial Tear-Ups by monitoring its remaining financial
resources against the potential exposure of the remaining
unauctioned positions from the portfolio(s) of the defaulted
Clearing Member(s).
---------------------------------------------------------------------------
In OCC's proposed tear-up process, the holders of torn-up positions
would be assigned a Tear-Up Price and OCC would draw on its remaining
financial resources in order to extinguish the torn-up positions at the
assigned Tear-Up Price without forcing a reduction in the amount unpaid
gains on such positions. The proposed changes would provide OCC with
two separate and non-exclusive means of equitably re-allocating the
losses, costs or expenses imposed upon the holders of torn-up positions
as a result of the tear-up(s). First, the proposed changes to Article
VIII would provide OCC discretion to use remaining Clearing Fund
contributions to re-allocate losses imposed on non-defaulting Clearing
Members and customers from such tear-up(s). Second, Rule 1111(a) would
provide that if OCC subsequently recovers from the defaulted Clearing
Member or the estate(s) of the defaulted Clearing Member(s) and the
amount of such recovery exceeds the amount OCC received in voluntary
payments, then non-defaulting Clearing Members and non-defaulting
customers that voluntarily tore-up open positions and incurred losses
from such tear-ups would be repaid from the amount of the recovery in
excess of the amount OCC received in voluntary payments.\25\ If the
amount recovered is less than the aggregate amount of Voluntary Tear-
Up, each non-defaulting Clearing Member and non-defaulting customer
that incurred losses from voluntarily torn-up positions would be repaid
in an amount proportionate to the percentage of its total amount of
losses, costs and fees imposed on Clearing Members or customers as a
result of the Voluntary Tear-Ups.
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\25\ In order to effect re-allocation of the losses, costs or
expenses imposed upon the holders of torn-up positions, OCC expects
that after it has completed its tear-up process and re-established a
matched book, holders of both voluntarily torn-up and mandatorily
torn-up positions would be provided with a limited opportunity to
re-establish positions in the contracts that were voluntarily or
mandatorily extinguished. After the expiration of such period, OCC
would seek to collect the information on the losses, costs or
expenses that had been imposed on the holders of torn-up positions.
Based on the information collected, OCC would determine whether it
can reasonably determine the losses, costs and expenses sufficiently
to re-allocate such amounts.
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With respect to Voluntary Tear-Ups, new Rule 1111(h) would clarify
that no action or omission by OCC pursuant to and in accordance with
Rule 1111 shall constitute a default by OCC.
Proposed Addition of Ability To Conduct Partial Tear-Ups
OCC proposes to add new Rule 1111, which, in relevant part, will
provide the Board with discretion to extinguish the remaining open
positions of any defaulted Clearing Member or customer of such
defaulted Clearing Member(s) (such positions, ``Remaining Open
Positions''), as well as any related open positions as necessary to
mitigate further disruptions to the markets affected by the Remaining
Open Positions (such positions, ``Related Open Positions''), in a
circumstance where a Clearing Member has defaulted and OCC has
determined that, notwithstanding the availability of any remaining
resources under OCC Rules 707, 1001, 1104 through 1107, 2210 and 2211,
OCC may not have sufficient resources to satisfy its obligations and
liabilities resulting from such default (such tear-ups hereinafter
collectively referred to as ``Partial Tear-Ups''). Like the
determination for Voluntary Tear-Ups, the Risk Committee shall
determine the appropriate scope of each Partial Tear-Up and such
determination shall (i) be based on 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.
Once the Risk Committee has determined the scope of the Partial Tear-
Up, OCC will initiate the Partial Tear-Up process by issuing a
``Partial Tear-Up Notice.'' The Partial Tear-Up Notice shall (i)
identify the Remaining Open Positions and Related Open Positions
designated for tear-up, (ii) identify the open positions of non-
defaulting Clearing Members and non-defaulting customers that will be
subject to Partial Tear-Up (such positions, ``Tear-Up Positions''),
(iii) specify the termination price (``Partial Tear-Up Price'') for
each position to be torn-up, and (iv) list the date and time as of
which the Partial Tear-Up will occur.\26\ With regard to the date and
time of a Partial Tear-Up, Rule 1111(d) specifies that the Risk
Committee shall set the date and time. With regard to the Partial Tear-
Up Price, OCC anticipates that it is likely to use the last established
end-of-day settlement price, in accordance with its existing practices
concerning pricing and valuation. However, given that it is not
possible to know in advance the precise circumstances that would cause
OCC to conduct a tear-up, Rule 1111(f) has been drafted to allow OCC to
exercise reasonable discretion, if necessary, in establishing the
Partial Tear-Up Price by some means other than its existing practices
concerning pricing and valuation. Specifically, Rule 1111(f) would
require that OCC, in exercising any such discretion, would act in good
faith and in a commercially reasonable manner to adopt methods of
valuation expected to produce reasonably accurate substitutes for the
values that would have been obtained from the relevant market if it
were operating normally, including but not limited to the use of
pricing models that use the market price of the underlying interest or
the market prices of its components. Rule 1111(f) further specifies
that OCC may consider the same information set forth in subpart (c) of
Section 27, Article VI of OCC's By-Laws.\27\
---------------------------------------------------------------------------
\26\ Since OCC does not know the identities of Clearing Members'
customers, OCC would depend on each Clearing Member to notify its
customers with positions in scope of the Partial Tear-Up of the
possibility of tear-up.
\27\ In relevant part, subpart (c) reads as follows: ``In
determining a close-out amount, the Corporation may consider any
information that it deems relevant, including, but not limited to,
any of the following: (1) Prices for underlying interests in recent
transactions, as reported by the market or markets for such
interests; (2) quotations from leading dealers in the underlying
interest, setting forth the price (which may be a dealing price or
an indicative price) that the quoting dealer would charge or pay for
a specified quantity of the underlying interest; (3) relevant
historical and current market data for the relevant market, provided
by reputable outside sources or generated internally; and (4) values
derived from theoretical pricing models using available prices for
the underlying interest or a related interest and other relevant
data. Amounts stated in a currency other than U.S. Dollars shall be
converted to U.S. Dollars at the current rate of exchange, as
determined by the Corporation. A position having a positive close-
out value shall be an `asset position' and a position having a
negative close-out value shall be a `liability position.' ''
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The scope of any Partial Tear-Up will be determined in accordance
with Rule 1111(e). With respect to the extinguishment of Remaining Open
Positions, OCC will designate Tear-Up Positions in identical Cleared
Contracts and Cleared Securities on the opposite side of the market and
in an aggregate amount equal to that of the Remaining
[[Page 61112]]
Open Positions. OCC will only designate Tear-Up Positions in the
accounts of non-defaulting Clearing Members (inclusive of such Clearing
Members' customer accounts) with an open position in the applicable
Cleared Contract or Cleared Security and of non-defaulted customers of
a defaulted Clearing Member. Tear-Up Positions shall be designated and
applied by OCC on a pro rata basis across all the identical positions
in Cleared Contracts and Cleared Securities on the opposite side of the
market in the accounts of non-defaulted Clearing Members and non-
defaulted customers (including the non-defaulted customers of defaulted
Clearing Members).
Rule 1111(e)(iii) provides that every Partial Tear-Up position is
automatically terminated upon and with effect from the Partial Tear-Up
Time, without the need for any further step by any party to such
Cleared Contract or Cleared Security, and that upon termination, either
OCC or the relevant Clearing Member (as the case may be) shall be
obligated to pay the other the applicable Partial Tear-Up Price. Rule
1111(e)(iii) further provides that the corresponding open position
shall be deemed terminated at the Partial Tear-Up Price.
Rule 1111(g) provides that to the extent losses imposed upon non-
defaulting Clearing Members and non-defaulting customers resulting from
a Partial Tear-Up can reasonably be determined, the Board may elect to
re-allocate such losses among all non-defaulting Clearing Members
through a special charge to all non-defaulting Clearing Members in an
amount corresponding to each such non-defaulting Clearing Member's
proportionate share of the variable amount of the Clearing Fund at the
time such Partial Tear-Up is conducted.\28\
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\28\ For the avoidance of doubt, the special charge would be
distinct and separate from a Clearing Member's obligation to satisfy
Clearing Fund assessments, and therefore, would not be subject to
the aforementioned assessment cap in the amount of 200% of a
Clearing Member's then-required contribution to the Clearing Fund.
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With respect to Partial Tear-Ups, new Rule 1111(h) would clarify
that no action or omission by OCC pursuant to and in accordance with
Rule 1111 shall constitute a default by OCC.
2. Statutory Basis
Section 17A(b)(3)(F) of the Securities Exchange Act of 1934
(``Act''),\29\ requires, among other things, that the rules of a
clearing agency be designed to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions, to remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions, and, in general, to protect investors and the
public interest. OCC believes that the proposed rule change is
consistent with the requirements of Section 17A(b)(3)(F) of the Act
\30\ and the rules thereunder applicable to OCC for the reasons set
forth below.
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\29\ 15 U.S.C. 78q-1(b)(3)(F).
\30\ Id.
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As stated above, each of the changes is designed to provide OCC
with tools to address the risks OCC might confront in a recovery and
orderly wind-down scenario. In this regard, the proposed changes are
designed to further address the risks of liquidity shortfalls and
credit losses resulting from a Clearing Member default or certain other
loss events and to establish tools to enable OCC to re-establish a
matched book and limit OCC's potential exposure to losses from a
Clearing Member default, in each case as might result from an
unprecedented loss scenario that exceeds OCC's standard risk management
and default management procedures. OCC's process in crafting the
proposed changes was informed by published guidance from OCC's primary
regulators (the Commission and the Commodity Futures Trading
Commission), the publications of key international organizations
(including the Bank for International Settlements, the International
Organization of Securities Commissions and the Financial Stability
Board) and the publications of key industry trade organizations. OCC's
proposal was further informed by conversations with, among others,
OCC's Board, OCC's Risk Committee, Clearing Members and market
participants.
Informed by these perspectives, OCC has crafted the proposed
changes with the aim of enhancing its ability to address an
unprecedented loss event but also, to the extent possible, providing a
reasonable amount of certainty to Clearing Members, customers and other
stakeholders about the potential consequences of such an event and the
resources and tools that would be expected to be available to OCC in
support of its clearing operations.\31\ Accordingly, the proposed
changes should leave Clearing Members, customers and other stakeholders
in a position to better evaluate the risks and benefits of clearing in
order to facilitate their own risk management, and to the extent
applicable, their own regulatory and capital considerations. The
proposed changes also seek to avoid a result that would force only
particular clearing participants to shoulder certain losses in an
extreme stress scenario (i.e., holders of positions extinguished in
Partial Tear-Ups),\32\ and instead leaves OCC and its Board with
discretionary tools that could provide a more equitable method of
allocating the losses from such an event more broadly, consistent with
the general principle of mutualized loss upon which central clearing
rests. In this regard, OCC believes the proposed changes foster
cooperation and coordination with participants in the clearing system,
consistent with Section 17A(b)(3)(F) of the Act.\33\
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\31\ OCC notes that the very nature of an extreme stress and
unprecedented loss event means that its impact is difficult to
predict and quantify in advance.
\32\ Absent a means of re-allocating the potential losses, costs
and fees imposed upon holders of positions extinguished during tear-
ups, the holders of such positions would be left to individually
address such losses, costs and fees.
\33\ 15 U.S.C. 78q-1(b)(3)(F).
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As stated above, the proposed changes are designed to enable OCC to
further address the risks of liquidity shortfalls and credit losses
resulting from a Clearing Member default or certain other loss events
and to re-establish a matched book and limit OCC's potential exposure
to losses from a Clearing Member default, in each case as might result
from an unprecedented loss scenario that exceeds OCC's standard risk
management and default management procedures. OCC believes that the
proposed changes will facilitate its ability to fully allocate, and
ultimately extinguish, the loss so that it has a better opportunity of
withstanding an extreme stress scenario without sacrificing its
viability as a going concern or its ability to continue to provide its
critical clearing services. In this regard, OCC believes that the
proposed changes remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions, consistent with Section 17A(b)(3)(F) of the
Act.\34\
---------------------------------------------------------------------------
\34\ Id.
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The proposed changes are designed to enhance the stability of the
clearing system generally and are aimed at ensuring that OCC has
adequate tools and resources to better protect market participants from
the risks of extreme stress scenarios and unprecedented loss events. In
this regard, OCC believes that the proposed changes are reasonably
designed to protect investors and the public interest, consistent with
Section 17A(b)(3)(F) of the Act.\35\
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\35\ Id.
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[[Page 61113]]
The proposed changes also are designed to further OCC's compliance,
in whole or in part, with the provisions of the Commission's rules
discussed immediately below:
Recovery and Orderly Wind-Down
In relevant part, Rule 17Ad-22(e)(3)(ii) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . plan[ ] for the recovery and
orderly wind-down of the [CCA] necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.''
\36\ As stated above, each of the proposed changes is designed to
provide OCC with tools to address the risks OCC might confront in a
recovery and orderly wind-down scenario.\37\ Consistent with the
requirements of Rule 17Ad-22(e)(3)(ii), the proposed tools would enable
OCC to better address the risks of liquidity shortfalls and credit
losses resulting from a Clearing Member default or certain other loss
events and, if necessary, to ultimately re-establish a matched book in
a recovery or orderly wind-down scenario.\38\ In this context, the
proposed changes serve as a critical component of OCC's recovery and
orderly wind-down plan. As a result, in OCC's view, the proposed
changes are consistent with the requirements of Rule 17Ad-22(e)(3)(ii)
as to the recovery and orderly wind-down plan.\39\
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\36\ 17 CFR 240.17Ad-22(e)(3)(ii).
\37\ Indeed, the OCC's separately filed recovery and orderly
wind-down plan identifies OCC's assessment powers, ability to call
for voluntary payments, ability to call for Voluntary Tear-Ups and
ability to impose Partial Tear-Ups among its ``Recovery Tools.'' OCC
has filed a proposed rule change with the Commission in connection
with this proposal. See SR-OCC-2017-021.
\38\ 17 CFR 240.17Ad-22(e)(3)(ii).
\39\ 17 CFR 240.17Ad-22(e)(3)(ii).
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Allocation of Credit Losses Above Available Resources
In relevant part, Rule 17Ad-22(e)(4)(viii) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [a]ddress[ ] allocation of
credit losses the [CCA] may face if its collateral and other resources
are insufficient to fully cover its credit exposures . . .'' \40\ The
proposed changes would provide OCC with three distinct tools that could
be used to allocate any credit losses OCC may face in excess of
collateral and other resources available to OCC. First, new Rule 1009
would provide a framework by which OCC could receive voluntary payments
in a circumstance where a Clearing Member has defaulted and OCC has
determined that, notwithstanding the availability of any remaining
resources under OCC Rules 707, 1001, 1104 through 1107, 2210 and
2211,\41\ OCC may not have sufficient resources to satisfy its
obligations and liabilities resulting from such default. Second, new
Rule 1111 would establish a framework by which non-defaulting Clearing
Members and non-defaulting customers of Clearing Members could be given
an opportunity to participate in Voluntarily Tear-Ups in a circumstance
where a Clearing Member has defaulted and OCC has determined that,
notwithstanding the availability of any remaining resources under OCC
Rules 707, 1001, 1104 through 1107, 2210 and 2211, OCC may not have
sufficient resources to satisfy its obligations and liabilities
resulting from such default. Finally, new Rule 1111 also would provide
the Board with discretion to mandatorily tear-up Remaining Open
Positions and Related Open Positions, in a circumstance where a
Clearing Member has defaulted and OCC has determined that,
notwithstanding the availability of any remaining resources under OCC
Rules 707, 1001, 1104 through 1107, 2210 and 2211, OCC may not have
sufficient resources to satisfy its obligations and liabilities
resulting from such default.\42\ In OCC's view, each of these tools
could be deployed by OCC, if necessary, to allocate credit losses in
excess of the collateral and other resources available to OCC, in
accordance with Rule 17Ad-22(e)(4)(viii).\43\
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\40\ 17 CFR 240.17Ad-22(e)(v)(viii).
\41\ Rule 707 addresses the treatment of funds in a Clearing
Member's X-M accounts. Rule 1001 addresses the size of OCC's
Clearing Fund and the amount of a Clearing Member's contribution.
Rules 1104 through 1107 concern the treatment of the portfolio of a
defaulted Clearing Member. Rules 2210 and 2211 concern the treatment
of Stock Loan positions of a defaulted Clearing Member.
\42\ Rule 1111(g), which would provide the Board authority to
equitably re-allocate losses, costs and fees directly imposed as a
result of a Partial Tear-Up among all non-defaulting Clearing
Members through a special charge, would serve as a discretionary
tool to redistribute the credit losses allocated through Partial
Tear-Up.
\43\ 17 CFR 240.17Ad-22(e)(v)(viii).
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Replenishment of Financial Resources Following a Default
In relevant part, Rule 17Ad-22(e)(4)(ix) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [d]escrib[e] the [CCA's]
process to replenish any financial resources it may use following a
default or other event in which use of such resources is
contemplated.'' \44\ OCC's Clearing Members have a standing obligation
to replenish the Clearing Fund following any proportionate charge. The
proposed changes would establish a rolling cooling-off period,
triggered by the payment of a proportionate charge against the Clearing
Fund, during which period the aggregate liability of a Clearing Member
to replenish the Clearing Fund (inclusive of assessments) would be 200%
of the Clearing Member's required contribution as of the time
immediately preceding the triggering proportionate charge. Compared to
the current requirement under which a Clearing Member may cap its
liability to proportionate charges at an additional 100% of its then-
required contribution, a Clearing Member would instead be permitted to
cap its liability for proportionate charges at an additional 200% of
its then-required Clearing Fund contribution.
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\44\ 17 CFR 240.17Ad-22(e)(4)(ix).
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OCC believes that the proposed approach improves predictability for
OCC and for Clearing Members regarding the size of Clearing Fund
contributions that are likely to be subject to assessments for
proportionate charges. Additionally, replacing the five business day
withdrawal period with the withdrawal period commensurate with the
cooling-off period (which, as proposed would be a minimum of fifteen
calendar days) would give Clearing Members a more reasonable period in
which to meet the wind-down and termination requirements necessary to
cap their liability. OCC believes that this would afford them greater
certainty regarding their maximum liability with respect to the
Clearing Fund during extreme stress events, which in turn, facilitates
Clearing Members' management of their own risk management, and to the
extent applicable, regulatory capital considerations. And OCC believes
this increased predictability would also be beneficial to OCC by
helping it to more reliably understand the amount of Clearing Fund
contributions that will likely be available to it after a proportionate
charge is assessed.\45\
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\45\ Under the existing approach, it is less certain from OCC's
standpoint regarding whether Clearing Members would reasonably be
able to cap their liability to proportionate charges within five
business days.
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OCC believes that the relative certainty provided by the proposed
cooling-off period and 200% cap on assessments ultimately could reduce
the risks of successive or ``cascading'' defaults, in which the
financial demands on remaining non-defaulting Clearing Members to
continually replenish OCC's Clearing Fund (and similar guaranty funds
at other CCPs to
[[Page 61114]]
which such Clearing Members might belong) have the effect of further
weakening such Clearing Members to the point of default. In this
regard, the proposed changes are designed to provide OCC, Clearing
Members and other stakeholders with sufficient time to manage the
ongoing default(s) without further aggravating the extreme stresses
facing market participants.
OCC recognizes that the proposed changes would limit the maximum
amount of Clearing Fund resources that could be available to OCC in an
extreme stress scenario, which introduces the possibility, however
remote, that the proposed 200% cap ultimately could be reached. If
during any cooling-off period the amount of aggregate proportionate
charges against the Clearing Fund approaches the 200% cap, the amount
remaining in the Clearing Fund may no longer be sufficient to comply
with the applicable minimum regulatory financial resources requirements
in the CCAs. In any such event, OCC's existing authority under Rule 603
would permit OCC to call on participants for additional initial margin,
which could ensure that OCC's minimum financial resources remain in
excess of applicable CCA requirements.\46\ OCC recognizes that the
imposition of increased margin requirements could have an immediate
pro-cyclical impact on participants (and consequential impacts on the
broader financial system) that is potentially greater than the impact
of replenishing the Clearing Fund. These risks would be limited to a
specific extreme stress event and could be mitigated by certain
factors. First, OCC, in coordination with its regulators, would
carefully evaluate any potential increase in the context of then-
existing facts and circumstances. Second, during the cooling-off
period, Clearing Members and their customers will have the opportunity
to reduce or rebalance their respective portfolios in order to mitigate
their exposures to stress losses and initial margin increases. Finally,
since initial margin is not designed to be subject to mutualized loss,
the risk of loss faced by Clearing Members for amounts posted as
additional margin would be substantially less than for replenishments
of the Clearing Fund.
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\46\ Rule 603 provides that ``[t]he Risk Committee may, from
time to time, increase the amount of margin which may be required in
respect of a cleared contract, open short position or exercised
contract if, in its discretion, it determines that such increase is
advisable for the protection of [OCC], the Clearing Members or the
general public.''
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Given the products cleared by OCC and the composition of its
clearing membership, OCC has determined that a minimum 15-calendar day
cooling-off period, rolling up to a maximum of 20 calendar days, is
likely to be a sufficient amount of time for OCC to manage the ongoing
default(s) and take necessary steps in furtherance of stabilizing the
clearing system. Further, through conversations with Clearing Members,
OCC believes that the proposed cooling-off period is likely to be a
sufficient amount for Clearing Members (and their customers) to orderly
reduce or rebalance their positions, in an attempt to mitigate stress
losses and exposure to potential initial margin increases as they
navigate the stress event. Through conversations with Clearing Members,
OCC also believes that the proposed cooling-off period is likely to be
a sufficient amount for certain Clearing Members to orderly close-out
their positions and transfer customer positions as they withdraw from
clearing membership. OCC believes the proposed cooling-off period,
coupled with the other proposed changes to OCC's assessment powers, is
likely to provide Clearing Members with an adequate measure of
stability and predictability as to the potential use of Clearing Fund
resources, which OCC believes removes the existing incentive for
Clearing Members to withdraw following a proportionate charge.\47\
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\47\ OCC initially considered a fixed 15-calendar day cooling-
off period; however, OCC concluded that a fixed 15-calendar day
cooling-off period may increase the risks of successive or cascading
Clearing Member defaults and may perversely incentivize Clearing
Members to seek to withdraw from clearing membership. Through
conversations with Clearing Members, OCC believes that these
potentially disruptive consequences are mitigated by the proposed
rolling cooling-off period.
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In light of the foregoing, OCC believes that the proposed changes
would enhance and strengthen its process to replenish the Clearing Fund
following a default or other event in which use of the Clearing Fund is
contemplated, in accordance with Rule 17Ad-22(e)(4)(ix).\48\
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\48\ 17 CFR 240.17Ad-22(e)(4)(ix).
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Replenishment of Liquid Resources
In relevant part, Rule 17Ad-22(e)(7)(ix) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [d]escrib[e] the [CCA's]
process to replenish any liquid resources that the clearing agency may
employ during a stress event.'' \49\ Since the use any part of the cash
portion of OCC's Clearing Fund would constitute a depletion of one of
OCC's liquid resources, OCC's assessment power, discussed above, is the
primary means of replenishing the Clearing Fund cash that OCC used to
address the stress event. For the same reasons stated above, OCC
believes that the proposed changes enhance and strengthen its process
to replenish the Clearing Fund, as necessary, following a default or
other stress event in which the Clearing Fund is used, and therefore,
OCC views the proposed changes as consistent with Rule 17Ad-
22(e)(7)(ix).\50\
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\49\ 17 CFR 240.17Ad-22(e)(7)(ix).
\50\ 17 CFR 240.17Ad-22(e)(7)(ix).
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Timely Action To Contain Losses
In relevant part, Rule 17Ad-22(e)(13) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [e]nsure the [CCA] has the
authority and operational capacity to take timely action to contain
losses and liquidity demands and continue to meet its obligations . .
.'' \51\ The proposed changes would provide OCC with the authority to
call for Voluntary Tear-Ups and OCC's Board with the discretion to
impose Partial Tear-Ups, which would provide OCC with authority
necessary to extinguish certain losses (and attendant liquidity
demands) thereby potentially enabling OCC to continue to meet its
remaining obligations to participants. As designed, Voluntary Tear-Ups
and Partial Tear-Ups would be initiated on a date sufficiently in
advance of the exhaustion of OCC's financial resources such that OCC is
expected to have adequate resources remaining to cover the amount it
must pay to extinguish the positions of Clearing Members and customers
without haircutting gains. Accordingly, OCC believes that its authority
and capacity to conduct a Partial Tear-Up should be timely, relative to
the adequacy of OCC's remaining financial resources. Finally, OCC
believes it has the operational and systems capacity sufficient to
support the proposed changes, and OCC's policies and procedures will be
updated accordingly to reflect the existence of these new tools. As a
result, OCC believes that the proposed changes conform to the relevant
requirements in Rule 17Ad-22(e)(13).\52\
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\51\ 17 CFR 240.17Ad-22(e)(13).
\52\ 17 CFR 240.17Ad-22(e)(13).
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Public Disclosure of Key Aspects of Default Rules
In relevant part, Rule 17Ad-22(e)(23)(i) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [p]ublicly disclos[e] all
relevant rules and material procedures, including key aspects of its
default rules and procedures.'' \53\ As
[[Page 61115]]
stated above, each of the tools discussed herein are contemplated to be
deployed by OCC if an extreme stress event has placed OCC into a
recovery or orderly wind-down scenario, and therefore, the tools
discussed herein constitute key aspects of OCC's default rules. By
incorporating the proposed changes into OCC's Rules and By-Laws, as
further supplemented by the discussion in OCC's public rule filing, OCC
believes that proposed changes would conform to the relevant
requirements in Rule 17Ad-22(e)(23)(i).\54\
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\53\ 17 CFR 240.17Ad-22(e)(23)(i).
\54\ 17 CFR 240.17Ad-22(e)(13).
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Sufficient Information Regarding the Risks, Fees and Costs of Clearing
In relevant part, Rule 17Ad-22(e)(23)(ii) requires that each CCA
``establish, implement, maintain and enforce written policies and
procedures reasonably designed to . . . [p]rovid[e] sufficient
information to enable participants to identify and evaluate the risks,
fees, and other material costs they incur by participating in the
covered clearing agency.'' \55\ The proposed changes would clearly
explain to Clearing Members and market participants that an extreme
stress scenario could result in the use--and theoretically the
exhaustion--of OCC's financial resources, inclusive of OCC's proposed
assessment powers. Proposed changes to Section 6, Article VIII of OCC's
By-Laws would explain Clearing Members' replenishment obligation and
liability for assessments. The proposed changes also would clearly
explain, through proposed Rules 1009 and 1111, that as OCC nears the
exhaustion of its assessment powers, Clearing Members may be asked for
voluntary payments and, if necessary, Clearing Members and customers
may be asked to participate in a Voluntary Tear-Up and/or subject to a
Partial Tear-Up. Proposed Rules 1009(b) and 1111(a)(ii) also would make
clear that Clearing Members that made voluntary payments and Clearing
Members and customers whose tendered positions were extinguished in the
Voluntary Tear-Up would be prioritized in the distribution of any
recovery from the defaulted Clearing Member(s). Proposed changes to
Article VIII would clarify that the Clearing Fund contributions
remaining after OCC has conducted a Voluntary Tear-Up or Partial Tear-
Up could be used to compensate the non-defaulting Clearing Members and
non-defaulting customers for the losses, costs or fees imposed upon
them as a result of such Voluntary Tear-Up or Partial Tear-Up. Proposed
Rule 1111(g) would make clear that, following a Partial Tear-Up, OCC's
Board may seek to equitably re-allocate losses, costs and fees directly
imposed as a result of a Partial Tear-Up among all non-defaulting
Clearing Members through a special charge. By incorporating the
proposed changes into OCC's Rules and By-Laws, as further supplemented
by the discussion in OCC's public rule filing, OCC believes that is has
provided sufficient information to enable participants to identify and
evaluate the risks, fees, and other material costs they could incur by
participating OCC, consistent with the requirements in Rule 17Ad-
22(e)(23)(ii).\56\
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\55\ 17 CFR 240.17Ad-22(e)(23)(ii).
\56\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \57\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe the proposed rule change would have any impact or impose any
burden on competition. The primary purpose of the proposed changes is
to make certain revisions to OCC's Rules and By-Laws Laws that are
designed to enhance OCC's existing tools to address the risks of
liquidity shortfalls and credit losses and to establish tools by which
OCC could re-establish a matched book following a default. As explained
above, each of the tools proposed herein is contemplated to be deployed
by OCC in an extreme stress event that has placed OCC into a recovery
or orderly wind-down scenario. The proposed rule change is intended to
provide Clearing Members, market participants and other stakeholders
with greater certainty as to their liabilities and potential exposure
to OCC in the event of an unprecedented loss scenario. OCC does not
believe that the proposed changes would discriminatorily impact any
Clearing Member's access to OCC's services or unnecessarily
disadvantage or favor any particular user in relationship to another
user. OCC recognizes that the nature of a Partial Tear-Up means that
only particular Clearing Members and market participants holding
certain positions may be impacted; however, the risk of Partial Tear-
Ups is extremely remote, and even then, the proposed changes seek to
provide means of equitably re-allocating the losses, costs and fees
imposed by Voluntary Tear-Up or Partial Tear-Up. Therefore, OCC
believes that the proposed changes would not have any impact or impose
any burden on competition.
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\57\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the proposed rule change, and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 Commissions internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-OCC-2017-020 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2017-020. 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
[[Page 61116]]
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
such 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_020.pdf.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal or 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-2017-020 and
should be submitted on or before January 16, 2018.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27691 Filed 12-22-17; 8:45 am]
BILLING CODE 8011-01-P
