Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Related to The Options Clearing Corporation's Margin Policy, 61060-61065 [2017-27695]

Download as PDF 61060 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for 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–MIAX–2017–48 and should be submitted on or before January 16, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27694 Filed 12–22–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82355; File No. SR–OCC– 2017–007] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Related to The Options Clearing Corporation’s Margin Policy (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by OCC. On December 18, 2017, OCC filed Amendment No. 1 to the proposed rule change.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule change is to formalize and update OCC’s Margin Policy in connection with requirements applicable to OCC under Rule 17Ad–22(e)(6), which generally requires a covered clearing agency to have policies and procedures reasonably designed to, among other things, cover its credit exposures to its participants through the establishment of a riskbased margin system meeting certain standards.4 The Margin Policy is included as confidential Exhibit 5 of the filing. The policy is being submitted without marking to improve readability as it is being submitted in its entirety as new rule text. The proposed rule change does not require any changes to the text of OCC’s By-Laws or Rules. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.5 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. ethrower on DSK3G9T082PROD with NOTICES 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 11, 2017, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 20:21 Dec 22, 2017 Jkt 244001 3 In Amendment No. 1, OCC modified a portion of its Margin Policy to: (i) State that OCC’s Board of Directors (‘‘Board’’) is ultimately responsible for annual review and approval of the Policy, and (ii) correctly cite provisions in OCC’s Rules governing its stock loan program. OCC did not propose any other changes in Amendment No. 1. 4 17 CFR 240.17Ad–22(e)(6). 5 OCC’s By-Laws and Rules can be found on OCC’s public website: https://optionsclearing.com/ about/publications/bylaws.jsp. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose Background On September 28, 2016 the Commission adopted amendments to Rule 17Ad–22 6 and added new Rule 17Ab2–2 7 pursuant to Section 17A of the Act 8 and the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 9 to establish enhanced standards for the operation and governance of those clearing agencies registered with the Commission that meet the definition of a ‘‘covered clearing agency,’’ as defined by Rule 17Ad–22(a)(5) 10 (collectively, the new and amended rules are herein referred to as ‘‘CCA’’ rules). The CCA rules require that a covered clearing agency, among other things: ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [c]over . . . its credit exposures to its participants by establishing a risk-based margin system’’ that satisfies certain criteria, including that it produces margin levels commensurate with the risks of particular products, collects margin at least daily, collects margin sufficient to cover exposure between the last margin collection and position closeout, uses reliable pricing sources, appropriately measures credit exposure and regularly reviews, tests and verifies its margin methodology.11 OCC is defined as a covered clearing agency under the CCA rules, and therefore is subject to the requirements of the CCA rules, including Rule 17Ad– 22(e)(6).12 Accordingly, OCC proposes to formalize its Margin Policy, as described below, to describe its approach for collecting margin and managing the credit exposures presented by its Clearing Members. Margin Policy The purpose of the Margin Policy is to describe OCC’s approach for collecting margin and managing the credit exposure presented by its Clearing Members, so as to ensure that its margin methodologies are governed and implemented in a manner that is compliant with Rule 17Ad–22(e)(6).13 The Margin Policy describes, in general: 6 17 CFR 240.17Ad–22. CFR 240.17Ab2–2. 8 15 U.S.C. 78q–1. 9 12 U.S.C. 5461 et seq. 10 17 CFR 240.17Ad–22(a)(5). 11 17 CFR 240.17Ad–22(e)(6). 12 Id. 13 Id. 7 17 E:\FR\FM\26DEN1.SGM 26DEN1 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices (i) The treatment of the various types of positions held by Clearing Members in connection with margin calculations; (ii) OCC’s cross-margin programs with other clearing agencies; (iii) the treatment of collateral included in margin calculations; (iv) the model assumptions and market data OCC uses as inputs for its margin calculation methodologies; (v) OCC’s margin calculation methodologies; (vi) protocols surrounding OCC’s exercise of margin calls and adjustments; and (vii) daily back-testing and model validation that OCC conducts to measure performance of its margin methodologies. The Margin Policy is designed to reflect OCC’s efforts to provide for robust internal controls and governance surrounding its margin methodologies and promote compliance with the CCA rules, in particular Rule 17Ad– 22(e)(6),14 as informed by the Commission in the adopting release for the CCA rules.15 The Margin Policy is part of a broader framework, including OCC’s By-Laws, Rules and other policies, that is designed to support the resiliency of OCC by ensuring that it appropriately sizes margin to market risks.16 The key substantive aspects of the Margin Policy, and how they foster compliance with the requirements of the CCA rules, are described in greater detail below. Treatment of Various Types of Positions The Margin Policy describes the treatment of various types of positions, originating from different types of market participants, in connection with OCC’s calculation of margin requirements. As specified in OCC’s ByLaws, OCC utilizes different types of Clearing Member accounts in order to maintain compliance with the relevant Customer protection and segregation requirements of the Commission and the Commodity Futures Trading Commission (‘‘CFTC’’), which affects how margin is calculated because of different assumptions regarding how such accounts or positions would be liquidated in the event of a Clearing Member default. Taking into account these different types of products in different types of accounts, with different Clearing Member liquidation ethrower on DSK3G9T082PROD with NOTICES 14 Id. 15 Securities Exchange Act Release No. 78961 (September 28, 2016), 81 FR 70786 (October 13, 2016) (‘‘CCA Adopting Release’’). 16 CCA Adopting Release, supra note 14 at 70812 (noting that the requirements of Rule 17Ad–22(e)(6) ‘‘further support the resiliency of a covered clearing agency by requiring the covered clearing agency to have policies and procedures that are designed to appropriately size . . . margin to market risks.’’). VerDate Sep<11>2014 20:21 Dec 22, 2017 Jkt 244001 scenarios, enables OCC to set margin requirements commensurate with the actual risks presented by these positions and further its compliance with the requirements in Rule 17Ad–22(e)(6)(i) and (v), which require that a covered clearing agency’s policies and procedures be reasonably designed to establish a risk-based margin system that takes into account the ‘‘risks and particular attributes of each relevant product, portfolio, and market’’ and use ‘‘an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.’’ 17 One category of positions addressed in the Margin Policy is long securities options positions. Under the Margin Policy, these positions are segregated from a Clearing Member’s other positions under the assumption that such positions are fully paid and pose no additional risk to OCC, and the Margin Policy explains that a Clearing Member’s segregated long positions are not included as part of its margin calculation. In addition, Clearing Members’ customer segregated futures accounts are margined separately from Clearing Members’ securities and/or proprietary accounts, and margin for these accounts is calculated on a gross basis by computing margin requirements for each customer account independently, and then aggregating the individual margin calculations to calculate the gross margin required from the Clearing Member. The Margin Policy further notes that OCC also computes the margin requirements for customer segregated futures accounts on a net basis and holds the greater of the net or gross margin requirement. As described in the Margin Policy, stock loan/borrow positions are included as long/short stock positions in margin calculations on a net basis and may be offset against other positions held in an account. However, while OCC includes these positions in its risk calculations, it does not include the net asset value of these positions in its margin requirement calculations, which allows OCC to maintain financial resources in a manner that is consistent with the manner in which such positions would be liquidated during a Clearing Member default. In the event of such a default, OCC would instruct the non-defaulting Clearing Member to buy in or sell out of the position, with OCC compensating the Clearing Member for any difference between last mark and the closeout price. Cross-Margining The Margin Policy addresses the cross-margin programs that OCC maintains with other clearinghouses, which affects the calculation of margin with respect to positions in certain index options, options on centrally cleared fund shares, and futures and options on futures held as part of one of the programs, because positions are treated as if they were held within a single account at OCC. Under Rule 17Ad–22(e)(6)(v) a covered clearing agency’s policies and procedures must be reasonably designed to establish a risk-based margin system that uses appropriate margin methods for measuring ‘‘credit exposure . . . and portfolio effects across products,’’ 18 which the CCA Adopting Release expressly states should take into consideration cross-margining arrangements with other clearinghouses.19 The Margin Policy’s allowance for offsets in required margin when calculating requirements for cross-margin products furthers compliance with this CCA rule. Collateral To mitigate credit risk exposure, OCC generally requires Clearing Members to deposit collateral as margin with respect to each account type on the morning following the trade date. Collateral management is generally governed by OCC’s Collateral Risk Management Policy, but the Margin Policy does provide a general description of how the use of deposits in lieu of margin and collateral in margins may affect margin calculations. This furthers the purpose of Rules 17Ad–22(e)(6)(i) and (v) in that incorporating these elements enables OCC to set margin requirements commensurate with its actual credit exposure to its Clearing Members.20 The Margin Policy describes that OCC permits Clearing Members to make deposits in lieu of margin, which enable them to meet their margin requirements for securities options by posting escrow or specific deposits, i.e., typically customer securities that have been fully paid and that represent the securities deliverable upon assignment of a short option or a deposit of acceptable collateral equal to the underlying value or aggregate exercise price of the option being covered, depending on the type of option. Because these short positions are fully collateralized, the Margin Policy specifies that OCC does not include deposits in lieu of margin when calculating margin requirements. 18 17 CFR 240.17Ad–22(e)(6)(v). Adopting Release, supra note 14, at 70819. 20 17 CFR 240.17Ad–22(e)(6)(i) and (v). 19 CCA 17 17 PO 00000 CFR 240.17Ad–22(e)(6)(i) and (v). Frm 00114 Fmt 4703 Sfmt 4703 61061 E:\FR\FM\26DEN1.SGM 26DEN1 61062 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES The Margin Policy also indicates that OCC’s margin methodology takes into account certain forms of posted margin when calculating a Clearing Member’s margin requirement, a practice OCC refers to as ‘‘collateral in margins.’’ OCC computes margin requirements based on a combination of open positions in cleared contracts and any deposits of collateral eligible for inclusion in OCC’s margin methodologies, e.g., stocks, exchange-traded fund securities and eligible government securities. OCC’s margin methodologies also incorporate scenarios that could exacerbate or mitigate risk exposure as a result of the collateral type deposited into its margin requirement calculations, thereby mitigating risk by creating an incentive for Clearing Members to deposit collateral that hedges their exposures in cleared contracts. The Margin Policy’s recognition of the risk interactions between these open positions and collateral deposited as margin is consistent with the requirement of Rule 17Ad–22(e)(6)(v) that a covered clearing agency’s policies and procedures be reasonably designed to establish a riskbased margin system that takes into account ‘‘portfolio effects across products’’ when measuring credit exposure.21 Model Assumptions, Sensitivity Analyses and Market Data The Margin Policy has historically specified that OCC performs: (i) Daily backtesting of each Clearing Member Account, (ii) daily backtesting of OCC’s margin methodology and (iii) monthly review of the assumptions used in performing the backtesting. The Margin Policy has also specified that all critical margin model assumptions should be consistent with OCC’s default management assumptions. OCC performed the aforementioned backtesting in order to monitor whether the margin methodology is functioning as intended and appropriately captures the risks that OCC’s Clearing Members present to it. With the adoption of the CCA rules, and to enhance OCC’s monitoring of its margin methodology, the proposed Margin Policy would establish additional monthly reviews of its margin methodology. First, the Margin Policy would specify that key model parameters and assumptions are also subject to a monthly, or more frequently when market conditions warrant, sensitivity analysis. In identifying which parameters and assumptions should be subject to this sensitivity analysis, OCC surveyed relevant industry guidance on the appropriate parameters and assumptions to first include in the sensitivity analysis. OCC plans to increase the number of assumptions and parameters included in the sensitivity analysis on an iterative basis as the process becomes more mature. Second, the Margin Policy would specify that OCC performs a monthly review of its parameters for business backtesting. OCC determined that all parameters contained in its margin methodology should be included in this monthly parameter review, and has identified all of these. The Margin Policy would also specify that this sensitivity analysis and parameter review would make use of both actual and hypothetical portfolios. These additions to the Margin Policy are designed to be consistent with Rules 17Ad–22(e)(6)(vi)(B) and (C), which require that policies and procedures of a covered clearing agency be reasonably designed to establish a risk-based margin system that incorporates monthly, or more frequent, sensitivity analyses and review of its parameters and assumptions for backtesting.22 The proposed Margin Policy would specify that the results of all such analyses are reported no less frequently than monthly to OCC’s Model Risk Working Group, which then may escalate any issues to OCC’s Management Committee. This reporting requirement is designed to be consistent with Rule 17Ad–22(e)(6)(vi)(D), which requires policies and procedures of a covered clearing agency to be reasonably designed to establish a riskbased margin system under which such analyses are reported to the covered clearing agency’s ‘‘appropriate decision maker,’’ who may use ‘‘these results to evaluate the adequacy of and adjust its margin methodology, model parameters, and any other relevant aspects of its credit risk framework.’’ 23 The Margin Policy describes how OCC obtains the market data that it uses to value Clearing Members’ portfolios and collateral deposits, perform markto-market calculations, support expiration processing, generate theoretical values for margin and Clearing Fund calculations, and support customer-level margin calculations. Rule 17Ad–22(e)(6)(iv) requires that a covered clearing agency’s policies and procedures be reasonably designed to establish a risk-based margin system that uses ‘‘reliable sources of timely price data’’ and uses ‘‘procedures and sound valuation models for addressing circumstances in which pricing data are 22 17 21 17 CFR 240.17Ad–22(e)(6)(v). VerDate Sep<11>2014 20:21 Dec 22, 2017 23 17 Jkt 244001 PO 00000 CFR 240.17Ad–22(e)(6)(v)(B) and (C). CFR 240.17Ad–22(e)(6)(v)(D). Frm 00115 Fmt 4703 Sfmt 4703 not readily available or reliable.’’ 24 In compliance with this requirement, the Margin Policy requires OCC to take measures to ensure the quality and completeness of any market data it acquires. Primary among these measures is the use of redundant sources for market data and pricing system infrastructure and, when selecting vendors, prioritizing the quality and reliability of a data provider’s service and its ability to provide data in a variety of market conditions, including periods of market stress. This aspect of the Margin Policy is specifically responsive to the Commission’s statement in the CCA Adopting Release that a covered clearing agency should consider the ability of the vendor to provide data in a variety of market conditions, including periods of market stress and not just based on cost alone.25 The Margin Policy explains how, in order to ensure the integrity of this data, OCC monitors for delays in its receipt of price data and overall system health, as well as erroneous price data or interruptions in pricing data availability. The Margin Policy specifies that, in certain cases, OCC may be obligated to use settlement prices that are provided directly by the listing exchange 26 and prescribes procedures for utilizing alternative data sources where a final settlement value is not available from the listing exchange. The Margin Policy also specifies that OCC utilizes sound valuation models, such as price-editing and smoothing,27 as well as system edit checks, and automated and manual controls with any price data it obtains. Where OCC does not receive pricing information on a daily basis for a product, the Margin Policy specifies that OCC would rely on modeled prices. These requirements are designed to facilitate OCC’s compliance with the Rule 17Ad–22(e)(6)(iv) requirement to maintain policies reasonably designed to establish a riskbased margin system that addresses ‘‘circumstances in which pricing data are not readily available or reliable.’’ 28 Margin Methodology OCC’s Margin Policy contains a description of OCC’s System for 24 17 CFR 240.17Ad–22(e)(6)(iv). Adopting Release, supra note 14, at 70819. 26 In such a case, the listing exchange transmits price files to OCC, and the data is then processed by OCC systems and manually validated. 27 ‘‘Smoothing’’ is a process OCC uses to calculate final prices, volatility measures, delta values and vega values for securities and futures options. The purpose of smoothing is to minimize arbitrage opportunities while producing final prices that remain within the bid-ask spread provided to OCC by the market. 28 17 CFR 240.17Ad–22(e)(6)(iv). 25 CCA E:\FR\FM\26DEN1.SGM 26DEN1 ethrower on DSK3G9T082PROD with NOTICES Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices Theoretical Analysis and Numerical Simulations (‘‘STANS’’), its margin methodology for all positions it margins on a net basis. As required in Rule 17Ad–22(e)(6), STANS is a risk-based methodology that is designed to produce a margin requirement that exceeds OCC’s minimum regulatory obligations. OCC achieves this through the use of an Expected Shortfall methodology (‘‘ES’’), which is effectively a weighted average of tail losses beyond the 99% Value-at-Risk (‘‘VaR’’) level. As a statistical methodology that relies on randomized Monte Carlo simulations to generate ES estimates, STANS will produce slightly different ES estimates when Monte Carlo simulations are performed on each Clearing Member account; OCC refers to such variance in ES estimates as the ‘‘standard error.’’ However, significant variations in ES estimates among Clearing Member accounts may also signify other issues, such as underlying issues with STANS or its appropriateness for estimating ES for a particular Clearing Member account. Previously, OCC has relied on the expert judgment of its staff and undefined, qualitative factors to identify whether STANS may not be functioning as expected. After performing statistical analysis on the size of the standard error, and at what level an observed error is greater than the standard error at a statistically significant level, the proposed Margin Policy would state that the tolerance for the standard error of a typical, or median, Clearing Member account ES measurement in STANS is 5%.29 This tolerance would define a statistical error threshold above which OCC must investigate whether STANS is appropriately measuring a Clearing Member’s account. Furthermore, any margin requirement calculated by STANS is on a ‘‘portfolio’’ basis, which inherently reflects offsets between products within each portfolio. This is intended to meet the Rule 17Ad– 22(e)(6)(iii) requirement, as explained in the CCA Adopting Release, that a covered clearing agency’s policies and procedures be reasonably designed to establish a risk-based margin system that calculates margin on a portfolio level and set initial margin requirements that meet ‘‘an established single-tail confidence level of at least 99 percent’’ with respect to each portfolio’s distribution of future exposure.30 The Margin Policy also describes how STANS utilizes Monte Carlo simulations of portfolio values at a twoday risk horizon, based on the behavior of various risk factors affecting values of Clearing Member accounts, including implied volatility surfaces of options for all equity and index risk factors. These risk factors are relevant to the products in a Clearing Member’s portfolio and are critical drivers of the inherent exposure OCC has to its Clearing Members’ portfolios. Including them in STANS therefore enhances the robustness of OCC’s margin resources and incentivizes Clearing Members to be aware of the risks in their portfolios and mitigate those risks to avoid higher margin requirements. The use of risk factors is intended to comply with Rule 17Ad–22(e)(6)(v), which requires that a covered clearing agency’s policies and procedures be reasonably designed to establish a risk-based margin system that uses ‘‘an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.’’ 31 For purposes of calculating margin requirements, STANS assumes a twoday liquidation period for all positions margined on a net basis. The Margin Policy explains that this assumption is based on a thorough analysis of market conditions and the risks associated with the products OCC clears. As the Commission noted in the CCA Adopting Release, the assumed liquidation period in a margin model should be tailored to the market conditions and the risks of the products being cleared.32 OCC’s assumed two-day liquidation period is so tailored, and the Margin Policy is designed to enable OCC to comply with Rule 17Ad–22(e)(6)(iii), under which a covered clearing agency’s policies and procedures must be reasonably designed to establish a risk-based margin system requirement that covers potential future exposure to Clearing Members in the interval between the last margin collection and the close-out of a Clearing Member’s positions should it default.33 This assumption allows OCC to maintain consistency with the timeframes required to facilitate the hedging or close-out of a position, which OCC would employ under its default management procedures. The Margin Policy describes other aspects of STANS that are designed to address the particular attributes and risk factors of the products being margined, 31 17 29 This use of a 5% ES error tolerance is a proposed enhancement to OCC’s existing margin policies and procedures. 30 CCA Adopting Release, supra note 14, at 70819; 17 CFR 240.17Ad–22(e)(6)(iii). VerDate Sep<11>2014 20:21 Dec 22, 2017 Jkt 244001 CFR 240.17Ad–22(e)(6)(v). Adopting Release, supra note 14, at 70818 (‘‘. . . liquidation periods generally should be tailored to the market conditions and risks of the products being cleared.’’). 33 17 CFR 240.17Ad–22(e)(6)(iii). 32 CCA PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 61063 as is consistent with Rule 17Ad– 22(e)(6)(i) and (v).34 This includes the use of 500 business days of ‘‘look-back’’ historical data, where available, in its econometric models and the incorporation of multiple stress tests components into STANS that are designed to identify increases in OCC’s exposure that may arise from atypical market movements. The Margin Policy provides for daily evaluation of the market data that supports STANS’ econometric models and monthly recalibration of STANS to ensure that it accounts for changes to market conditions over the past month. These recalibrations incorporate a longrun historical volatility estimate, which serves as a minimum volatility value during periods of low market volatility, reducing procyclicality in OCC’s margin estimates by not allowing margin rates to drop below a certain long-run measure of market volatility. The Margin Policy also provides that on a daily basis OCC utilizes a ‘‘scale factor’’ to account for daily changes in market volatility that may occur between monthly recalibrations. In some instances, products less dependent on the monthly recalibration process—such as Treasury and volatility contracts— may have their econometric models recalibrated on a daily basis. The Margin Policy provides for the use of alternatives to STANS for certain products or accounts. For example, OCC has the ability to apply add-on charges to cover Stock Loan position exposures arising from Clearing Member specific preferences and surcharges for certain Clearing Members with higher risk levels. Furthermore, the Margin Policy explains that OCC utilizes the Standard Portfolio Analysis of Risk margin methodology (‘‘SPAN’’), instead of STANS, to compute gross margin for the segregated futures customer accounts of Clearing Members. SPAN is a market simulation-based VaR system that assesses risk on a portfolio basis for a wide variety of financial instruments. SPAN uses ‘‘scan ranges’’ that estimate price movements based on historical volatility data of specific products, which are in turn used to estimate movements in affected portfolios. ‘‘Scan ranges’’ also serve as minimum estimates of portfolio volatility in times of low market volatility to guard against the effects of procyclicality, and are regularly monitored and recalibrated by OCC’s Pricing & Margins team. A description of SPAN is provided in the Margin Policy. Like STANS, SPAN is intended to comply with Rule 17Ad– 22(e)(6), including the Rule 17Ad– 34 17 E:\FR\FM\26DEN1.SGM CFR 240.17Ad–22(e)(6)(i) and (v). 26DEN1 61064 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES 22(e)(6)(iii) requirement that a covered clearing agency’s policies and procedures be reasonably designed to establish a risk-based margin system that calculates margins on a portfolio level and sets initial margin requirements that meet ‘‘an established single-tailed confidence level of at least 99 percent’’ with respect to each portfolio’s distribution of future exposure.35 The Margin Policy indicates that OCC will also calculate a segregated futures customers account’s net margin requirement under STANS, and that if the STANS-calculated requirement exceeds the SPAN-calculated requirement, an add-on is applied to the Clearing Member’s account so that the Clearing Member is effectively required to meet the greater of the gross SPAN or two-day net STANS requirement. Margin Calls and Adjustments The Margin Policy provides for OCC calculating and collecting margin requirements on a daily basis, as well as making intraday margin calls and adjustments. This is consistent with Rule 17Ad–22(e)(6)(ii), under which a covered clearing agency must maintain policies and procedures reasonably designed to establish a risk-based margin system that ‘‘collects margin . . . at least daily’’ and includes ‘‘the authority and operational capacity to make intraday margin calls in defined circumstances.’’ 36 As described in the Margin Policy, OCC issues margin calls during standard trading hours within a timeframe established in OCC’s procedures, when unrealized losses 37 exceeding 50% of an account’s total risk charges are observed for that account, based on start-of-day positions. Intraday margin calls are also subject to a minimum value established in OCC’s procedures, and must be approved by a Vice President or above. The Margin Policy describes the process by which margin calls may be deferred and evaluated and for execution of a margin call outside of the time frame described above. The Margin Policy provides for certain exceptions to the above intraday margin call time frame. For instance, in the case of extended trading hours (‘‘ETH’’), OCC may issue a margin call prior to 9:00 a.m. Central Time when (1) unrealized losses observed for an account, based on new ETH positions, exceed 25% of that account’s total risk 35 CCA Adopting Release, supra note 14, at 70819; 17 CFR 240.17Ad–22(e)(6)(iii). 36 17 CFR 240.17Ad–22(e)(6)(ii). 37 This excludes accounts holding only collateral positions or long option positions where the account’s net asset value could never become negative. VerDate Sep<11>2014 20:21 Dec 22, 2017 Jkt 244001 charges and (2) the overall Clearing Member portfolio is also experiencing losses. ETH margin calls are limited to price changes in ETH-eligible products, and similarly remain subject to a minimum value established in OCC’s procedures and must be approved by a Vice President or above. In the case of bank holidays, margin calls may be issued against Clearing Members on the day prior to the bank holiday when it coincides with a day one or more of OCC’s markets are open for trading. The Margin Policy indicates that additional margin adjustments may be performed as the need arises and following approval by an officer of OCC. Back-Testing and Model Validation OCC’s Margin Policy provides that OCC conducts daily back-tests for each margin account, analyzing in detail all accounts exhibiting losses in excess of calculated margin requirements. This is intended to comply with Rule 17Ad– 22(e)(6)(vi)(A), which calls for back-tests of the margin model at least daily, ‘‘using standard predetermined parameters and assumptions.’’ 38 To the extent the results of these back-tests reflect losses in excess of the aggregate ES and stress test add-on charges required for a Clearing Member’s account, the test result will be classified as an ‘‘exceedance,’’ and all such exceedances will be reported no less frequently than monthly and evaluated through OCC’s governance process for model risk management. The Margin Policy states that OCC’s Model Validation Group (‘‘MVG’’), an independent group with a separate reporting line from model developers, is responsible for evaluating the overall performance of STANS and its associated models on at least an annual basis. This aspect of the policy is intended to comply with Rule 17Ad– 22(e)(6)(vii), under which a covered clearing agency’s policies and procedures must be reasonably designed to establish a risk-based margin system that requires ‘‘a model validation for the covered clearing agency’s margin system and related models to be performed not less than annually’’ or more frequently as may be contemplated by the agency’s risk management framework.39 MVG presents its findings and recommendations to the Risk Committee of OCC’s Board. (2) Statutory Basis Section 17A(b)(3)(F) of the Act 40 requires, among other things, that the 38 17 CFR 240.17Ad–22(e)(6)(vi)(A). CFR 240.17Ad–22(e)(6)(vii). 40 15 U.S.C. 78q–1(b)(3)(F). 39 17 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible and, in general, to protect investors and the public interest. Through each of its respective sections, the Margin Policy provides a framework for managing margin and credit exposure presented by OCC’s Clearing Members. To manage these exposures, the Margin Policy establishes the manner in which OCC requires Clearing Members to deposit margin to assure performance and to mitigate their credit exposures if a Clearing Member defaults. The Margin Policy also describes the types of positions OCC will use in making margin calculations, how OCC will manage margin risk arising from its cross-margining program, key assumptions of OCC’s margin methodologies, OCC’s margin methodologies, how OCC administers margin calls on both daily and intraday bases, and how OCC monitors and reports on the performance of its margin systems. The Margin Policy’s promotion of each aforementioned activity ultimately inures to the protection of investors and the public interest, as well as the safeguarding of securities and funds in OCC’s custody or control 41 in a manner consistent with Section 17A(b)(3)(F) of the Act.42 OCC also believes that the Margin Policy is consistent with the requirements of Rule 17Ad–22(e)(6), as detailed above.43 For example, the Margin Policy is reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that meets the minimum regulatory requirements in: Collecting margin on a daily or intraday basis at levels commensurate with the risks and particular attributes of each relevant product, portfolio and market, as is consistent with Rules 17Ad–22(e)(6)(i), (ii) and (v); 44 calculating margin requirements sufficient to cover potential future exposures to a defaulting Clearing Member during the interval between last margin collection and closeout, as is consistent with Rule 17Ad–22(e)(6)(iii); 45 using reliable sources of timely price data and sound valuation models and procedures when 41 These activities, in turn, help ensure that OCC remains capable of continuing its operations and services in a manner that promotes the prompt and accurate clearance and settlement of securities transactions. 42 15 U.S.C. 78q–1(b)(3)(F). 43 See supra notes 12–20, 21–24, 27, 29–35, 37 and 38 and accompanying text. 44 See supra notes 16, 33 and 35 and accompanying text. 45 See supra note 32 and accompanying text. E:\FR\FM\26DEN1.SGM 26DEN1 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices ethrower on DSK3G9T082PROD with NOTICES data is unavailable, as is consistent with Rule 17Ad–(22)(e)(6)(iv); 46 using appropriate methods for measuring credit exposures that account for relevant product risk factors and portfolio effects across products, as is consistent with Rules 17Ad–22(e)(6)(i) and (v); 47 and conducting daily backtests of its margin models, conducting sensitivity analyses of the underlying parameters and assumptions monthly, or more frequently, and engaging in model validation not less frequently than annually, as is consistent with Rules 17Ad–22(e)(vi) and (vii).48 The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency’s Statement on Burden on Competition Section 17A(b)(3)(I) of the Act 49 requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. OCC does not believe that the proposed rule change would impact or impose any burden on competition. The proposed rule change sets forth the framework surrounding OCC’s margin methodologies. The Margin Policy primarily describes OCC’s existing policies and practices with respect to margin, much of which is also addressed in OCC’s By-Laws and Rules. All Clearing Members are subject to the same methodologies for determining their margin requirements, dictated by the overall risk to OCC presented by the positions in their respective portfolios. Consequently, no Clearing Member is provided a competitive advantage over any other Clearing Member. Further, the Margin Policy does not affect Clearing Members’ access to OCC’s services or impose any direct burdens on Clearing Members. Accordingly, the proposed rule change would not unfairly inhibit access to OCC’s services or disadvantage or favor any particular user in relationship to another user. For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not impact or impose a burden on competition. 46 See supra notes 23 and 27 and accompanying text. 47 See supra notes 16, 17, 20 and 30 and accompanying text. 48 See supra notes 37 and 38 and accompanying text. 49 15 U.S.C. 78q–1(b)(3)(I). VerDate Sep<11>2014 20:21 Dec 22, 2017 Jkt 244001 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2017–007 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–OCC–2017–007. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 61065 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_ 007.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OCC–2017–007 and should be submitted on or before January 16, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated Authority.50 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27695 Filed 12–22–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82357; File No. SR–ISE– 2017–107] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Penny Pilot Program 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 11, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 50 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\26DEN1.SGM 26DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61060-61065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27695]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82355; File No. SR-OCC-2017-007]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, Related to The Options Clearing Corporation's Margin Policy

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 11, 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. On December 18, 2017, OCC filed 
Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, OCC modified a portion of its Margin 
Policy to: (i) State that OCC's Board of Directors (``Board'') is 
ultimately responsible for annual review and approval of the Policy, 
and (ii) correctly cite provisions in OCC's Rules governing its 
stock loan program. OCC did not propose any other changes in 
Amendment No. 1.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The purpose of the proposed rule change is to formalize and update 
OCC's Margin Policy in connection with requirements applicable to OCC 
under Rule 17Ad-22(e)(6), which generally requires a covered clearing 
agency to have policies and procedures reasonably designed to, among 
other things, cover its credit exposures to its participants through 
the establishment of a risk-based margin system meeting certain 
standards.\4\ The Margin Policy is included as confidential Exhibit 5 
of the filing. The policy is being submitted without marking to improve 
readability as it is being submitted in its entirety as new rule text.
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    \4\ 17 CFR 240.17Ad-22(e)(6).
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    The proposed rule change does not require any changes to the text 
of OCC's By-Laws or Rules. All terms with initial capitalization that 
are not otherwise defined herein have the same meaning as set forth in 
the OCC By-Laws and Rules.\5\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://optionsclearing.com/about/publications/bylaws.jsp.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(1) Purpose
Background
    On September 28, 2016 the Commission adopted amendments to Rule 
17Ad-22 \6\ and added new Rule 17Ab2-2 \7\ pursuant to Section 17A of 
the Act \8\ and the Payment, Clearing, and Settlement Supervision Act 
of 2010 (``Clearing Supervision Act'') \9\ to establish enhanced 
standards for the operation and governance of those clearing agencies 
registered with the Commission that meet the definition of a ``covered 
clearing agency,'' as defined by Rule 17Ad-22(a)(5) \10\ (collectively, 
the new and amended rules are herein referred to as ``CCA'' rules). The 
CCA rules require that a covered clearing agency, among other things: 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to . . . [c]over . . . its credit 
exposures to its participants by establishing a risk-based margin 
system'' that satisfies certain criteria, including that it produces 
margin levels commensurate with the risks of particular products, 
collects margin at least daily, collects margin sufficient to cover 
exposure between the last margin collection and position closeout, uses 
reliable pricing sources, appropriately measures credit exposure and 
regularly reviews, tests and verifies its margin methodology.\11\
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    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ab2-2.
    \8\ 15 U.S.C. 78q-1.
    \9\ 12 U.S.C. 5461 et seq.
    \10\ 17 CFR 240.17Ad-22(a)(5).
    \11\ 17 CFR 240.17Ad-22(e)(6).
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    OCC is defined as a covered clearing agency under the CCA rules, 
and therefore is subject to the requirements of the CCA rules, 
including Rule 17Ad-22(e)(6).\12\ Accordingly, OCC proposes to 
formalize its Margin Policy, as described below, to describe its 
approach for collecting margin and managing the credit exposures 
presented by its Clearing Members.
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    \12\ Id.
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Margin Policy
    The purpose of the Margin Policy is to describe OCC's approach for 
collecting margin and managing the credit exposure presented by its 
Clearing Members, so as to ensure that its margin methodologies are 
governed and implemented in a manner that is compliant with Rule 17Ad-
22(e)(6).\13\ The Margin Policy describes, in general:

[[Page 61061]]

(i) The treatment of the various types of positions held by Clearing 
Members in connection with margin calculations; (ii) OCC's cross-margin 
programs with other clearing agencies; (iii) the treatment of 
collateral included in margin calculations; (iv) the model assumptions 
and market data OCC uses as inputs for its margin calculation 
methodologies; (v) OCC's margin calculation methodologies; (vi) 
protocols surrounding OCC's exercise of margin calls and adjustments; 
and (vii) daily back-testing and model validation that OCC conducts to 
measure performance of its margin methodologies.
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    \13\ Id.
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    The Margin Policy is designed to reflect OCC's efforts to provide 
for robust internal controls and governance surrounding its margin 
methodologies and promote compliance with the CCA rules, in particular 
Rule 17Ad-22(e)(6),\14\ as informed by the Commission in the adopting 
release for the CCA rules.\15\ The Margin Policy is part of a broader 
framework, including OCC's By-Laws, Rules and other policies, that is 
designed to support the resiliency of OCC by ensuring that it 
appropriately sizes margin to market risks.\16\ The key substantive 
aspects of the Margin Policy, and how they foster compliance with the 
requirements of the CCA rules, are described in greater detail below.
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    \14\ Id.
    \15\ Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786 (October 13, 2016) (``CCA Adopting Release'').
    \16\ CCA Adopting Release, supra note 14 at 70812 (noting that 
the requirements of Rule 17Ad-22(e)(6) ``further support the 
resiliency of a covered clearing agency by requiring the covered 
clearing agency to have policies and procedures that are designed to 
appropriately size . . . margin to market risks.'').
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Treatment of Various Types of Positions
    The Margin Policy describes the treatment of various types of 
positions, originating from different types of market participants, in 
connection with OCC's calculation of margin requirements. As specified 
in OCC's By-Laws, OCC utilizes different types of Clearing Member 
accounts in order to maintain compliance with the relevant Customer 
protection and segregation requirements of the Commission and the 
Commodity Futures Trading Commission (``CFTC''), which affects how 
margin is calculated because of different assumptions regarding how 
such accounts or positions would be liquidated in the event of a 
Clearing Member default. Taking into account these different types of 
products in different types of accounts, with different Clearing Member 
liquidation scenarios, enables OCC to set margin requirements 
commensurate with the actual risks presented by these positions and 
further its compliance with the requirements in Rule 17Ad-22(e)(6)(i) 
and (v), which require that a covered clearing agency's policies and 
procedures be reasonably designed to establish a risk-based margin 
system that takes into account the ``risks and particular attributes of 
each relevant product, portfolio, and market'' and use ``an appropriate 
method for measuring credit exposure that accounts for relevant product 
risk factors and portfolio effects across products.'' \17\
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    \17\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
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    One category of positions addressed in the Margin Policy is long 
securities options positions. Under the Margin Policy, these positions 
are segregated from a Clearing Member's other positions under the 
assumption that such positions are fully paid and pose no additional 
risk to OCC, and the Margin Policy explains that a Clearing Member's 
segregated long positions are not included as part of its margin 
calculation. In addition, Clearing Members' customer segregated futures 
accounts are margined separately from Clearing Members' securities and/
or proprietary accounts, and margin for these accounts is calculated on 
a gross basis by computing margin requirements for each customer 
account independently, and then aggregating the individual margin 
calculations to calculate the gross margin required from the Clearing 
Member. The Margin Policy further notes that OCC also computes the 
margin requirements for customer segregated futures accounts on a net 
basis and holds the greater of the net or gross margin requirement.
    As described in the Margin Policy, stock loan/borrow positions are 
included as long/short stock positions in margin calculations on a net 
basis and may be offset against other positions held in an account. 
However, while OCC includes these positions in its risk calculations, 
it does not include the net asset value of these positions in its 
margin requirement calculations, which allows OCC to maintain financial 
resources in a manner that is consistent with the manner in which such 
positions would be liquidated during a Clearing Member default. In the 
event of such a default, OCC would instruct the non-defaulting Clearing 
Member to buy in or sell out of the position, with OCC compensating the 
Clearing Member for any difference between last mark and the closeout 
price.
Cross-Margining
    The Margin Policy addresses the cross-margin programs that OCC 
maintains with other clearinghouses, which affects the calculation of 
margin with respect to positions in certain index options, options on 
centrally cleared fund shares, and futures and options on futures held 
as part of one of the programs, because positions are treated as if 
they were held within a single account at OCC. Under Rule 17Ad-
22(e)(6)(v) a covered clearing agency's policies and procedures must be 
reasonably designed to establish a risk-based margin system that uses 
appropriate margin methods for measuring ``credit exposure . . . and 
portfolio effects across products,'' \18\ which the CCA Adopting 
Release expressly states should take into consideration cross-margining 
arrangements with other clearinghouses.\19\ The Margin Policy's 
allowance for offsets in required margin when calculating requirements 
for cross-margin products furthers compliance with this CCA rule.
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    \18\ 17 CFR 240.17Ad-22(e)(6)(v).
    \19\ CCA Adopting Release, supra note 14, at 70819.
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Collateral
    To mitigate credit risk exposure, OCC generally requires Clearing 
Members to deposit collateral as margin with respect to each account 
type on the morning following the trade date. Collateral management is 
generally governed by OCC's Collateral Risk Management Policy, but the 
Margin Policy does provide a general description of how the use of 
deposits in lieu of margin and collateral in margins may affect margin 
calculations. This furthers the purpose of Rules 17Ad-22(e)(6)(i) and 
(v) in that incorporating these elements enables OCC to set margin 
requirements commensurate with its actual credit exposure to its 
Clearing Members.\20\
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    \20\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
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    The Margin Policy describes that OCC permits Clearing Members to 
make deposits in lieu of margin, which enable them to meet their margin 
requirements for securities options by posting escrow or specific 
deposits, i.e., typically customer securities that have been fully paid 
and that represent the securities deliverable upon assignment of a 
short option or a deposit of acceptable collateral equal to the 
underlying value or aggregate exercise price of the option being 
covered, depending on the type of option. Because these short positions 
are fully collateralized, the Margin Policy specifies that OCC does not 
include deposits in lieu of margin when calculating margin 
requirements.

[[Page 61062]]

    The Margin Policy also indicates that OCC's margin methodology 
takes into account certain forms of posted margin when calculating a 
Clearing Member's margin requirement, a practice OCC refers to as 
``collateral in margins.'' OCC computes margin requirements based on a 
combination of open positions in cleared contracts and any deposits of 
collateral eligible for inclusion in OCC's margin methodologies, e.g., 
stocks, exchange-traded fund securities and eligible government 
securities. OCC's margin methodologies also incorporate scenarios that 
could exacerbate or mitigate risk exposure as a result of the 
collateral type deposited into its margin requirement calculations, 
thereby mitigating risk by creating an incentive for Clearing Members 
to deposit collateral that hedges their exposures in cleared contracts. 
The Margin Policy's recognition of the risk interactions between these 
open positions and collateral deposited as margin is consistent with 
the requirement of Rule 17Ad-22(e)(6)(v) that a covered clearing 
agency's policies and procedures be reasonably designed to establish a 
risk-based margin system that takes into account ``portfolio effects 
across products'' when measuring credit exposure.\21\
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    \21\ 17 CFR 240.17Ad-22(e)(6)(v).
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Model Assumptions, Sensitivity Analyses and Market Data
    The Margin Policy has historically specified that OCC performs: (i) 
Daily backtesting of each Clearing Member Account, (ii) daily 
backtesting of OCC's margin methodology and (iii) monthly review of the 
assumptions used in performing the backtesting. The Margin Policy has 
also specified that all critical margin model assumptions should be 
consistent with OCC's default management assumptions. OCC performed the 
aforementioned backtesting in order to monitor whether the margin 
methodology is functioning as intended and appropriately captures the 
risks that OCC's Clearing Members present to it.
    With the adoption of the CCA rules, and to enhance OCC's monitoring 
of its margin methodology, the proposed Margin Policy would establish 
additional monthly reviews of its margin methodology. First, the Margin 
Policy would specify that key model parameters and assumptions are also 
subject to a monthly, or more frequently when market conditions 
warrant, sensitivity analysis. In identifying which parameters and 
assumptions should be subject to this sensitivity analysis, OCC 
surveyed relevant industry guidance on the appropriate parameters and 
assumptions to first include in the sensitivity analysis. OCC plans to 
increase the number of assumptions and parameters included in the 
sensitivity analysis on an iterative basis as the process becomes more 
mature. Second, the Margin Policy would specify that OCC performs a 
monthly review of its parameters for business backtesting. OCC 
determined that all parameters contained in its margin methodology 
should be included in this monthly parameter review, and has identified 
all of these. The Margin Policy would also specify that this 
sensitivity analysis and parameter review would make use of both actual 
and hypothetical portfolios. These additions to the Margin Policy are 
designed to be consistent with Rules 17Ad-22(e)(6)(vi)(B) and (C), 
which require that policies and procedures of a covered clearing agency 
be reasonably designed to establish a risk-based margin system that 
incorporates monthly, or more frequent, sensitivity analyses and review 
of its parameters and assumptions for backtesting.\22\
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    \22\ 17 CFR 240.17Ad-22(e)(6)(v)(B) and (C).
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    The proposed Margin Policy would specify that the results of all 
such analyses are reported no less frequently than monthly to OCC's 
Model Risk Working Group, which then may escalate any issues to OCC's 
Management Committee. This reporting requirement is designed to be 
consistent with Rule 17Ad-22(e)(6)(vi)(D), which requires policies and 
procedures of a covered clearing agency to be reasonably designed to 
establish a risk-based margin system under which such analyses are 
reported to the covered clearing agency's ``appropriate decision 
maker,'' who may use ``these results to evaluate the adequacy of and 
adjust its margin methodology, model parameters, and any other relevant 
aspects of its credit risk framework.'' \23\
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    \23\ 17 CFR 240.17Ad-22(e)(6)(v)(D).
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    The Margin Policy describes how OCC obtains the market data that it 
uses to value Clearing Members' portfolios and collateral deposits, 
perform mark-to-market calculations, support expiration processing, 
generate theoretical values for margin and Clearing Fund calculations, 
and support customer-level margin calculations. Rule 17Ad-22(e)(6)(iv) 
requires that a covered clearing agency's policies and procedures be 
reasonably designed to establish a risk-based margin system that uses 
``reliable sources of timely price data'' and uses ``procedures and 
sound valuation models for addressing circumstances in which pricing 
data are not readily available or reliable.'' \24\ In compliance with 
this requirement, the Margin Policy requires OCC to take measures to 
ensure the quality and completeness of any market data it acquires. 
Primary among these measures is the use of redundant sources for market 
data and pricing system infrastructure and, when selecting vendors, 
prioritizing the quality and reliability of a data provider's service 
and its ability to provide data in a variety of market conditions, 
including periods of market stress. This aspect of the Margin Policy is 
specifically responsive to the Commission's statement in the CCA 
Adopting Release that a covered clearing agency should consider the 
ability of the vendor to provide data in a variety of market 
conditions, including periods of market stress and not just based on 
cost alone.\25\
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    \24\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \25\ CCA Adopting Release, supra note 14, at 70819.
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    The Margin Policy explains how, in order to ensure the integrity of 
this data, OCC monitors for delays in its receipt of price data and 
overall system health, as well as erroneous price data or interruptions 
in pricing data availability. The Margin Policy specifies that, in 
certain cases, OCC may be obligated to use settlement prices that are 
provided directly by the listing exchange \26\ and prescribes 
procedures for utilizing alternative data sources where a final 
settlement value is not available from the listing exchange.
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    \26\ In such a case, the listing exchange transmits price files 
to OCC, and the data is then processed by OCC systems and manually 
validated.
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    The Margin Policy also specifies that OCC utilizes sound valuation 
models, such as price-editing and smoothing,\27\ as well as system edit 
checks, and automated and manual controls with any price data it 
obtains. Where OCC does not receive pricing information on a daily 
basis for a product, the Margin Policy specifies that OCC would rely on 
modeled prices. These requirements are designed to facilitate OCC's 
compliance with the Rule 17Ad-22(e)(6)(iv) requirement to maintain 
policies reasonably designed to establish a risk-based margin system 
that addresses ``circumstances in which pricing data are not readily 
available or reliable.'' \28\
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    \27\ ``Smoothing'' is a process OCC uses to calculate final 
prices, volatility measures, delta values and vega values for 
securities and futures options. The purpose of smoothing is to 
minimize arbitrage opportunities while producing final prices that 
remain within the bid-ask spread provided to OCC by the market.
    \28\ 17 CFR 240.17Ad-22(e)(6)(iv).
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Margin Methodology
    OCC's Margin Policy contains a description of OCC's System for

[[Page 61063]]

Theoretical Analysis and Numerical Simulations (``STANS''), its margin 
methodology for all positions it margins on a net basis. As required in 
Rule 17Ad-22(e)(6), STANS is a risk-based methodology that is designed 
to produce a margin requirement that exceeds OCC's minimum regulatory 
obligations. OCC achieves this through the use of an Expected Shortfall 
methodology (``ES''), which is effectively a weighted average of tail 
losses beyond the 99% Value-at-Risk (``VaR'') level.
    As a statistical methodology that relies on randomized Monte Carlo 
simulations to generate ES estimates, STANS will produce slightly 
different ES estimates when Monte Carlo simulations are performed on 
each Clearing Member account; OCC refers to such variance in ES 
estimates as the ``standard error.'' However, significant variations in 
ES estimates among Clearing Member accounts may also signify other 
issues, such as underlying issues with STANS or its appropriateness for 
estimating ES for a particular Clearing Member account. Previously, OCC 
has relied on the expert judgment of its staff and undefined, 
qualitative factors to identify whether STANS may not be functioning as 
expected. After performing statistical analysis on the size of the 
standard error, and at what level an observed error is greater than the 
standard error at a statistically significant level, the proposed 
Margin Policy would state that the tolerance for the standard error of 
a typical, or median, Clearing Member account ES measurement in STANS 
is 5%.\29\ This tolerance would define a statistical error threshold 
above which OCC must investigate whether STANS is appropriately 
measuring a Clearing Member's account.
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    \29\ This use of a 5% ES error tolerance is a proposed 
enhancement to OCC's existing margin policies and procedures.
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    Furthermore, any margin requirement calculated by STANS is on a 
``portfolio'' basis, which inherently reflects offsets between products 
within each portfolio. This is intended to meet the Rule 17Ad-
22(e)(6)(iii) requirement, as explained in the CCA Adopting Release, 
that a covered clearing agency's policies and procedures be reasonably 
designed to establish a risk-based margin system that calculates margin 
on a portfolio level and set initial margin requirements that meet ``an 
established single-tail confidence level of at least 99 percent'' with 
respect to each portfolio's distribution of future exposure.\30\
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    \30\ CCA Adopting Release, supra note 14, at 70819; 17 CFR 
240.17Ad-22(e)(6)(iii).
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    The Margin Policy also describes how STANS utilizes Monte Carlo 
simulations of portfolio values at a two-day risk horizon, based on the 
behavior of various risk factors affecting values of Clearing Member 
accounts, including implied volatility surfaces of options for all 
equity and index risk factors. These risk factors are relevant to the 
products in a Clearing Member's portfolio and are critical drivers of 
the inherent exposure OCC has to its Clearing Members' portfolios. 
Including them in STANS therefore enhances the robustness of OCC's 
margin resources and incentivizes Clearing Members to be aware of the 
risks in their portfolios and mitigate those risks to avoid higher 
margin requirements. The use of risk factors is intended to comply with 
Rule 17Ad-22(e)(6)(v), which requires that a covered clearing agency's 
policies and procedures be reasonably designed to establish a risk-
based margin system that uses ``an appropriate method for measuring 
credit exposure that accounts for relevant product risk factors and 
portfolio effects across products.'' \31\
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    \31\ 17 CFR 240.17Ad-22(e)(6)(v).
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    For purposes of calculating margin requirements, STANS assumes a 
two-day liquidation period for all positions margined on a net basis. 
The Margin Policy explains that this assumption is based on a thorough 
analysis of market conditions and the risks associated with the 
products OCC clears. As the Commission noted in the CCA Adopting 
Release, the assumed liquidation period in a margin model should be 
tailored to the market conditions and the risks of the products being 
cleared.\32\ OCC's assumed two-day liquidation period is so tailored, 
and the Margin Policy is designed to enable OCC to comply with Rule 
17Ad-22(e)(6)(iii), under which a covered clearing agency's policies 
and procedures must be reasonably designed to establish a risk-based 
margin system requirement that covers potential future exposure to 
Clearing Members in the interval between the last margin collection and 
the close-out of a Clearing Member's positions should it default.\33\ 
This assumption allows OCC to maintain consistency with the timeframes 
required to facilitate the hedging or close-out of a position, which 
OCC would employ under its default management procedures.
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    \32\ CCA Adopting Release, supra note 14, at 70818 (``. . . 
liquidation periods generally should be tailored to the market 
conditions and risks of the products being cleared.'').
    \33\ 17 CFR 240.17Ad-22(e)(6)(iii).
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    The Margin Policy describes other aspects of STANS that are 
designed to address the particular attributes and risk factors of the 
products being margined, as is consistent with Rule 17Ad-22(e)(6)(i) 
and (v).\34\ This includes the use of 500 business days of ``look-
back'' historical data, where available, in its econometric models and 
the incorporation of multiple stress tests components into STANS that 
are designed to identify increases in OCC's exposure that may arise 
from atypical market movements.
---------------------------------------------------------------------------

    \34\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
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    The Margin Policy provides for daily evaluation of the market data 
that supports STANS' econometric models and monthly recalibration of 
STANS to ensure that it accounts for changes to market conditions over 
the past month. These recalibrations incorporate a long-run historical 
volatility estimate, which serves as a minimum volatility value during 
periods of low market volatility, reducing procyclicality in OCC's 
margin estimates by not allowing margin rates to drop below a certain 
long-run measure of market volatility. The Margin Policy also provides 
that on a daily basis OCC utilizes a ``scale factor'' to account for 
daily changes in market volatility that may occur between monthly 
recalibrations. In some instances, products less dependent on the 
monthly recalibration process--such as Treasury and volatility 
contracts--may have their econometric models recalibrated on a daily 
basis.
    The Margin Policy provides for the use of alternatives to STANS for 
certain products or accounts. For example, OCC has the ability to apply 
add-on charges to cover Stock Loan position exposures arising from 
Clearing Member specific preferences and surcharges for certain 
Clearing Members with higher risk levels. Furthermore, the Margin 
Policy explains that OCC utilizes the Standard Portfolio Analysis of 
Risk margin methodology (``SPAN''), instead of STANS, to compute gross 
margin for the segregated futures customer accounts of Clearing 
Members. SPAN is a market simulation-based VaR system that assesses 
risk on a portfolio basis for a wide variety of financial instruments. 
SPAN uses ``scan ranges'' that estimate price movements based on 
historical volatility data of specific products, which are in turn used 
to estimate movements in affected portfolios. ``Scan ranges'' also 
serve as minimum estimates of portfolio volatility in times of low 
market volatility to guard against the effects of procyclicality, and 
are regularly monitored and recalibrated by OCC's Pricing & Margins 
team. A description of SPAN is provided in the Margin Policy. Like 
STANS, SPAN is intended to comply with Rule 17Ad-22(e)(6), including 
the Rule 17Ad-

[[Page 61064]]

22(e)(6)(iii) requirement that a covered clearing agency's policies and 
procedures be reasonably designed to establish a risk-based margin 
system that calculates margins on a portfolio level and sets initial 
margin requirements that meet ``an established single-tailed confidence 
level of at least 99 percent'' with respect to each portfolio's 
distribution of future exposure.\35\ The Margin Policy indicates that 
OCC will also calculate a segregated futures customers account's net 
margin requirement under STANS, and that if the STANS-calculated 
requirement exceeds the SPAN-calculated requirement, an add-on is 
applied to the Clearing Member's account so that the Clearing Member is 
effectively required to meet the greater of the gross SPAN or two-day 
net STANS requirement.
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    \35\ CCA Adopting Release, supra note 14, at 70819; 17 CFR 
240.17Ad-22(e)(6)(iii).
---------------------------------------------------------------------------

Margin Calls and Adjustments
    The Margin Policy provides for OCC calculating and collecting 
margin requirements on a daily basis, as well as making intraday margin 
calls and adjustments. This is consistent with Rule 17Ad-22(e)(6)(ii), 
under which a covered clearing agency must maintain policies and 
procedures reasonably designed to establish a risk-based margin system 
that ``collects margin . . . at least daily'' and includes ``the 
authority and operational capacity to make intraday margin calls in 
defined circumstances.'' \36\
---------------------------------------------------------------------------

    \36\ 17 CFR 240.17Ad-22(e)(6)(ii).
---------------------------------------------------------------------------

    As described in the Margin Policy, OCC issues margin calls during 
standard trading hours within a timeframe established in OCC's 
procedures, when unrealized losses \37\ exceeding 50% of an account's 
total risk charges are observed for that account, based on start-of-day 
positions. Intraday margin calls are also subject to a minimum value 
established in OCC's procedures, and must be approved by a Vice 
President or above. The Margin Policy describes the process by which 
margin calls may be deferred and evaluated and for execution of a 
margin call outside of the time frame described above.
---------------------------------------------------------------------------

    \37\ This excludes accounts holding only collateral positions or 
long option positions where the account's net asset value could 
never become negative.
---------------------------------------------------------------------------

    The Margin Policy provides for certain exceptions to the above 
intraday margin call time frame. For instance, in the case of extended 
trading hours (``ETH''), OCC may issue a margin call prior to 9:00 a.m. 
Central Time when (1) unrealized losses observed for an account, based 
on new ETH positions, exceed 25% of that account's total risk charges 
and (2) the overall Clearing Member portfolio is also experiencing 
losses. ETH margin calls are limited to price changes in ETH-eligible 
products, and similarly remain subject to a minimum value established 
in OCC's procedures and must be approved by a Vice President or above. 
In the case of bank holidays, margin calls may be issued against 
Clearing Members on the day prior to the bank holiday when it coincides 
with a day one or more of OCC's markets are open for trading.
    The Margin Policy indicates that additional margin adjustments may 
be performed as the need arises and following approval by an officer of 
OCC.
Back-Testing and Model Validation
    OCC's Margin Policy provides that OCC conducts daily back-tests for 
each margin account, analyzing in detail all accounts exhibiting losses 
in excess of calculated margin requirements. This is intended to comply 
with Rule 17Ad-22(e)(6)(vi)(A), which calls for back-tests of the 
margin model at least daily, ``using standard predetermined parameters 
and assumptions.'' \38\ To the extent the results of these back-tests 
reflect losses in excess of the aggregate ES and stress test add-on 
charges required for a Clearing Member's account, the test result will 
be classified as an ``exceedance,'' and all such exceedances will be 
reported no less frequently than monthly and evaluated through OCC's 
governance process for model risk management.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
---------------------------------------------------------------------------

    The Margin Policy states that OCC's Model Validation Group 
(``MVG''), an independent group with a separate reporting line from 
model developers, is responsible for evaluating the overall performance 
of STANS and its associated models on at least an annual basis. This 
aspect of the policy is intended to comply with Rule 17Ad-
22(e)(6)(vii), under which a covered clearing agency's policies and 
procedures must be reasonably designed to establish a risk-based margin 
system that requires ``a model validation for the covered clearing 
agency's margin system and related models to be performed not less than 
annually'' or more frequently as may be contemplated by the agency's 
risk management framework.\39\ MVG presents its findings and 
recommendations to the Risk Committee of OCC's Board.
---------------------------------------------------------------------------

    \39\ 17 CFR 240.17Ad-22(e)(6)(vii).
---------------------------------------------------------------------------

(2) Statutory Basis
    Section 17A(b)(3)(F) of the Act \40\ requires, among other things, 
that the rules of a clearing agency be designed to assure the 
safeguarding of securities and funds which are in its custody or 
control or for which it is responsible and, in general, to protect 
investors and the public interest. Through each of its respective 
sections, the Margin Policy provides a framework for managing margin 
and credit exposure presented by OCC's Clearing Members. To manage 
these exposures, the Margin Policy establishes the manner in which OCC 
requires Clearing Members to deposit margin to assure performance and 
to mitigate their credit exposures if a Clearing Member defaults. The 
Margin Policy also describes the types of positions OCC will use in 
making margin calculations, how OCC will manage margin risk arising 
from its cross-margining program, key assumptions of OCC's margin 
methodologies, OCC's margin methodologies, how OCC administers margin 
calls on both daily and intraday bases, and how OCC monitors and 
reports on the performance of its margin systems. The Margin Policy's 
promotion of each aforementioned activity ultimately inures to the 
protection of investors and the public interest, as well as the 
safeguarding of securities and funds in OCC's custody or control \41\ 
in a manner consistent with Section 17A(b)(3)(F) of the Act.\42\
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    \40\ 15 U.S.C. 78q-1(b)(3)(F).
    \41\ These activities, in turn, help ensure that OCC remains 
capable of continuing its operations and services in a manner that 
promotes the prompt and accurate clearance and settlement of 
securities transactions.
    \42\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    OCC also believes that the Margin Policy is consistent with the 
requirements of Rule 17Ad-22(e)(6), as detailed above.\43\ For example, 
the Margin Policy is reasonably designed to cover its credit exposures 
to its participants by establishing a risk-based margin system that 
meets the minimum regulatory requirements in: Collecting margin on a 
daily or intraday basis at levels commensurate with the risks and 
particular attributes of each relevant product, portfolio and market, 
as is consistent with Rules 17Ad-22(e)(6)(i), (ii) and (v); \44\ 
calculating margin requirements sufficient to cover potential future 
exposures to a defaulting Clearing Member during the interval between 
last margin collection and closeout, as is consistent with Rule 17Ad-
22(e)(6)(iii); \45\ using reliable sources of timely price data and 
sound valuation models and procedures when

[[Page 61065]]

data is unavailable, as is consistent with Rule 17Ad-(22)(e)(6)(iv); 
\46\ using appropriate methods for measuring credit exposures that 
account for relevant product risk factors and portfolio effects across 
products, as is consistent with Rules 17Ad-22(e)(6)(i) and (v); \47\ 
and conducting daily backtests of its margin models, conducting 
sensitivity analyses of the underlying parameters and assumptions 
monthly, or more frequently, and engaging in model validation not less 
frequently than annually, as is consistent with Rules 17Ad-22(e)(vi) 
and (vii).\48\
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    \43\ See supra notes 12-20, 21-24, 27, 29-35, 37 and 38 and 
accompanying text.
    \44\ See supra notes 16, 33 and 35 and accompanying text.
    \45\ See supra note 32 and accompanying text.
    \46\ See supra notes 23 and 27 and accompanying text.
    \47\ See supra notes 16, 17, 20 and 30 and accompanying text.
    \48\ See supra notes 37 and 38 and accompanying text.
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    The proposed rule change is not inconsistent with the existing 
rules of OCC, including any other rules proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \49\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC does not 
believe that the proposed rule change would impact or impose any burden 
on competition. The proposed rule change sets forth the framework 
surrounding OCC's margin methodologies. The Margin Policy primarily 
describes OCC's existing policies and practices with respect to margin, 
much of which is also addressed in OCC's By-Laws and Rules. All 
Clearing Members are subject to the same methodologies for determining 
their margin requirements, dictated by the overall risk to OCC 
presented by the positions in their respective portfolios. 
Consequently, no Clearing Member is provided a competitive advantage 
over any other Clearing Member. Further, the Margin Policy does not 
affect Clearing Members' access to OCC's services or impose any direct 
burdens on Clearing Members. Accordingly, the proposed rule change 
would not unfairly inhibit access to OCC's services or disadvantage or 
favor any particular user in relationship to another user.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impact or impose a burden on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been received.

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 Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2017-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2017-007. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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_007.pdf.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2017-007 and 
should be submitted on or before January 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated Authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27695 Filed 12-22-17; 8:45 am]
 BILLING CODE 8011-01-P

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