Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Changes to The Options Clearing Corporation's Non-Bank Liquidity Facility Program as Part of Its Overall Liquidity Plan, 31235-31239 [2020-11122]

Download as PDF 31235 Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices Form No. Annual responses Time (minutes) Burden (hours) G–117A ........................................................................................................................................ 100 15 25 Additional Information or Comments: Copies of the forms and supporting documents can be obtained from Kennisha Tucker at (312) 469–2591 or Kennisha.Tucker@rrb.gov. Comments regarding the information collection should be addressed to Brian Foster, Railroad Retirement Board, 844 North Rush Street, Chicago, Illinois 60611– 1275 or Brian.Foster@rrb.gov. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/ PRAMain. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Brian Foster, Clearance Officer. [FR Doc. 2020–11019 Filed 5–21–20; 8:45 am] BILLING CODE 7905–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88906; File No. SR–OCC– 2020–803] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Changes to The Options Clearing Corporation’s Non-Bank Liquidity Facility Program as Part of Its Overall Liquidity Plan May 19, 2020. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled Payment, Clearing and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) 2 under the Securities Exchange Act of 1934 (‘‘Exchange Act’’),3 notice is hereby given that on April 15, 2020, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) an advance notice as described in Items I, II and III below, which Items have been prepared by OCC. The Commission is publishing 1 12 U.S.C. 5465(e)(1). CFR 240.19b–4(n)(1)(i). 3 15 U.S.C. 78a et seq. 18:07 May 21, 2020 I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This advance notice is filed by The Options Clearing Corporation (‘‘OCC’’) in connection with a proposed change to its operations to: (i) Set the aggregate commitment amount that it may seek under its program for accessing additional committed sources of liquidity that do not increase the concentration of OCC’s counterparty exposure (‘‘Non-Bank Liquidity Facility’’) as part of OCC’s overall liquidity plan and (ii) allow more flexibility for OCC to negotiate the NonBank Liquidity Facility’s commitment term. 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.4 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, OCC included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections A and B below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed change and none have been received. (B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, Clearing, and Settlement Supervision Act Description of Change This advance notice concerns a change to OCC’s operations to: (i) Set the aggregate commitment amount that it may seek under the Non-Bank Liquidity Facility to up to $1 billion as part of OCC’s overall liquidity plan and 4 OCC’s By-Laws and Rules can be found on OCC’s public website: https://optionsclearing.com/ about/publications/bylaws.jsp. 2 17 VerDate Sep<11>2014 this notice to solicit comments on the advance notice from interested persons. Jkt 250001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 (ii) allow more flexibility for OCC to negotiate the Non-Bank Liquidity Facility’s commitment term. Background OCC’s current liquidity plan provides it with access to a diverse set of funding sources, including banks (i.e., OCC’s syndicated credit facility 5 and a master repurchase agreement with a bank counterparty (‘‘Repo Liquidity Facility’’) 6), the Non-Bank Liquidity Facility program,7 and Clearing Members’ Cash Clearing Fund Requirement.8 The Non-Bank Liquidity Facility program reduces the concentration of OCC’s counterparty exposure with respect to its overall liquidity plan by diversifying its lender base among banks and non-bank, nonClearing Member institutional investors, such as pension funds or insurance companies. The currently approved Non-Bank Liquidity Facility program is comprised of two parts: A Master Repurchase Agreement (‘‘MRA’’) and confirmations with one or more institutional investors, which contain certain individualized terms and conditions of transactions executed between OCC, the institutional investors and their agents. The MRA is structured like a typical repurchase arrangement in which the buyer (i.e., the institutional investor) would purchase from OCC, from time to time, United States government securities (‘‘Eligible Securities’’).9 OCC, as the seller, would transfer Eligible Securities to the buyer in exchange for a payment by the buyer to OCC in immediately available funds (‘‘Purchase Price’’). The buyer would 5 See Exchange Act Release No. 85924 (May 23, 2019), 84 FR 25089 (May 30, 2019) (SR–OCC–2019– 803). 6 See Exchange Act Release No. 88317 (March 4, 2020), 85 FR 13681 (March 9, 2020) (SR–OCC– 2020–801). 7 See Exchange Act Release No. 73979 (Jan. 2, 2015), 80 FR 1062 (Jan. 8, 2015) (SR–OCC–2014– 809) (‘‘Notice of No Objection to 2014 Advance Notice’’); Exchange Act Release No. 76821 (Jan. 4, 2016), 81 FR 3208 (Jan. 20, 2016) (SR–2015–805) (‘‘Notice of No Objection to 2015 Advance Notice’’). 8 See OCC Rule 1002. 9 OCC would use U.S. government securities that are included in Clearing Fund contributions by Clearing Members and margin deposits of any Clearing Member that has been suspended by OCC for the repurchase arrangements. OCC Rule 1006(f) and OCC Rule 1104(b) authorize OCC to obtain funds from third parties through securities repurchases using these sources. The officers who may exercise this authority include the Executive Chairman, Chief Executive Officer, and Chief Operating Officer. E:\FR\FM\22MYN1.SGM 22MYN1 31236 Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices simultaneously agree to transfer the purchased securities back to OCC at a specified later date (‘‘Repurchase Date’’) or on OCC’s demand against the transfer of funds by OCC to the buyer in an amount equal to the outstanding Purchase Price plus the accrued and unpaid price differential (together, ‘‘Repurchase Price’’), which is the interest component of the Repurchase Price. The confirmations establish tailored provisions of repurchase transactions permitted under the Non-Bank Liquidity Facility that are designed to reduce concentration risk and to promote certainty of funding and operational effectiveness based on the specific needs of a party. For example, OCC would only enter into confirmations with an institutional investor that is not a Clearing Member or affiliated bank, such as pension funds or insurance companies, in order to allow OCC to access stable and reliable sources of funding without increasing the concentration of its exposure to counterparties that are affiliated banks, broker/dealers, or futures commission merchants. In addition, any such institutional investor is obligated to enter repurchase transactions even if OCC experiences a material adverse change,10 funds must be made available to OCC within 60 minutes of OCC’s delivering eligible securities, and the institutional investor is not permitted to rehypothecate purchased securities.11 Additionally, the confirmations set forth the term and maximum dollar amounts of the transaction permitted under the MRA.12 In 2019, the Non-Bank Liquidity Facility counterparty decided not to renew its commitments, and two confirmations totaling $1 billion (‘‘Prior Confirmations’’) expired on January 2, 2020 and January 6, 2020. In anticipation of the expiration of the Prior Confirmations and to prevent a drop in OCC’s overall liquidity resources, OCC (i) exercised an accordion feature under its syndicated credit facility to increase the amount from $2 billion to $2.5 billion, and (ii) 10 When included in a contract, a ‘‘material adverse change’’ is typically defined as a change that would have a materially adverse effect on the business or financial condition of a company. 11 See Notice of No Objection to 2014 Advance Notice, 80 FR at 1064. 12 Because the arrangements between OCC and the individual buyers have not been fully negotiated, OCC has summarized the indicative terms in Exhibit 3a to File No. SR–OCC–2020–803. Exhibit 3a shows the terms indicated in prior advance notices, as modified by the proposed changes in this advance notice. The exhibit is a non-public document for which OCC has submitted a request for confidential treatment to the Commission. VerDate Sep<11>2014 18:07 May 21, 2020 Jkt 250001 exercised authority under OCC Rule 1002 to temporarily increase the size of the Cash Clearing Fund Requirement from $3 billion to $3.5 billion.13 After obtaining regulatory approval, OCC also executed the Repo Liquidity Facility with a bank counterparty for $500 million.14 Since learning that the Prior Commitments would not be renewed, OCC has also been working with a lending agent to identify interested institutional investors to secure replacement Commitments for the $1 billion in Prior Confirmations. The purpose of this filing is to modify certain aspects of the Non-Bank Liquidity Facility program to give OCC the flexibly to seek confirmations up to $1 billion in the aggregate with such durations as approved by its Board of Directors (‘‘Board’’). Aggregate Commitment Amount OCC May Seek Under the Confirmations OCC is proposing to adjust the aggregate amount it can seek through the Non-Bank Liquidity Facility program to an amount up to $1 billion, as opposed to no less than $1 billion and no greater than $1.5 billion— allowing OCC the ability to seek commitments even if the aggregate commitment level falls below $1 billon. The Non-Bank Liquidity Facility program, as initially proposed, authorized commitments of $1 billion in the aggregate.15 In 2015, OCC filed an advance notice to modify the Non-Bank Liquidity Facility program to allow OCC to seek aggregate commitments of no less than $1 billion and no greater than $1.5 billion (the ‘‘2015 Advance 13 After reviewing that temporary increase in accordance with Rule 1002, the Risk Committee determined to maintain the increase, which was already contemplated as part of a proposed rule change that OCC has since filed with the Commission. See File No. SR–OCC–2020–003. The proposed rule change would, among other things, modify Rule 1002 to allow OCC to periodically set the Clearing Fund Cash Requirement based on an analysis of OCC’s projected liquidity demands under a variety of stressed scenarios. Subject to regulatory approval of that filing, the Risk Committee would initially reset the Clearing Fund Cash Requirement to $3.5 billion based on an analysis of stress test results demonstrating that this amount, in combination with OCC’s current and anticipated committed liquidity facilities—a $2 billion syndicated credit facility and $1 billion in other committed liquidity facilities (i.e., the Repo Liquidity Facility and/or the Non-Bank Liquidity Facility)—would be sufficient to cover OCC’s liquidity risk tolerance of 1-in-50 year statistical market event at a 99.5% level over a two-year look back period. 14 After the Repo Liquidity Facility became effective, OCC terminated the $500 million accordion on the syndicated credit facility. 15 Notice of No Objection to 2014 Advance Notice, 80 FR at 1064 & n.11. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 Notice’’).16 The increase to the permissible range was made as part of OCC’s plan to transition from a single $1 billion confirmation to two confirmations of $500 million with staggered expiration dates.17 While the current Non-Bank Liquidity Facility program gives OCC discretion to seek aggregate commitments of no more than $1.5 billion, OCC’s Board has consistently authorized OCC to seek commitments up to an aggregate amount of $1 billion since 2016. OCC is proposing to modify the Non-Bank Liquidity Facility program to align the program’s terms with the commitment level approved by the Board. OCC’s ability to secure or renew commitments under the Non-Bank Liquidity Facility is subject to market conditions, among other factors outside of OCC’s control. As evidenced by the recent expiration of the Prior Confirmations, a counterparty’s decision not to renew its commitment under the facility may cause the aggregate commitment amount to fall below $1 billion. As part of OCC’s overall liquidity plan, however, OCC maintains access to a diverse set of funding sources in addition to the Non-Bank Liquidity Facility. To address the expiration of a Non-Bank Liquidity Facility commitment, OCC would have several options, including (i) execution of one of more commitments under the Non-Bank Liquidity Facility up to the $1 billion aggregate commitment amount proposed, (ii) exercising the accordion feature under the syndicated credit facility, (iii) exercising authority under OCC Rule 1002 to temporarily increase the Cash Clearing Fund Requirement, and (iv) filing an advance notice to execute a master repurchase agreement with other counterparties, similar to the Repo Liquidity Facility. Allowing OCC to seek one or more NonBank Liquidity Facility commitments that, in the aggregate, are less than $1.0 billion would allow OCC the flexibility to adjust the mix of liquidity resources based on market conditions, availability and shifting liquidity needs. If OCC is unable to secure commitments to replace existing confirmations, OCC would reallocate shortfalls to other liquidity resources to prevent a drop in total liquidity resources. Without this change, OCC arguably could not execute individual commitments that result in an aggregated commitment of less than $1 16 Notice of No Objection to 2015 Advance Notice, 81 FR at 3208. 17 See id. at 3209 (discussing the extension of the existing confirmation and the execution of a second confirmation). E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices billion at the time executed, making it difficult or impossible for OCC to negotiate individual commitments, each less than $1 billion, with multiple counterparties that may be proceeding on different timelines. In addition, allowing OCC to execute confirmations at different times would have the benefit of staggering expiration dates—to the extent such confirmations are for fixed terms—mitigating the risk that overlapping expirations may cause a drop in OCC’s overall liquidity resources. Confirmation Term OCC is also proposing to modify the confirmation term to allow more flexibility in negotiating terms with institutional investors. Confirmations under the current Non-Bank Liquidity Facility program are limited to a commitment term greater than or equal to 364-days. Based on ongoing negotiations with potential institutional investors, OCC believes there is interest for commitments that are shorter than one year.18 OCC is proposing to adjust the required terms and conditions as filed with the Commission in the 2015 Advance Notice filing to allow for a commitment term of less than 364 days, as negotiated by the parties and approved by OCC’s Board. The proposed modification to the program would allow for, among other things, a confirmation with a shorter commitment term as well as an openended term that allows for termination subject to a notice period. Providing flexibility in the commitment term may make the Non-Bank Liquidity Facility more commercially attractive to institutional investors who desire more flexibility in the confirmation term. Additionally, termination subject to notice would benefit OCC by ensuring that OCC will have a pre-set notice period to manage its liquidity resources to replace an expiring confirmation or adjust the levels of other liquidity resources. The Board reviews proposed terms under the Non-Bank Liquidity Program and authorizes Management to enter into and renew transactions upon expiration. The length of term or notice period OCC would be willing to accept would be conditioned on factors including, but not limited to, the initial committed length of the term, market conditions and OCC’s liquidity needs. For a confirmation without a defined 18 OCC included information about the current status of negotiations with potential counterparties in Exhibit 3b to File No. SR–OCC–2020–803. The exhibit is a non-public document for which OCC has submitted a request for confidential treatment to the Commission. VerDate Sep<11>2014 18:07 May 21, 2020 Jkt 250001 commitment term, OCC would target to negotiate a six-month notice period. Based on the expiration of the Prior Confirmations, OCC believes that sixmonths’ notice is sufficient time to allow OCC to reallocate liquidity resources to address a confirmation’s termination. Because of the time and cost required to negotiate and close transactions, OCC believes it unlikely that it would pursue a commitment of less than three months. Anticipated Effect On and Management of Risk Completing timely settlement is a key aspect of OCC’s role as a clearing agency performing central counterparty services. Modifying the Non-Bank Liquidity Facility program to provide OCC more flexibility in seeking confirmations would continue to promote the reduction of risks to OCC, its Clearing Members and the options market in general because it would allow OCC to continue to obtain shortterm funds from the Non-Bank Liquidity Facility to address liquidity demands arising out of the default or suspension of a Clearing Member, in anticipation of a potential default or suspension of Clearing Members, the insolvency of a bank or another securities or commodities clearing organization, or the failure of a bank or another securities or commodities clearing organization to achieve daily settlement. The Non-Bank Liquidity Facility helps OCC minimize losses in the event of a default, suspension, insolvency, or failure to achieve daily settlement, by allowing it to obtain funds from sources not connected to OCC’s Clearing Members on extremely short notice to ensure clearance and settlement of transactions in options and other contracts without interruption. OCC believes that the reduced settlement risk presented by OCC resulting from the proposed change would correspondingly reduce systemic risk and promote the safety and soundness of the clearing system. The ability to borrow funds from the Non-Bank Liquidity Facility would allow OCC to avoid liquidating margin or clearing fund assets in what would likely be volatile market conditions, which would preserve funds available to cover any losses resulting from the failure of a Clearing Member, bank or other clearing organization. The proposed change to allow OCC to seek an aggregate commitment amount under the Non-Bank Liquidity Facility for up to the currently approved limit would help OCC ensure the continued availability of its liquidity resources by providing OCC with the flexibility to PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 31237 seek additional funding amounts at substantially the same terms, conditions, operations, and mechanics of the Prior Confirmations. Furthermore, allowing for OCC to negotiate a term less than 364-days would allow OCC more flexibility in negotiating confirmations with institutional investors, and would allow OCC the ability to negotiate terms that give OCC more time to respond to an institutional investor’s decision not to renew a confirmation. Such flexibility would allow OCC to reallocate the amount of funding available under the confirmations at the time of a confirmation’s renewal or termination and to manage liquidity needs and enhance its ability to ensure continual liquidity resources. Because the proposed change preserves substantially the same terms and conditions as the MRA and the Prior Confirmation, OCC believes that the proposed change would not otherwise affect or alter the management of risk at OCC. Consistency With the Payment, Clearing and Settlement Supervision Act The stated purpose of the Clearing Supervision Act is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.19 Section 805(a)(2) of the Clearing Supervision Act 20 also authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like OCC, for which the Commission is the supervisory agency. Section 805(b) of the Clearing Supervision Act 21 states that the objectives and principles for risk management standards prescribed under Section 805(a) shall be to: • Promote robust risk management; • promote safety and soundness; • reduce systemic risks; and • support the stability of the broader financial system. The Commission has adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act and the Exchange Act in furtherance of these objectives and principles.22 19 12 U.S.C. 5461(b). U.S.C. 5464(a)(2). 21 12 U.S.C. 5464(b). 22 17 CFR 240.17Ad–22. See Exchange Act Release Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7–08–11) (‘‘Clearing Agency Standards’’); 78961 (September 28, 2016), 81 FR 20 12 E:\FR\FM\22MYN1.SGM Continued 22MYN1 31238 Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices Rule 17Ad–22 requires registered clearing agencies, like OCC, to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.23 Therefore, the Commission has stated 24 that it believes it is appropriate to review changes proposed in advance notices against Rule 17Ad–22 and the objectives and principles of these risk management standards as described in Section 805(b) of the Clearing Supervision Act.25 OCC believes that the Non-Bank Liquidity Facility program, as modified, is consistent with Section 805(b)(1) of the Clearing Supervision Act 26 because the proposed confirmations would provide OCC with an additional source of committed liquidity to meet its settlement obligations while at the same time being structured to mitigate certain operational risks, as described above, that arise in connection with this committed liquidity source. In this way, the proposed changes are designed to promote robust risk management; promote safety and soundness; reduce systemic risks; and support the stability of the broader financial system. OCC believes that the Non-Bank Liquidity Facility program, as modified, is also consistent with the requirements of Rule 17Ad–22(e)(7) under the Exchange Act.27 Rule 17Ad–22(e)(7) requires OCC to establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively measure, monitor, and manage liquidity risk that arises in or is borne by OCC, including measuring, monitoring, and managing its settlement and funding flows on an ongoing and timely basis, and its use of intraday liquidity, as specified in the rule.28 In particular, Rule 17Ad–22(e)(7)(i) under the Exchange Act 29 directs that OCC meet this obligation by, among other things, ‘‘[m]aintaining sufficient liquid resources at the minimum in all relevant currencies to effect same-day . . . settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes, but is not 70786 (October 13, 2016) (S7–03–14) (‘‘Standards for Covered Clearing Agencies’’). 23 17 CFR 240.17Ad–22. 24 See, e.g., Exchange Act Release No. 86182 (June 24, 2019), 84 FR 31128, 31129 (June 28, 2019) (SR– OCC–2019–803). 25 12 U.S.C. 5464(b). 26 12 U.S.C. 5464(b)(1). 27 17 CFR 240.17Ad–22(e)(7). 28 Id. 29 17 CFR 240.17Ad–22(e)(7)(i). VerDate Sep<11>2014 18:07 May 21, 2020 Jkt 250001 limited to, the default of the participant family that would generate the largest aggregate payment obligation for [OCC] in extreme but plausible market conditions.’’ As described above, the proposed change would allow OCC to seek a readily available liquidity resource that would enable it to, among other things, continue to meet its obligations in a timely fashion and as an alternative to selling Clearing Member collateral under what may be stressed and volatile market conditions. For these reasons, OCC believes that the proposal is consistent with Rule 17Ad–22(e)(7)(i).30 Rule 17Ad–22(e)(7)(ii) under the Exchange Act requires OCC to establish, implement, maintain and enforce written policies and procedures reasonably designed to hold qualifying liquid resources sufficient to satisfy payment obligations owed to Clearing Members.31 Rule 17Ad–22(a)(14) of the Exchange Act defines ‘‘qualifying liquid resources’’ to include, among other things, lines of credit without material adverse change provisions, that are readily available and convertible into cash.32 The MRA under the Non-Bank Liquidity Facility would not be subject to any material adverse change provision and would continue to be designed to permit OCC to, among other things, help ensure that OCC has sufficient, readily-available qualifying liquid resources to meet the cash settlement obligations of its largest Clearing Member Group. Therefore, OCC believes that the proposal is consistent with Rule 17Ad– 22(e)(7)(ii).33 For the foregoing reasons, OCC believes that the proposed changes are consistent with Section 805(b)(1) of the Clearing Supervision Act 34 and Rule 17Ad–22(e)(7) 35 under the Exchange Act. III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date the proposed change was filed with the Commission or (ii) the date any additional information requested by the Commission is received. OCC shall not implement the proposed change if the 30 Id. 31 17 CFR 240.17Ad–22(e)(7)(ii). CFR 240.17Ad–22(a)(14). 33 17 CFR 240.17Ad–22(e)(7)(ii). 34 12 U.S.C. 5464(b)(1). 35 17 CFR 240.17Ad–22(e)(7). 32 17 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 Commission has any objection to the proposed change. The Commission may extend the period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. OCC shall post notice on its website of proposed changes that are implemented. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the advance notice is consistent with the Clearing Supervision Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2020–803 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to File Number SR–OCC–2020–803. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the advance notice that are filed with the Commission, and all written communications relating to the advance notice between the Commission and any person, other than those that may be withheld from the public in accordance with the E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices 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 self-regulatory organization. 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–2020–803 and should be submitted on or before June 8, 2020. By the Commission. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–11122 Filed 5–21–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: 85 FR 29773, May 18, 2020. PREVIOUSLY ANNOUNCED TIME AND DATE OF THE MEETING: Wednesday, May 20, 2020 at 2:00 p.m. The Closed Meeting scheduled for Wednesday, May 20, 2020 at 2:00 p.m., has been cancelled. CHANGES IN THE MEETING: CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: May 20, 2020. Secretary. [FR Doc. 2020–11216 Filed 5–20–20; 11:15 am] BILLING CODE 8011–01–P [Release No. 34–88893; File No. SR–MIAX– 2020–10] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits, To Increase the Position and Exercise Limits on Certain Exchange-Traded Funds May 18, 2020. 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 May 8, 2020, Miami International Securities Exchange, LLC (‘‘MIAX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change Sunshine Act Meeting; Cancellation Vanessa A. Countryman, SECURITIES AND EXCHANGE COMMISSION The Exchange is filing a proposal to amend Interpretation and Policy .01 to Exchange Rule 307, Position Limits, and Interpretation and Policy .01 to Exchange Rule 309, Exercise Limits, to increase the position and exercise limits on certain exchange-traded funds (‘‘ETFs’’) and to make minor nonsubstantive technical corrections to each Policy. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/ at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed 1 15 2 VerDate Sep<11>2014 18:07 May 21, 2020 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). 17 CFR 240.19b–4. Frm 00105 Fmt 4703 Sfmt 4703 31239 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. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Interpretation and Policy .01 to Exchange Rule 307, Position Limits, and Interpretation and Policy .01 to Exchange Rule 309, Exercise Limits, to increase the position and exercise limits for options on certain ETFs. These proposed rule changes are based on the similar proposal by Cboe Exchange, Inc. (‘‘Cboe’’).3 The Exchange also proposes to make certain minor non-substantive technical corrections to certain ETF names and symbols in each of the tables in Interpretations and Policies .01 to Exchange Rules 307 and 309, as described below. Position limits are designed to address potential manipulative schemes and adverse market impacts surrounding the use of options, such as disrupting the market in the security underlying the options. While position limits should address and discourage the potential for manipulative schemes and adverse market impact, if such limits are set too low, participation in the options market may be discouraged. The Exchange believes that position limits must therefore be balanced between mitigating concerns of any potential manipulation and the cost of inhibiting potential hedging activity that could be used for legitimate economic purposes. 3 See Securities Exchange Act Release No. 88768 (April 29, 2020) (SR–CBOE–2020–015) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Increase Position Limits for Options on Certain ExchangeTraded Funds and Indexes). The Cboe proposal also proposed to increase position limits for options overlying the MSCI Emerging Markets Index (‘‘MXEF’’) and the MSCI EAFE Index (‘‘MXEA’’). The Exchange, however, does not list options on the MXEF or MXEA indexes. Accordingly, this proposal is limited to the ETFs described above [sic]. E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Notices]
[Pages 31235-31239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11122]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88906; File No. SR-OCC-2020-803]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice Concerning Changes to The Options 
Clearing Corporation's Non-Bank Liquidity Facility Program as Part of 
Its Overall Liquidity Plan

May 19, 2020.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 
1934 (``Exchange Act''),\3\ notice is hereby given that on April 15, 
2020, the Options Clearing Corporation (``OCC'') filed with the 
Securities and Exchange Commission (``Commission'') an advance notice 
as described in Items I, II and III below, which Items have been 
prepared by OCC. The Commission is publishing this notice to solicit 
comments on the advance notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice is filed by The Options Clearing Corporation 
(``OCC'') in connection with a proposed change to its operations to: 
(i) Set the aggregate commitment amount that it may seek under its 
program for accessing additional committed sources of liquidity that do 
not increase the concentration of OCC's counterparty exposure (``Non-
Bank Liquidity Facility'') as part of OCC's overall liquidity plan and 
(ii) allow more flexibility for OCC to negotiate the Non-Bank Liquidity 
Facility's commitment term. 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.\4\
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    \4\ 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 Advance Notice

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

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

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

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

Description of Change
    This advance notice concerns a change to OCC's operations to: (i) 
Set the aggregate commitment amount that it may seek under the Non-Bank 
Liquidity Facility to up to $1 billion as part of OCC's overall 
liquidity plan and (ii) allow more flexibility for OCC to negotiate the 
Non-Bank Liquidity Facility's commitment term.
Background
    OCC's current liquidity plan provides it with access to a diverse 
set of funding sources, including banks (i.e., OCC's syndicated credit 
facility \5\ and a master repurchase agreement with a bank counterparty 
(``Repo Liquidity Facility'') \6\), the Non-Bank Liquidity Facility 
program,\7\ and Clearing Members' Cash Clearing Fund Requirement.\8\ 
The Non-Bank Liquidity Facility program reduces the concentration of 
OCC's counterparty exposure with respect to its overall liquidity plan 
by diversifying its lender base among banks and non-bank, non-Clearing 
Member institutional investors, such as pension funds or insurance 
companies.
---------------------------------------------------------------------------

    \5\ See Exchange Act Release No. 85924 (May 23, 2019), 84 FR 
25089 (May 30, 2019) (SR-OCC-2019-803).
    \6\ See Exchange Act Release No. 88317 (March 4, 2020), 85 FR 
13681 (March 9, 2020) (SR-OCC-2020-801).
    \7\ See Exchange Act Release No. 73979 (Jan. 2, 2015), 80 FR 
1062 (Jan. 8, 2015) (SR-OCC-2014-809) (``Notice of No Objection to 
2014 Advance Notice''); Exchange Act Release No. 76821 (Jan. 4, 
2016), 81 FR 3208 (Jan. 20, 2016) (SR-2015-805) (``Notice of No 
Objection to 2015 Advance Notice'').
    \8\ See OCC Rule 1002.
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    The currently approved Non-Bank Liquidity Facility program is 
comprised of two parts: A Master Repurchase Agreement (``MRA'') and 
confirmations with one or more institutional investors, which contain 
certain individualized terms and conditions of transactions executed 
between OCC, the institutional investors and their agents. The MRA is 
structured like a typical repurchase arrangement in which the buyer 
(i.e., the institutional investor) would purchase from OCC, from time 
to time, United States government securities (``Eligible 
Securities'').\9\ OCC, as the seller, would transfer Eligible 
Securities to the buyer in exchange for a payment by the buyer to OCC 
in immediately available funds (``Purchase Price''). The buyer would

[[Page 31236]]

simultaneously agree to transfer the purchased securities back to OCC 
at a specified later date (``Repurchase Date'') or on OCC's demand 
against the transfer of funds by OCC to the buyer in an amount equal to 
the outstanding Purchase Price plus the accrued and unpaid price 
differential (together, ``Repurchase Price''), which is the interest 
component of the Repurchase Price.
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    \9\ OCC would use U.S. government securities that are included 
in Clearing Fund contributions by Clearing Members and margin 
deposits of any Clearing Member that has been suspended by OCC for 
the repurchase arrangements. OCC Rule 1006(f) and OCC Rule 1104(b) 
authorize OCC to obtain funds from third parties through securities 
repurchases using these sources. The officers who may exercise this 
authority include the Executive Chairman, Chief Executive Officer, 
and Chief Operating Officer.
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    The confirmations establish tailored provisions of repurchase 
transactions permitted under the Non-Bank Liquidity Facility that are 
designed to reduce concentration risk and to promote certainty of 
funding and operational effectiveness based on the specific needs of a 
party. For example, OCC would only enter into confirmations with an 
institutional investor that is not a Clearing Member or affiliated 
bank, such as pension funds or insurance companies, in order to allow 
OCC to access stable and reliable sources of funding without increasing 
the concentration of its exposure to counterparties that are affiliated 
banks, broker/dealers, or futures commission merchants. In addition, 
any such institutional investor is obligated to enter repurchase 
transactions even if OCC experiences a material adverse change,\10\ 
funds must be made available to OCC within 60 minutes of OCC's 
delivering eligible securities, and the institutional investor is not 
permitted to rehypothecate purchased securities.\11\ Additionally, the 
confirmations set forth the term and maximum dollar amounts of the 
transaction permitted under the MRA.\12\
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    \10\ When included in a contract, a ``material adverse change'' 
is typically defined as a change that would have a materially 
adverse effect on the business or financial condition of a company.
    \11\ See Notice of No Objection to 2014 Advance Notice, 80 FR at 
1064.
    \12\ Because the arrangements between OCC and the individual 
buyers have not been fully negotiated, OCC has summarized the 
indicative terms in Exhibit 3a to File No. SR-OCC-2020-803. Exhibit 
3a shows the terms indicated in prior advance notices, as modified 
by the proposed changes in this advance notice. The exhibit is a 
non-public document for which OCC has submitted a request for 
confidential treatment to the Commission.
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    In 2019, the Non-Bank Liquidity Facility counterparty decided not 
to renew its commitments, and two confirmations totaling $1 billion 
(``Prior Confirmations'') expired on January 2, 2020 and January 6, 
2020. In anticipation of the expiration of the Prior Confirmations and 
to prevent a drop in OCC's overall liquidity resources, OCC (i) 
exercised an accordion feature under its syndicated credit facility to 
increase the amount from $2 billion to $2.5 billion, and (ii) exercised 
authority under OCC Rule 1002 to temporarily increase the size of the 
Cash Clearing Fund Requirement from $3 billion to $3.5 billion.\13\ 
After obtaining regulatory approval, OCC also executed the Repo 
Liquidity Facility with a bank counterparty for $500 million.\14\
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    \13\ After reviewing that temporary increase in accordance with 
Rule 1002, the Risk Committee determined to maintain the increase, 
which was already contemplated as part of a proposed rule change 
that OCC has since filed with the Commission. See File No. SR-OCC-
2020-003. The proposed rule change would, among other things, modify 
Rule 1002 to allow OCC to periodically set the Clearing Fund Cash 
Requirement based on an analysis of OCC's projected liquidity 
demands under a variety of stressed scenarios. Subject to regulatory 
approval of that filing, the Risk Committee would initially reset 
the Clearing Fund Cash Requirement to $3.5 billion based on an 
analysis of stress test results demonstrating that this amount, in 
combination with OCC's current and anticipated committed liquidity 
facilities--a $2 billion syndicated credit facility and $1 billion 
in other committed liquidity facilities (i.e., the Repo Liquidity 
Facility and/or the Non-Bank Liquidity Facility)--would be 
sufficient to cover OCC's liquidity risk tolerance of 1-in-50 year 
statistical market event at a 99.5% level over a two-year look back 
period.
    \14\ After the Repo Liquidity Facility became effective, OCC 
terminated the $500 million accordion on the syndicated credit 
facility.
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    Since learning that the Prior Commitments would not be renewed, OCC 
has also been working with a lending agent to identify interested 
institutional investors to secure replacement Commitments for the $1 
billion in Prior Confirmations. The purpose of this filing is to modify 
certain aspects of the Non-Bank Liquidity Facility program to give OCC 
the flexibly to seek confirmations up to $1 billion in the aggregate 
with such durations as approved by its Board of Directors (``Board'').
Aggregate Commitment Amount OCC May Seek Under the Confirmations
    OCC is proposing to adjust the aggregate amount it can seek through 
the Non-Bank Liquidity Facility program to an amount up to $1 billion, 
as opposed to no less than $1 billion and no greater than $1.5 
billion--allowing OCC the ability to seek commitments even if the 
aggregate commitment level falls below $1 billon. The Non-Bank 
Liquidity Facility program, as initially proposed, authorized 
commitments of $1 billion in the aggregate.\15\ In 2015, OCC filed an 
advance notice to modify the Non-Bank Liquidity Facility program to 
allow OCC to seek aggregate commitments of no less than $1 billion and 
no greater than $1.5 billion (the ``2015 Advance Notice'').\16\ The 
increase to the permissible range was made as part of OCC's plan to 
transition from a single $1 billion confirmation to two confirmations 
of $500 million with staggered expiration dates.\17\ While the current 
Non-Bank Liquidity Facility program gives OCC discretion to seek 
aggregate commitments of no more than $1.5 billion, OCC's Board has 
consistently authorized OCC to seek commitments up to an aggregate 
amount of $1 billion since 2016. OCC is proposing to modify the Non-
Bank Liquidity Facility program to align the program's terms with the 
commitment level approved by the Board.
---------------------------------------------------------------------------

    \15\ Notice of No Objection to 2014 Advance Notice, 80 FR at 
1064 & n.11.
    \16\ Notice of No Objection to 2015 Advance Notice, 81 FR at 
3208.
    \17\ See id. at 3209 (discussing the extension of the existing 
confirmation and the execution of a second confirmation).
---------------------------------------------------------------------------

    OCC's ability to secure or renew commitments under the Non-Bank 
Liquidity Facility is subject to market conditions, among other factors 
outside of OCC's control. As evidenced by the recent expiration of the 
Prior Confirmations, a counterparty's decision not to renew its 
commitment under the facility may cause the aggregate commitment amount 
to fall below $1 billion. As part of OCC's overall liquidity plan, 
however, OCC maintains access to a diverse set of funding sources in 
addition to the Non-Bank Liquidity Facility. To address the expiration 
of a Non-Bank Liquidity Facility commitment, OCC would have several 
options, including (i) execution of one of more commitments under the 
Non-Bank Liquidity Facility up to the $1 billion aggregate commitment 
amount proposed, (ii) exercising the accordion feature under the 
syndicated credit facility, (iii) exercising authority under OCC Rule 
1002 to temporarily increase the Cash Clearing Fund Requirement, and 
(iv) filing an advance notice to execute a master repurchase agreement 
with other counterparties, similar to the Repo Liquidity Facility. 
Allowing OCC to seek one or more Non-Bank Liquidity Facility 
commitments that, in the aggregate, are less than $1.0 billion would 
allow OCC the flexibility to adjust the mix of liquidity resources 
based on market conditions, availability and shifting liquidity needs. 
If OCC is unable to secure commitments to replace existing 
confirmations, OCC would reallocate shortfalls to other liquidity 
resources to prevent a drop in total liquidity resources.
    Without this change, OCC arguably could not execute individual 
commitments that result in an aggregated commitment of less than $1

[[Page 31237]]

billion at the time executed, making it difficult or impossible for OCC 
to negotiate individual commitments, each less than $1 billion, with 
multiple counterparties that may be proceeding on different timelines. 
In addition, allowing OCC to execute confirmations at different times 
would have the benefit of staggering expiration dates--to the extent 
such confirmations are for fixed terms--mitigating the risk that 
overlapping expirations may cause a drop in OCC's overall liquidity 
resources.
Confirmation Term
    OCC is also proposing to modify the confirmation term to allow more 
flexibility in negotiating terms with institutional investors. 
Confirmations under the current Non-Bank Liquidity Facility program are 
limited to a commitment term greater than or equal to 364-days. Based 
on ongoing negotiations with potential institutional investors, OCC 
believes there is interest for commitments that are shorter than one 
year.\18\ OCC is proposing to adjust the required terms and conditions 
as filed with the Commission in the 2015 Advance Notice filing to allow 
for a commitment term of less than 364 days, as negotiated by the 
parties and approved by OCC's Board. The proposed modification to the 
program would allow for, among other things, a confirmation with a 
shorter commitment term as well as an open-ended term that allows for 
termination subject to a notice period. Providing flexibility in the 
commitment term may make the Non-Bank Liquidity Facility more 
commercially attractive to institutional investors who desire more 
flexibility in the confirmation term. Additionally, termination subject 
to notice would benefit OCC by ensuring that OCC will have a pre-set 
notice period to manage its liquidity resources to replace an expiring 
confirmation or adjust the levels of other liquidity resources.
---------------------------------------------------------------------------

    \18\ OCC included information about the current status of 
negotiations with potential counterparties in Exhibit 3b to File No. 
SR-OCC-2020-803. The exhibit is a non-public document for which OCC 
has submitted a request for confidential treatment to the 
Commission.
---------------------------------------------------------------------------

    The Board reviews proposed terms under the Non-Bank Liquidity 
Program and authorizes Management to enter into and renew transactions 
upon expiration. The length of term or notice period OCC would be 
willing to accept would be conditioned on factors including, but not 
limited to, the initial committed length of the term, market conditions 
and OCC's liquidity needs. For a confirmation without a defined 
commitment term, OCC would target to negotiate a six-month notice 
period. Based on the expiration of the Prior Confirmations, OCC 
believes that six-months' notice is sufficient time to allow OCC to 
reallocate liquidity resources to address a confirmation's termination. 
Because of the time and cost required to negotiate and close 
transactions, OCC believes it unlikely that it would pursue a 
commitment of less than three months.
Anticipated Effect On and Management of Risk
    Completing timely settlement is a key aspect of OCC's role as a 
clearing agency performing central counterparty services. Modifying the 
Non-Bank Liquidity Facility program to provide OCC more flexibility in 
seeking confirmations would continue to promote the reduction of risks 
to OCC, its Clearing Members and the options market in general because 
it would allow OCC to continue to obtain short-term funds from the Non-
Bank Liquidity Facility to address liquidity demands arising out of the 
default or suspension of a Clearing Member, in anticipation of a 
potential default or suspension of Clearing Members, the insolvency of 
a bank or another securities or commodities clearing organization, or 
the failure of a bank or another securities or commodities clearing 
organization to achieve daily settlement.
    The Non-Bank Liquidity Facility helps OCC minimize losses in the 
event of a default, suspension, insolvency, or failure to achieve daily 
settlement, by allowing it to obtain funds from sources not connected 
to OCC's Clearing Members on extremely short notice to ensure clearance 
and settlement of transactions in options and other contracts without 
interruption. OCC believes that the reduced settlement risk presented 
by OCC resulting from the proposed change would correspondingly reduce 
systemic risk and promote the safety and soundness of the clearing 
system. The ability to borrow funds from the Non-Bank Liquidity 
Facility would allow OCC to avoid liquidating margin or clearing fund 
assets in what would likely be volatile market conditions, which would 
preserve funds available to cover any losses resulting from the failure 
of a Clearing Member, bank or other clearing organization.
    The proposed change to allow OCC to seek an aggregate commitment 
amount under the Non-Bank Liquidity Facility for up to the currently 
approved limit would help OCC ensure the continued availability of its 
liquidity resources by providing OCC with the flexibility to seek 
additional funding amounts at substantially the same terms, conditions, 
operations, and mechanics of the Prior Confirmations. Furthermore, 
allowing for OCC to negotiate a term less than 364-days would allow OCC 
more flexibility in negotiating confirmations with institutional 
investors, and would allow OCC the ability to negotiate terms that give 
OCC more time to respond to an institutional investor's decision not to 
renew a confirmation. Such flexibility would allow OCC to reallocate 
the amount of funding available under the confirmations at the time of 
a confirmation's renewal or termination and to manage liquidity needs 
and enhance its ability to ensure continual liquidity resources.
    Because the proposed change preserves substantially the same terms 
and conditions as the MRA and the Prior Confirmation, OCC believes that 
the proposed change would not otherwise affect or alter the management 
of risk at OCC.
Consistency With the Payment, Clearing and Settlement Supervision Act
    The stated purpose of the Clearing Supervision Act is to mitigate 
systemic risk in the financial system and promote financial stability 
by, among other things, promoting uniform risk management standards for 
systemically important financial market utilities and strengthening the 
liquidity of systemically important financial market utilities.\19\ 
Section 805(a)(2) of the Clearing Supervision Act \20\ also authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like OCC, for which the Commission is the supervisory agency. Section 
805(b) of the Clearing Supervision Act \21\ states that the objectives 
and principles for risk management standards prescribed under Section 
805(a) shall be to:
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    \19\ 12 U.S.C. 5461(b).
    \20\ 12 U.S.C. 5464(a)(2).
    \21\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and the Exchange Act in 
furtherance of these objectives and principles.\22\

[[Page 31238]]

Rule 17Ad-22 requires registered clearing agencies, like OCC, to 
establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to meet certain minimum 
requirements for their operations and risk management practices on an 
ongoing basis.\23\ Therefore, the Commission has stated \24\ that it 
believes it is appropriate to review changes proposed in advance 
notices against Rule 17Ad-22 and the objectives and principles of these 
risk management standards as described in Section 805(b) of the 
Clearing Supervision Act.\25\
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    \22\ 17 CFR 240.17Ad-22. See Exchange Act Release Nos. 68080 
(October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11) 
(``Clearing Agency Standards''); 78961 (September 28, 2016), 81 FR 
70786 (October 13, 2016) (S7-03-14) (``Standards for Covered 
Clearing Agencies'').
    \23\ 17 CFR 240.17Ad-22.
    \24\ See, e.g., Exchange Act Release No. 86182 (June 24, 2019), 
84 FR 31128, 31129 (June 28, 2019) (SR-OCC-2019-803).
    \25\ 12 U.S.C. 5464(b).
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    OCC believes that the Non-Bank Liquidity Facility program, as 
modified, is consistent with Section 805(b)(1) of the Clearing 
Supervision Act \26\ because the proposed confirmations would provide 
OCC with an additional source of committed liquidity to meet its 
settlement obligations while at the same time being structured to 
mitigate certain operational risks, as described above, that arise in 
connection with this committed liquidity source. In this way, the 
proposed changes are designed to promote robust risk management; 
promote safety and soundness; reduce systemic risks; and support the 
stability of the broader financial system.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

    OCC believes that the Non-Bank Liquidity Facility program, as 
modified, is also consistent with the requirements of Rule 17Ad-
22(e)(7) under the Exchange Act.\27\ Rule 17Ad-22(e)(7) requires OCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage liquidity risk that arises in or is borne by OCC, including 
measuring, monitoring, and managing its settlement and funding flows on 
an ongoing and timely basis, and its use of intraday liquidity, as 
specified in the rule.\28\ In particular, Rule 17Ad-22(e)(7)(i) under 
the Exchange Act \29\ directs that OCC meet this obligation by, among 
other things, ``[m]aintaining sufficient liquid resources at the 
minimum in all relevant currencies to effect same-day . . . settlement 
of payment obligations with a high degree of confidence under a wide 
range of foreseeable stress scenarios that includes, but is not limited 
to, the default of the participant family that would generate the 
largest aggregate payment obligation for [OCC] in extreme but plausible 
market conditions.''
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(7).
    \28\ Id.
    \29\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    As described above, the proposed change would allow OCC to seek a 
readily available liquidity resource that would enable it to, among 
other things, continue to meet its obligations in a timely fashion and 
as an alternative to selling Clearing Member collateral under what may 
be stressed and volatile market conditions. For these reasons, OCC 
believes that the proposal is consistent with Rule 17Ad-
22(e)(7)(i).\30\
---------------------------------------------------------------------------

    \30\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires OCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to hold qualifying liquid resources 
sufficient to satisfy payment obligations owed to Clearing Members.\31\ 
Rule 17Ad-22(a)(14) of the Exchange Act defines ``qualifying liquid 
resources'' to include, among other things, lines of credit without 
material adverse change provisions, that are readily available and 
convertible into cash.\32\ The MRA under the Non-Bank Liquidity 
Facility would not be subject to any material adverse change provision 
and would continue to be designed to permit OCC to, among other things, 
help ensure that OCC has sufficient, readily-available qualifying 
liquid resources to meet the cash settlement obligations of its largest 
Clearing Member Group. Therefore, OCC believes that the proposal is 
consistent with Rule 17Ad-22(e)(7)(ii).\33\
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    \31\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \32\ 17 CFR 240.17Ad-22(a)(14).
    \33\ 17 CFR 240.17Ad-22(e)(7)(ii).
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    For the foregoing reasons, OCC believes that the proposed changes 
are consistent with Section 805(b)(1) of the Clearing Supervision Act 
\34\ and Rule 17Ad-22(e)(7) \35\ under the Exchange Act.
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    \34\ 12 U.S.C. 5464(b)(1).
    \35\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the advance 
notice is consistent with the Clearing Supervision Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2020-803 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2020-803. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the advance notice that are filed with the 
Commission, and all written communications relating to the advance 
notice between the Commission and any person, other than those that may 
be withheld from the public in accordance with the

[[Page 31239]]

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 self-
regulatory organization.
    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-2020-803 and 
should be submitted on or before June 8, 2020.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11122 Filed 5-21-20; 8:45 am]
 BILLING CODE 8011-01-P
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