Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice of and No Objection to The Options Clearing Corporation's Proposal To Enter Into a New Credit Facility Agreement, 34257-34262 [2020-11917]
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Federal Register / Vol. 85, No. 107 / Wednesday, June 3, 2020 / Notices
2. Docket No(s).: MC2020–144 and
CP2020–154; Filing Title: USPS Request
to Add Priority Mail Contract 622 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: May 28, 2020; Filing
Authority: 39 U.S.C. 3642, 39 CFR
3040.130 et seq., and 39 CFR 3035.105;
Public Representative: Christopher C.
Mohr; Comments Due: June 5, 2020.
3. Docket No(s).: MC2020–145 and
CP2020–155; Filing Title: USPS Request
to Add First-Class Package Service
Contract 110 to Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
May 28, 2020; Filing Authority: 39
U.S.C. 3642, 39 CFR 3040.130 et seq.,
and 39 CFR 3035.105; Public
Representative: Kenneth R. Moeller;
Comments Due: June 5, 2020.
4. Docket No(s).: MC2020–146 and
CP2020–156; Filing Title: USPS Request
to Add Priority Mail Express
International, Priority Mail International
& Commercial ePacket Duty and Tax
Chargeback Contract 1 to Competitive
Product List and Notice of Filing
Materials Under Seal; Filing Acceptance
Date: May 28, 2020; Filing Authority: 39
U.S.C. 3642, 39 CFR 3040.130 et seq.,
and 39 CFR 3035.105; Public
Representative: Natalie R. Ward;
Comments Due: June 5, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–11943 Filed 6–2–20; 8:45 am]
BILLING CODE 7710–FW–P
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on May 27, 2020,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express International,
Priority Mail International, First-Class
Package International Service &
Commercial ePacket Contract 1 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2020–140 and CP2020–149.
SUPPLEMENTARY INFORMATION:
Ruth Stevenson,
Chief Counsel, Federal Compliance.
[FR Doc. 2020–11971 Filed 6–2–20; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
International Product Change—Priority
Mail Express International, Priority Mail
International & Commercial ePacket
Duty and Tax Chargeback Agreement
AGENCY:
ACTION:
Postal ServiceTM.
Notice.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a Priority
Mail Express International, Priority Mail
International & Commercial ePacket
Duty and Tax Chargeback contract to the
list of Negotiated Service Agreements in
the Competitive Product List in the Mail
Classification Schedule.
SUMMARY:
DATES:
Date of notice: June 3, 2020.
FOR FURTHER INFORMATION CONTACT:
POSTAL SERVICE
International Product Change—Priority
Mail Express International, Priority Mail
International, First-Class Package
International Service & Commercial
ePacket Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a Priority
Mail Express International, Priority Mail
International, First-Class Package
International Service & Commercial
ePacket contract to the list of Negotiated
Service Agreements in the Competitive
Product List in the Mail Classification
Schedule.
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SUMMARY:
Date of notice: June 3, 2020.
FOR FURTHER INFORMATION CONTACT:
Christopher C. Meyerson, (202) 268–
7820.
DATES:
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Christopher C. Meyerson, (202) 268–
7820.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on May 28, 2020,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express International,
Priority Mail International &
Commercial ePacket Duty and Tax
Chargeback Contract 1 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2020–146
and CP2020–156.
SUPPLEMENTARY INFORMATION:
Ruth Stevenson,
Chief Counsel, Federal Compliance.
[FR Doc. 2020–11972 Filed 6–2–20; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88971; File No. SR–OCC–
2020–804]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Advance Notice of and No
Objection to The Options Clearing
Corporation’s Proposal To Enter Into a
New Credit Facility Agreement
May 28, 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’’
or ‘‘Act’’),3 notice is hereby given that
on April 27, 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,
and to provide notice that the
Commission does not object to the
changes set forth in the advance notice.
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
This advance notice is submitted in
connection with a proposed change to
OCC’s operations in the form of the
replacement of a revolving credit facility
that OCC maintains for a 364-day term
and that it may use: (i) In anticipation
of a potential default by or suspension
of a Clearing Member; (ii) to meet
obligations arising out of the default or
suspension of a Clearing Member; (iii) to
meet reasonably anticipated liquidity
needs for same-day settlement as a
result of the failure of any bank or
securities or commodities clearing
organization to achieve daily settlement;
or (iv) to meet obligations arising out of
the failure of a bank or securities or
commodities clearing organization to
perform its obligations due to its
bankruptcy, insolvency, receivership or
suspension of operations. OCC has
provided a summary of the terms and
conditions of the proposed renewal in
confidential Exhibit 3 to File No. SR–
OCC–2020–804.
The advance notice is available on
OCC’s website at https://
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 15 U.S.C. 78a et seq.
2 17
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Federal Register / Vol. 85, No. 107 / Wednesday, June 3, 2020 / Notices
www.theocc.com/about/publications/
bylaws.jsp. 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 advance notice and none have
been received. OCC will notify the
Commission of any written comments
received by OCC.
B. Advance Notices Filed Pursuant to
Section 806(e) of the Payment, Clearing,
and Settlement Supervision Act
Description of Proposed Change
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Background
This advance notice is being filed in
connection with a proposed change in
the form of the replacement of a
revolving credit facility that OCC
maintains for a 364-day term and that it
may use: (i) In anticipation of a
potential default by or suspension of a
Clearing Member; (ii) to meet
obligations arising out of the default or
suspension of a Clearing Member; (iii) to
meet reasonably anticipated liquidity
needs for same-day settlement as a
result of the failure of any bank or
securities or commodities clearing
organization to achieve daily settlement;
or (iv) to meet obligations arising out of
the failure of a bank or securities or
commodities clearing organization to
perform its obligations due to its
bankruptcy, insolvency, receivership or
suspension of operations (‘‘Permitted
Use Circumstances’’). In any such
Permitted Use Circumstance, OCC has
certain conditional authority under its
By-Laws and Rules to borrow or
otherwise obtain funds from third
parties using Clearing Member margin
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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deposits and/or Clearing Fund
contributions.5
OCC’s existing credit facility
(‘‘Existing Facility’’) was implemented
as of June 26, 2019, through the
execution of a credit agreement among
OCC, the administrative agent, the
collateral agent, and the lenders that are
parties to the agreement from time to
time. The Existing Facility provides
short-term secured borrowings in an
aggregate principal amount of $2 billion
but may be increased to $3 billion if
OCC so requests and sufficient
commitments from lenders are received
and accepted.6 To obtain a loan under
the Existing Facility, OCC must pledge
as collateral: (i) U.S. dollars; (ii)
securities issued or guaranteed by the
U.S. Government, the Government of
Canada, the Federal Republic of
Germany, the Republic of France, Japan
or the United Kingdom; (iii) S&P 500
Market Index equities; (iv) ExchangeTraded Funds (‘‘ETFs’’); (v) American
Depositary Receipts (‘‘ADRs’’); or (vi)
certain government-sponsored
enterprise (‘‘GSE’’) debt securities.
Certain mandatory prepayments or
deposits of additional collateral are
required depending on changes in the
collateral’s market value. In connection
with OCC’s past implementation of the
Existing Facility, OCC filed an advance
notice with the Commission on April
26, 2019, and the Commission
published a Notice of No Objection on
June 24, 2019.7
Description of the Proposal
Renewal. The Existing Facility is set
to expire on June 24, 2020. OCC is
currently negotiating the terms of a new
credit facility (‘‘New Facility’’) on
substantially similar terms as the
Existing Facility, and the definitive
documentation concerning the New
Facility is expected to be substantially
similar to the definitive documentation
concerning the Existing Facility. The
proposed terms and conditions that are
expected to be applicable to the New
Facility, subject to agreement by the
lenders, are set forth in the Summary of
Terms and Conditions, which is not a
5 See generally Article VIII of OCC’s By-Laws and
OCC Rules 1006(f), 1102, and 1104(b).
6 OCC notes that it previously exercised this
accordion feature under the Existing Facility to
increase the commitment amount from $2 billion to
$2.5 billion, and then subsequently reduced the
commitment amount back to $2 billion. As a result,
OCC may only increase the commitment amount
under the Existing Facility by another $500 million
(to a total of $2.5 billion).
7 See Securities Exchange Act Release No. 86182
(June 24, 2019), 84 FR 31128 (June 28, 2019) (SR–
OCC–2019–803).
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public document.8 The New Facility
would include changes to the list of
joint lead arrangers and bookrunners,
the back-up administrative agent, the
back-up collateral agent, and the
syndication agents. The New Facility
would also include changes to certain
commercial terms, such as the interest
rate, commitment fee, and upfront fees,
which OCC believes are generally
aligned with current market rates for
this type of facility. In addition, the
New Facility would update language
concerning European Union (‘‘EU’’)
bail-in provisions to recognize the
United Kingdom (‘‘UK’’) bail-in regime
now that the UK is no longer part of the
EU. Finally, the Summary of Terms and
Conditions would be updated to include
provisions that are currently included in
the credit agreement for the Existing
Facility but not previously included as
part of the Summary of Terms and
Conditions. For example, the Summary
of Terms and Conditions would contain
updates regarding the lenders’ ability to
assign and sell participations in their
loans and commitments to eligible
banks. It would also be updated to
clarify the timing requirements for
calculating the market value of certain
pledged equities.
The conditions regarding the
availability of the New Facility, which
OCC anticipates will be satisfied on or
about June 23, 2020, include the
execution and delivery of: (i) A credit
agreement between OCC and the
administrative agent, collateral agent
and various lenders under the New
Facility; (ii) a pledge agreement between
OCC and the administrative agent or
collateral agent; and (iii) such other
documents as may be required by the
parties. The definitive documentation
concerning the New Facility is expected
to be consistent with the Summary of
Terms and Conditions that is provided
in confidential Exhibit 3, although it
may include certain changes to business
terms as may be necessary to obtain the
agreement of lenders with sufficient
funding commitments and certain
changes as may be necessary regarding
administrative and operational terms
being finalized between the parties.
Future Renewals. OCC expects to
continue to renew its revolving credit
facility annually on substantially similar
terms and conditions as the New
Facility. The terms and conditions of
any such future renewal (each a ‘‘Future
Renewal’’) would be specified in
subsequent credit agreements among
8 OCC has separately submitted a request for
confidential treatment to the Commission regarding
the Summary of Terms and Conditions, which OCC
has provided in Exhibit 3 to File No. SR–OCC–
2020–804.
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OCC, the lenders that are parties thereto,
the administrative agent, and the
collateral agent. To provide OCC and
market participants with greater
certainty regarding a continuing source
of committed liquidity to meet OCC’s
settlement obligations, and thus mitigate
OCC’s liquidity risk, OCC proposes to be
able to enter Future Renewals without
an additional advance notice provided
that the terms of the Future Renewal
adhere to certain conditions specified in
(a) and (b) and (1) through (4) below
(collectively, ‘‘Evergreen Provisions’’).
OCC believes these Evergreen
Provisions would be consistent with
similar terms regarding committed
credit facility renewals by other
registered clearing agencies, for which
the Commission issued a Notice of No
Objection.9
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Evergreen Provisions
OCC does not currently expect to
make changes to:
(a) The financial institution acting as
lead administrative agent; or
(b) the commitment period (which
would continue to be 364 calendar days
unless changes are necessary to avoid
the expiration of the term falling on a
weekend or other day that is not a
business day) in connection with Future
Renewals, but OCC would treat any
such change in a Future Renewal as
subject to the requirement to file an
advance notice pursuant to Section
806(e)(1) of the Clearing Supervision
Act.10
OCC may consider changes to:
(1) The aggregate and potential
additional commitment amounts that it
may seek, so long as such amounts
considered:
(i) Increase by no more than $500
million in total (whether in the initial
commitment amount, additional
commitment amount, or both) above the
amount being sought by OCC under the
New Facility, or
(ii) decrease by no more than $500
million below the amount being sought
by OCC under the New Facility,
provided that any decrease in the initial
commitment amount is replaced by
other qualifying liquid resources (as
defined in Exchange Act Rule 17Ad–
22(a)(14)) 11 of an equal amount; 12
9 See Securities Exchange Act Release No. 80605
(May 5, 2017), 82 FR 21850 (May 10, 2017) (SR–
DTC–2017–802; SR–NSCC–2017–802).
10 12 U.S.C. 5465(e)(1).
11 17 CFR 240.17Ad–22(a)(14).
12 For example, this may include an increase in
OCC’s Cash Clearing Fund Requirement as required
under Rule 1002(a) or other committed liquidity
resources for which the Commission has issued a
Notice of No Objection. See, e.g., Securities
Exchange Act Release No. 88317 (March 4, 2020),
85 FR 13681 (March 9, 2020) (SR–OCC–2020–801).
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(2) the syndicate so long as all lenders
party to future credit facilities are
subject to the same credit review as
those lenders that are party to the New
Facility;
(3) pricing and collateral haircuts,13
so long as such terms are consistent
with the then current market practice; or
(4) representations, warranties,
covenants, and terms of events of
default,14 so long as any modifications
are immaterial to OCC as a borrower and
do not impair materially OCC’s ability
to borrow under the line of credit
consistent with the Evergreen
Provisions. OCC would not consider
changes to the Evergreen Provisions
within these specified parameters as
materially altering the terms and
conditions of the New Facility or Future
Renewals.
So long as any Future Renewal
adheres to the conditions specified in
the Evergreen Provisions, as described
above, OCC would consider such Future
Renewal as being on substantially the
same terms and conditions as the New
Facility such that it would not need to
be subject to the requirement to file an
advance notice filing pursuant to
Section 806(e)(1) of the Clearing
Supervision Act.15 In the event that any
annual Future Renewal of the New
Facility is not on terms and conditions
that adhere to the Evergreen Provisions,
such renewal would be subject to an
advance notice filing pursuant to
Section 806(e)(1) of the Clearing
Supervision Act. If OCC determines to
address Future Renewals in such a
filing, it would include in that filing the
proposed conditions to the terms of any
subsequent renewals that could be done
without an additional advance notice.
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. Overall, the New Facility and
Future Renewals would continue to
promote the reduction of risks to OCC,
its Clearing Members, and the markets
OCC serves in general because it would
allow OCC to obtain short-term funds in
the Permitted Use Circumstances. The
existence of the New Facility and Future
Renewals would therefore help OCC
13 ‘‘Collateral haircuts’’ with respect to the
collateral for any borrowing under the credit facility
refers to the schedule of percentages of market
value by type of collateral, determining the
collateral value of that type of collateral, for
purposes of securing a borrowing.
14 ‘‘Events of default’’ refers to those events or
conditions which trigger or constitute a default of
OCC under the credit agreement.
15 12 U.S.C. 5465(e)(1).
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34259
minimize losses in the event of a
Permitted Use Circumstance by
allowing it to obtain funds 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 New Facility
and Future Renewals would
correspondingly reduce systemic risk
and promote the safety and soundness
of the clearing system. By drawing on
the New Facility or under any Future
Renewals, OCC would also be able to
avoid liquidating margin deposits or
Clearing Fund contributions 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.
OCC believes that the proposed
change would not otherwise affect or
alter the management of risk at OCC
because the New Facility would
generally preserve the same terms and
conditions as the Existing Facility.
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.16 Section 805(a)(2) of the
Clearing Supervision Act 17 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 18 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.19
16 12
U.S.C. 5461(b).
U.S.C. 5464(a)(2).
18 12 U.S.C. 5464(b).
19 17 CFR 240.17Ad–22. See Securities Exchange
Act Release Nos. 68080 (October 22, 2012), 77 FR
66220 (November 2, 2012) (S7–08–11) (‘‘Clearing
17 12
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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.20
Therefore, the Commission has stated 21
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.22
OCC believes that the proposed
changes are consistent with Section
805(b)(1) of the Clearing Supervision
Act 23 because the New Facility and
Future Renewals would provide OCC
with continued access to a stable and
reliable source of committed liquidity
that can be accessed in a timely manner
to meet its settlement obligations,
contain losses and liquidity pressures,
and mitigate OCC’s liquidity risk.
Accordingly, OCC believes that the
proposed changes: (i) Are designed to
promote robust risk management; (ii) are
consistent with promoting safety and
soundness; and (iii) are consistent with
reducing systemic risks and promoting
the stability of the broader financial
system.
OCC believes that the New Facility
and Future Renewals that adhere to the
Evergreen Provisions are also consistent
with the requirements of Rule 17Ad–
22(e)(7) under the Act.24 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.25 In particular,
Rule 17Ad–22(e)(7)(i) under the Act 26
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
Agency Standards’’); 78961 (September 28, 2016),
81 FR 70786 (October 13, 2016) (S7–03–14)
(‘‘Standards for Covered Clearing Agencies’’).
20 17 CFR 240.17Ad–22.
21 See supra note 7.
22 12 U.S.C. 5464(b).
23 12 U.S.C. 5464(b)(1).
24 17 CFR 240.17Ad–22(e)(7).
25 Id.
26 17 CFR 240.17Ad–22(e)(7)(i).
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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.’’ As
described above, the New Facility
would provide OCC with a readily
available liquidity resource that would
enable it to, among other things,
continue to meet its obligations in a
timely fashion in a Permitted Use
Circumstance and as an alternative to
selling Clearing Member collateral
under what may be stressed and volatile
market conditions. Additionally,
because the Evergreen Provisions would
ensure that any Future Renewals that
adhere to those terms would be
substantially similar to the New
Facility, such Future Renewals also
would provide OCC with a readily
available liquidity resource that would
enable it to, among other things,
continue to meet its obligations in a
timely fashion in a Permitted Use
Circumstance, thereby helping to
contain losses and liquidity pressures.
Allowing OCC to enter Future Renewals
pursuant to the Evergreen Provisions
without filing an additional advance
notice would also reduce the risk of
gaps in liquidity coverage and better
allow OCC to continually maintain
sufficient liquidity resources. For these
reasons, OCC believes that the proposal
is consistent with Rule 17Ad–
22(e)(7)(i).27
Rule 17Ad–22(e)(7)(ii) under the 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.28 Rule
17Ad–22(a)(14) 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.29 As with the Existing
Facility, the New 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. Similarly,
because the Evergreen Provisions would
ensure that any Future Renewals that
adhere to them would be substantially
similar to the New Facility, such Future
Renewals also would permit OCC to
enter into a future credit facility
designed to, among other things, help
ensure that OCC has sufficient, readilyavailable 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).30
For the foregoing reasons, OCC
believes that the proposed changes are
consistent with Section 805(b)(1) of the
Clearing Supervision Act 31 and Rule
17Ad–22(e)(7) 32 under the Act.
Accelerated Commission Action
Requested
Pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act,33 OCC
requests that the Commission notify
OCC that it has no objection to the New
Facility not later than Friday, June 19,
2020, which shall be two business days
prior to the expected June 23, 2020,
availability of the New Facility. OCC
requests Commission action by this date
to ensure that there is no period that
OCC operates without this essential
liquidity resource, given its importance
to OCC’s borrowing capacity in
connection with its management of
liquidity and settlement risk and timely
completion of clearance and settlement.
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
30 17
27 Id.
28 17
29 17
PO 00000
CFR 240.17Ad–22(e)(7)(ii).
U.S.C. 5464(b)(1).
32 17 CFR 240.17Ad–22(e)(7).
33 12 U.S.C. 5465(e)(1)(I).
31 12
CFR 240.17Ad–22(e)(7)(ii).
CFR 240.17Ad–22(a)(14).
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Federal Register / Vol. 85, No. 107 / Wednesday, June 3, 2020 / Notices
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:
lotter on DSK9F5VC42PROD with NOTICES
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–2020–804 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–2020–804. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the advance notice that
are filed with the Commission, and all
written communications relating to the
advance notice between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of 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.
VerDate Sep<11>2014
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34261
All submissions should refer to File
Number SR–OCC–2020–804 and should
be submitted on or before June 18, 2020.
Supervision Act,42 and in Rule 17Ad–22
under the Exchange Act, particularly
Rule 17Ad–22(e)(7).43
V. Commission Findings and Notice of
No Objection
A. Consistency With Section 805(b) of
the Clearing Supervision Act
The Commission believes that the
proposal contained in OCC’s Advance
Notice is consistent with the stated
objectives and principles of Section
805(b) of the Clearing Supervision Act.
Specifically, as discussed below, the
Commission believes that the changes
proposed in the Advance Notice are
consistent with promoting robust risk
management, including in the area of
liquidity risk, promoting safety and
soundness, reducing systemic risks, and
supporting the stability of the broader
financial system.44
The Commission believes that the
changes proposed in the Advance
Notice are consistent with promoting
robust risk management, in particular
management of liquidity risk presented
to OCC. Renewing and maintaining a
credit facility for this purpose and in the
manner proposed by OCC would
provide OCC with continued access to
a stable and reliable source of
committed liquidity that can be
accessed in a timely manner to meet its
settlement obligations, contain losses
and liquidity pressures, and mitigate
OCC’s liquidity risk, while also helping
to maintain the current diversity of
liquidity resources that OCC may use to
resolve a Clearing Member default.45
Additionally, allowing OCC annually to
renew the credit facility under certain
specified circumstances without an
additional advance notice and subject to
the Evergreen Provisions described
above would facilitate OCC’s ability to
secure a continuing source of committed
liquidity to meet its settlement
obligations. Further, because the
Evergreen Provisions would ensure that
any such annual renewals would be
substantially similar to the currently
proposed credit facility, the
Commission believes that any such
renewals would promote robust risk
management by diversifying the
liquidity resources that OCC may use to
resolve a Clearing Member default in the
same manner as the currently proposed
credit facility. As such, the Commission
believes that the proposal would
Although the Clearing Supervision
Act does not specify a standard of
review for an advance notice, its stated
purpose is instructive: 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.34 Section 805(a)(2) of
the Clearing Supervision Act authorizes
the Commission to prescribe risk
management standards for the payment,
clearing, and settlement activities of
designated clearing entities and
financial institutions engaged in
designated activities for which it is the
supervisory agency or the appropriate
financial regulator.35 Section 805(b) of
the Clearing Supervision Act 36 states
that the objectives and principles for the
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.37
The Commission has adopted risk
management standards under Section
805(a)(2) of the Clearing Supervision
Act 38 and Section 17A of the Exchange
Act (‘‘Rule 17Ad–22’’).39 Rule 17Ad–22
requires registered clearing agencies 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.40
Therefore, it is appropriate for the
Commission to review changes
proposed in advance notices against
Rule 17Ad–22 and the objectives and
principles of the risk management
standards described in Section 805(b) of
the Clearing Supervision Act.41 As
discussed below, the Commission
believes that the proposal in the
Advance Notice is consistent with the
objectives and principles described in
Section 805(b) of the Clearing
42 Id.
43 See
34 12
U.S.C. 5461(b).
35 12 U.S.C. 5464(a)(2).
36 12 U.S.C. 5464(b).
37 Id.
38 12 U.S.C. 5464(a)(2).
39 See 17 CFR 240.17Ad–22.
40 Id.
41 12 U.S.C. 5464(b).
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
17 CFR 240.17Ad–22(e)(7).
U.S.C. 5464(b).
45 OCC also maintains a minimum amount of cash
in its Clearing Fund as well as a non-bank liquidity
facility. See Securities Exchange Act Release No.
82501 (Jan. 12, 2018), 83 FR 2843 (Jan. 19, 2018)
(File No. SR–OCC–2017–808) and Securities
Exchange Act Release No. 76821 (Jan. 4, 2016), 81
FR 3208 (Jan. 20, 2016) (File No. SR–OCC–2015–
805), respectively.
44 12
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Federal Register / Vol. 85, No. 107 / Wednesday, June 3, 2020 / Notices
lotter on DSK9F5VC42PROD with NOTICES
promote robust risk management
practices at OCC, consistent with
Section 805(b) of the Clearing
Supervision Act.46
The Commission also believes that the
changes proposed in the Advance
Notice are consistent with promoting
safety and soundness. As described
above, the New Facility would maintain
OCC’s access to a significant liquidity
resource in the event of a Clearing
Member default. The Evergreen
Provisions would preserve access to this
resource by ensuring that any annual
renewals implemented without filing an
advance notice would be substantially
similar to the currently proposed credit
facility, the Commission believes that
any such annual renewals can be
expected to promote safety and
soundness for the same reasons.
Further, by ensuring the continuity and
consistency of any subsequent renewals,
the Advance Notice would support
OCC’s continued access to a readily
available liquidity resource that could
enable OCC to continue to meet its
obligations to Clearing Members in a
timely fashion in the event of a Clearing
Member default, thereby helping to
contain losses and liquidity pressures
from that default. As such, the
Commission believes it is consistent
with promoting safety and soundness as
contemplated in Section 805(b) of the
Clearing Supervision Act.47
In addition, the Commission believes
that the changes proposed in the
Advance Notice are consistent with
reducing systemic risks and promoting
the stability of the broader financial
system. As mentioned above, allowing
OCC to enter into the New Facility
would enable OCC, which has been
designated a systemically important
FMU,48 to maintain an additional
liquidity resource that OCC may access
to help manage a Clearing Member
default. In addition, as noted above,
because the Evergreen Provisions would
ensure that any annual renewals entered
into without filing an advance notice
would be on substantially similar terms
to the currently proposed credit facility,
such future renewals also would enable
OCC to maintain an additional liquidity
resource that OCC may access to help
manage a Clearing Member default.
Moreover, allowing the annual renewal
of the credit facility under the proposed
Evergreen Provisions without filing an
46 12
U.S.C. 5464(b).
47 Id.
48 The Financial Stability Oversight Council
designated OCC a systemically important financial
market utility on July 18, 2012. See Financial
Stability Oversight Council 2012 Annual Report,
Appendix A, https://www.treasury.gov/initiatives/
fsoc/Documents/2012%20Annual%20Report.pdf.
VerDate Sep<11>2014
18:35 Jun 02, 2020
Jkt 250001
additional advance notice would
facilitate the continued availability of
this liquidity resource. These provisions
would provide heightened certainty and
stability for OCC and market
participants that OCC would be able to
maintain access to liquidity resources to
help manage a Clearing Member default
and would have flexibility to increase
the size of its liquidity resources in
response to market developments.
Accordingly, the Commission believes
that the proposal would help to reduce
the systemic risk of OCC, which in turn
would help to support the stability of
the broader financial system, consistent
with Section 805(b) of the Clearing
Supervision Act.49
Accordingly, and for the reasons
stated above, the Commission believes
the changes proposed in the Advance
Notice are consistent with Section
805(b) of the Clearing Supervision
Act.50
B. Consistency With Rule 17Ad–22(e)(7)
Under the Exchange Act
Rule 17Ad–22(e)(7)(ii) requires, in
part, 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 by, at a minimum, holding
qualifying liquid resources sufficient to
meet the minimum liquidity resource
requirement under Rule 17Ad–
22(e)(7)(i) 51 in each relevant currency
for which the covered clearing agency
has payment obligations owed to
Clearing Members.52 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
49 Id.
50 12
U.S.C. 5464(b).
17Ad–22(e)(7)(i) 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 by, at a minimum,
maintaining sufficient liquid resources at the
minimum in all relevant currencies to effect sameday 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 of
obligation for the covered clearing agency in
extreme but plausible conditions. 17 CFR
240.17Ad–22(e)(7)(i).
52 17 CFR 240.17Ad–22(e)(7)(ii).
51 Rule
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
provisions that are readily available and
convertible into cash.53
As described above, the
implementation of the New Facility
would provide OCC with continued
access to a $2 billion revolving credit
facility on substantially similar terms to
the Existing Facility. As the
Commission noted previously, the
Existing Facility provides OCC with
access to a single credit facility designed
to help ensure that OCC has sufficient,
readily available qualifying liquid
resources to meet the cash settlement
obligations of its largest family of
affiliated members.54 Implementation of
the New Facility on substantially
similar terms to the Existing Facility
would ensure that OCC maintains
continued access to such a credit
facility. Because the Evergreen
Provisions would ensure that any
annual renewals also would be
substantially similar to both the Existing
Facility and the New Facility, the
provisions would help ensure that OCC
has sufficient, readily-available
qualifying liquid resources to meet the
cash settlement obligations of its largest
family of affiliated members. Therefore,
the Commission believes that the
proposal is consistent with Rule 17Ad–
22(e)(7)(ii).
VI. Conclusion
It is therefore noticed, pursuant to
Section 806(e)(1)(I) of the Clearing
Supervision Act, that the Commission
does not object to the Advance Notice
SR–OCC–2020–804 and OCC can and
hereby is authorized to implement the
change as of the date of this notice.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11917 Filed 6–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88970; File No. SR–
NYSEArca–2020–48]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of Gabelli ETFs Under Rule 8.900–E,
Managed Portfolio Shares
May 28, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
53 17
CFR 240.17Ad–22(a)(14).
Exchange Act Release No. 83529
(Jun. 27, 2018), 83 FR 31237, 31241 (Jul. 3, 2018)
(SR–OCC–2018–802).
1 15 U.S.C. 78s(b)(1).
54 Securities
E:\FR\FM\03JNN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 107 (Wednesday, June 3, 2020)]
[Notices]
[Pages 34257-34262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11917]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88971; File No. SR-OCC-2020-804]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice of and No Objection to The Options
Clearing Corporation's Proposal To Enter Into a New Credit Facility
Agreement
May 28, 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'' or ``Act''),\3\ notice is hereby given that on
April 27, 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, and to provide
notice that the Commission does not object to the changes set forth in
the advance notice.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
This advance notice is submitted in connection with a proposed
change to OCC's operations in the form of the replacement of a
revolving credit facility that OCC maintains for a 364-day term and
that it may use: (i) In anticipation of a potential default by or
suspension of a Clearing Member; (ii) to meet obligations arising out
of the default or suspension of a Clearing Member; (iii) to meet
reasonably anticipated liquidity needs for same-day settlement as a
result of the failure of any bank or securities or commodities clearing
organization to achieve daily settlement; or (iv) to meet obligations
arising out of the failure of a bank or securities or commodities
clearing organization to perform its obligations due to its bankruptcy,
insolvency, receivership or suspension of operations. OCC has provided
a summary of the terms and conditions of the proposed renewal in
confidential Exhibit 3 to File No. SR-OCC-2020-804.
The advance notice is available on OCC's website at https://
[[Page 34258]]
www.theocc.com/about/publications/bylaws.jsp. 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\
---------------------------------------------------------------------------
\4\ OCC's By-Laws and Rules can be found on OCC's public
website: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the advance notice and
discussed any comments it received on the advance notice. The text of
these statements may be examined at the places specified in Item IV
below. OCC has prepared summaries, set forth in sections A and B below,
of the most significant aspects of these statements.
A. Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the advance notice and none have been received. OCC will
notify the Commission of any written comments received by OCC.
B. Advance Notices Filed Pursuant to Section 806(e) of the Payment,
Clearing, and Settlement Supervision Act
Description of Proposed Change
Background
This advance notice is being filed in connection with a proposed
change in the form of the replacement of a revolving credit facility
that OCC maintains for a 364-day term and that it may use: (i) In
anticipation of a potential default by or suspension of a Clearing
Member; (ii) to meet obligations arising out of the default or
suspension of a Clearing Member; (iii) to meet reasonably anticipated
liquidity needs for same-day settlement as a result of the failure of
any bank or securities or commodities clearing organization to achieve
daily settlement; or (iv) to meet obligations arising out of the
failure of a bank or securities or commodities clearing organization to
perform its obligations due to its bankruptcy, insolvency, receivership
or suspension of operations (``Permitted Use Circumstances''). In any
such Permitted Use Circumstance, OCC has certain conditional authority
under its By-Laws and Rules to borrow or otherwise obtain funds from
third parties using Clearing Member margin deposits and/or Clearing
Fund contributions.\5\
---------------------------------------------------------------------------
\5\ See generally Article VIII of OCC's By-Laws and OCC Rules
1006(f), 1102, and 1104(b).
---------------------------------------------------------------------------
OCC's existing credit facility (``Existing Facility'') was
implemented as of June 26, 2019, through the execution of a credit
agreement among OCC, the administrative agent, the collateral agent,
and the lenders that are parties to the agreement from time to time.
The Existing Facility provides short-term secured borrowings in an
aggregate principal amount of $2 billion but may be increased to $3
billion if OCC so requests and sufficient commitments from lenders are
received and accepted.\6\ To obtain a loan under the Existing Facility,
OCC must pledge as collateral: (i) U.S. dollars; (ii) securities issued
or guaranteed by the U.S. Government, the Government of Canada, the
Federal Republic of Germany, the Republic of France, Japan or the
United Kingdom; (iii) S&P 500 Market Index equities; (iv) Exchange-
Traded Funds (``ETFs''); (v) American Depositary Receipts (``ADRs'');
or (vi) certain government-sponsored enterprise (``GSE'') debt
securities. Certain mandatory prepayments or deposits of additional
collateral are required depending on changes in the collateral's market
value. In connection with OCC's past implementation of the Existing
Facility, OCC filed an advance notice with the Commission on April 26,
2019, and the Commission published a Notice of No Objection on June 24,
2019.\7\
---------------------------------------------------------------------------
\6\ OCC notes that it previously exercised this accordion
feature under the Existing Facility to increase the commitment
amount from $2 billion to $2.5 billion, and then subsequently
reduced the commitment amount back to $2 billion. As a result, OCC
may only increase the commitment amount under the Existing Facility
by another $500 million (to a total of $2.5 billion).
\7\ See Securities Exchange Act Release No. 86182 (June 24,
2019), 84 FR 31128 (June 28, 2019) (SR-OCC-2019-803).
---------------------------------------------------------------------------
Description of the Proposal
Renewal. The Existing Facility is set to expire on June 24, 2020.
OCC is currently negotiating the terms of a new credit facility (``New
Facility'') on substantially similar terms as the Existing Facility,
and the definitive documentation concerning the New Facility is
expected to be substantially similar to the definitive documentation
concerning the Existing Facility. The proposed terms and conditions
that are expected to be applicable to the New Facility, subject to
agreement by the lenders, are set forth in the Summary of Terms and
Conditions, which is not a public document.\8\ The New Facility would
include changes to the list of joint lead arrangers and bookrunners,
the back-up administrative agent, the back-up collateral agent, and the
syndication agents. The New Facility would also include changes to
certain commercial terms, such as the interest rate, commitment fee,
and upfront fees, which OCC believes are generally aligned with current
market rates for this type of facility. In addition, the New Facility
would update language concerning European Union (``EU'') bail-in
provisions to recognize the United Kingdom (``UK'') bail-in regime now
that the UK is no longer part of the EU. Finally, the Summary of Terms
and Conditions would be updated to include provisions that are
currently included in the credit agreement for the Existing Facility
but not previously included as part of the Summary of Terms and
Conditions. For example, the Summary of Terms and Conditions would
contain updates regarding the lenders' ability to assign and sell
participations in their loans and commitments to eligible banks. It
would also be updated to clarify the timing requirements for
calculating the market value of certain pledged equities.
---------------------------------------------------------------------------
\8\ OCC has separately submitted a request for confidential
treatment to the Commission regarding the Summary of Terms and
Conditions, which OCC has provided in Exhibit 3 to File No. SR-OCC-
2020-804.
---------------------------------------------------------------------------
The conditions regarding the availability of the New Facility,
which OCC anticipates will be satisfied on or about June 23, 2020,
include the execution and delivery of: (i) A credit agreement between
OCC and the administrative agent, collateral agent and various lenders
under the New Facility; (ii) a pledge agreement between OCC and the
administrative agent or collateral agent; and (iii) such other
documents as may be required by the parties. The definitive
documentation concerning the New Facility is expected to be consistent
with the Summary of Terms and Conditions that is provided in
confidential Exhibit 3, although it may include certain changes to
business terms as may be necessary to obtain the agreement of lenders
with sufficient funding commitments and certain changes as may be
necessary regarding administrative and operational terms being
finalized between the parties.
Future Renewals. OCC expects to continue to renew its revolving
credit facility annually on substantially similar terms and conditions
as the New Facility. The terms and conditions of any such future
renewal (each a ``Future Renewal'') would be specified in subsequent
credit agreements among
[[Page 34259]]
OCC, the lenders that are parties thereto, the administrative agent,
and the collateral agent. To provide OCC and market participants with
greater certainty regarding a continuing source of committed liquidity
to meet OCC's settlement obligations, and thus mitigate OCC's liquidity
risk, OCC proposes to be able to enter Future Renewals without an
additional advance notice provided that the terms of the Future Renewal
adhere to certain conditions specified in (a) and (b) and (1) through
(4) below (collectively, ``Evergreen Provisions''). OCC believes these
Evergreen Provisions would be consistent with similar terms regarding
committed credit facility renewals by other registered clearing
agencies, for which the Commission issued a Notice of No Objection.\9\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 80605 (May 5, 2017),
82 FR 21850 (May 10, 2017) (SR-DTC-2017-802; SR-NSCC-2017-802).
---------------------------------------------------------------------------
Evergreen Provisions
OCC does not currently expect to make changes to:
(a) The financial institution acting as lead administrative agent;
or
(b) the commitment period (which would continue to be 364 calendar
days unless changes are necessary to avoid the expiration of the term
falling on a weekend or other day that is not a business day) in
connection with Future Renewals, but OCC would treat any such change in
a Future Renewal as subject to the requirement to file an advance
notice pursuant to Section 806(e)(1) of the Clearing Supervision
Act.\10\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 5465(e)(1).
---------------------------------------------------------------------------
OCC may consider changes to:
(1) The aggregate and potential additional commitment amounts that
it may seek, so long as such amounts considered:
(i) Increase by no more than $500 million in total (whether in the
initial commitment amount, additional commitment amount, or both) above
the amount being sought by OCC under the New Facility, or
(ii) decrease by no more than $500 million below the amount being
sought by OCC under the New Facility, provided that any decrease in the
initial commitment amount is replaced by other qualifying liquid
resources (as defined in Exchange Act Rule 17Ad-22(a)(14)) \11\ of an
equal amount; \12\
---------------------------------------------------------------------------
\11\ 17 CFR 240.17Ad-22(a)(14).
\12\ For example, this may include an increase in OCC's Cash
Clearing Fund Requirement as required under Rule 1002(a) or other
committed liquidity resources for which the Commission has issued a
Notice of No Objection. See, e.g., Securities Exchange Act Release
No. 88317 (March 4, 2020), 85 FR 13681 (March 9, 2020) (SR-OCC-2020-
801).
---------------------------------------------------------------------------
(2) the syndicate so long as all lenders party to future credit
facilities are subject to the same credit review as those lenders that
are party to the New Facility;
(3) pricing and collateral haircuts,\13\ so long as such terms are
consistent with the then current market practice; or
---------------------------------------------------------------------------
\13\ ``Collateral haircuts'' with respect to the collateral for
any borrowing under the credit facility refers to the schedule of
percentages of market value by type of collateral, determining the
collateral value of that type of collateral, for purposes of
securing a borrowing.
---------------------------------------------------------------------------
(4) representations, warranties, covenants, and terms of events of
default,\14\ so long as any modifications are immaterial to OCC as a
borrower and do not impair materially OCC's ability to borrow under the
line of credit consistent with the Evergreen Provisions. OCC would not
consider changes to the Evergreen Provisions within these specified
parameters as materially altering the terms and conditions of the New
Facility or Future Renewals.
---------------------------------------------------------------------------
\14\ ``Events of default'' refers to those events or conditions
which trigger or constitute a default of OCC under the credit
agreement.
---------------------------------------------------------------------------
So long as any Future Renewal adheres to the conditions specified
in the Evergreen Provisions, as described above, OCC would consider
such Future Renewal as being on substantially the same terms and
conditions as the New Facility such that it would not need to be
subject to the requirement to file an advance notice filing pursuant to
Section 806(e)(1) of the Clearing Supervision Act.\15\ In the event
that any annual Future Renewal of the New Facility is not on terms and
conditions that adhere to the Evergreen Provisions, such renewal would
be subject to an advance notice filing pursuant to Section 806(e)(1) of
the Clearing Supervision Act. If OCC determines to address Future
Renewals in such a filing, it would include in that filing the proposed
conditions to the terms of any subsequent renewals that could be done
without an additional advance notice.
---------------------------------------------------------------------------
\15\ 12 U.S.C. 5465(e)(1).
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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. Overall, the
New Facility and Future Renewals would continue to promote the
reduction of risks to OCC, its Clearing Members, and the markets OCC
serves in general because it would allow OCC to obtain short-term funds
in the Permitted Use Circumstances. The existence of the New Facility
and Future Renewals would therefore help OCC minimize losses in the
event of a Permitted Use Circumstance by allowing it to obtain funds 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 New Facility and Future Renewals would correspondingly reduce
systemic risk and promote the safety and soundness of the clearing
system. By drawing on the New Facility or under any Future Renewals,
OCC would also be able to avoid liquidating margin deposits or Clearing
Fund contributions 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.
OCC believes that the proposed change would not otherwise affect or
alter the management of risk at OCC because the New Facility would
generally preserve the same terms and conditions as the Existing
Facility.
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.\16\
Section 805(a)(2) of the Clearing Supervision Act \17\ 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 \18\ states that the objectives
and principles for risk management standards prescribed under Section
805(a) shall be to:
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\16\ 12 U.S.C. 5461(b).
\17\ 12 U.S.C. 5464(a)(2).
\18\ 12 U.S.C. 5464(b).
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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.\19\
[[Page 34260]]
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.\20\ Therefore, the Commission has stated \21\ 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.\22\
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\19\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release
Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-
08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016),
81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered
Clearing Agencies'').
\20\ 17 CFR 240.17Ad-22.
\21\ See supra note 7.
\22\ 12 U.S.C. 5464(b).
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OCC believes that the proposed changes are consistent with Section
805(b)(1) of the Clearing Supervision Act \23\ because the New Facility
and Future Renewals would provide OCC with continued access to a stable
and reliable source of committed liquidity that can be accessed in a
timely manner to meet its settlement obligations, contain losses and
liquidity pressures, and mitigate OCC's liquidity risk. Accordingly,
OCC believes that the proposed changes: (i) Are designed to promote
robust risk management; (ii) are consistent with promoting safety and
soundness; and (iii) are consistent with reducing systemic risks and
promoting the stability of the broader financial system.
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\23\ 12 U.S.C. 5464(b)(1).
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OCC believes that the New Facility and Future Renewals that adhere
to the Evergreen Provisions are also consistent with the requirements
of Rule 17Ad-22(e)(7) under the Act.\24\ 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.\25\ In particular, Rule 17Ad-22(e)(7)(i) under
the Act \26\ 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.'' As described above, the New Facility would provide OCC
with a readily available liquidity resource that would enable it to,
among other things, continue to meet its obligations in a timely
fashion in a Permitted Use Circumstance and as an alternative to
selling Clearing Member collateral under what may be stressed and
volatile market conditions. Additionally, because the Evergreen
Provisions would ensure that any Future Renewals that adhere to those
terms would be substantially similar to the New Facility, such Future
Renewals also would provide OCC with a readily available liquidity
resource that would enable it to, among other things, continue to meet
its obligations in a timely fashion in a Permitted Use Circumstance,
thereby helping to contain losses and liquidity pressures. Allowing OCC
to enter Future Renewals pursuant to the Evergreen Provisions without
filing an additional advance notice would also reduce the risk of gaps
in liquidity coverage and better allow OCC to continually maintain
sufficient liquidity resources. For these reasons, OCC believes that
the proposal is consistent with Rule 17Ad-22(e)(7)(i).\27\
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\24\ 17 CFR 240.17Ad-22(e)(7).
\25\ Id.
\26\ 17 CFR 240.17Ad-22(e)(7)(i).
\27\ Id.
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Rule 17Ad-22(e)(7)(ii) under the 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.\28\ Rule 17Ad-
22(a)(14) 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.\29\
As with the Existing Facility, the New 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.
Similarly, because the Evergreen Provisions would ensure that any
Future Renewals that adhere to them would be substantially similar to
the New Facility, such Future Renewals also would permit OCC to enter
into a future credit facility designed 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).\30\
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\28\ 17 CFR 240.17Ad-22(e)(7)(ii).
\29\ 17 CFR 240.17Ad-22(a)(14).
\30\ 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
\31\ and Rule 17Ad-22(e)(7) \32\ under the Act.
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\31\ 12 U.S.C. 5464(b)(1).
\32\ 17 CFR 240.17Ad-22(e)(7).
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Accelerated Commission Action Requested
Pursuant to Section 806(e)(1)(I) of the Clearing Supervision
Act,\33\ OCC requests that the Commission notify OCC that it has no
objection to the New Facility not later than Friday, June 19, 2020,
which shall be two business days prior to the expected June 23, 2020,
availability of the New Facility. OCC requests Commission action by
this date to ensure that there is no period that OCC operates without
this essential liquidity resource, given its importance to OCC's
borrowing capacity in connection with its management of liquidity and
settlement risk and timely completion of clearance and settlement.
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\33\ 12 U.S.C. 5465(e)(1)(I).
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III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action
The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date the proposed change was filed with the Commission or (ii) the date
any additional information requested by the Commission is received. OCC
shall not implement the proposed change if the Commission has any
objection to the proposed change.
The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an
[[Page 34261]]
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-2020-804 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-2020-804. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the advance notice that are filed with the
Commission, and all written communications relating to the advance
notice between the Commission and any person, other than those that may
be withheld from the public in accordance with the provisions of 5
U.S.C. 552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of 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-2020-804 and
should be submitted on or before June 18, 2020.
V. Commission Findings and Notice of No Objection
Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, its stated purpose is instructive: 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.\34\ Section 805(a)(2) of the Clearing Supervision Act
authorizes the Commission to prescribe risk management standards for
the payment, clearing, and settlement activities of designated clearing
entities and financial institutions engaged in designated activities
for which it is the supervisory agency or the appropriate financial
regulator.\35\ Section 805(b) of the Clearing Supervision Act \36\
states that the objectives and principles for the risk management
standards prescribed under Section 805(a) shall be to:
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\34\ 12 U.S.C. 5461(b).
\35\ 12 U.S.C. 5464(a)(2).
\36\ 12 U.S.C. 5464(b).
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Promote robust risk management;
promote safety and soundness;
reduce systemic risks; and
support the stability of the broader financial system.\37\
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\37\ Id.
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The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act \38\ and Section 17A of the
Exchange Act (``Rule 17Ad-22'').\39\ Rule 17Ad-22 requires registered
clearing agencies 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.\40\ Therefore, it is appropriate for the
Commission to review changes proposed in advance notices against Rule
17Ad-22 and the objectives and principles of the risk management
standards described in Section 805(b) of the Clearing Supervision
Act.\41\ As discussed below, the Commission believes that the proposal
in the Advance Notice is consistent with the objectives and principles
described in Section 805(b) of the Clearing Supervision Act,\42\ and in
Rule 17Ad-22 under the Exchange Act, particularly Rule 17Ad-
22(e)(7).\43\
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\38\ 12 U.S.C. 5464(a)(2).
\39\ See 17 CFR 240.17Ad-22.
\40\ Id.
\41\ 12 U.S.C. 5464(b).
\42\ Id.
\43\ See 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 805(b) of the Clearing Supervision Act
The Commission believes that the proposal contained in OCC's
Advance Notice is consistent with the stated objectives and principles
of Section 805(b) of the Clearing Supervision Act. Specifically, as
discussed below, the Commission believes that the changes proposed in
the Advance Notice are consistent with promoting robust risk
management, including in the area of liquidity risk, promoting safety
and soundness, reducing systemic risks, and supporting the stability of
the broader financial system.\44\
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\44\ 12 U.S.C. 5464(b).
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The Commission believes that the changes proposed in the Advance
Notice are consistent with promoting robust risk management, in
particular management of liquidity risk presented to OCC. Renewing and
maintaining a credit facility for this purpose and in the manner
proposed by OCC would provide OCC with continued access to a stable and
reliable source of committed liquidity that can be accessed in a timely
manner to meet its settlement obligations, contain losses and liquidity
pressures, and mitigate OCC's liquidity risk, while also helping to
maintain the current diversity of liquidity resources that OCC may use
to resolve a Clearing Member default.\45\ Additionally, allowing OCC
annually to renew the credit facility under certain specified
circumstances without an additional advance notice and subject to the
Evergreen Provisions described above would facilitate OCC's ability to
secure a continuing source of committed liquidity to meet its
settlement obligations. Further, because the Evergreen Provisions would
ensure that any such annual renewals would be substantially similar to
the currently proposed credit facility, the Commission believes that
any such renewals would promote robust risk management by diversifying
the liquidity resources that OCC may use to resolve a Clearing Member
default in the same manner as the currently proposed credit facility.
As such, the Commission believes that the proposal would
[[Page 34262]]
promote robust risk management practices at OCC, consistent with
Section 805(b) of the Clearing Supervision Act.\46\
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\45\ OCC also maintains a minimum amount of cash in its Clearing
Fund as well as a non-bank liquidity facility. See Securities
Exchange Act Release No. 82501 (Jan. 12, 2018), 83 FR 2843 (Jan. 19,
2018) (File No. SR-OCC-2017-808) and Securities Exchange Act Release
No. 76821 (Jan. 4, 2016), 81 FR 3208 (Jan. 20, 2016) (File No. SR-
OCC-2015-805), respectively.
\46\ 12 U.S.C. 5464(b).
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The Commission also believes that the changes proposed in the
Advance Notice are consistent with promoting safety and soundness. As
described above, the New Facility would maintain OCC's access to a
significant liquidity resource in the event of a Clearing Member
default. The Evergreen Provisions would preserve access to this
resource by ensuring that any annual renewals implemented without
filing an advance notice would be substantially similar to the
currently proposed credit facility, the Commission believes that any
such annual renewals can be expected to promote safety and soundness
for the same reasons. Further, by ensuring the continuity and
consistency of any subsequent renewals, the Advance Notice would
support OCC's continued access to a readily available liquidity
resource that could enable OCC to continue to meet its obligations to
Clearing Members in a timely fashion in the event of a Clearing Member
default, thereby helping to contain losses and liquidity pressures from
that default. As such, the Commission believes it is consistent with
promoting safety and soundness as contemplated in Section 805(b) of the
Clearing Supervision Act.\47\
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\47\ Id.
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In addition, the Commission believes that the changes proposed in
the Advance Notice are consistent with reducing systemic risks and
promoting the stability of the broader financial system. As mentioned
above, allowing OCC to enter into the New Facility would enable OCC,
which has been designated a systemically important FMU,\48\ to maintain
an additional liquidity resource that OCC may access to help manage a
Clearing Member default. In addition, as noted above, because the
Evergreen Provisions would ensure that any annual renewals entered into
without filing an advance notice would be on substantially similar
terms to the currently proposed credit facility, such future renewals
also would enable OCC to maintain an additional liquidity resource that
OCC may access to help manage a Clearing Member default. Moreover,
allowing the annual renewal of the credit facility under the proposed
Evergreen Provisions without filing an additional advance notice would
facilitate the continued availability of this liquidity resource. These
provisions would provide heightened certainty and stability for OCC and
market participants that OCC would be able to maintain access to
liquidity resources to help manage a Clearing Member default and would
have flexibility to increase the size of its liquidity resources in
response to market developments. Accordingly, the Commission believes
that the proposal would help to reduce the systemic risk of OCC, which
in turn would help to support the stability of the broader financial
system, consistent with Section 805(b) of the Clearing Supervision
Act.\49\
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\48\ The Financial Stability Oversight Council designated OCC a
systemically important financial market utility on July 18, 2012.
See Financial Stability Oversight Council 2012 Annual Report,
Appendix A, https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
\49\ Id.
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Accordingly, and for the reasons stated above, the Commission
believes the changes proposed in the Advance Notice are consistent with
Section 805(b) of the Clearing Supervision Act.\50\
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\50\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(7) Under the Exchange Act
Rule 17Ad-22(e)(7)(ii) requires, in part, 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 by, at a minimum,
holding qualifying liquid resources sufficient to meet the minimum
liquidity resource requirement under Rule 17Ad-22(e)(7)(i) \51\ in each
relevant currency for which the covered clearing agency has payment
obligations owed to Clearing Members.\52\ 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.\53\
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\51\ Rule 17Ad-22(e)(7)(i) 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 by, at a minimum,
maintaining 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 of obligation for the covered clearing
agency in extreme but plausible conditions. 17 CFR 240.17Ad-
22(e)(7)(i).
\52\ 17 CFR 240.17Ad-22(e)(7)(ii).
\53\ 17 CFR 240.17Ad-22(a)(14).
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As described above, the implementation of the New Facility would
provide OCC with continued access to a $2 billion revolving credit
facility on substantially similar terms to the Existing Facility. As
the Commission noted previously, the Existing Facility provides OCC
with access to a single credit facility designed to help ensure that
OCC has sufficient, readily available qualifying liquid resources to
meet the cash settlement obligations of its largest family of
affiliated members.\54\ Implementation of the New Facility on
substantially similar terms to the Existing Facility would ensure that
OCC maintains continued access to such a credit facility. Because the
Evergreen Provisions would ensure that any annual renewals also would
be substantially similar to both the Existing Facility and the New
Facility, the provisions would help ensure that OCC has sufficient,
readily-available qualifying liquid resources to meet the cash
settlement obligations of its largest family of affiliated members.
Therefore, the Commission believes that the proposal is consistent with
Rule 17Ad-22(e)(7)(ii).
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\54\ Securities Exchange Act Release No. 83529 (Jun. 27, 2018),
83 FR 31237, 31241 (Jul. 3, 2018) (SR-OCC-2018-802).
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VI. Conclusion
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to the
Advance Notice SR-OCC-2020-804 and OCC can and hereby is authorized to
implement the change as of the date of this notice.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11917 Filed 6-2-20; 8:45 am]
BILLING CODE 8011-01-P
