Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make Administrative Updates to The Options Clearing Corporation's Risk Management Policies, 36442-36444 [2020-12893]
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36442
Federal Register / Vol. 85, No. 116 / Tuesday, June 16, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–12904 Filed 6–15–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89037; File No. SR–OCC–
2020–006]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Make
Administrative Updates to The Options
Clearing Corporation’s Risk
Management Policies
June 10, 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 27,
2020, the Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by OCC. OCC filed
the proposed rule change pursuant to
Section 19(b)(3)(A)(iii) 3 of the Act and
Rule 19b–4(f)(6) 4 thereunder so that the
proposal was effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
lotter on DSK30NT082PROD with NOTICES
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change by OCC
would make conforming edits to the
following policies: OCC’s Risk
Management Framework Policy, OCC’s
Default Management Policy and OCC’s
Clearing Fund Methodology Policy. In
each case, the conforming edits would
ensure that descriptions of OCC’s
process for replenishing operating
capital and OCC’s waterfall of default
resources are aligned with changes that
took effect with the approval of OCC’s
Capital Management Policy.5 Further
conforming edits to the Risk
Management Framework Policy would
establish that the Capital Management
Policy must detail the principles used to
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
5 Exchange Act Release No. 88029 (Jan. 24, 2020),
85 FR 5500 (Jan. 30, 2020) (SR–OCC–2019–007).
1 15
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18:13 Jun 15, 2020
Jkt 250001
determine, monitor, and measure OCC’s
capital levels such that OCC maintains
liquid net assets funded by equity
(‘‘LNAFBE’’) consistent with the
requirements of Rule 17Ad–22(e)(15),6
aligned with the current Capital
Management Policy.7 The proposed rule
change would also add one footnote to
the Clearing Fund Methodology Policy,
which would simply clarify that the
Capital Management Policy’s changes to
OCC’s waterfall of default resources
would not change OCC’s definition of
‘‘pre-funded financial resources,’’ as
used for purposes of the calculating
OCC’s Clearing Fund.
The Risk Management Framework
Policy, Default Management Policy and
Clearing Fund Methodology Policy are
included as confidential Exhibits 5A, 5B
and 5C, respectively. Material proposed
to be added is marked by underlining
and material proposed to be deleted is
marked by strikethrough text. The
proposed rule change is available on
OCC’s website at https://
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.8
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
Background
On February 13, 2019, the
Commission disapproved OCC’s Capital
Plan.9 The Capital Plan had provided
for OCC’s operating capital structure
and had included a contingency for
replenishing OCC’s operating capital, if
necessary, by raising additional capital
from the options exchanges that have
6 17
CFR 240.17Ad–22(e)(15).
supra note 5.
8 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://optionsclearing.com/
about/publications/bylaws.jsp.
9 Exchange Act Release No. 85121 (Feb. 13, 2019),
84 FR 5157 (Feb. 20, 2019) (SR–OCC–2015–02).
7 See
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
equity ownership interests in OCC.10 As
a result of the disapproval of the Capital
Plan, OCC subsequently proposed its
‘‘Capital Management Policy,’’ which
proposed a new operating capital
structure, a new process for
replenishing OCC’s operating capital
and certain changes to OCC’s ‘‘default
waterfall’’ (i.e., the resources available
to OCC in the event of a Clearing
Member’s suspension).11 On January 24,
2020, the Commission approved OCC’s
Capital Management Policy.12
OCC’s Risk Management Framework
Policy, Default Management Policy and
Clearing Fund Methodology Policy each
include discrete references to aspects of
the disapproved Capital Plan or to
OCC’s default waterfall prior to the
changes implemented by the Capital
Management Policy. Specifically, OCC’s
Risk Management Framework Policy
contains a paragraph summarizing the
disapproved Capital Plan and its
appendix includes two references to the
disapproved Capital Plan. OCC’s Default
Management Policy includes a summary
of the default waterfall predating the
approval of the Capital Management
Policy and a list of OCC’s ‘‘Recovery
Tools’’ for default scenarios, which
includes Replenishment Capital. OCC’s
Clearing Fund Methodology Policy
contains two paragraphs that summarize
OCC’s default waterfall as it existed
prior to the approval of the Capital
Management Policy. Each of these nowoutdated references needs to be revised
to conform to the changes implemented
by the Capital Management Policy.
Proposed Changes
Proposed Changes to the Risk
Management Framework Policy
OCC’s Risk Management Framework
Policy includes a paragraph
summarizing the disapproved Capital
Plan and its appendix includes two
references to the disapproved Capital
Plan. Accordingly, the disapproval of
the Capital Plan and adoption of the
Capital Management Policy requires that
conforming changes be made to OCC’s
Risk Management Framework Policy.
The proposed rule change would
effectively replace in its entirety a short
paragraph that summarizes the
disapproved Capital Plan with a short
paragraph summarizing the Capital
Management Policy. Specifically, the
10 Exchange Act Release No. 74452 (Mar. 6, 2015),
80 FR 13058 (Mar. 12, 2015) (SR–OCC–2015–02).
The contingency in the Capital Plan for
replenishing OCC’s operating capital was referred to
as ‘‘Replenishment Capital.’’
11 Exchange Act Release No. 86725 (Aug. 21,
2019), 84 FR 44944 (Aug. 27, 2019) (SR–OCC–2019–
007).
12 See supra note 5.
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Federal Register / Vol. 85, No. 116 / Tuesday, June 16, 2020 / Notices
revised paragraph would require that
OCC maintain a Capital Management
Policy that details the principles used to
determine, monitor, and manage OCC’s
capital levels such that OCC maintains
sufficient LNAFBE in a manner
consistent with the requirements of Rule
17Ad–22(e)(15).13 The proposed rule
change also would amend the appendix
of the Risk Management Framework
Policy to replace two references to the
Capital Plan with references to the
Capital Management Policy.
lotter on DSK30NT082PROD with NOTICES
Proposed Changes to the Default
Management Policy
OCC’s Default Management Policy
includes a summary of the default
waterfall and a list of OCC’s ‘‘Recovery
Tools,’’ each of which predates the
approval of the Capital Management
Policy. Accordingly, the
implementation of the Capital
Management Policy requires conforming
changes to OCC’s Default Management
Policy. The proposed rule change would
revise a list in the Default Management
Policy that summarizes the default
waterfall. As revised, the list would: (1)
Include a summary description—
immediately following the use of
margin, deposits in lieu of margin and
the Clearing Fund deposits of the
suspended Clearing Member—of OCC’s
use of current and retained earnings
greater than 110% of OCC’s annuallyestablished Target Capital Requirement,
as implemented by the Capital
Management Policy, and (2) describe the
contribution of unvested portions of
OCC’s EDCP, in proportion to any
charges against the mutualized portion
of OCC’s Clearing Fund, as
implemented by the Capital
Management Policy.
Also, the proposed rule change would
revise a list in the Default Management
Policy that summarizes OCC’s Recovery
Tools. As revised, the list would delete
the use of OCC’s current and/or retained
earnings from the list of OCC’s Recovery
Tools. As implemented by the Capital
Management Policy, OCC’s current and
retained earnings greater than 110% of
OCC’s annually-established Target
Capital Requirement would be
mandatorily contributed in advance of
any charges against the mutualized
portion of OCC’s Clearing Fund, and
thusly, would not be available as a
recovery tool for the purpose of
managing a Clearing Member default
after OCC charges a loss to the Clearing
Fund.
13 17
CFR 240.17Ad–22(e)(15).
VerDate Sep<11>2014
18:13 Jun 15, 2020
Proposed Changes to the Clearing Fund
Methodology Policy
The Clearing Fund Methodology
Policy contains two paragraphs
summarizing the process for levying
charges against OCC’s Clearing Fund
and for Clearing Member’s to replenish
OCC’s Clearing Fund, as each process
existed prior to the implementation of
the Capital Management Policy.
Accordingly, the adoption of the Capital
Management Policy requires conforming
changes to OCC’s Clearing Fund
Methodology Policy. As revised, the
first paragraph would describe OCC’s
use of current and retained earnings
greater than 110% of OCC’s annuallyestablished Target Capital Requirement
before OCC levies charges against its
Clearing Fund, as implemented by the
Capital Management Policy (this
paragraph would continue to
immediately follow a reference to the
use of the margin and Clearing Fund
deposits of the suspended Clearing
Member). The second paragraph would
be revised to describe the contribution
of unvested portions of OCC’s EDCP, in
proportion to any charges against the
mutualized portion of OCC’s Clearing
Fund, as implemented by the Capital
Management Policy.
In addition to the foregoing revisions,
the proposed rule change also would
add a footnote making clear that OCC
does not consider assessment powers,
available current and retained earnings
exceeding 110% of the Target Capital
Requirement or available unvested
portions of OCC’s EDCP to be ‘‘prefunded financial resources’’ for
purposes of sizing or measuring the
sufficiency of the Clearing Fund. This
change would simply clarify that the
Capital Management Policy’s changes to
OCC’s waterfall of default resources
would not change OCC’s definition of
‘‘pre-funded financial resources,’’ as
used for purposes of the calculating
OCC’s Clearing Fund.
(2) Statutory Basis
OCC believes that the proposed rule
change is consistent with Section
17A(b)(3)(F) of the Act 14 because the
proposed change to update OCC’s Risk
Management Framework Policy, Default
Management Policy and Clearing Fund
Methodology Policy ultimately would
protect investors and the public interest.
OCC’s Risk Management Framework
Policy is designed to enable OCC to
identify, measure, monitor and manage
the range of risks that arise in or are
borne by OCC. OCC’s Default
Management Policy is designed to
14 15
Jkt 250001
PO 00000
U.S.C. 78q–1(b)(3)(F).
Frm 00071
Fmt 4703
Sfmt 4703
36443
facilitate OCC’s authority and
operational capacity to take timely
action to contain losses arising from the
suspension of a Clearing Member. OCC’s
Clearing Fund Methodology Policy is
designed to summarize the manner by
which OCC determines the level of
Clearing Fund resources to cover a wide
range of foreseeable stress scenarios.
OCC believes that making conforming
edits to the Risk Management
Framework Policy, Default Management
Policy and Clearing Fund Methodology
Policy would improve the possibility of
OCC effectively addressing a variety of
potential risks. In turn, OCC believes
this would improve its ability to
ultimately maintain market and public
confidence during a time of
unprecedented stress. In this regard,
OCC believes the proposed rule change
ultimately would protect investors and
the public interest in a manner
consistent with Section 17A(b)(3)(F) of
the Act.15
OCC also believes that the proposed
rule change is consistent with Rules
17Ad–22(e)(3)(i) 16 and 17Ad–
22(e)(13).17 The proposed conforming
edits to the Risk Management
Framework Policy would improve the
accuracy of the policy’s descriptions of
OCC’s capital structure and replace
outdated references to the Capital Plan.
Each of these conforming changes
would improve the accuracy of OCC’s
Risk Management Framework Policy. In
this regard, OCC believes its proposed
rule change is consistent with Rule
17Ad–22(e)(3)(i).18 Similarly, proposed
conforming edits to the Default
Management Policy would improve the
accuracy of the policy’s descriptions of
OCC’s default waterfall and recovery
tools. The improved accuracy of the
Default Management Policy would
facilitate OCC’s operational capacity to
take timely action to contain losses
arising from the suspension of a
Clearing Member. In this regard, OCC
believes its proposed rule change is
consistent with Rule 17Ad–22(e)(13).19
OCC also believes that the proposed
rule change is consistent with Rule
17Ad–22(e)(4).20 The proposed
conforming edits to the Clearing Fund
Methodology Policy would improve the
accuracy of the policy’s descriptions of
OCC’s default waterfall and would
clarify the resources that would be
counted as ‘‘pre-funded financial
resources’’ in determining the sizing
15 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(3)(i).
17 17 CFR 240.17Ad–22(e)(13).
18 17 CFR 240.17Ad–22(e)(3)(i).
19 17 CFR 240.17Ad–22(e)(13).
20 17 CFR 240.17Ad–22(e)(4).
16 17
E:\FR\FM\16JNN1.SGM
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36444
Federal Register / Vol. 85, No. 116 / Tuesday, June 16, 2020 / Notices
and sufficiency of OCC’s Clearing Fund.
Together, the improved accuracy and
clarification of these proposed
conforming edits would facilitate OCC’s
ability to, among other things,
effectively manage its credit exposures
to participants. In this regard, OCC
believes its proposed rule change is
consistent with Rule 17Ad–22(e)(4).21
The proposed rule change is not
inconsistent with the existing rules of
OCC, including any other rules
proposed to be amended.
lotter on DSK30NT082PROD with NOTICES
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 22
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC does not
believe that the proposed rule change
would impact or impose any burden on
competition.23 The proposed rule
change would update OCC’s Risk
Management Framework Policy, Default
Management Policy and Clearing Fund
Methodology Policy. The proposed
changes to the Risk Management
Framework Policy, Default Management
Policy and Clearing Fund Methodology
Policy would simply recognize the
disapproval of OCC’s Capital Plan and
its subsequent replacement with the
adopted Capital Management Policy,
and in the case of the Clearing Fund
Methodology Policy, add a clarifying
footnote. None of the proposed updates
to the Risk Management Framework
Policy, Default Management Policy or
Clearing Fund Methodology Policy
would affect Clearing Members’ access
to OCC’s services or impose any direct
burdens on clearing members.
Accordingly, the proposed rule change
would not unfairly inhibit access to
OCC’s services or disadvantage or favor
any particular user in relationship to
another user.
For the foregoing reasons, OCC
believes that the proposed rule change
is in the public interest, would be
consistent with the requirements of the
Act applicable to clearing agencies, and
would not impact or impose a burden
on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments on the proposed
rule change were not and are not
intended to be solicited with respect to
the proposed rule change and none have
been received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(iii) of
the Act, 24 and Rule 19b–4(f)(6) 25
thereunder, the proposed rule change is
filed for immediate effectiveness
because it does not: (i) Significantly
affect the protection of investors or the
public interest; (ii) impose any
significant burden on competition; and
(iii) by its terms would not become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate.
Additionally, OCC provided the
Commission with written notice of its
intent to file the proposed rule change,
along with a brief description and text
of the proposed rule change, at least five
business days prior to the date of filing
of the proposed rule change or such
shorter time as designated by the
Commission.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
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–2020–006 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–OCC–2020–006. 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
21 Id.
22 15
U.S.C. 78q–1(b)(3)(I).
24 15
23 Id.
VerDate Sep<11>2014
25 17
18:13 Jun 15, 2020
Jkt 250001
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s website at
https://www.theocc.com/about/
publications/bylaws.jsp.
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–2020–006 and should
be submitted on or before July 7, 2020.
PO 00000
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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[FR Doc. 2020–12893 Filed 6–15–20; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–89039; File No. SR–OCC–
2020–803]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of No Objection To Advance Notice
Related to Changes to the Options
Clearing Corporation’s Non-Bank Repo
Facility Program as Part of Its Overall
Liquidity Plan
June 10, 2020.
I. Introduction
On April 15, 2020, the Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–OCC–2020–803 (‘‘Advance
Notice’’) pursuant to Section 806(e)(1) of
26 17
E:\FR\FM\16JNN1.SGM
CFR 200.30–3(a)(12).
16JNN1
]]>Agencies
[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36442-36444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12893]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89037; File No. SR-OCC-2020-006]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Make Administrative Updates to The Options Clearing Corporation's Risk
Management Policies
June 10, 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 27, 2020, the Options Clearing Corporation (``OCC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by OCC. OCC filed the proposed rule change pursuant
to Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 19b-4(f)(6) \4\
thereunder so that the proposal was effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change by OCC would make conforming edits to the
following policies: OCC's Risk Management Framework Policy, OCC's
Default Management Policy and OCC's Clearing Fund Methodology Policy.
In each case, the conforming edits would ensure that descriptions of
OCC's process for replenishing operating capital and OCC's waterfall of
default resources are aligned with changes that took effect with the
approval of OCC's Capital Management Policy.\5\ Further conforming
edits to the Risk Management Framework Policy would establish that the
Capital Management Policy must detail the principles used to determine,
monitor, and measure OCC's capital levels such that OCC maintains
liquid net assets funded by equity (``LNAFBE'') consistent with the
requirements of Rule 17Ad-22(e)(15),\6\ aligned with the current
Capital Management Policy.\7\ The proposed rule change would also add
one footnote to the Clearing Fund Methodology Policy, which would
simply clarify that the Capital Management Policy's changes to OCC's
waterfall of default resources would not change OCC's definition of
``pre-funded financial resources,'' as used for purposes of the
calculating OCC's Clearing Fund.
---------------------------------------------------------------------------
\5\ Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500
(Jan. 30, 2020) (SR-OCC-2019-007).
\6\ 17 CFR 240.17Ad-22(e)(15).
\7\ See supra note 5.
---------------------------------------------------------------------------
The Risk Management Framework Policy, Default Management Policy and
Clearing Fund Methodology Policy are included as confidential Exhibits
5A, 5B and 5C, respectively. Material proposed to be added is marked by
underlining and material proposed to be deleted is marked by
strikethrough text. The proposed rule change is available on OCC's
website at https://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.\8\
---------------------------------------------------------------------------
\8\ 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 Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
Background
On February 13, 2019, the Commission disapproved OCC's Capital
Plan.\9\ The Capital Plan had provided for OCC's operating capital
structure and had included a contingency for replenishing OCC's
operating capital, if necessary, by raising additional capital from the
options exchanges that have equity ownership interests in OCC.\10\ As a
result of the disapproval of the Capital Plan, OCC subsequently
proposed its ``Capital Management Policy,'' which proposed a new
operating capital structure, a new process for replenishing OCC's
operating capital and certain changes to OCC's ``default waterfall''
(i.e., the resources available to OCC in the event of a Clearing
Member's suspension).\11\ On January 24, 2020, the Commission approved
OCC's Capital Management Policy.\12\
---------------------------------------------------------------------------
\9\ Exchange Act Release No. 85121 (Feb. 13, 2019), 84 FR 5157
(Feb. 20, 2019) (SR-OCC-2015-02).
\10\ Exchange Act Release No. 74452 (Mar. 6, 2015), 80 FR 13058
(Mar. 12, 2015) (SR-OCC-2015-02). The contingency in the Capital
Plan for replenishing OCC's operating capital was referred to as
``Replenishment Capital.''
\11\ Exchange Act Release No. 86725 (Aug. 21, 2019), 84 FR 44944
(Aug. 27, 2019) (SR-OCC-2019-007).
\12\ See supra note 5.
---------------------------------------------------------------------------
OCC's Risk Management Framework Policy, Default Management Policy
and Clearing Fund Methodology Policy each include discrete references
to aspects of the disapproved Capital Plan or to OCC's default
waterfall prior to the changes implemented by the Capital Management
Policy. Specifically, OCC's Risk Management Framework Policy contains a
paragraph summarizing the disapproved Capital Plan and its appendix
includes two references to the disapproved Capital Plan. OCC's Default
Management Policy includes a summary of the default waterfall predating
the approval of the Capital Management Policy and a list of OCC's
``Recovery Tools'' for default scenarios, which includes Replenishment
Capital. OCC's Clearing Fund Methodology Policy contains two paragraphs
that summarize OCC's default waterfall as it existed prior to the
approval of the Capital Management Policy. Each of these now-outdated
references needs to be revised to conform to the changes implemented by
the Capital Management Policy.
Proposed Changes
Proposed Changes to the Risk Management Framework Policy
OCC's Risk Management Framework Policy includes a paragraph
summarizing the disapproved Capital Plan and its appendix includes two
references to the disapproved Capital Plan. Accordingly, the
disapproval of the Capital Plan and adoption of the Capital Management
Policy requires that conforming changes be made to OCC's Risk
Management Framework Policy. The proposed rule change would effectively
replace in its entirety a short paragraph that summarizes the
disapproved Capital Plan with a short paragraph summarizing the Capital
Management Policy. Specifically, the
[[Page 36443]]
revised paragraph would require that OCC maintain a Capital Management
Policy that details the principles used to determine, monitor, and
manage OCC's capital levels such that OCC maintains sufficient LNAFBE
in a manner consistent with the requirements of Rule 17Ad-
22(e)(15).\13\ The proposed rule change also would amend the appendix
of the Risk Management Framework Policy to replace two references to
the Capital Plan with references to the Capital Management Policy.
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\13\ 17 CFR 240.17Ad-22(e)(15).
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Proposed Changes to the Default Management Policy
OCC's Default Management Policy includes a summary of the default
waterfall and a list of OCC's ``Recovery Tools,'' each of which
predates the approval of the Capital Management Policy. Accordingly,
the implementation of the Capital Management Policy requires conforming
changes to OCC's Default Management Policy. The proposed rule change
would revise a list in the Default Management Policy that summarizes
the default waterfall. As revised, the list would: (1) Include a
summary description--immediately following the use of margin, deposits
in lieu of margin and the Clearing Fund deposits of the suspended
Clearing Member--of OCC's use of current and retained earnings greater
than 110% of OCC's annually-established Target Capital Requirement, as
implemented by the Capital Management Policy, and (2) describe the
contribution of unvested portions of OCC's EDCP, in proportion to any
charges against the mutualized portion of OCC's Clearing Fund, as
implemented by the Capital Management Policy.
Also, the proposed rule change would revise a list in the Default
Management Policy that summarizes OCC's Recovery Tools. As revised, the
list would delete the use of OCC's current and/or retained earnings
from the list of OCC's Recovery Tools. As implemented by the Capital
Management Policy, OCC's current and retained earnings greater than
110% of OCC's annually-established Target Capital Requirement would be
mandatorily contributed in advance of any charges against the
mutualized portion of OCC's Clearing Fund, and thusly, would not be
available as a recovery tool for the purpose of managing a Clearing
Member default after OCC charges a loss to the Clearing Fund.
Proposed Changes to the Clearing Fund Methodology Policy
The Clearing Fund Methodology Policy contains two paragraphs
summarizing the process for levying charges against OCC's Clearing Fund
and for Clearing Member's to replenish OCC's Clearing Fund, as each
process existed prior to the implementation of the Capital Management
Policy. Accordingly, the adoption of the Capital Management Policy
requires conforming changes to OCC's Clearing Fund Methodology Policy.
As revised, the first paragraph would describe OCC's use of current and
retained earnings greater than 110% of OCC's annually-established
Target Capital Requirement before OCC levies charges against its
Clearing Fund, as implemented by the Capital Management Policy (this
paragraph would continue to immediately follow a reference to the use
of the margin and Clearing Fund deposits of the suspended Clearing
Member). The second paragraph would be revised to describe the
contribution of unvested portions of OCC's EDCP, in proportion to any
charges against the mutualized portion of OCC's Clearing Fund, as
implemented by the Capital Management Policy.
In addition to the foregoing revisions, the proposed rule change
also would add a footnote making clear that OCC does not consider
assessment powers, available current and retained earnings exceeding
110% of the Target Capital Requirement or available unvested portions
of OCC's EDCP to be ``pre-funded financial resources'' for purposes of
sizing or measuring the sufficiency of the Clearing Fund. This change
would simply clarify that the Capital Management Policy's changes to
OCC's waterfall of default resources would not change OCC's definition
of ``pre-funded financial resources,'' as used for purposes of the
calculating OCC's Clearing Fund.
(2) Statutory Basis
OCC believes that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \14\ because the proposed change to
update OCC's Risk Management Framework Policy, Default Management
Policy and Clearing Fund Methodology Policy ultimately would protect
investors and the public interest. OCC's Risk Management Framework
Policy is designed to enable OCC to identify, measure, monitor and
manage the range of risks that arise in or are borne by OCC. OCC's
Default Management Policy is designed to facilitate OCC's authority and
operational capacity to take timely action to contain losses arising
from the suspension of a Clearing Member. OCC's Clearing Fund
Methodology Policy is designed to summarize the manner by which OCC
determines the level of Clearing Fund resources to cover a wide range
of foreseeable stress scenarios. OCC believes that making conforming
edits to the Risk Management Framework Policy, Default Management
Policy and Clearing Fund Methodology Policy would improve the
possibility of OCC effectively addressing a variety of potential risks.
In turn, OCC believes this would improve its ability to ultimately
maintain market and public confidence during a time of unprecedented
stress. In this regard, OCC believes the proposed rule change
ultimately would protect investors and the public interest in a manner
consistent with Section 17A(b)(3)(F) of the Act.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 15 U.S.C. 78q-1(b)(3)(F).
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OCC also believes that the proposed rule change is consistent with
Rules 17Ad-22(e)(3)(i) \16\ and 17Ad-22(e)(13).\17\ The proposed
conforming edits to the Risk Management Framework Policy would improve
the accuracy of the policy's descriptions of OCC's capital structure
and replace outdated references to the Capital Plan. Each of these
conforming changes would improve the accuracy of OCC's Risk Management
Framework Policy. In this regard, OCC believes its proposed rule change
is consistent with Rule 17Ad-22(e)(3)(i).\18\ Similarly, proposed
conforming edits to the Default Management Policy would improve the
accuracy of the policy's descriptions of OCC's default waterfall and
recovery tools. The improved accuracy of the Default Management Policy
would facilitate OCC's operational capacity to take timely action to
contain losses arising from the suspension of a Clearing Member. In
this regard, OCC believes its proposed rule change is consistent with
Rule 17Ad-22(e)(13).\19\
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\16\ 17 CFR 240.17Ad-22(e)(3)(i).
\17\ 17 CFR 240.17Ad-22(e)(13).
\18\ 17 CFR 240.17Ad-22(e)(3)(i).
\19\ 17 CFR 240.17Ad-22(e)(13).
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OCC also believes that the proposed rule change is consistent with
Rule 17Ad-22(e)(4).\20\ The proposed conforming edits to the Clearing
Fund Methodology Policy would improve the accuracy of the policy's
descriptions of OCC's default waterfall and would clarify the resources
that would be counted as ``pre-funded financial resources'' in
determining the sizing
[[Page 36444]]
and sufficiency of OCC's Clearing Fund. Together, the improved accuracy
and clarification of these proposed conforming edits would facilitate
OCC's ability to, among other things, effectively manage its credit
exposures to participants. In this regard, OCC believes its proposed
rule change is consistent with Rule 17Ad-22(e)(4).\21\
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\20\ 17 CFR 240.17Ad-22(e)(4).
\21\ Id.
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The proposed rule change is not inconsistent with the existing
rules of OCC, including any other rules proposed to be amended.
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \22\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would impact or impose any burden
on competition.\23\ The proposed rule change would update OCC's Risk
Management Framework Policy, Default Management Policy and Clearing
Fund Methodology Policy. The proposed changes to the Risk Management
Framework Policy, Default Management Policy and Clearing Fund
Methodology Policy would simply recognize the disapproval of OCC's
Capital Plan and its subsequent replacement with the adopted Capital
Management Policy, and in the case of the Clearing Fund Methodology
Policy, add a clarifying footnote. None of the proposed updates to the
Risk Management Framework Policy, Default Management Policy or Clearing
Fund Methodology Policy would affect Clearing Members' access to OCC's
services or impose any direct burdens on clearing members. Accordingly,
the proposed rule change would not unfairly inhibit access to OCC's
services or disadvantage or favor any particular user in relationship
to another user.
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\22\ 15 U.S.C. 78q-1(b)(3)(I).
\23\ Id.
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For the foregoing reasons, OCC believes that the proposed rule
change is in the public interest, would be consistent with the
requirements of the Act applicable to clearing agencies, and would not
impact or impose a burden on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(iii) of the Act, \24\ and Rule 19b-
4(f)(6) \25\ thereunder, the proposed rule change is filed for
immediate effectiveness because it does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) by its terms would not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate. Additionally, OCC
provided the Commission with written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change or such shorter time as designated
by the Commission.
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\24\ 15 U.S.C. 78s(b)(3)(A)(iii).
\25\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-OCC-2020-006 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2020-006. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
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-2020-006 and
should be submitted on or before July 7, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12893 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P
