Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning The Options Clearing Corporation's Synthetic Futures Model, 26586-26588 [2021-10187]
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26586
Federal Register / Vol. 86, No. 92 / Friday, May 14, 2021 / 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–
CboeBYX–2021–012 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.
khammond on DSKJM1Z7X2PROD with NOTICES
All submissions should refer to File
Number SR–CboeBYX–2021–012. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly.
All submissions should refer to File
Number SR–CboeBYX–2021–012 and
should be submitted on or before June
4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10172 Filed 5–13–21; 8:45 am]
BILLING CODE 8011–01–P
15 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91833; File No. SR–OCC–
2021–005]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Concerning
The Options Clearing Corporation’s
Synthetic Futures Model
May 10, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on April 29, 2021, 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) 3 of the Act and Rule
19b–4(f)(4)(ii) 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.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
OCC is filing a proposed rule change
to expand the use of an existing OCC
margin model. The proposed changes to
OCC’s STANS Methodology Description
are contained in confidential Exhibit 5
of filing SR–OCC–2021–005. Material
proposed to be added to the STANS
Methodology Description as currently in
effect is underlined and material
proposed to be deleted is marked in
strikethrough text. All capitalized terms
not defined herein have the same
meaning as set forth in the OCC ByLaws and Rules.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4)(ii).
5 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://www.theocc.com/
Company-Information/Documents-and-Archives/
By-Laws-and-Rules.
2 17
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Frm 00130
Fmt 4703
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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
In 2019, OCC implemented a new
model for Volatility Index Futures.6 The
enhanced model included: (1) The daily
re-estimation of prices and correlations
using ‘‘synthetic’’ futures; 7 (2) an
enhanced statistical distribution for
modeling price returns for synthetic
futures (i.e., an asymmetric Normal
Reciprocal Inverse Gaussian (or
‘‘NRIG’’) distribution); and (3) a new
anti-procyclical floor for variance
estimates. The main feature of the
enhanced model was the replacement of
the use of the underlying index itself as
a risk factor 8 (e.g., the VIX) with risk
factors that are based on observed
futures prices (i.e., the ‘‘synthetic’’
futures contracts). These risk factors are
then used in the generation of Monte
Carlo scenarios for the futures by using
volatility and correlations obtained from
the existing simulation models in OCC’s
propriety margin system, the System for
Theoretical Analysis and Numerical
Simulations (‘‘STANS’’).9 Additionally,
the model has the ability to
accommodate negative prices and
interest rates.
On July 10, 2020, OCC filed a
proposed rule change to expand the use
of the model, currently known as the
‘‘Synthetic Futures Model,’’ to Cboe’s
6 See Securities Exchange Act Release No. 85870
(May 15, 2019), 84 FR 23096 (May 21, 2019) (SR–
OCC–2019–801) and Securities Exchange Act
Release No. 85873 (May 16, 2019), 84 FR 23620
(May 16, 2019) (SR–OCC–2019–002). Certain
indices are designed to measure the volatility
implied by the prices of options on a particular
reference index or asset (‘‘Volatility Indexes’’). For
example, the Cboe Volatility Index (‘‘VIX’’) is
designed to measure the 30-day expected volatility
of the Standard & Poor’s 500 index (‘‘SPX’’). OCC
clears futures contracts on Volatility Indexes. These
futures contracts are referred to herein as ‘‘Volatility
Index Futures.’’
7 A ‘‘synthetic’’ futures time series, for the
intended purposes of OCC, relates to a uniform
substitute for a time series of daily settlement prices
for actual futures contracts, which persists over
many expiration cycles and thus can be used as a
basis for econometric analysis.
8 A ‘‘risk factor’’ within OCC’s margin system may
be defined as a product or attribute whose historical
data is used to estimate and simulate the risk for
an associated product.
9 See Securities Exchange Act Release No. 53322
(February 15, 2006), 71 FR 9403 (February 23, 2006)
(SR–OCC–2004–20). A detailed description of the
STANS methodology is available at https://
optionsclearing.com/risk-management/margins/.
E:\FR\FM\14MYN1.SGM
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Federal Register / Vol. 86, No. 92 / Friday, May 14, 2021 / Notices
AMERIBOR Futures.10 On September
30, 2020, OCC filed another proposed
rule change to further expand the use of
the Synthetic Futures Model to Treasury
yield index futures listed by Small
Exchange Inc. (‘‘Small’’).11 OCC now
proposes to extend the use of the
Synthetic Futures Model to certain other
products planned to be listed by Small.
khammond on DSKJM1Z7X2PROD with NOTICES
Proposed Changes
Small plans to launch new futures
products linked to Light Sweet Crude
Oil (WTI) (‘‘Crude Oil Futures’’). OCC
proposes to extend the use of its
Synthetic Futures Model to these Small
Crude Oil Futures. The Synthetic
Futures Model maps the price risk factor
of a traded futures product to a
synthetic time series constructed from
the traded prices of similar tenor futures
in history. This allows the model to
capture differences in volatility of
futures across the term structure. Such
differences in volatility are exhibited for
futures products whose underlying
deliverable is linked to a different tenor
of a market observable risk factor such
as interest rates, volatility or commodity
prices such as crude oil. As a result,
OCC believes that the Synthetic Futures
Model would provide more appropriate
margin coverage for Small Crude Oil
Futures than other models in OCC’s
inventory.12
OCC proposes to make minor
modifications to the STANS
Methodology Description to note that
the STANS methodology generally, and
Synthetic Futures Model specifically,
would be used to generate margin
requirements for Small Crude Oil
Futures. Consistent with the existing
STANS Methodology Description, OCC
would use a fixed NRIG asymmetry
parameter for Crude Oil Futures, which
OCC believes is better suited to the risk
profile of the product as the asymmetry
of returns is primarily on the left-tail (or
negative returns) and already captured
10 See Securities Exchange Act Release No. 89392
(July 24, 2020), 85 FR 45938 (July 30, 2020) (SR–
OCC–2020–007).
11 See Securities Exchange Act Release No. 90139
(October 9, 2020), 85 FR 65886 (October 16, 2020)
(SR–OCC–2020–012). On December 6, 2019, OCC
filed a proposed rule change to execute an
Agreement for Clearing and Settlement Services
between OCC and Small in connection with Small’s
intention to operate as a designated contract market
regulated by the Commodity Futures Trading
Commission (‘‘CFTC’’). See Securities Exchange Act
Release No. 87774 (December 17, 2019), 84 FR
70602 (December 23, 2019) (SR–OCC–2019–011).
12 For example, OCC also maintains a ‘‘Generic
Futures Model,’’ which is a simple model based on
the cost of carry that is primarily used to margin
equity-like futures such as SPX futures and can be
used to model certain interest rates futures. This
model has certain limitations (e.g., the model
cannot currently accommodate negative prices and
rates).
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by the GARCH model specifications.
Consistent with the original
implementation of the Synthetic Futures
Model, the Small Crude Oil Futures will
also use proportional returns in the
calibration. OCC would initially use a
fixed scale factor for purposes of
determining the long-run variance floor
until sufficient data for the Small Crude
Oil Futures is available for this scale
factor to be calibrated on a regular basis.
The scale factor setting will be reviewed
periodically based on the futures data
and adjusted, if appropriate. Finally, the
model will use market prices of futures
after the product launch and use proxy
data 13 for historical dates prior to
product launch to support the model
calibration.
(2) Statutory Basis
OCC believes the proposed rule
change is consistent with Section 17A of
the Act 14 and the rules thereunder
applicable to OCC. Section 17A(b)(3)(F)
of the Act 15 requires, in part, that the
rules of a clearing agency be designed to
promote the prompt and accurate
clearance and settlement of derivative
agreements, contracts, and transactions
and to assure the safeguarding of
securities and funds which are in its
custody or control or for which it is
responsible. The proposed rule change
would make minor changes to the
STANS Methodology Description so
that the Synthetic Futures Model can be
used to model Small Crude Oil Futures.
OCC believes the Synthetic Futures
Model may provide better margin
coverage for these products than other
margin models maintained by OCC.
OCC uses the margin it collects from a
defaulting Clearing Member to protect
other Clearing Members from losses that
may result from the default and ensure
that OCC is able to continue the prompt
and accurate clearance and settlement of
its cleared products. Moreover, OCC
believes that accurate calculation of
margin requirements is necessary to
help OCC manage the risk of a Clearing
Member default without recourse to the
assets of non-defaulting Clearing
Members, which supports the
safeguarding of securities and funds in
OCC’s custody or control. OCC therefore
believes that the proposed rule change
is consistent with the requirements of
Section 17A(b)(3)(F) of the Act.16
Exchange Act Rules 17Ad–22(e)(6)(i),
(iii), and (v) 17 further require that a
13 The proxy data for Small Crude Oil futures will
be constructed from similar tenor ICE WTI futures.
14 15 U.S.C. 78q–1.
15 15 U.S.C. 78q–1(b)(3)(F).
16 Id.
17 17 CFR 240.17Ad–22(e)(6)(i), (iii), and (v).
PO 00000
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26587
covered clearing agency establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, among other things: (1) Considers,
and produces margin levels
commensurate with, the risks and
particular attributes of each relevant
product, portfolio, and market; (2)
calculates margin sufficient to cover its
potential future exposure to participants
in the interval between the last margin
collection and the close out of positions
following a participant default; and (3)
uses an appropriate method for
measuring credit exposure that accounts
for relevant product risk factors and
portfolio effects across products. OCC
believes that using the Synthetic
Futures Model for Small Crude Oil
Futures would produce margin levels
commensurate with the risks and
particular attributes of the product in
question, generate margin requirements
to cover OCC’s potential future exposure
to its participants, and appropriately
take into account relevant product risk
factors for Small Crude Oil Futures.18 In
this way, OCC believes the proposed
rule change is consistent with the
requirements of Rules 17Ad–22(e)(6)(i),
(iii), and (v).19
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 20
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 have any impact or impose a
burden on competition. The Synthetic
Futures Model would be used for Small
Crude Oil Futures for all Clearing
Members upon the launch of the new
products. As a result, OCC does not
believe that the proposed rule change
would unfairly inhibit access to OCC’s
services or disadvantage or favor any
particular user in relationship to
another user. Moreover, OCC expects
that the Small Crude Oil Futures would
account for a small part of OCC’s overall
clearing activity given the newness of
the product and the size of OCC’s
futures clearing business as a share of
OCC’s total cleared product set. OCC
therefore does not believe that the
proposed rule change would have any
18 OCC has provided backtesting analysis for the
proposed change in confidential Exhibit 3 to File
No. SR–OCC–2021–005.
19 17 CFR 240.17Ad–22(e)(6)(i), (iii), and (v).
20 15 U.S.C. 78q–1(b)(3)(I).
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Federal Register / Vol. 86, No. 92 / Friday, May 14, 2021 / Notices
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) of the
Act,21 and Rule 19b–4(f)(4)(ii)
thereunder,22 the proposed rule change
is filed for immediate effectiveness
because it effects a change in an existing
service of OCC that (i) primarily affects
the clearing operations of OCC with
respect to products that are not
securities and (ii) does not significantly
affect any securities clearing operations
of OCC or any rights or obligations of
OCC with respect to securities clearing
or persons using such securities clearing
services.
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.23
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
OCC–2021–005 on the subject line.
All submissions should refer to File
Number SR–OCC–2021–005. 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/CompanyInformation/Documents-and-Archives/
By-Laws-and-Rules.
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–2021–005 and should
be submitted on or before June 4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10187 Filed 5–13–21; 8:45 am]
BILLING CODE 8011–01–P
khammond on DSKJM1Z7X2PROD with NOTICES
[Release No. 34–91809; File No. SR–NSCC–
2021–005]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Increase the
National Securities Clearing
Corporation’s Minimum Required Fund
Deposit
May 10, 2021.
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 April 26,
2021, National Securities Clearing
Corporation (‘‘NSCC’’) 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 the clearing agency. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
modifications to NSCC’s Rules &
Procedures (‘‘Rules’’) 3 in order to
increase the minimum Required Fund
Deposit for each Member.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(4)(ii).
23 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Rule 40.6.
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
NSCC is proposing to increase the
minimum Required Fund Deposit, as
described in greater detail below.
21 15
1 15
22 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Capitalized terms not defined herein are defined
in the Rules, available at https://dtcc.com/∼/media/
Files/Downloads/legal/rules/nscc_rules.pdf.
2 17
24 17
PO 00000
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 86, Number 92 (Friday, May 14, 2021)]
[Notices]
[Pages 26586-26588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10187]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91833; File No. SR-OCC-2021-005]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Concerning The Options Clearing Corporation's Synthetic Futures Model
May 10, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 29, 2021, 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) \3\ of the Act and
Rule 19b-4(f)(4)(ii) \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).
\4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
OCC is filing a proposed rule change to expand the use of an
existing OCC margin model. The proposed changes to OCC's STANS
Methodology Description are contained in confidential Exhibit 5 of
filing SR-OCC-2021-005. Material proposed to be added to the STANS
Methodology Description as currently in effect is underlined and
material proposed to be deleted is marked in strikethrough text. All
capitalized terms not defined herein have the same meaning as set forth
in the OCC By-Laws and Rules.\5\
---------------------------------------------------------------------------
\5\ OCC's By-Laws and Rules can be found on OCC's public
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
---------------------------------------------------------------------------
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
In 2019, OCC implemented a new model for Volatility Index
Futures.\6\ The enhanced model included: (1) The daily re-estimation of
prices and correlations using ``synthetic'' futures; \7\ (2) an
enhanced statistical distribution for modeling price returns for
synthetic futures (i.e., an asymmetric Normal Reciprocal Inverse
Gaussian (or ``NRIG'') distribution); and (3) a new anti-procyclical
floor for variance estimates. The main feature of the enhanced model
was the replacement of the use of the underlying index itself as a risk
factor \8\ (e.g., the VIX) with risk factors that are based on observed
futures prices (i.e., the ``synthetic'' futures contracts). These risk
factors are then used in the generation of Monte Carlo scenarios for
the futures by using volatility and correlations obtained from the
existing simulation models in OCC's propriety margin system, the System
for Theoretical Analysis and Numerical Simulations (``STANS'').\9\
Additionally, the model has the ability to accommodate negative prices
and interest rates.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 85870 (May 15,
2019), 84 FR 23096 (May 21, 2019) (SR-OCC-2019-801) and Securities
Exchange Act Release No. 85873 (May 16, 2019), 84 FR 23620 (May 16,
2019) (SR-OCC-2019-002). Certain indices are designed to measure the
volatility implied by the prices of options on a particular
reference index or asset (``Volatility Indexes''). For example, the
Cboe Volatility Index (``VIX'') is designed to measure the 30-day
expected volatility of the Standard & Poor's 500 index (``SPX'').
OCC clears futures contracts on Volatility Indexes. These futures
contracts are referred to herein as ``Volatility Index Futures.''
\7\ A ``synthetic'' futures time series, for the intended
purposes of OCC, relates to a uniform substitute for a time series
of daily settlement prices for actual futures contracts, which
persists over many expiration cycles and thus can be used as a basis
for econometric analysis.
\8\ A ``risk factor'' within OCC's margin system may be defined
as a product or attribute whose historical data is used to estimate
and simulate the risk for an associated product.
\9\ See Securities Exchange Act Release No. 53322 (February 15,
2006), 71 FR 9403 (February 23, 2006) (SR-OCC-2004-20). A detailed
description of the STANS methodology is available at https://optionsclearing.com/risk-management/margins/.
---------------------------------------------------------------------------
On July 10, 2020, OCC filed a proposed rule change to expand the
use of the model, currently known as the ``Synthetic Futures Model,''
to Cboe's
[[Page 26587]]
AMERIBOR Futures.\10\ On September 30, 2020, OCC filed another proposed
rule change to further expand the use of the Synthetic Futures Model to
Treasury yield index futures listed by Small Exchange Inc.
(``Small'').\11\ OCC now proposes to extend the use of the Synthetic
Futures Model to certain other products planned to be listed by Small.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 89392 (July 24,
2020), 85 FR 45938 (July 30, 2020) (SR-OCC-2020-007).
\11\ See Securities Exchange Act Release No. 90139 (October 9,
2020), 85 FR 65886 (October 16, 2020) (SR-OCC-2020-012). On December
6, 2019, OCC filed a proposed rule change to execute an Agreement
for Clearing and Settlement Services between OCC and Small in
connection with Small's intention to operate as a designated
contract market regulated by the Commodity Futures Trading
Commission (``CFTC''). See Securities Exchange Act Release No. 87774
(December 17, 2019), 84 FR 70602 (December 23, 2019) (SR-OCC-2019-
011).
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Proposed Changes
Small plans to launch new futures products linked to Light Sweet
Crude Oil (WTI) (``Crude Oil Futures''). OCC proposes to extend the use
of its Synthetic Futures Model to these Small Crude Oil Futures. The
Synthetic Futures Model maps the price risk factor of a traded futures
product to a synthetic time series constructed from the traded prices
of similar tenor futures in history. This allows the model to capture
differences in volatility of futures across the term structure. Such
differences in volatility are exhibited for futures products whose
underlying deliverable is linked to a different tenor of a market
observable risk factor such as interest rates, volatility or commodity
prices such as crude oil. As a result, OCC believes that the Synthetic
Futures Model would provide more appropriate margin coverage for Small
Crude Oil Futures than other models in OCC's inventory.\12\
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\12\ For example, OCC also maintains a ``Generic Futures
Model,'' which is a simple model based on the cost of carry that is
primarily used to margin equity-like futures such as SPX futures and
can be used to model certain interest rates futures. This model has
certain limitations (e.g., the model cannot currently accommodate
negative prices and rates).
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OCC proposes to make minor modifications to the STANS Methodology
Description to note that the STANS methodology generally, and Synthetic
Futures Model specifically, would be used to generate margin
requirements for Small Crude Oil Futures. Consistent with the existing
STANS Methodology Description, OCC would use a fixed NRIG asymmetry
parameter for Crude Oil Futures, which OCC believes is better suited to
the risk profile of the product as the asymmetry of returns is
primarily on the left-tail (or negative returns) and already captured
by the GARCH model specifications. Consistent with the original
implementation of the Synthetic Futures Model, the Small Crude Oil
Futures will also use proportional returns in the calibration. OCC
would initially use a fixed scale factor for purposes of determining
the long-run variance floor until sufficient data for the Small Crude
Oil Futures is available for this scale factor to be calibrated on a
regular basis. The scale factor setting will be reviewed periodically
based on the futures data and adjusted, if appropriate. Finally, the
model will use market prices of futures after the product launch and
use proxy data \13\ for historical dates prior to product launch to
support the model calibration.
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\13\ The proxy data for Small Crude Oil futures will be
constructed from similar tenor ICE WTI futures.
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(2) Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Act \14\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(F) of the Act \15\ requires, in part, that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of derivative agreements, contracts, and
transactions and to assure the safeguarding of securities and funds
which are in its custody or control or for which it is responsible. The
proposed rule change would make minor changes to the STANS Methodology
Description so that the Synthetic Futures Model can be used to model
Small Crude Oil Futures. OCC believes the Synthetic Futures Model may
provide better margin coverage for these products than other margin
models maintained by OCC. OCC uses the margin it collects from a
defaulting Clearing Member to protect other Clearing Members from
losses that may result from the default and ensure that OCC is able to
continue the prompt and accurate clearance and settlement of its
cleared products. Moreover, OCC believes that accurate calculation of
margin requirements is necessary to help OCC manage the risk of a
Clearing Member default without recourse to the assets of non-
defaulting Clearing Members, which supports the safeguarding of
securities and funds in OCC's custody or control. OCC therefore
believes that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\16\
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\14\ 15 U.S.C. 78q-1.
\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ Id.
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Exchange Act Rules 17Ad-22(e)(6)(i), (iii), and (v) \17\ further
require that a covered clearing agency establish, implement, maintain
and enforce written policies and procedures reasonably designed to
cover its credit exposures to its participants by establishing a risk-
based margin system that, among other things: (1) Considers, and
produces margin levels commensurate with, the risks and particular
attributes of each relevant product, portfolio, and market; (2)
calculates margin sufficient to cover its potential future exposure to
participants in the interval between the last margin collection and the
close out of positions following a participant default; and (3) uses an
appropriate method for measuring credit exposure that accounts for
relevant product risk factors and portfolio effects across products.
OCC believes that using the Synthetic Futures Model for Small Crude Oil
Futures would produce margin levels commensurate with the risks and
particular attributes of the product in question, generate margin
requirements to cover OCC's potential future exposure to its
participants, and appropriately take into account relevant product risk
factors for Small Crude Oil Futures.\18\ In this way, OCC believes the
proposed rule change is consistent with the requirements of Rules 17Ad-
22(e)(6)(i), (iii), and (v).\19\
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\17\ 17 CFR 240.17Ad-22(e)(6)(i), (iii), and (v).
\18\ OCC has provided backtesting analysis for the proposed
change in confidential Exhibit 3 to File No. SR-OCC-2021-005.
\19\ 17 CFR 240.17Ad-22(e)(6)(i), (iii), and (v).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \20\ 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 have any impact or impose a
burden on competition. The Synthetic Futures Model would be used for
Small Crude Oil Futures for all Clearing Members upon the launch of the
new products. As a result, OCC does not believe that the proposed rule
change would unfairly inhibit access to OCC's services or disadvantage
or favor any particular user in relationship to another user. Moreover,
OCC expects that the Small Crude Oil Futures would account for a small
part of OCC's overall clearing activity given the newness of the
product and the size of OCC's futures clearing business as a share of
OCC's total cleared product set. OCC therefore does not believe that
the proposed rule change would have any
[[Page 26588]]
impact or impose a burden on competition.
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\20\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments 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) of the Act,\21\ and Rule 19b-
4(f)(4)(ii) thereunder,\22\ the proposed rule change is filed for
immediate effectiveness because it effects a change in an existing
service of OCC that (i) primarily affects the clearing operations of
OCC with respect to products that are not securities and (ii) does not
significantly affect any securities clearing operations of OCC or any
rights or obligations of OCC with respect to securities clearing or
persons using such securities clearing services.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(4)(ii).
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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.\23\
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\23\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Rule 40.6.
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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-2021-005 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-2021-005. 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/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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-2021-005 and
should be submitted on or before June 4, 2021.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10187 Filed 5-13-21; 8:45 am]
BILLING CODE 8011-01-P
