Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Interest Rates Used for Options Pricing in the STANS Methodology Description, 58704-58706 [2021-23021]

Download as PDF 58704 Federal Register / Vol. 86, No. 202 / Friday, October 22, 2021 / Notices www.prc.gov. Those who cannot submit comments electronically should contact the person identified in the FOR FURTHER INFORMATION CONTACT section by telephone for advice on filing alternatives. FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: Table of Contents lotter on DSK11XQN23PROD with NOTICES1 I. Introduction II. Docketed Proceeding(s) I. Introduction The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list. Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request’s acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request. The public portions of the Postal Service’s request(s) can be accessed via the Commission’s website (https:// www.prc.gov). Non-public portions of the Postal Service’s request(s), if any, can be accessed through compliance with the requirements of 39 CFR 3011.301.1 The Commission invites comments on whether the Postal Service’s request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3030, and 39 CFR part 3040, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3035, and 1 See Docket No. RM2018–3, Order Adopting Final Rules Relating to Non-Public Information, June 27, 2018, Attachment A at 19–22 (Order No. 4679). VerDate Sep<11>2014 17:47 Oct 21, 2021 Jkt 256001 39 CFR part 3040, subpart B. Comment deadline(s) for each request appear in section II. II. Docketed Proceeding(s) 1. Docket No(s).: MC2022–11 and CP2022–12; Filing Title: USPS Request to Add Priority Mail, Parcel Select, & First-Class Package Service Contract 1 to Competitive Product List and Notice of Filing Materials Under Seal; Filing Acceptance Date: October 18, 2021; Filing Authority: 39 U.S.C. 3642, 39 CFR 3040.130 through 3040.135, and 39 CFR 3035.105; Public Representative: Christopher C. Mohr; Comments Due: October 26, 2021. This Notice will be published in the Federal Register. Erica A. Barker, Secretary. [FR Doc. 2021–23070 Filed 10–21–21; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93371; File No. SR–OCC– 2021–011] Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Interest Rates Used for Options Pricing in the STANS Methodology Description October 18, 2021. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 6, 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)(1) 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 make clarifying changes to OCC’s 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)(1). 2 17 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 System for Theoretical Analysis and Numerical Simulation (‘‘STANS’’) Methodology Description concerning the interest rates used for options pricing. The proposed changes to OCC’s STANS Methodology Description are contained in confidential Exhibit 5 of filing SR–OCC–2021–011. 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 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 STANS is OCC’s proprietary risk management system for calculating Clearing Member margin requirements.6 The STANS methodology utilizes largescale Monte Carlo simulations to forecast price and volatility movements in determining a Clearing Member’s margin requirement.7 STANS margin requirements are calculated at the portfolio level of Clearing Member accounts with positions in marginable securities and consists of an estimate of two primary components: A base component and a concentration/ dependence stress test add-on component. The base component is an estimate of a 99% expected shortfall 8 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. 6 See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR 9410 (Feb. 12, 2021) (File No. SR– OCC–2020–016). OCC makes its STANS Methodology description available to Clearing Members. An overview of the STANS methodology is available at https://www.theocc.com/RiskManagement/Margin-Methodology. 7 See OCC Rule 601. 8 The expected shortfall component is established as the estimated average of potential losses higher than the 99% value at risk threshold. The term ‘‘value at risk’’ or ‘‘VaR’’ refers to a statistical E:\FR\FM\22OCN1.SGM 22OCN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 86, No. 202 / Friday, October 22, 2021 / Notices over a two-day time horizon. The concentration/dependence stress test add-on is obtained by considering increases in the expected margin shortfall for an account that would occur due to (i) market movements that are especially large and/or in which certain risk factors would exhibit perfect or zero correlations rather than correlations otherwise estimated using historical data or (ii) extreme and adverse idiosyncratic movements for individual risk factors to which the account is particularly exposed. OCC uses the STANS methodology to measure the exposure of portfolios of options and futures cleared by OCC and cash instruments in margin collateral. In the STANS methodology, the interest rate discount curve is a critical input for OCC’s pricing models. OCC’s pricing models are developed using the Black-Scholes framework. OCC uses the interest rate curve, which is constructed from market instruments, along with dividends, implied borrow cost, and implied volatility to specify underlying price dynamics. OCC uses this data along with exchange listed option price data to calibrate the implied borrow cost and implied volatility parameters used in the option pricing models. STANS margins are computed using models to generate 10,000 scenarios on underlying price and implied volatility, and those price and implied volatility scenarios are used as inputs to the option pricing model (along with the interest rate curve) to re-price the options. The margin base component is then determined from the profit-and-loss distribution of the scenario prices. OCC currently constructs the interest rate discount curve using instruments referencing the London Interbank Offered Rate (‘‘LIBOR’’). LIBOR is a key benchmark interest rate at which major global banks lend to one another in the international interbank market for shortterm loans. LIBOR is also commonly used by financial market participants more broadly to gauge prevailing interest rates; however, financial market participants are expected to largely transition away from the use of LIBOR by the end of 2021.9 Accordingly, OCC intends to transition to a new benchmark rate for constructing its interest rate curve to align with this industry transition. The STANS Methodology Description currently provides a general description of OCC’s method for constructing the technique that, generally speaking, is used in risk management to measure the potential risk of loss for a given set of assets over a particular time horizon. 9 See https://www.sec.gov/news/public-statement/ libor-transition. VerDate Sep<11>2014 17:47 Oct 21, 2021 Jkt 256001 interest rate discount curve but does not specify any particular benchmark rate.10 While the STANS Methodology Description is intended to provide flexibility in the benchmark rate used, the document contains certain details of the interest rate curve construction process that more closely reflect the use of LIBOR as the benchmark rate. Proposed Changes OCC proposes to revise its STANS Methodology Description to clean up certain details regarding the interest rate curve construction process. Section 3.2 of the STANS Methodology Description describes OCC’s method for constructing the interest rate discount curve used to accurately price the options cleared by OCC. While the STANS Methodology Description does not specify the interest rate used in this process, the document contains certain details that more closely reflect the use of LIBOR as the benchmark rate. As noted above, the industry plans to transition away from using LIBOR as the benchmark for short-term interest rates by the end of 2021. OCC therefore proposes additional clarifying and clean up changes to the STANS Methodology Description so that the methodology more accurately reflects the potential use of different industry standard benchmark rates to construct the interest rate discount curve in STANS. (2) Statutory Basis OCC believes the proposed rule change is consistent with Section 17A of the Act 11 and the rules thereunder applicable to OCC. Section 17A(b)(3)(F) of the Act 12 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 to clarify the use of different industry benchmark interest rates used for discounting options pricing. The proposed rule change would ensure that OCC’s STANS methodology documentation remains accurate and is aligned with standard industry practice after the industry transitions away from LIBOR. 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 believes that the proposed rule change would result in more accurate documentation for its margin methodology and is therefore consistent with the requirements of Section 17A(b)(3)(F) of the Act.13 Exchange Act Rules 17Ad–22(e)(6)(i) and (iii) 14 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 and (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. The proposed rule change would result in more accurate documentation for OCC’s STANS margin methodology, particularly once the industry and OCC transition away from LIBOR later this year. OCC therefore believes the proposed rule change would result in more accurate policies and procedures that are reasonably designed to produce margin levels commensurate with the risks and particular attributes of its cleared options and calculate 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. In this way, OCC believes the proposed rule change is consistent with the requirements of Rules 17Ad–22(e)(6)(i) and (iii).15 (B) Clearing Agency’s Statement on Burden on Competition Section 17A(b)(3)(I) of the Act 16 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 13 Id. 10 See supra note 6. 11 15 U.S.C. 78q–1. 12 15 U.S.C. 78q–1(b)(3)(F). PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 58705 14 17 CFR 240.17Ad–22(e)(6)(i) and (iii). CFR 240.17Ad–22(e)(6)(i) and (iii). 16 15 U.S.C. 78q–1(b)(3)(I). 15 17 E:\FR\FM\22OCN1.SGM 22OCN1 58706 Federal Register / Vol. 86, No. 202 / Friday, October 22, 2021 / Notices would have any impact or impose a burden on competition. The proposed rule change would make clarifying and clean up changes to OCC’s margin methodology concerning the industry benchmark interest rates used for discounting options pricing. 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. OCC therefore does not believe that the proposed rule change would have any 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,17 and Rule 19b–4(f)(1) thereunder,18 the proposed rule change is filed for immediate effectiveness because it constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule. 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.19 lotter on DSK11XQN23PROD with NOTICES1 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–2021–011 on the subject line. U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(1). 19 Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Rule 40.6. 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–2021–011. 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–2021–011 and should be submitted on or before November 12, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–23021 Filed 10–21–21; 8:45 am] BILLING CODE 8011–01–P 17 15 18 17 VerDate Sep<11>2014 17:47 Oct 21, 2021 Jkt 256001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93374; File No. SR–C2– 2021–015] Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Period Related to the Market-Wide Circuit Breaker in Rule 6.32.01 October 18, 2021. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 14, 2021, Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4 (f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) proposes to extend the pilot period related to the marketwide circuit breaker in Rule 6.32.01. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/ctwo/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4 . 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4 (f)(6). 2 17 20 17 PO 00000 CFR 200.30–3(a)(12). Frm 00071 Fmt 4703 Sfmt 4703 E:\FR\FM\22OCN1.SGM 22OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 202 (Friday, October 22, 2021)]
[Notices]
[Pages 58704-58706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23021]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93371; File No. SR-OCC-2021-011]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Concerning the Interest Rates Used for Options Pricing in the STANS 
Methodology Description

October 18, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on October 6, 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)(1) \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)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC is filing a proposed rule change to make clarifying changes to 
OCC's System for Theoretical Analysis and Numerical Simulation 
(``STANS'') Methodology Description concerning the interest rates used 
for options pricing. The proposed changes to OCC's STANS Methodology 
Description are contained in confidential Exhibit 5 of filing SR-OCC-
2021-011. 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
    STANS is OCC's proprietary risk management system for calculating 
Clearing Member margin requirements.\6\ The STANS methodology utilizes 
large-scale Monte Carlo simulations to forecast price and volatility 
movements in determining a Clearing Member's margin requirement.\7\ 
STANS margin requirements are calculated at the portfolio level of 
Clearing Member accounts with positions in marginable securities and 
consists of an estimate of two primary components: A base component and 
a concentration/dependence stress test add-on component. The base 
component is an estimate of a 99% expected shortfall \8\

[[Page 58705]]

over a two-day time horizon. The concentration/dependence stress test 
add-on is obtained by considering increases in the expected margin 
shortfall for an account that would occur due to (i) market movements 
that are especially large and/or in which certain risk factors would 
exhibit perfect or zero correlations rather than correlations otherwise 
estimated using historical data or (ii) extreme and adverse 
idiosyncratic movements for individual risk factors to which the 
account is particularly exposed. OCC uses the STANS methodology to 
measure the exposure of portfolios of options and futures cleared by 
OCC and cash instruments in margin collateral.
---------------------------------------------------------------------------

    \6\ See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR 
9410 (Feb. 12, 2021) (File No. SR-OCC-2020-016). OCC makes its STANS 
Methodology description available to Clearing Members. An overview 
of the STANS methodology is available at https://www.theocc.com/Risk-Management/Margin-Methodology.
    \7\ See OCC Rule 601.
    \8\ The expected shortfall component is established as the 
estimated average of potential losses higher than the 99% value at 
risk threshold. The term ``value at risk'' or ``VaR'' refers to a 
statistical technique that, generally speaking, is used in risk 
management to measure the potential risk of loss for a given set of 
assets over a particular time horizon.
---------------------------------------------------------------------------

    In the STANS methodology, the interest rate discount curve is a 
critical input for OCC's pricing models. OCC's pricing models are 
developed using the Black-Scholes framework. OCC uses the interest rate 
curve, which is constructed from market instruments, along with 
dividends, implied borrow cost, and implied volatility to specify 
underlying price dynamics. OCC uses this data along with exchange 
listed option price data to calibrate the implied borrow cost and 
implied volatility parameters used in the option pricing models. STANS 
margins are computed using models to generate 10,000 scenarios on 
underlying price and implied volatility, and those price and implied 
volatility scenarios are used as inputs to the option pricing model 
(along with the interest rate curve) to re-price the options. The 
margin base component is then determined from the profit-and-loss 
distribution of the scenario prices.
    OCC currently constructs the interest rate discount curve using 
instruments referencing the London Interbank Offered Rate (``LIBOR''). 
LIBOR is a key benchmark interest rate at which major global banks lend 
to one another in the international interbank market for short-term 
loans. LIBOR is also commonly used by financial market participants 
more broadly to gauge prevailing interest rates; however, financial 
market participants are expected to largely transition away from the 
use of LIBOR by the end of 2021.\9\ Accordingly, OCC intends to 
transition to a new benchmark rate for constructing its interest rate 
curve to align with this industry transition.
---------------------------------------------------------------------------

    \9\ See https://www.sec.gov/news/public-statement/libor-transition.
---------------------------------------------------------------------------

    The STANS Methodology Description currently provides a general 
description of OCC's method for constructing the interest rate discount 
curve but does not specify any particular benchmark rate.\10\ While the 
STANS Methodology Description is intended to provide flexibility in the 
benchmark rate used, the document contains certain details of the 
interest rate curve construction process that more closely reflect the 
use of LIBOR as the benchmark rate.
---------------------------------------------------------------------------

    \10\ See supra note 6.
---------------------------------------------------------------------------

Proposed Changes
    OCC proposes to revise its STANS Methodology Description to clean 
up certain details regarding the interest rate curve construction 
process. Section 3.2 of the STANS Methodology Description describes 
OCC's method for constructing the interest rate discount curve used to 
accurately price the options cleared by OCC. While the STANS 
Methodology Description does not specify the interest rate used in this 
process, the document contains certain details that more closely 
reflect the use of LIBOR as the benchmark rate. As noted above, the 
industry plans to transition away from using LIBOR as the benchmark for 
short-term interest rates by the end of 2021. OCC therefore proposes 
additional clarifying and clean up changes to the STANS Methodology 
Description so that the methodology more accurately reflects the 
potential use of different industry standard benchmark rates to 
construct the interest rate discount curve in STANS.
(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \11\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(F) of the Act \12\ 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 to clarify the use of different industry benchmark interest 
rates used for discounting options pricing. The proposed rule change 
would ensure that OCC's STANS methodology documentation remains 
accurate and is aligned with standard industry practice after the 
industry transitions away from LIBOR. 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 believes that the 
proposed rule change would result in more accurate documentation for 
its margin methodology and is therefore consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ Id.
---------------------------------------------------------------------------

    Exchange Act Rules 17Ad-22(e)(6)(i) and (iii) \14\ 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 and (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. The proposed rule change 
would result in more accurate documentation for OCC's STANS margin 
methodology, particularly once the industry and OCC transition away 
from LIBOR later this year. OCC therefore believes the proposed rule 
change would result in more accurate policies and procedures that are 
reasonably designed to produce margin levels commensurate with the 
risks and particular attributes of its cleared options and calculate 
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. In this way, 
OCC believes the proposed rule change is consistent with the 
requirements of Rules 17Ad-22(e)(6)(i) and (iii).\15\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(6)(i) and (iii).
    \15\ 17 CFR 240.17Ad-22(e)(6)(i) and (iii).
---------------------------------------------------------------------------

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

    Section 17A(b)(3)(I) of the Act \16\ 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

[[Page 58706]]

would have any impact or impose a burden on competition. The proposed 
rule change would make clarifying and clean up changes to OCC's margin 
methodology concerning the industry benchmark interest rates used for 
discounting options pricing. 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. OCC therefore does not believe that the proposed rule change 
would have any impact or impose a burden on competition.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(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,\17\ and Rule 19b-
4(f)(1) thereunder,\18\ the proposed rule change is filed for immediate 
effectiveness because it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(1).
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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.\19\
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    \19\ 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-2021-011 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-2021-011. 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-2021-011 and 
should be submitted on or before November 12, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23021 Filed 10-21-21; 8:45 am]
BILLING CODE 8011-01-P

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