Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment No. 1, by the Options Clearing Corporation Concerning Amendment of Its Recovery and Orderly Wind-Down Plan, 55804-55809 [2023-17531]
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Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices
All submissions should refer to file
number SR–CboeBZX–2023–061. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2023–061 and should be
submitted on or before September 6,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17533 Filed 8–15–23; 8:45 am]
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BILLING CODE 8011–01–P
18 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98107; File No. SR–OCC–
2023–005]
Self-Regulatory Organizations; the
Options Clearing Corporation; Notice
of Filing of Partial Amendment No. 1
and Order Granting Accelerated
Approval of Proposed Rule Change, as
Modified by Partial Amendment No. 1,
by the Options Clearing Corporation
Concerning Amendment of Its
Recovery and Orderly Wind-Down Plan
August 10, 2023.
I. Introduction
On June 7, 2023, the Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change SR–OCC–2023–005 pursuant to
Section 19(b) of the Securities Exchange
Act of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 2 thereunder. The proposed rule
change would amend OCC’s Recovery
and Orderly Wind-Down Plan (‘‘RWD
Plan’’) by: (i) removing certain
supporting information; (ii)
incorporating references to certain
documents and materials; (iii)
implementing updates and amendments
to all six chapters of the proposed Plan;
and (iv) updating and revising the
hypothetical stress scenarios set forth in
Appendix A of the proposed RWD Plan.
The proposed rule change was
published for public comment in the
Federal Register on June 27, 2023.3 The
Commission has received comments
regarding the proposed rule change.4
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 97785
(June 21, 2023), 88 FR 41695 (June 27, 2023) (File
No. SR–OCC–2023–005) (‘‘Notice of Filing’’).
4 Comments on the Proposed Rule Change are
available at https://www.sec.gov/comments/sr-occ2023-005/srocc2023005.htm. The commenters
raised a concern regarding the confidentiality of
certain exhibits. Id. OCC asserted that the exhibits
to the filing were entitled to confidential treatment
because they contained commercial and financial
information that is not customarily released to the
public and is treated as the private information of
OCC. Under Section 23(a)(3) of the Exchange Act,
the Commission is not required to make public
statements filed with the Commission in connection
with a proposed rule change of a self-regulatory
organization if the Commission could withhold the
statements from the public in accordance with the
Freedom of Information Act (‘‘FOIA’’), 5 U.S.C. 552.
15 U.S.C. 78w(a)(3). The Commission has reviewed
the documents for which OCC requests confidential
treatment and concludes that they could be
withheld from the public under the FOIA. FOIA
Exemption 4 protects confidential commercial or
financial information. 5 U.S.C. 552(b)(4). Under
Exemption 4, information is confidential if it ‘‘is
both customarily and actually treated as private by
its owner and provided to government under an
assurance of privacy.’’ Food Marketing Institute v.
Argus Leader Media, 139 S. Ct. 2356, 2366 (2019).
On July 28, 2023, OCC amended SR–
OCC–2023–005 to correct an error in the
narrative summary of proposed rule
changes (‘‘Partial Amendment No. 1’’).
Specifically, the narrative, as filed on
June 7, 2023, stated that OCC proposed
to remove a section of the RWD Plan
describing OCC’s Risk Management
Framework. However, the relevant text
was already removed from the RWD
Plan as part of a recent filing.5 The
amendment did not change the purpose
or basis of the proposed rule change.
The Commission is publishing this
notice to solicit comments on Partial
Amendment No. 1 from interested
persons, and, for the reasons discussed
below, is approving the proposed rule
change, as modified by Partial
Amendment No. 1 (hereinafter, the
‘‘proposed rule change’’), on an
accelerated basis.
II. Background
OCC is a central counterparty
(‘‘CCP’’), which means it interposes
itself as the buyer to every seller and
seller to every buyer for financial
transactions. As the CCP for the listed
options markets in the U.S., as well as
for certain futures, OCC is exposed to
certain risks arising from its
relationships with its members as well
as general business risk. OCC maintains
various tools for managing such risks.6
OCC also maintains tools to manage the
risk of liquidity shortfalls and credit
losses that exceed its routine risk
management tools.7 OCC describes such
tools and the governance related to them
in its RWD Plan.8
Over the years, OCC has made
substantive and non-substantive
1 15
2 17
PO 00000
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In its requests for confidential treatment, OCC
stated that it has not disclosed the confidential
exhibits to the public, and the information is the
type that would not customarily be disclosed to the
public. In addition, by requesting confidential
treatment, OCC had an assurance of privacy because
the Commission generally protects information that
can be withheld under Exemption 4. Thus, the
Commission has determined to accord confidential
treatment to the confidential exhibits.
5 Securities Exchange Act Release No. 96566 (Dec.
22, 2022), 87 FR 80207 (Dec. 29, 2022) (File No. SR–
OCC–2022–010).
6 See e.g., Securities Exchange Act Release No.
96566 (Dec. 22, 2022), 87 FR 80207 (Dec. 29, 2022)
(File No. SR–OCC–2022–010); Securities Exchange
Act Release No. 87718 (Dec. 11, 2019), 84 FR 68992
(Dec. 17, 2019) (File No. SR–OCC–2019–010); and
Securities Exchange Act Release No. 88029 (Jan. 24,
2020), 85 FR 5500 (Jan. 30, 2020) (File No. SR–
OCC–2019–007).
7 See Securities Exchange Act Release No. 82351
(Dec. 19, 2017), 82 FR 61107 (Dec. 26, 2017) (File
No. SR–OCC–2017–020). Capitalized terms used but
not defined herein have the meanings specified in
OCC’s Rules and By-Laws, available at https://
www.theocc.com/about/publications/bylaws.jsp.
8 See Securities Exchange Act Release No. 83918
(Aug. 23, 2018), 83 FR 44091 (Aug. 29, 2018) (File
No. SR–OCC–2017–021) (Order approving the
adoption of OCC’s RWD Plan).
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changes to the RWD Plan.9 With regard
to the substance of the RWD Plan, OCC
proposes to change the trigger events
defined in the RWD Plan. With regard
to recovery, the changes would focus
the trigger events on OCC’s ability to
meet future obligations (as opposed to a
focus on current resources). With regard
to wind-down, the changes would
clarify the Board’s role in starting the
wind-down process and provide
flexibility to avoid triggering a winddown where recovery is still a viable
option.
OCC also proposes to make a series of
non-substantive changes, including
changes to improving the accuracy and
consistency of information in the RWD
Plan by moving dynamic, contextual
information (e.g., annual volume data)
out of the RWD Plan to a supporting
document that could more easily be
maintained as such information changes
from time to time. Similarly, OCC
proposes to strike language found in
other OCC sources from the RWD Plan
to avoid potential future inconsistencies
across OCC’s internal documentation.
Further, OCC would update information
and references in the RWD Plan that are
currently out of date. Lastly, OCC
proposes to streamline the hypothetical
stress scenarios describing how OCC
would employ its recovery and winddown tools without affecting the
substance covered in the scenarios.10
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A. Trigger Events
Recovery Triggers. In its RWD Plan,
OCC has identified events that would
indicate OCC is facing an extreme stress
event that potentially threatens OCC’s
viability, the occurrence of which
would signal that OCC has entered into
recovery (the ‘‘Recovery Trigger
Events’’).11 The RWD Plan currently
defines a set of three such Recovery
Trigger Events arising out of (i) credit
9 See e.g., Securities Exchange Act Release No.
90712 (Dec. 17, 2020), 85 FR 84050 (Dec. 23, 2020)
(File No. SR–OCC–2020–013) (Order approving
updates to OCCs RWD Plan to reflect changes to
OCC’s capital structure resulting from the
disapproval of OCC’s previously approved ‘‘Capital
Plan’’ and the subsequent approval of OCC’s
‘‘Capital Management Policy’’ and implementing
changes identified during OCC’s annual review of
the RWD Plan).
10 OCC also proposes conforming changes
throughout the plan as required by the changes
described here (e.g., renumbering sections, fixing
grammar).
11 Once in recovery, OCC would likely look to
apply its recovery tools, which include the ability
of OCC to (i) levy assessments against nondefaulting members; (ii) receive voluntary payments
from its non-defaulting members; (iii) allow nondefaulting members and customers to voluntarily
extinguish certain positions; (iv) tear-up a
defaulter’s open positions; and (v) charge members
a fee to replenish OCC’s capital in response to
certain non-default losses.
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losses, (ii) liquidity shortfalls, and (iii)
operational losses and disruption. OCC
proposes to revise the credit and
liquidity triggers and to separate the
third trigger out into two separate
triggers based on operational
disruptions and general business losses.
The credit loss-Recovery Trigger
change is merely a rephrasing of the
current trigger clarify that it would be
based on a 100 percent depletion of the
pre-funded Clearing Fund resources.
OCC proposes to change the liquidity
shortfall Recovery Trigger to better align
with OCC’s Liquidity Risk Management
Framework. The current trigger focuses
on the inability to complete settlement
within the time required. In contrast,
the proposed trigger would focus on the
potential inability to address foreseeable
shortfalls.
For events not triggered by a member
default, OCC proposes to replace the
current trigger focused on loss and
disruption into two separate triggers,
one of which would be based on loss
and the other on disruption. With regard
to loss, OCC proposes to replace
references to operational loss with
references to broader general business
losses. With regard to disruption, the
trigger would continue to focus on the
disruption of critical services. Both the
general business loss and operational
disruption triggers would focus on OCC
having no reasonable expectation of
timely return to business as usual (i.e.,
meeting minimum capital requirements
or resumption of critical services).
Wind-Down Triggers. Similar to the
Recovery Trigger Events, OCC has
identified events that could jeopardize
the viability of OCC’s ability to recover,
the occurrence of which would signal
the need for OCC to initiate its WindDown Plan (Wind-Down Trigger
Events). The RWD Plan currently
defines four Wind-Down Trigger Events
that relate to (i) an inability to comply
with regulatory financial resource
requirements; (ii) a loss of confidence by
members; (iii) the sustained disruption
of critical services; and (iv) modification
or recission of an emergency filed
pursuant to Section 806(e)(2) of the
Payment, Clearing, and Settlement
Supervision Act.12 To reduce the chance
of initiating a wind-down where a
successful recovery would still be
possible, OCC proposes to replace the
four Wind-Down Trigger Events with a
single, flexible trigger that grants
discretion to OCC’s Board of Directors.
The proposed trigger would rest on the
Board’s determination that OCC’s
recovery efforts have not been or are
unlikely to be successful in returning
12 See
PO 00000
OCC to viability as a going concern. The
revised approach would allow more
flexible consideration of the facts and
circumstances of a given event.
B. Changes for Consistency and
Accuracy
As noted above, OCC is also
proposing a set of non-substantive
changes to the RWD Plan. Such changes
(described further below) include the (i)
relocation of context and background
information from the Plan into a
supplemental document; (ii) removal of
duplicative information maintained
elsewhere in OCC’s documentation; (iii)
updating of information in the plan that
is out of date or inconsistent with
current practices; and (iv) streamlining
of hypothetical stress scenarios
describing how OCC would employ its
recovery and wind-down tools. OCC
also proposes grammatical and technical
edits throughout the entirety of the
RWD Plan, such as modifying the use
and location of certain defined terms for
improved readability, using initial
capitalization for term ‘‘Clearing
Member’’ consistently throughout the
document, deleting unnecessary words,
and modifying tense for clarity.
1. RWD Plan Supporting Information
OCC’s RWD Plan currently includes
information related to OCC’s operations,
management structure, personnel,
support functions, banking
relationships, vendors, and key
agreements. This supporting
information provides background and
context for parties that are reviewing the
RWD Plan or using it as part of an actual
recovery or wind-down event. OCC is
proposing to move supporting
information from the RWD Plan to a
separate document (the ‘‘RWD Plan
Supporting Information’’). Placing such
information in the RWD Plan
Supporting Information would allow
OCC to maintain the accuracy of such
information without revising OCC’s
rules.13
The proposed rule change would
move portions from the current RWD,
such as significant portions of the
existing ‘‘Business Overview’’ and
‘‘Management Structure’’ sections into
the RWD Plan Supporting Information
document.14 OCC would also move
13 OCC intends to review and update the RWD
Plan Supporting Information twice a year, or more
frequently as needed. See Notice of Filing, 88 FR
at 41696.
14 OCC proposes to move the details of OCC’s
business overview to Section 2.1 (‘‘Business
Overview’’) of the RWD Plan Supporting
Information, details of OCC’s management structure
and executives to Sections 2.2 (‘‘Management
12 U.S.C. 5465(e)(2).
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55805
Continued
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Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices
background information about OCC’s 12
support functions from the RWD Plan to
the RWD Plan Supporting
Information.15 The proposed rule
change would also move information
and data subject to regular change from
the RWD Plan’s description of OCC’s
clearing services to a similar section of
the RWD Plan Supporting Information.
Lastly, OCC proposes to move
information about OCC’s current
settlement banks, custodian banks,
letter-of-credit banks, vendors needed to
support recovery and wind-down, and
key agreements to be maintained,
currently listed in several of the RWD
Plan Appendices, to the RWD Plan
Supporting Information document.16
2. Removal of Duplicative Information
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OCC proposes to remove information
from the RWD Plan to the extent OCC
already maintains such information
elsewhere. The purpose of removing
duplicative information is to reduce the
complexity of maintaining information
that could lead to inconsistencies across
multiple documents. For example, OCC
proposes to replace financial
information currently set forth in the
RWD Plan with a link to the section of
OCC’s website that displays OCC’s
Annual Reports, which include OCC’s
audited financial statements, and a link
to OCC’s fee schedule, which depicts
the Target Capital Requirement.17
Structure’’), and details of its staffing to Section 2.3
(‘‘People’’).
15 In the RWD Plan Supporting Information,
Chapter 3, OCC would provide additional context
on the Business Operations, Corporate Risk
Management and Security Services Departments.
16 Specifically, OCC proposes to move
information from current Appendices E, F, G, H,
and J to the new RWD Plan Supporting Information
document. Current Appendix E of the RWD Plan is
a list of OCC’s current settlement banks; current
Appendix F is a list of OCC’s current custodian
banks; current Appendix G is a list of OCC’s current
letter-of-credit banks; and current Appendix H is a
list of OCC’s current vendors needed to support
recovery and wind-down. OCC also intends to
provide additional information about its Tier 1
vendors (i.e., vendors that involve or materially
support critical processes) in the RWD Plan
Supporting Information. The information in these
RWD Plan Appendices would be moved to Chapter
4 (‘‘Interconnectedness’’) of the RWD Plan
Supporting Information. Current Appendix J of the
RWD Plan includes information on OCC’s key
agreements to be maintained with third-party
products and services. This would be moved to
Chapter 5 (‘‘Key Agreements to be Maintained’’) of
the RWD Plan Supporting Information. This new
Chapter 5 itself does not list the agreements with
the third-party products and services, but provides
a link to OCC’s internal SharePoint website.
17 Current Appendix D of the RWD Plan would
be removed altogether. OCC proposes to add the
link to OCC’s annual reports and audited financial
statements to current section 2.6 (‘‘Financial
Summary’’).
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3. Updating of Inaccurate or Outdated
Information
OCC also proposes to update text in
the RWD Plan that was either inaccurate
in its original form, or is no longer
consistent with OCC’s current practices.
For example, in Chapter 1 of the Plan,
OCC proposes to change the language
related to expense assumptions during a
resolution process, to convey the
intended meaning of the assumption
more accurately.18 OCC proposes to
update outdated descriptions of its
services and facilities in Chapter 2 of
the RWD Plan.19 In Chapter 3 of the
Plan, OCC proposes to update the
descriptions of its pricing and valuation
services by adding detail on the
processes and eliminating specific data
that become outdated quickly because it
is subject to frequent changes (e.g.,
trading data from 2019, such as the
average daily gross volume of options
contracts cleared, the average daily
gross value of premium exchanged,
etc.). OCC also proposes removing a
reference to letter of credit banks from
Section 3.5 because letter of credit
banks comprise less than 0.1 percent of
margin pledged to OCC. Further, OCC
proposes conforming changes describing
critical support functions the document
that would reflect OCC’s internal
employee reporting structure and to
provide a more granular view into the
departments that make up each support
function. In Chapter 5 of the Plan, OCC
proposes to update timing, cost, and
employee assumptions to reflect the
results an of internal review. OCC also
proposes replacing a discussion of
heightened capital requirements with
discussion of increased financial
reporting for members consistent with
OCC’s Rule 306 and 307.
Similar to the updates regarding
current practice, OCC proposes to
change how it describes its existing
enhanced risk management tools (e.g.,
margin and Clearing Fund collateral) in
the RWD Plan.20 For example, OCC
proposes to clarify the inclusion of
executive compensation as a component
of its ‘‘skin in the game’’ consistent with
current OCC Rule 1006(e)(i).21 OCC also
proposes to expand the list of enhanced
risk management tools described
Section 4 of the Plan to include its
existing assessment powers for
managing a member default pursuant to
OCC’s Rule 1006, as well as several
tools related to the management of risks
other than a member’s default: (i)
insurance coverage, (ii) a working line
of credit, (iii) authority to increase fees,
and (iv) authority to extend settlement
time pursuant to OCC rule 505.22 The
changes are intended to reflect a more
complete list of tools that OCC may use
to respond to extreme stress scenarios.23
18 The language would change from ‘‘stay at
historical normal levels during the wind-down
period’’ to ‘‘generally follow the annual budget with
timing and staffing considerations.’’
19 OCC also proposes adding links to the RWD
Plan that would point a reader to up-to-date
information more generally, which is consistent
with the changes to remove duplicative
information.
20 OCC is not proposing to remove or significantly
change four of the five current enhanced risk
management tools, but merely to align descriptions
in the Plan with OCC’s current thinking.
21 OCC already has authority to use such
executive compensation, and is now updating the
Plan for consistency with its current rules. The
proposed revisions would add detail to the
description already provided in the Plan.
22 The proposed changes include both addition of
such tools to the list of enhanced risk management
tools as well as the addition of more detailed
description of tools and how they operate.
23 OCC also proposes to conform the RWD
discussion of minimum clearing fund cash to other
sections discussing risk management tools by
removing a paragraph discussing the expected
impact and incentives related to the tool.
24 See Securities Exchange Act Release No. 94950
(May 19, 2022), 87 FR 31916 (May 25, 2022) (File
No. SR–OCC–2022–004).
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4. Hypothetical Scenarios
Consistent with the revised risk
management tool descriptions, OCC
proposes to revise the hypothetical
scenarios described in Chapter 7 of the
RWD Plan. The hypothetical scenarios
describe how OCC would deploy its risk
management and recovery tools to
respond to potential events such as a
member default or settlement bank
disruption. OCC is proposing updates to
the hypothetical scenarios to reflect
current data and operational procedures
as well as to resolve grammatical issues.
For example, OCC proposes to
incorporate recent data regarding peak
liquidity demands; the cash component
of the Clearing Fund; and the two
largest Clearing Fund contributions
made by Clearing Members. OCC also
proposes to remove references to energy
futures and options and eliminate a
related note indicating that the products
reflected in this scenario may not be
reflective of products cleared by OCC.
Similarly, OCC would update references
to settlement time for consistency with
OCC’s Rule 101.24
OCC is also proposing to revise the
hypothetical scenarios in which OCC
would clarify current roles and
responsibilities to ensure that the
descriptions set forth in this scenario
align with OCC’s current practices and
procedures. For example, the revised
Plan would reflect the Head of Default
Management’s role in recommending an
extension of settlement timing to OCC’s
Office of the CEO. Similarly, OCC
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proposes various changes to expand the
description of roles and responsibilities
related to its stock loan program under
a scenario in which the Depository
Trust Company is inaccessible (e.g.,
describing the roles of the Collateral
Services and Members Services teams
with regard to notifications and
escalations).
Lastly, OCC proposes combining the
fact patterns presented of two of its
hypothetical scenarios. Specifically,
OCC would combine scenarios focused
on cyberattack and member default to
describe how OCC would respond to
such a combined set of stresses. The
combination of scenarios would require
certain changes in assumptions and
data, but would not affect OCC’s
available risk management and recovery
tools.
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III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Exchange
Act directs the Commission to approve
a proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Exchange
Act and the rules and regulations
thereunder applicable to such
organization.25 After carefully
considering the proposed rule change,
the Commission finds that the proposal
is consistent with the requirements of
the Exchange Act and the rules and
regulations thereunder applicable to
OCC. More specifically, the Commission
finds that the proposal is consistent
with Section 17A(b)(3)(F) of the
Exchange Act,26 and Rule 17Ad–
22(e)(3)(ii) 27 thereunder as described in
detail below.
A. Consistency With Section
17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange
Act requires, among other things, that a
clearing agency’s rules are designed to
promote the prompt and accurate
clearance and settlement of securities
transactions.28
As a central counterparty, it is
important for OCC to have a plan in
place to address extreme stresses or
crises with the aim of maintaining
OCC’s viability and ability to provide
critical services. In the event that OCC’s
recovery efforts are not successful, the
RWD Plan would seek to increase the
possibility that a resolution of OCC’s
operations could be conducted in an
orderly manner. The Commission
25 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
27 17 CFR 240.17Ad–22(e)(3)(ii).
28 15 U.S.C. 78q–1(b)(3)(F).
26 15
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continues to believe that OCC specifying
the steps that it would take in either a
recovery or orderly wind-down would
enhance OCC’s ability to address
circumstances specific to an extreme
stress event.29 The Commission also
continues to believe that, by increasing
the likelihood that recovery would be
orderly, efficient, and successful, the
RWD Plan enhances OCC’s ability to
maintain the continuity of its critical
services (including clearance and
settlement services) during, through,
and following periods of extreme stress
giving rise to the need for recovery,
thereby promoting the prompt and
accurate clearance and settlement of
securities transactions.30
As above, OCC proposes to make
changes to the trigger events defined in
the RWD Plan. With regard to recovery,
the changes primarily shift focus to
OCC’s ability to meet future obligations
in recovery. These changes continue to
provide a roadmap for actions OCC may
employ to monitor and manage its risks,
and, as needed, to stabilize its financial
condition in the event those risks
materialize with a focus on its ability to
continue providing critical services.
Maintaining OCC’s ability to continue
providing clearance and settlement
services would reduce the likelihood of
disruption to the markets it service and
is consistent with promoting the prompt
and accurate clearance and settlement of
securities transactions.
With regard to wind-down, OCC
proposes clarifying the role of the Board
in making a wind-down determination
and consolidating its current WindDown Trigger Events into a trigger based
on a scenario’s specific facts and
circumstances. The propose changed
would provide more flexibility and
could potentially cover a wider variety
of scenarios, including actual
insolvency events, that could affect
OCC. The clarification of the Board’s
role is consistent with prior
Commission statements regarding the
importance of governance in the design
of recovery and wind-down plans.31 The
changes would therefore increase the
likelihood that OCC could continue
providing critical services, thus
promoting the prompt and accurate
clearance and settlement of securities
transactions.
29 See Securities Exchange Act Release No. 90712
(Dec. 17, 2020), 85 FR 84050, 84051 (Dec. 23, 2020)
(File No. SR–OCC–2020–013).
30 See id. at 84052.
31 See e.g., Standards for Covered Clearing
Agencies, Securities Exchange Act Release No.
78961 (Sept. 28, 2016), 81 FR 70786, 70809 (Oct.
13, 2016) (File No. S7–03014) (‘‘Covered Clearing
Agency Standards Adopting Release’’).
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55807
Given the importance of a clearing
agency’s recovery and wind-down plan,
such plans should be carefully and
maintained to ensure that both the
clearing agency and the relevant
regulators have up-to-date information
when such a plan is implemented. As
described above, OCC proposes a
number of changes designed to update
the current plan and provide for the
future maintenance of relevant
information. Specifically, the proposal
includes the (i) relocation of context and
background information from the Plan
into a supplemental document; (ii)
removal of duplicative information
maintained elsewhere in OCC’s
documentation; (iii) updating of
information in the plan that is out of
date or inconsistent with current
practices; and (iv) streamlining of
hypothetical stress scenarios describing
how OCC would employ its recovery
and wind-down tools.
The Commission believes, therefore,
that the proposal is consistent with the
requirements of Section 17A(b)(3)(F) of
the Exchange Act.32
B. Consistency With Rule 17Ad–
22(e)(3)(ii) Under the Exchange Act
Rule 17Ad–22(e)(3)(ii) under the
Exchange Act requires that a covered
clearing agency establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to
maintain a sound risk management
framework for comprehensively
managing legal, credit, liquidity,
operational, general business,
investment, custody, and other risks
that arise in or are borne by the covered
clearing agency, which includes plans
for the recovery and orderly wind-down
of the covered clearing agency
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.33
The Commission stressed the
importance of the context of the
recovery plan and clearing agency as a
whole when assessing the utility of a
particular approach to establishing
trigger criteria.34 As described above,
OCC proposes changes that would focus
its Recovery Trigger Events on OCC’s
ability to meet its future obligations in
recovery. OCC also proposes separating
out operational disruptions from general
business losses, which would provide
more granularity in describing its trigger
events. With regard to wind-down, OCC
proposes to replace four triggers with
one flexible trigger. Such a change,
while reducing granularity, may cover a
32 15
33 17
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(3)(ii).
34 Id.
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wider range of potential scenarios.35
Further, the revised Wind-Down Event
Trigger would specify the Board’s role
in determining whether to trigger an
orderly wind-down.
In adopting Rule 17Ad–22(e)(3)(ii),
the Commission provided guidance,
stating that a covered clearing agency
generally should consider, among other
things, whether it has provided relevant
resolution authorities with the
information needed for purposes of
recovery and resolution planning.36 As
described above, OCC proposes nonsubstantive updates focused primarily
on keeping information accurate and
up-to-date. To achieve this focus, OCC
proposes (i) relocating of context and
background information from the Plan
into a supplemental document; (ii)
removing of duplicative information
maintained elsewhere in OCC’s
documentation; (iii) updating of
information in the plan that is out of
date or inconsistent with current
practices; and (iv) streamlining of
hypothetical stress scenarios describing
how OCC would employ its recovery
and wind-down tools., OCC proposes
the removal of background and
supporting information from the RWD
Plan into a new and separate Supporting
Information document. The Commission
believes that, in moving such
information to a separate document,
resolution authorities will still be able
to use the RWD Plan to identify the
support functions that are necessary to
maintain critical services and
operations, yet also cross-reference to
additional detail in the RWD Plan
Supporting Information as needed. OCC
also proposes the removing duplicative
information and providing links to other
sources of information, such as the
OCC’s website, which would allow OCC
to update any supporting information in
only one place, thus reducing the risk of
providing redundant information. OCC
is also proposing to update outdated
information and to streamline its
hypothetical stress scenarios to reflect
current OCC operations more
accurately. The Commission believes
that the proposed non-substantive
35 The Commission approved a similar single
wind-down trigger event for the National Securities
Clearing Corporation (‘‘NSCC’’). See Securities
Exchange Act Release No. 83974 (Aug. 28, 2018),
83 FR 44988 (Sept. 4, 2018). NSCC Rule 42
authorizes NSCC’s Board to authorize initiation of
NSCC’s wind-down plan if it determines that
application of NSCC’s recovery tools either (i) has
not restored or likely will not restore NSCC to
viability or (ii) that implementing the wind-down
plan is in the best interests of NSCC, its
shareholders and creditors, members, and the U.S.
financial markets.
36 See Covered Clearing Agency Standards
Adopting Release, 81 FR at 70810.
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19:39 Aug 15, 2023
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updates will make the information
provided in the RWD Plan more
accurate and useful; provide a more
accurate and usable playbook for OCC
or source of information for a resolution
authority; eliminate the risk that the
RWD Plan may not contain current
information; support OCC’s ability to
use risk management and recovery tools
effectively to bring about a recovery by
clarifying which tools may be most
effective for different situations or
needs; and eliminate redundancy across
OCC’s by-laws and rules. As such, the
non-substantive changes would provide
a more up-to-date set of information for
the relevant authorities to carry out any
needed recovery and resolution
planning more expeditiously.
The Commission believes, therefore,
that the proposal is consistent with the
requirements of Rule 17Ad–22(e)(3)(ii)
under the Exchange Act.37
IV. Solicitation of Comments on Partial
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Partial
Amendment No. 1, is consistent with
the Exchange 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–2023–005 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–2023–005. 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 of submission. The
Commission will post all comments on
the Commission’s website (https://
www.sec.gov/rules/sro.shtml).
Comments are also 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 a.m. and 3 p.m. Operating
conditions may limit access to the
37 17
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Commission’s Public Reference Room.
Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–OCC–2023–005 and
should be submitted on or before
September 6, 2023.
V. Accelerated Approval of Proposed
Rule Change, as Modified by Partial
Amendment No. 1
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Exchange Act,38 to approve the
proposed rule change prior to the 30th
day after the date of publication of
notice of the filing of Partial
Amendment No. 1 in the Federal
Register. As discussed above, Partial
Amendment No. 1 modified the original
proposed rule change to correct an error
in the narrative summary of proposed
rule changes. Partial Amendment No. 1
does not change the purpose of or basis
for the proposed changes.
For similar reasons as discussed
above, the Commission finds that Partial
Amendment No. 1 is consistent with the
requirement that OCC’s rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions under Section
17A(b)(3)(F) of the Exchange Act.39
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Exchange Act, to approve the
proposed rule change, as modified by
Partial Amendment No. 1, on an
accelerated basis, pursuant to Section
19(b)(2) of the Exchange Act.40
VI. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change, as modified by Partial
Amendment No. 1, is consistent with
the requirements of the Exchange Act,
and in particular, the requirements of
Section 17A of the Exchange Act 41 and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,42
that the proposed rule change (SR–
OCC–2023–005), as modified by Partial
38 15
U.S.C. 78s(b)(2).
U.S.C. 78q–1(b)(3)(F).
40 15 U.S.C. 78s(b)(2).
41 In approving this proposed rule change, the
Commission has considered the proposed rules’
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
42 15 U.S.C. 78s(b)(2).
39 15
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Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices
Amendment No. 1, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–17531 Filed 8–15–23; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule Related to the Options
Regulatory Fee
August 10, 2023.
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 August 8,
2023, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
lotter on DSK11XQN23PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend its Fee Schedule related to the
Options Regulatory Fee. 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/edgx/),
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
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
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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19:39 Aug 15, 2023
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3 The Exchange initially filed the proposed rule
change on August 1, 2023 (SR–CboeEDGX–2023–
053). On August 8, 2023, the Exchange withdrew
that filing and submitted this proposal.
4 It also proposes to eliminate the reference to the
September 30 ORF rate, as that reference pertains
to a change made back in 2019 and is therefore now
obsolete.
1. Purpose
[Release No. 34–98108; File No. SR–
CboeEDGX–2023–054]
43 17
The Exchange proposes to amend its
Options Fee Schedule, to harmonize the
language and processes relating to the
Options Regulatory Fee (‘‘ORF’’).3 By
way of background, the ORF is designed
to recover a material portion of the costs
to the Exchange of the supervision and
regulation of Member customer options
business, including performing routine
surveillances, investigations,
examinations, financial monitoring, as
well as policy, rulemaking, interpretive
and enforcement activities. The revenue
generated from the ORF, when
combined with all of the Exchange’s
other regulatory fees and fines, covers a
material portion, but not all, of the
Exchange’s regulatory costs.
The Exchange monitors the amount of
revenue collected from the ORF to
ensure that it, in combination with its
other regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs. The Exchange monitors its
regulatory costs and revenues at a
minimum on a semi-annual basis. If the
Exchange determines regulatory
revenues exceed or are insufficient to
cover a material portion of its regulatory
costs, the Exchange will adjust the ORF
by submitting a fee change filing to the
Commission. The Exchange notifies
Members of adjustments to the ORF via
an exchange notice. The Exchange
provides Members with such notice at
least 30 calendar days prior to the
effective date of the change.
The Options Regulatory Fee section of
the fees schedule sets forth the details
and description of how and when the
ORF is assessed. For example, the fee
schedule explicitly specifies that the
Exchange may only increase or decrease
the ORF semi-annually, and any such
fee change will be effective on the first
business day of February or August. The
fee schedule further states that the
Exchange will notify participants of any
change in the amount of the fee at least
30 calendar days prior to the effective
date of the change, except in the case of
the September 30th ORF rate change.
The Exchange proposes to update the
fee schedule language relating to the
timing of ORF changes.4 Particularly,
the Exchange proposes to eliminate the
strict requirement that the ORF may
only be modified on the first business
day of February or August, and also the
explicit requirement that it must
provide at least 30 calendar days prior
to the effective date.
The Exchange first proposes to
eliminate the requirement that ORF may
only be modified on the first business
day of February or August to afford the
Exchange increased flexibility in
amending the ORF. As noted above, the
ORF is based in part on options
transactions volume, and as such the
amount of ORF collected is variable. If
options transactions reported to OCC in
a given month increase, the ORF
collected from Members may increase as
well. Similarly, if options transactions
reported to OCC in a given month
decrease, the ORF collected from
Members may decrease as well.
Accordingly, the Exchange monitors the
amount of ORF collected to ensure that
it does not exceed the Exchange’s total
regulatory costs. If the Exchange
determines the amount of ORF collected
exceeds costs over an extended period,
the proposed rule change allows the
Exchange to adjust the ORF by
submitting a fee change filing to the
Securities and Exchange Commission
(the ‘‘Commission’’) in a month other
than just February or August. Although
the Exchange proposes to eliminate the
explicit language in the fee schedule
that provides the Exchange will adjust
the ORF only semi-annually, and only
on the first business day of February or
August, it would continue to monitor its
regulatory costs and revenues at a
minimum on a semi-annual basis and
submit a proposed rule change for each
modification of the ORF as needed.
The Exchange also proposes to
eliminate the explicit language in the
fee schedule that it will notify
participants of any change in the
amount of the fee at least 30 calendar
days prior to the effective date of the
change. Although the Exchange
proposes to eliminate this language from
the fee schedule, it notes that it will
endeavor to notify Members of any
planned change to the ORF by Exchange
Notice at least 30 calendar days prior to
the effective date of such change. The
Exchange believes this proposed change
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
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]]>Agencies
[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Notices]
[Pages 55804-55809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17531]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98107; File No. SR-OCC-2023-005]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of Partial Amendment No. 1 and Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1, by the Options Clearing Corporation Concerning
Amendment of Its Recovery and Orderly Wind-Down Plan
August 10, 2023.
I. Introduction
On June 7, 2023, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2023-005 pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
\2\ thereunder. The proposed rule change would amend OCC's Recovery and
Orderly Wind-Down Plan (``RWD Plan'') by: (i) removing certain
supporting information; (ii) incorporating references to certain
documents and materials; (iii) implementing updates and amendments to
all six chapters of the proposed Plan; and (iv) updating and revising
the hypothetical stress scenarios set forth in Appendix A of the
proposed RWD Plan. The proposed rule change was published for public
comment in the Federal Register on June 27, 2023.\3\ The Commission has
received comments regarding the proposed rule change.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 97785 (June 21, 2023),
88 FR 41695 (June 27, 2023) (File No. SR-OCC-2023-005) (``Notice of
Filing'').
\4\ Comments on the Proposed Rule Change are available at
https://www.sec.gov/comments/sr-occ-2023-005/srocc2023005.htm. The
commenters raised a concern regarding the confidentiality of certain
exhibits. Id. OCC asserted that the exhibits to the filing were
entitled to confidential treatment because they contained commercial
and financial information that is not customarily released to the
public and is treated as the private information of OCC. Under
Section 23(a)(3) of the Exchange Act, the Commission is not required
to make public statements filed with the Commission in connection
with a proposed rule change of a self-regulatory organization if the
Commission could withhold the statements from the public in
accordance with the Freedom of Information Act (``FOIA''), 5 U.S.C.
552. 15 U.S.C. 78w(a)(3). The Commission has reviewed the documents
for which OCC requests confidential treatment and concludes that
they could be withheld from the public under the FOIA. FOIA
Exemption 4 protects confidential commercial or financial
information. 5 U.S.C. 552(b)(4). Under Exemption 4, information is
confidential if it ``is both customarily and actually treated as
private by its owner and provided to government under an assurance
of privacy.'' Food Marketing Institute v. Argus Leader Media, 139 S.
Ct. 2356, 2366 (2019). In its requests for confidential treatment,
OCC stated that it has not disclosed the confidential exhibits to
the public, and the information is the type that would not
customarily be disclosed to the public. In addition, by requesting
confidential treatment, OCC had an assurance of privacy because the
Commission generally protects information that can be withheld under
Exemption 4. Thus, the Commission has determined to accord
confidential treatment to the confidential exhibits.
---------------------------------------------------------------------------
On July 28, 2023, OCC amended SR-OCC-2023-005 to correct an error
in the narrative summary of proposed rule changes (``Partial Amendment
No. 1''). Specifically, the narrative, as filed on June 7, 2023, stated
that OCC proposed to remove a section of the RWD Plan describing OCC's
Risk Management Framework. However, the relevant text was already
removed from the RWD Plan as part of a recent filing.\5\ The amendment
did not change the purpose or basis of the proposed rule change. The
Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons, and, for the reasons discussed
below, is approving the proposed rule change, as modified by Partial
Amendment No. 1 (hereinafter, the ``proposed rule change''), on an
accelerated basis.
---------------------------------------------------------------------------
\5\ Securities Exchange Act Release No. 96566 (Dec. 22, 2022),
87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010).
---------------------------------------------------------------------------
II. Background
OCC is a central counterparty (``CCP''), which means it interposes
itself as the buyer to every seller and seller to every buyer for
financial transactions. As the CCP for the listed options markets in
the U.S., as well as for certain futures, OCC is exposed to certain
risks arising from its relationships with its members as well as
general business risk. OCC maintains various tools for managing such
risks.\6\ OCC also maintains tools to manage the risk of liquidity
shortfalls and credit losses that exceed its routine risk management
tools.\7\ OCC describes such tools and the governance related to them
in its RWD Plan.\8\
---------------------------------------------------------------------------
\6\ See e.g., Securities Exchange Act Release No. 96566 (Dec.
22, 2022), 87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010);
Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR
68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010); and Securities
Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30,
2020) (File No. SR-OCC-2019-007).
\7\ See Securities Exchange Act Release No. 82351 (Dec. 19,
2017), 82 FR 61107 (Dec. 26, 2017) (File No. SR-OCC-2017-020).
Capitalized terms used but not defined herein have the meanings
specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
\8\ See Securities Exchange Act Release No. 83918 (Aug. 23,
2018), 83 FR 44091 (Aug. 29, 2018) (File No. SR-OCC-2017-021) (Order
approving the adoption of OCC's RWD Plan).
---------------------------------------------------------------------------
Over the years, OCC has made substantive and non-substantive
[[Page 55805]]
changes to the RWD Plan.\9\ With regard to the substance of the RWD
Plan, OCC proposes to change the trigger events defined in the RWD
Plan. With regard to recovery, the changes would focus the trigger
events on OCC's ability to meet future obligations (as opposed to a
focus on current resources). With regard to wind-down, the changes
would clarify the Board's role in starting the wind-down process and
provide flexibility to avoid triggering a wind-down where recovery is
still a viable option.
---------------------------------------------------------------------------
\9\ See e.g., Securities Exchange Act Release No. 90712 (Dec.
17, 2020), 85 FR 84050 (Dec. 23, 2020) (File No. SR-OCC-2020-013)
(Order approving updates to OCCs RWD Plan to reflect changes to
OCC's capital structure resulting from the disapproval of OCC's
previously approved ``Capital Plan'' and the subsequent approval of
OCC's ``Capital Management Policy'' and implementing changes
identified during OCC's annual review of the RWD Plan).
---------------------------------------------------------------------------
OCC also proposes to make a series of non-substantive changes,
including changes to improving the accuracy and consistency of
information in the RWD Plan by moving dynamic, contextual information
(e.g., annual volume data) out of the RWD Plan to a supporting document
that could more easily be maintained as such information changes from
time to time. Similarly, OCC proposes to strike language found in other
OCC sources from the RWD Plan to avoid potential future inconsistencies
across OCC's internal documentation. Further, OCC would update
information and references in the RWD Plan that are currently out of
date. Lastly, OCC proposes to streamline the hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools without affecting the substance covered in the scenarios.\10\
---------------------------------------------------------------------------
\10\ OCC also proposes conforming changes throughout the plan as
required by the changes described here (e.g., renumbering sections,
fixing grammar).
---------------------------------------------------------------------------
A. Trigger Events
Recovery Triggers. In its RWD Plan, OCC has identified events that
would indicate OCC is facing an extreme stress event that potentially
threatens OCC's viability, the occurrence of which would signal that
OCC has entered into recovery (the ``Recovery Trigger Events'').\11\
The RWD Plan currently defines a set of three such Recovery Trigger
Events arising out of (i) credit losses, (ii) liquidity shortfalls, and
(iii) operational losses and disruption. OCC proposes to revise the
credit and liquidity triggers and to separate the third trigger out
into two separate triggers based on operational disruptions and general
business losses.
---------------------------------------------------------------------------
\11\ Once in recovery, OCC would likely look to apply its
recovery tools, which include the ability of OCC to (i) levy
assessments against non-defaulting members; (ii) receive voluntary
payments from its non-defaulting members; (iii) allow non-defaulting
members and customers to voluntarily extinguish certain positions;
(iv) tear-up a defaulter's open positions; and (v) charge members a
fee to replenish OCC's capital in response to certain non-default
losses.
---------------------------------------------------------------------------
The credit loss-Recovery Trigger change is merely a rephrasing of
the current trigger clarify that it would be based on a 100 percent
depletion of the pre-funded Clearing Fund resources. OCC proposes to
change the liquidity shortfall Recovery Trigger to better align with
OCC's Liquidity Risk Management Framework. The current trigger focuses
on the inability to complete settlement within the time required. In
contrast, the proposed trigger would focus on the potential inability
to address foreseeable shortfalls.
For events not triggered by a member default, OCC proposes to
replace the current trigger focused on loss and disruption into two
separate triggers, one of which would be based on loss and the other on
disruption. With regard to loss, OCC proposes to replace references to
operational loss with references to broader general business losses.
With regard to disruption, the trigger would continue to focus on the
disruption of critical services. Both the general business loss and
operational disruption triggers would focus on OCC having no reasonable
expectation of timely return to business as usual (i.e., meeting
minimum capital requirements or resumption of critical services).
Wind-Down Triggers. Similar to the Recovery Trigger Events, OCC has
identified events that could jeopardize the viability of OCC's ability
to recover, the occurrence of which would signal the need for OCC to
initiate its Wind-Down Plan (Wind-Down Trigger Events). The RWD Plan
currently defines four Wind-Down Trigger Events that relate to (i) an
inability to comply with regulatory financial resource requirements;
(ii) a loss of confidence by members; (iii) the sustained disruption of
critical services; and (iv) modification or recission of an emergency
filed pursuant to Section 806(e)(2) of the Payment, Clearing, and
Settlement Supervision Act.\12\ To reduce the chance of initiating a
wind-down where a successful recovery would still be possible, OCC
proposes to replace the four Wind-Down Trigger Events with a single,
flexible trigger that grants discretion to OCC's Board of Directors.
The proposed trigger would rest on the Board's determination that OCC's
recovery efforts have not been or are unlikely to be successful in
returning OCC to viability as a going concern. The revised approach
would allow more flexible consideration of the facts and circumstances
of a given event.
---------------------------------------------------------------------------
\12\ See 12 U.S.C. 5465(e)(2).
---------------------------------------------------------------------------
B. Changes for Consistency and Accuracy
As noted above, OCC is also proposing a set of non-substantive
changes to the RWD Plan. Such changes (described further below) include
the (i) relocation of context and background information from the Plan
into a supplemental document; (ii) removal of duplicative information
maintained elsewhere in OCC's documentation; (iii) updating of
information in the plan that is out of date or inconsistent with
current practices; and (iv) streamlining of hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools. OCC also proposes grammatical and technical edits throughout the
entirety of the RWD Plan, such as modifying the use and location of
certain defined terms for improved readability, using initial
capitalization for term ``Clearing Member'' consistently throughout the
document, deleting unnecessary words, and modifying tense for clarity.
1. RWD Plan Supporting Information
OCC's RWD Plan currently includes information related to OCC's
operations, management structure, personnel, support functions, banking
relationships, vendors, and key agreements. This supporting information
provides background and context for parties that are reviewing the RWD
Plan or using it as part of an actual recovery or wind-down event. OCC
is proposing to move supporting information from the RWD Plan to a
separate document (the ``RWD Plan Supporting Information''). Placing
such information in the RWD Plan Supporting Information would allow OCC
to maintain the accuracy of such information without revising OCC's
rules.\13\
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\13\ OCC intends to review and update the RWD Plan Supporting
Information twice a year, or more frequently as needed. See Notice
of Filing, 88 FR at 41696.
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The proposed rule change would move portions from the current RWD,
such as significant portions of the existing ``Business Overview'' and
``Management Structure'' sections into the RWD Plan Supporting
Information document.\14\ OCC would also move
[[Page 55806]]
background information about OCC's 12 support functions from the RWD
Plan to the RWD Plan Supporting Information.\15\ The proposed rule
change would also move information and data subject to regular change
from the RWD Plan's description of OCC's clearing services to a similar
section of the RWD Plan Supporting Information. Lastly, OCC proposes to
move information about OCC's current settlement banks, custodian banks,
letter-of-credit banks, vendors needed to support recovery and wind-
down, and key agreements to be maintained, currently listed in several
of the RWD Plan Appendices, to the RWD Plan Supporting Information
document.\16\
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\14\ OCC proposes to move the details of OCC's business overview
to Section 2.1 (``Business Overview'') of the RWD Plan Supporting
Information, details of OCC's management structure and executives to
Sections 2.2 (``Management Structure''), and details of its staffing
to Section 2.3 (``People'').
\15\ In the RWD Plan Supporting Information, Chapter 3, OCC
would provide additional context on the Business Operations,
Corporate Risk Management and Security Services Departments.
\16\ Specifically, OCC proposes to move information from current
Appendices E, F, G, H, and J to the new RWD Plan Supporting
Information document. Current Appendix E of the RWD Plan is a list
of OCC's current settlement banks; current Appendix F is a list of
OCC's current custodian banks; current Appendix G is a list of OCC's
current letter-of-credit banks; and current Appendix H is a list of
OCC's current vendors needed to support recovery and wind-down. OCC
also intends to provide additional information about its Tier 1
vendors (i.e., vendors that involve or materially support critical
processes) in the RWD Plan Supporting Information. The information
in these RWD Plan Appendices would be moved to Chapter 4
(``Interconnectedness'') of the RWD Plan Supporting Information.
Current Appendix J of the RWD Plan includes information on OCC's key
agreements to be maintained with third-party products and services.
This would be moved to Chapter 5 (``Key Agreements to be
Maintained'') of the RWD Plan Supporting Information. This new
Chapter 5 itself does not list the agreements with the third-party
products and services, but provides a link to OCC's internal
SharePoint website.
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2. Removal of Duplicative Information
OCC proposes to remove information from the RWD Plan to the extent
OCC already maintains such information elsewhere. The purpose of
removing duplicative information is to reduce the complexity of
maintaining information that could lead to inconsistencies across
multiple documents. For example, OCC proposes to replace financial
information currently set forth in the RWD Plan with a link to the
section of OCC's website that displays OCC's Annual Reports, which
include OCC's audited financial statements, and a link to OCC's fee
schedule, which depicts the Target Capital Requirement.\17\
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\17\ Current Appendix D of the RWD Plan would be removed
altogether. OCC proposes to add the link to OCC's annual reports and
audited financial statements to current section 2.6 (``Financial
Summary'').
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3. Updating of Inaccurate or Outdated Information
OCC also proposes to update text in the RWD Plan that was either
inaccurate in its original form, or is no longer consistent with OCC's
current practices. For example, in Chapter 1 of the Plan, OCC proposes
to change the language related to expense assumptions during a
resolution process, to convey the intended meaning of the assumption
more accurately.\18\ OCC proposes to update outdated descriptions of
its services and facilities in Chapter 2 of the RWD Plan.\19\ In
Chapter 3 of the Plan, OCC proposes to update the descriptions of its
pricing and valuation services by adding detail on the processes and
eliminating specific data that become outdated quickly because it is
subject to frequent changes (e.g., trading data from 2019, such as the
average daily gross volume of options contracts cleared, the average
daily gross value of premium exchanged, etc.). OCC also proposes
removing a reference to letter of credit banks from Section 3.5 because
letter of credit banks comprise less than 0.1 percent of margin pledged
to OCC. Further, OCC proposes conforming changes describing critical
support functions the document that would reflect OCC's internal
employee reporting structure and to provide a more granular view into
the departments that make up each support function. In Chapter 5 of the
Plan, OCC proposes to update timing, cost, and employee assumptions to
reflect the results an of internal review. OCC also proposes replacing
a discussion of heightened capital requirements with discussion of
increased financial reporting for members consistent with OCC's Rule
306 and 307.
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\18\ The language would change from ``stay at historical normal
levels during the wind-down period'' to ``generally follow the
annual budget with timing and staffing considerations.''
\19\ OCC also proposes adding links to the RWD Plan that would
point a reader to up-to-date information more generally, which is
consistent with the changes to remove duplicative information.
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Similar to the updates regarding current practice, OCC proposes to
change how it describes its existing enhanced risk management tools
(e.g., margin and Clearing Fund collateral) in the RWD Plan.\20\ For
example, OCC proposes to clarify the inclusion of executive
compensation as a component of its ``skin in the game'' consistent with
current OCC Rule 1006(e)(i).\21\ OCC also proposes to expand the list
of enhanced risk management tools described Section 4 of the Plan to
include its existing assessment powers for managing a member default
pursuant to OCC's Rule 1006, as well as several tools related to the
management of risks other than a member's default: (i) insurance
coverage, (ii) a working line of credit, (iii) authority to increase
fees, and (iv) authority to extend settlement time pursuant to OCC rule
505.\22\ The changes are intended to reflect a more complete list of
tools that OCC may use to respond to extreme stress scenarios.\23\
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\20\ OCC is not proposing to remove or significantly change four
of the five current enhanced risk management tools, but merely to
align descriptions in the Plan with OCC's current thinking.
\21\ OCC already has authority to use such executive
compensation, and is now updating the Plan for consistency with its
current rules. The proposed revisions would add detail to the
description already provided in the Plan.
\22\ The proposed changes include both addition of such tools to
the list of enhanced risk management tools as well as the addition
of more detailed description of tools and how they operate.
\23\ OCC also proposes to conform the RWD discussion of minimum
clearing fund cash to other sections discussing risk management
tools by removing a paragraph discussing the expected impact and
incentives related to the tool.
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4. Hypothetical Scenarios
Consistent with the revised risk management tool descriptions, OCC
proposes to revise the hypothetical scenarios described in Chapter 7 of
the RWD Plan. The hypothetical scenarios describe how OCC would deploy
its risk management and recovery tools to respond to potential events
such as a member default or settlement bank disruption. OCC is
proposing updates to the hypothetical scenarios to reflect current data
and operational procedures as well as to resolve grammatical issues.
For example, OCC proposes to incorporate recent data regarding peak
liquidity demands; the cash component of the Clearing Fund; and the two
largest Clearing Fund contributions made by Clearing Members. OCC also
proposes to remove references to energy futures and options and
eliminate a related note indicating that the products reflected in this
scenario may not be reflective of products cleared by OCC. Similarly,
OCC would update references to settlement time for consistency with
OCC's Rule 101.\24\
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\24\ See Securities Exchange Act Release No. 94950 (May 19,
2022), 87 FR 31916 (May 25, 2022) (File No. SR-OCC-2022-004).
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OCC is also proposing to revise the hypothetical scenarios in which
OCC would clarify current roles and responsibilities to ensure that the
descriptions set forth in this scenario align with OCC's current
practices and procedures. For example, the revised Plan would reflect
the Head of Default Management's role in recommending an extension of
settlement timing to OCC's Office of the CEO. Similarly, OCC
[[Page 55807]]
proposes various changes to expand the description of roles and
responsibilities related to its stock loan program under a scenario in
which the Depository Trust Company is inaccessible (e.g., describing
the roles of the Collateral Services and Members Services teams with
regard to notifications and escalations).
Lastly, OCC proposes combining the fact patterns presented of two
of its hypothetical scenarios. Specifically, OCC would combine
scenarios focused on cyberattack and member default to describe how OCC
would respond to such a combined set of stresses. The combination of
scenarios would require certain changes in assumptions and data, but
would not affect OCC's available risk management and recovery tools.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\25\ After carefully
considering the proposed rule change, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More
specifically, the Commission finds that the proposal is consistent with
Section 17A(b)(3)(F) of the Exchange Act,\26\ and Rule 17Ad-
22(e)(3)(ii) \27\ thereunder as described in detail below.
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\25\ 15 U.S.C. 78s(b)(2)(C).
\26\ 15 U.S.C. 78q-1(b)(3)(F).
\27\ 17 CFR 240.17Ad-22(e)(3)(ii).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that a clearing agency's rules are designed to promote the
prompt and accurate clearance and settlement of securities
transactions.\28\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
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As a central counterparty, it is important for OCC to have a plan
in place to address extreme stresses or crises with the aim of
maintaining OCC's viability and ability to provide critical services.
In the event that OCC's recovery efforts are not successful, the RWD
Plan would seek to increase the possibility that a resolution of OCC's
operations could be conducted in an orderly manner. The Commission
continues to believe that OCC specifying the steps that it would take
in either a recovery or orderly wind-down would enhance OCC's ability
to address circumstances specific to an extreme stress event.\29\ The
Commission also continues to believe that, by increasing the likelihood
that recovery would be orderly, efficient, and successful, the RWD Plan
enhances OCC's ability to maintain the continuity of its critical
services (including clearance and settlement services) during, through,
and following periods of extreme stress giving rise to the need for
recovery, thereby promoting the prompt and accurate clearance and
settlement of securities transactions.\30\
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\29\ See Securities Exchange Act Release No. 90712 (Dec. 17,
2020), 85 FR 84050, 84051 (Dec. 23, 2020) (File No. SR-OCC-2020-
013).
\30\ See id. at 84052.
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As above, OCC proposes to make changes to the trigger events
defined in the RWD Plan. With regard to recovery, the changes primarily
shift focus to OCC's ability to meet future obligations in recovery.
These changes continue to provide a roadmap for actions OCC may employ
to monitor and manage its risks, and, as needed, to stabilize its
financial condition in the event those risks materialize with a focus
on its ability to continue providing critical services. Maintaining
OCC's ability to continue providing clearance and settlement services
would reduce the likelihood of disruption to the markets it service and
is consistent with promoting the prompt and accurate clearance and
settlement of securities transactions.
With regard to wind-down, OCC proposes clarifying the role of the
Board in making a wind-down determination and consolidating its current
Wind-Down Trigger Events into a trigger based on a scenario's specific
facts and circumstances. The propose changed would provide more
flexibility and could potentially cover a wider variety of scenarios,
including actual insolvency events, that could affect OCC. The
clarification of the Board's role is consistent with prior Commission
statements regarding the importance of governance in the design of
recovery and wind-down plans.\31\ The changes would therefore increase
the likelihood that OCC could continue providing critical services,
thus promoting the prompt and accurate clearance and settlement of
securities transactions.
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\31\ See e.g., Standards for Covered Clearing Agencies,
Securities Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR
70786, 70809 (Oct. 13, 2016) (File No. S7-03014) (``Covered Clearing
Agency Standards Adopting Release'').
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Given the importance of a clearing agency's recovery and wind-down
plan, such plans should be carefully and maintained to ensure that both
the clearing agency and the relevant regulators have up-to-date
information when such a plan is implemented. As described above, OCC
proposes a number of changes designed to update the current plan and
provide for the future maintenance of relevant information.
Specifically, the proposal includes the (i) relocation of context and
background information from the Plan into a supplemental document; (ii)
removal of duplicative information maintained elsewhere in OCC's
documentation; (iii) updating of information in the plan that is out of
date or inconsistent with current practices; and (iv) streamlining of
hypothetical stress scenarios describing how OCC would employ its
recovery and wind-down tools.
The Commission believes, therefore, that the proposal is consistent
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act
Rule 17Ad-22(e)(3)(ii) under the Exchange Act requires that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to maintain a sound
risk management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by the covered clearing agency,
which includes plans for the recovery and orderly wind-down of the
covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.\33\
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\33\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The Commission stressed the importance of the context of the
recovery plan and clearing agency as a whole when assessing the utility
of a particular approach to establishing trigger criteria.\34\ As
described above, OCC proposes changes that would focus its Recovery
Trigger Events on OCC's ability to meet its future obligations in
recovery. OCC also proposes separating out operational disruptions from
general business losses, which would provide more granularity in
describing its trigger events. With regard to wind-down, OCC proposes
to replace four triggers with one flexible trigger. Such a change,
while reducing granularity, may cover a
[[Page 55808]]
wider range of potential scenarios.\35\ Further, the revised Wind-Down
Event Trigger would specify the Board's role in determining whether to
trigger an orderly wind-down.
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\34\ Id.
\35\ The Commission approved a similar single wind-down trigger
event for the National Securities Clearing Corporation (``NSCC'').
See Securities Exchange Act Release No. 83974 (Aug. 28, 2018), 83 FR
44988 (Sept. 4, 2018). NSCC Rule 42 authorizes NSCC's Board to
authorize initiation of NSCC's wind-down plan if it determines that
application of NSCC's recovery tools either (i) has not restored or
likely will not restore NSCC to viability or (ii) that implementing
the wind-down plan is in the best interests of NSCC, its
shareholders and creditors, members, and the U.S. financial markets.
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In adopting Rule 17Ad-22(e)(3)(ii), the Commission provided
guidance, stating that a covered clearing agency generally should
consider, among other things, whether it has provided relevant
resolution authorities with the information needed for purposes of
recovery and resolution planning.\36\ As described above, OCC proposes
non-substantive updates focused primarily on keeping information
accurate and up-to-date. To achieve this focus, OCC proposes (i)
relocating of context and background information from the Plan into a
supplemental document; (ii) removing of duplicative information
maintained elsewhere in OCC's documentation; (iii) updating of
information in the plan that is out of date or inconsistent with
current practices; and (iv) streamlining of hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools., OCC proposes the removal of background and supporting
information from the RWD Plan into a new and separate Supporting
Information document. The Commission believes that, in moving such
information to a separate document, resolution authorities will still
be able to use the RWD Plan to identify the support functions that are
necessary to maintain critical services and operations, yet also cross-
reference to additional detail in the RWD Plan Supporting Information
as needed. OCC also proposes the removing duplicative information and
providing links to other sources of information, such as the OCC's
website, which would allow OCC to update any supporting information in
only one place, thus reducing the risk of providing redundant
information. OCC is also proposing to update outdated information and
to streamline its hypothetical stress scenarios to reflect current OCC
operations more accurately. The Commission believes that the proposed
non-substantive updates will make the information provided in the RWD
Plan more accurate and useful; provide a more accurate and usable
playbook for OCC or source of information for a resolution authority;
eliminate the risk that the RWD Plan may not contain current
information; support OCC's ability to use risk management and recovery
tools effectively to bring about a recovery by clarifying which tools
may be most effective for different situations or needs; and eliminate
redundancy across OCC's by-laws and rules. As such, the non-substantive
changes would provide a more up-to-date set of information for the
relevant authorities to carry out any needed recovery and resolution
planning more expeditiously.
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\36\ See Covered Clearing Agency Standards Adopting Release, 81
FR at 70810.
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The Commission believes, therefore, that the proposal is consistent
with the requirements of Rule 17Ad-22(e)(3)(ii) under the Exchange
Act.\37\
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\37\ 17 CFR 240.17Ad-22(e)(3)(ii).
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IV. Solicitation of Comments on Partial Amendment No. 1 to the Proposed
Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Exchange 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-2023-005 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-2023-005. 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 of submission. The Commission will post all
comments on the Commission's website (https://www.sec.gov/rules/sro.shtml). Comments are also 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
a.m. and 3 p.m. Operating conditions may limit access to the
Commission's Public Reference Room. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-OCC-2023-005 and should be submitted on or
before September 6, 2023.
V. Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Exchange Act,\38\ to approve the proposed rule change prior to the
30th day after the date of publication of notice of the filing of
Partial Amendment No. 1 in the Federal Register. As discussed above,
Partial Amendment No. 1 modified the original proposed rule change to
correct an error in the narrative summary of proposed rule changes.
Partial Amendment No. 1 does not change the purpose of or basis for the
proposed changes.
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\38\ 15 U.S.C. 78s(b)(2).
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For similar reasons as discussed above, the Commission finds that
Partial Amendment No. 1 is consistent with the requirement that OCC's
rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions under Section 17A(b)(3)(F) of the
Exchange Act.\39\ Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Exchange Act, to approve the
proposed rule change, as modified by Partial Amendment No. 1, on an
accelerated basis, pursuant to Section 19(b)(2) of the Exchange
Act.\40\
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\39\ 15 U.S.C. 78q-1(b)(3)(F).
\40\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with the requirements of the Exchange Act, and in
particular, the requirements of Section 17A of the Exchange Act \41\
and the rules and regulations thereunder.
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\41\ In approving this proposed rule change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\42\ that the proposed rule change (SR-OCC-2023-005), as
modified by Partial
[[Page 55809]]
Amendment No. 1, be, and hereby is, approved.
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\42\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17531 Filed 8-15-23; 8:45 am]
BILLING CODE 8011-01-P
