Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning Amendments to the Options Clearing Corporation's Collateral Risk Management Policy and Margin Policy, 88163-88173 [2023-27912]
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Federal Register / Vol. 88, No. 243 / Wednesday, December 20, 2023 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 22 and paragraph (f) of Rule
19b–4 23 thereunder. 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. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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:
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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–
CboeEDGX–2023–075 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–CboeEDGX–2023–075. 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
22 15
23 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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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–CboeEDGX–2023–075 and should be
submitted on or before January 10, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–27919 Filed 12–19–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99169; File No. SR–OCC–
2023–008]
Self-Regulatory Organizations; the
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Concerning
Amendments to the Options Clearing
Corporation’s Collateral Risk
Management Policy and Margin Policy
December 14, 2023.
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 December 4, 2023, The
Options Clearing Corporation (‘‘OCC’’ or
‘‘Corporation’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by OCC. OCC filed
the proposed rule change pursuant to
Section 19(b)(3)(A)(i) 3 of the Act and
Rule 19b–4(f)(1) 4 thereunder, such that
the proposed rule change was
immediately effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
1 15
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88163
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change would
amend OCC’s Collateral Risk
Management Policy (‘‘CRM Policy’’) and
Margin Policy (collectively, ‘‘OCC
Policies’’). The proposed changes are
designed to update the OCC Policies to
better align the descriptions therein
with OCC’s current practices, delete
extraneous information, and make other
non-substantive clarifying, conforming
and administrative changes.
The proposed changes to the OCC
Policies are included in confidential
Exhibits 5A and 5B to File No. SR–
OCC–2023–008. Material proposed to be
added to the OCC Policies 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
As the sole clearing agency for
standardized equity options listed on
national securities exchanges registered
with the Commission (‘‘listed options’’),
OCC is exposed to certain risks,
including credit risk arising from its
relationships with the Clearing
Members for which OCC becomes the
buyer to every seller and the seller to
ever buyer with respect to listed
options. In order to manage
counterparty credit risk and mitigate
related systemic risks, OCC requires
Clearing Members to collateralize
financial obligations that result from
maintaining options, futures and stock
loan positions at OCC.
OCC maintains policies filed with the
Commission as OCC rules that are
designed to address such credit risk,
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.
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including the CRM Policy and the
Margin Policy. The CRM Policy
identifies OCC’s approach for managing
the risks associated with accepting
collateral deposits.6 Specifically, the
CRM Policy sets the governance
processes for establishing and
maintaining standards used to
determine acceptable forms of collateral,
as well as the methodology for
establishing the valuation practices,
including applicable haircuts and
concentration limits to effectively
manage OCC’s credit exposure.7 In
addition, the CRM Policy describes the
requirements for periodically evaluating
the forms of accepted collateral and the
ongoing adequacy of the valuation
processes.8 The Margin Policy describes
OCC’s approach to managing credit
exposure presented by its Clearing
Members by requiring Clearing
Members to deposit margin, which OCC
would use to cover losses if a member
defaults.9 The Margin Policy addresses
positions considered for margin
calculations, cross-margining, treatment
of collateral included in margin
calculations, key margin assumptions,
OCC’s margin methodologies, protocols
for margin calls and adjustments, and
margin monitoring, including through
daily backtesting and model validation
that OCC conducts to assess the
performance of its margin
methodologies.10
Consistent with regulatory
obligations,11 OCC and its Board
reviews these risk management policies
at least annually. Through these annual
reviews, OCC has identified proposed
revisions intended to revise certain
descriptions to better reflect current
practices, remove extraneous
information and make other nonsubstantive, clarifying and
administrative changes to the text of
those policies. These changes are
designed to enhance the clarity of OCC’s
internal governance arrangements and
are not expected to have any impact on
OCC’s Clearing Members or other
market participants.
6 See Exchange Act Release No. 82311 (Dec. 13,
2017), 82 FR 60252, 60252–53 (Dec. 19, 2017) (SR–
OCC–2017–008).
7 See id.
8 See id. at 60253.
9 See Exchange Act Release No. 82658 (Feb. 7,
2018), 83 FR 6646, 6646 (Feb. 14, 2018) (SR–OCC–
2017–007).
10 See id. at 6647.
11 See 17 CFR 240.17Ad–22(e)(3)(i) (requiring,
among other things, that a covered clearing agency
subject its risk management policies, procedures
and systems to review on a specified periodic basis
and approval by the board of directors annually).
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(1) Purpose
OCC proposes to make the following
changes to the CRM Policy and Margin
Policy to better reflect current practices,
remove extraneous information and
make other non-substantive, clarifying
and administrative changes to the text of
those policies.
1. CRM Policy
OCC proposes to add a statement in
the Purpose section that the CRM Policy
sets forth processes to establish and
maintain standards used to ‘‘maintain a
collateral system that is well-designed
and operationally flexible.’’ OCC’s
Collateral Management system meets
this standard today and no changes to
its operations would be required. The
proposed revision would merely clarify
that OCC’s collateral system conforms to
the standard established at Principle 5,
Key Consideration 6 of the Principles
for Financial Market Infrastructures.12
OCC proposes to insert an
Applicability and Scope section that,
consistent with other recently filed
policies,13 would identify the primary
OCC business units that support OCC’s
approach to managing the risks
associated with accepting collateral
deposits, including but not limited to
Pricing and Margins (‘‘P&M’’), Collateral
Services, and Quantitative Risk
Management (‘‘QRM’’).
OCC proposes to retitle the Policy
Detail section as the Policy Content
section to conform with current OCC
titling conventions as reflected in other
policies. OCC also proposes to amend a
statement therein that Clearing Members
must maintain sufficient collateral at
OCC to meet their margin and clearing
fund obligations ‘‘at all times.’’ OCC
proposes to remove this phrase that
could imply that a Clearing Member’s
failure to maintain sufficient collateral
would constitute a violation of OCC’s
Rules (i.e., if the value of the collateral
on deposit fell below the Clearing
Member’s margin requirement). Such a
reading would be inconsistent with OCC
operations and the implicit intent
behind OCC Rules 601 and 1001, which
establish OCC’s ability to call for margin
12 See Committee on Payment and Settlement
Systems and Technical Committee of the
International Organization of Securities
Commissions (‘‘CPSS–IOSCO’’), Principles for
financial market infrastructures (Apr. 16, 2012)
(stating that ‘‘[a]n FMI should use a collateral
management system that is well-designed and
operationally flexible’’), available at https://
www.bis.org/publ/cpss101a.pdf. In 2014, the CPSS
became the Committee on Payments and Market
Infrastructures (‘‘CPMI’’).
13 See Exchange Act Release No. 93916 (Jan. 6,
2022), 87 FR 1819, 1820 (Jan. 12, 2022) (SR–OCC–
2021–014) (discussing the applicability and scope
of OCC’s Cash and Investment Management Policy).
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and Clearing Fund collateral as needed.
The revised statement would better
describe OCC’s long-standing
requirements and practices.
OCC proposes to remove lists of
acceptable margin and Clearing Fund
collateral types from the Margin and
Clearing Fund sections. OCC Rules 604
and 610 describe asset types that OCC
accepts as margin collateral and OCC
Rule 1002 describes Clearing Fund
collateral. Because the list of acceptable
collateral to be removed is appropriately
reflected in the Rulebook, it need not be
duplicated in the CRM Policy.
Similarly, OCC proposes to delete a
statement regarding the current
composition of sovereign debt accepted
by OCC in the Sovereign Credit Risk
section. This text provides background
information regarding the current
composition of OCC’s sovereign debt
collateral and maintaining this
description in the CRM Policy text
raises the risk of inaccuracy should
OCC’s collateral composition change
over time. The statement does not
establish a stated policy, practice or
interpretation of OCC regarding the
forms of Government securities
acceptable to OCC, which are
established by OCC Rules 604 and 1002.
OCC proposes to restate Financial
Risk Management’s (‘‘FRM’’) stated
obligation in the Market Risk section to
value collateral ‘‘continuously,’’ to
‘‘throughout regular market trading
hours.’’ The modifier ‘‘continuously’’
could imply that FRM is required to
value collateral on a 24/7 basis. OCC’s
policies and procedures are designed to
set and enforce appropriately
conservative haircuts for the collateral it
accepts,14 but OCC does not believe this
would require it to adhere to a standard
of continuous and ongoing revaluation
of collateral. Accordingly, OCC
proposes these revisions to more clearly
reflect its long-standing practices.
Similarly, OCC proposes to restate the
obligation in the Valuations section
from requiring P&M to perform its
collateral valuation processes ‘‘on a
continuous basis’’ to ‘‘during regular
market trading hours.’’ In each case the
revised statements are fairly and
reasonably implied by OCC’s rules.15
OCC proposes to amend the
description of its approach to
concentration risk in the Concentration
Risk section. The current description
focuses on OCC’s measures to mitigate
14 See
17 CFR 240.17Ad-22(e)(5).
example, the CRM Policy explains that
OCC’s approach to valuation includes that the
maximum period between collateral revaluations is
at least daily. See Exchange Act Release No. 82009
(Nov. 3, 2017), 82 FR 52079, 52080–81 (Nov. 9,
2017) (SR–OCC–2017–008).
15 For
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concentration risk in relatively limited
scenarios, including where appropriate
to limit the aggregation or concentration
of large positions in a single security or
mitigate price dislocation when selling
a large position into a thin market. This
description does not address other
relevant instances where OCC could
face or seek to mitigate concentration
risk. As such, OCC proposes to more
broadly describe its approach to
mitigating concentration risk, which
consists of restrictions for certain assets
intended to allow OCC to liquidate
collateral quickly without adverse price
effects. The proposed revisions would
more fully describe OCC’s approach to
mitigating concentration risk without
altering the substance or requirements
of the CRM Policy as they relate to
OCC’s core risk management activities.
The Systems and Processing section
describes OCC’s collateral management
system as highly automated yet flexible
enough to accept a variety of collateral
types. While this description of the
system’s flexibility is accurate, it does
not establish a rule, standard or
interpretation with respect to OCC’s
operation of the system. OCC proposes
to replace the extraneous discussion of
flexibility with a statement indicating
that the system supports the
maintenance and processing of various
asset types, which more objectively
conveys similar information. This
section further provides that the
collateral management system maintains
the same performance, efficiency and
effectiveness for each collateral type
OCC accepts. OCC proposes to delete
this provision because different
processing methods for collateral types
and associated timelines could render
that statement inaccurate and the
discussion of the collateral system’s
capabilities likewise does not establish
a stated policy, practice or
interpretation and should not be
considered a rule per se. The proposed
revisions would clarify the description
of OCC’s collateral management system
in accordance with current OCC
operations.
In the Reconciliation section, OCC
intends to clarify that the information it
uses in the daily balancing of collateral
against activity and inventory reports is
not limited to end-of-day reports
provided by custody banks and
depositories. Accordingly, OCC
proposes to remove the ‘‘end-of-day’’
modifier and include OCC’s internal
systems within the description of
potential sources of information and
reports used for daily balancing activity.
These revisions are intended to better
reflect the sources of information OCC
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uses when conducting its daily
balancing activity.
The Reconciliation section also
provides exceptions to the daily
monitoring requirement concerning
certain collateral for which OCC’s daily
balancing activities previously were
impractical. OCC believes these reviews
and associated exceptions to the daily
monitoring requirement are no longer
necessary. Specifically, OCC would
delete reference to the monthly reviews
of collateral deposited pursuant to
letters of credit or depository receipts
and security agreements. With respect to
letters of credit, the monthly reviews
date to when documentation for such
collateral was maintained in physical
files. Currently, OCC verifies and
electronically retains documentation for
letters of credit on the date a letter of
credit is processed consistent with the
CRM Policy’s daily monitoring
requirement, making the monthly
review exception for letters of credit
redundant and unnecessary. With
respect to depository receipts and
security agreements, the processing of
Canadian Government securities, to
which those monthly reviews apply, no
longer rely on such documentation. In
any event, Collateral Services conducts
a daily inventory reconciliation of
Canadian Government securities, which
is reasonably and fairly implied by the
generally applicable daily balancing
requirement under the Reconciliation
section, discussed above. Accordingly,
OCC proposes to delete the reference to
these monthly reviews from the CRM
Policy because the monthly reviews no
longer serve any practical purpose.
Similarly, OCC proposes to remove
the CRM Policy’s discussion of the
requirement that Collateral Services
regularly review escrow deposit banks
to ensure acceptable and sufficient
collateral is maintained. This review
dates to a time when OCC did not have
daily visibility into the actual collateral
holdings held at the banks as supporting
collateral.16 OCC would review a
collateral listing supplied by the banks
on a quarterly basis. Currently, all noncash collateral is pledged to OCC
through the Depository Trust Company
(‘‘DTC’’), which not only provides OCC
with visibility into the holdings but
allows OCC to validate and value the
collateral in an automated fashion prior
to giving credit to such deposits.17 OCC
reconciles the non-cash inventory daily
and performs a daily audit of any cash
16 See Exchange Act Release No. 79094 (Oct. 13,
2016), 81 FR 72129 (Oct. 19, 2016) (SR–OCC–2016–
009) (approving changes to OCC’s escrow deposit
program).
17 Id. at 72129.
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88165
collateral maintained at the escrow
banks against what OCC maintains in its
systems. These daily reconciliation
activities are reasonably and fairly
implied by the generally applicable
daily balancing requirement under the
Reconciliation section, discussed above.
The Reconciliation section also
requires OCC’s Collateral Services team
to ‘‘immediately address’’ any
discrepancies identified during its
activity reviews and inventory
balancing. How Collateral Services
addresses such discrepancies is
addressed in procedures maintained by
Collateral Services. OCC proposes to
revise the text of this section to
recognize that Collateral Services
maintains procedures to satisfy this
obligation.
OCC proposes to remove the entirety
of the Margin Offset section, which
consists of a description of margin
collateral assets that are permitted to
directly offset cleared positions (i.e.,
deposits in lieu of margin) and a
statement that cleared positions can be
fully covered by such assets and thus
excluded from margin calculations. OCC
Rules 610 and 601(f)(2) authorize such
offsets and describe the collateral assets
permitted to be offset. As such, OCC
believes it is unnecessary to duplicate
this information in the CRM Policy.
The Governance and Annual Review
section provides that a recommendation
to add a new collateral type for margin
or clearing fund purposes must address
whether the collateral should be subject
to a haircut or modeled within the
System for Theoretical Analysis and
Numerical Simulation (‘‘STANS’’). OCC
proposes to specify in the CRM Policy
that when the collateral type will be
subject to haircuts, such haircuts will be
expressed as percentages, as is
consistent with current OCC practice.
In addition, OCC proposes to make
clarifying, conforming and other nonsubstantive changes to the CRM Policy.
The proposed changes discussed below
would not substantively alter the
meaning of the revised provisions or the
substance or requirements of the CRM
Policy as they relate to OCC’s core
clearance, settlement, and risk
management activities. The following
conforming revisions are intended to
align the text of the CRM Policy with
existing provisions of the Rulebook, ByLaws or other documents, as applicable,
and to update the titles of documents
referenced in the CRM Policy:
• In the section to be renamed as
Policy Content, and again in the
subsequent Margin section, OCC
proposes to insert references to Rule
610. Rule 610 establishes the rules
around deposits in lieu of margin,
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which are a form of margin collateral.
These changes would ensure alignment
between the text of the CRM Policy and
the Rulebook with respect to acceptable
forms of margin collateral. In the
amended Policy Content section, OCC
also proposes to add that Clearing Fund
collateral can be used to meet OCC
liquidity needs for settlement. This
change is also consistent with existing
practice, as codified in OCC Rule
1006(f).
• OCC would revise two references to
chapter 2 of the ‘‘STANS Margin
Methodology document’’ to instead refer
to the ‘‘STANS Methodology
Description,’’ which replaced the legacy
STANS Margin Methodology as the
description of the STANS Methodology
filed with the Commission.18
The following clarifying revisions are
intended to restate existing provisions
for improved clarity and accuracy:
• In the Purpose section, OCC
proposes to replace collateral that ‘‘OCC
has determined exhibits low credit,
market and liquidity risks’’ with
collateral that ‘‘is of low risk based on
credit, market, and liquidity
characteristics.’’ These revisions would
not alter currently existing standards or
practices but more clearly state what
OCC’s definition of high quality
collateral is based on.
• In the Margin section, OCC
proposes to replace ‘‘price’’ with
‘‘value’’ in reference to the liquidation
of margin assets at a price that
reasonably approximates the value
given to the asset as a collateral deposit,
which would be consistent with the
term ‘‘value’’ that is used later in the
sentence.
• In the Risk Considerations section,
OCC proposes to insert the word
‘‘collateral’’ after ‘‘margin’’ to align with
the term ‘‘Clearing Fund collateral’’
used immediately thereafter. In light of
this alignment, OCC also proposes to
insert ‘‘or both’’ to make clear that the
Credit and Liquidity Risk Working
Group (‘‘CLRWG’’) 19 determines which
assets are considered acceptable for
each category of collateral, or both
categories, as applicable.
• In the Sovereign Credit Risk section,
OCC proposes to delete ‘‘particular’’ as
18 See Exchange Act Release No. 91079 (Feb. 8,
2021), 86 FR 9410 (Feb. 12, 2021) (SR–OCC–2020–
016) (approving the establishment of the STANS
Methodology Description).
19 CLRWG is a cross-functional group responsible
for assisting OCC’s Management Committee in
overseeing and governing OCC’s credit and
liquidity risk management activities and currently
consists of representatives from Financial Risk
Management—including Credit Risk Management
and Stress Testing and Liquidity Risk
Management—Corporate Risk Management,
Treasury, and Operations.
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a qualifier preceding ‘‘foreign
sovereign’s debt.’’ The qualifier is
unnecessary as OCC reviews each form
of collateral prior to accepting it as
collateral, so the revision does not
substantively alter the meaning of the
provision.
• In the Valuations section, OCC
proposes to restate how the haircut
determination and review process
informs OCC’s approach to addressing
procyclicality. The current policy states
that such process also ‘‘protects against
potential pro-cyclical concerns’’ by
considering stressed market conditions.
OCC proposes to delete ‘‘potential’’ and
instead state that the process ‘‘shall also
protect against pro-cyclical concerns’’
by considering stressed market
conditions. The revisions would not
substantively alter existing processes
but make more definitive OCC’s intent
to address pro-cyclicality through its
existing haircut determination and
review process. OCC proposes to
remove ‘‘in order’’ from the same
sentence as it is a redundant statement
of OCC’s purpose, which is adequately
reflected in the statement.
• The Haircuts section provides that
changes to applicable haircut rates shall
be made in accordance with applicable
authority under Rule 604. OCC proposes
to delete ‘‘applicable authority under’’
Rule 604 as it is redundant in the
context of this sentence.
• The Collateral Re-hypothecation
and Substitution section refers to
‘‘Clearing Fund securities.’’ OCC
proposes to revise the reference to
‘‘Clearing Fund collateral’’ for greater
consistency with the section header and
discussion in the preceding sentence,
which refers to rehypothecation of
‘‘margin collateral.’’
Finally, OCC proposes to make
typographical and administrative
changes to the CRM Policy intended to
correct spelling, capitalization,
punctuation and grammar, remove
unnecessary verbiage, and conform the
CRM Policy’s format to OCC’s latest
policy template.
2. Margin Policy
OCC proposes the following changes
to the Margin Policy identified through
its annual reviews of the policy.
In the Purpose section of the Margin
Policy, OCC proposes to delete ‘‘assure
performance’’ of Clearing Members as a
stated purpose for collecting margin.
The act of collecting margin recognizes
that no counterparty’s performance can
be fully assured. The proposed revisions
would merely clarify the discussion in
the Margin Policy without any impact
on the substance or requirements of
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OCC’s margin collection practices or
Clearing Member obligations.
OCC proposes to insert an
Applicability and Scope section, which,
similar to the change to the CRM Policy
discussed above, would identify the
primary OCC business units that
support OCC’s approach to managing
margin and credit exposure presented
by its Clearing Members, including but
not limited to P&M, Collateral Services,
and QRM.
In the Net/Gross Margining Accounts
section, OCC proposes to revise the
discussion of net and gross margining to
focus on OCC’s calculation of margin
rather than OCC’s approach to
liquidating positions in the event of a
default. The current text provides that
two approaches under applicable
regulations to liquidating a Clearing
Member’s positions include the
immediate liquidation of positions that
are margined on a net omnibus basis
and the porting of customer positions
that are margined on a gross basis. OCC
believes it would be more appropriate to
frame this discussion in the Margin
Policy in terms of margin calculation
considerations rather than position
liquidation considerations, which are
covered in other OCC policies and
procedures.20 Accordingly, OCC
proposes to restate this section in terms
of two approaches under applicable
regulations for calculating margin,
which include margining positions on a
net omnibus basis and margining
positions on a gross individual customer
basis. The proposed revision would
more accurately reflect the nature of the
applicable regulatory provision while
more clearly stating OCC’s approach to
margin calculation in a manner that is
consistent with its current operations
and margin calculation processes. At the
same time, OCC proposes to state in the
Margin Policy that it calculates margin
on a customer gross basis for select
accounts, which facilitates the porting
of futures Customer accounts in
accordance with OCC’s Rules or ByLaws. The gross margin calculation is
consistent with OCC’s current practice
for customer segregated futures
positions in accordance with U.S.
Commodity Futures Trading
Commission (‘‘CFTC’’) Regulation
39.13(g)(8)(i)(A),21 which applies to
OCC by virtue of its registration as a
derivatives clearing organization
(‘‘DCO’’). Lastly, OCC proposes to delete
20 OCC’s Default Management Policy outlines the
steps that OCC may take in the event of a Clearing
Member’s suspension, including the close-out of
positions. See Exchange Act Release No. 82310
(Dec. 13, 2017), 82 FR 60265 (Dec. 19, 2017) (SR–
OCC–2017–010).
21 See 17 CFR 39.13(g)(8)(i)(A).
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a statement from this section indicating
that the methodology used to liquidate
a customer account directly influences
the manner in which OCC margins the
account. Liquidation methodology is but
one of numerous factors (e.g., position
risk, concentration of positions,
correlations and offsets, and regulatory
standards) influencing the manner in
which an account is margined. Each of
the above revisions would be consistent
with OCC’s current operations and
margin calculation processes.
In the same section, OCC proposes to
revise how it describes its approach to
liquidating and/or porting a suspended
Clearing Member’s accounts. The
Margin Policy currently provides that
OCC’s primary approach with respect to
the positions of a suspended Clearing
Member shall be immediate liquidation
of net omnibus positions and porting of
futures customer positions margined on
a gross basis. The Margin Policy further
specifies that accounts utilizing a net
margining approach shall be liquidated
on a net omnibus basis either through
market transactions or an auction
format. As above, OCC proposes to
reframe the discussion in the Margin
Policy to focus on the calculation of
margin rather than considerations
around liquidating positions, by noting
instead that the calculation of margin on
a net basis is consistent with OCC’s
primary approach for liquidating a
Clearing Member’s positions. In light of
this revised focus on margin calculation
rather than liquidation, OCC proposes to
delete the statement regarding how net
margin accounts will be liquidated. The
proposed changes are intended to clarify
the relationship between OCC’s margin
calculation approach and its decisions
to port or liquidate positions in a default
scenario, in accordance with applicable
regulations and OCC’s existing Rules.22
The same section provides that gross
margining of accounts ‘‘shall permit’’
OCC to port individual customer
accounts and associated margin to a
solvent futures commission merchant
(‘‘FCM’’). This text could be read to
imply that gross margining ensures that
OCC will be able to port individual
customer accounts and associated
margin in all cases, which cannot be
guaranteed in advance. Accordingly,
OCC proposes to revise this statement to
instead focus on the effect of gross
margining on OCC’s decision-making by
clarifying that gross margining permits
OCC to ‘‘identify’’ individual customer
positions and margin deposits, which
22 See OCC Rule 1106(c) (providing that OCC
shall close open futures positions of a suspended
Clearing Member in the most orderly manner
practicable).
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facilitates porting along with associated
margin deposits. As provided in OCC
Rule 1106 and implied by the proposed
revision to this statement, and to further
ensure that OCC retains an appropriate
and necessary degree of flexibility to
manage risk arising from a Clearing
Member default, OCC further proposes
to state that utilizing gross margining
would not preclude OCC from
liquidating those positions on a net
basis. Each of these proposed revisions
would align the discussion in the
Margin Policy to be consistent with
OCC’s currently contemplated approach
to porting considerations as reflected in
the Rules, and other policies and
procedures governing OCC’s default
management process, and would not
alter the substance or requirements of
the Margin Policy as they relate to
OCC’s core clearance, settlement, and
risk management activities.
In the Segregated Futures Customer
Gross Margining section, the Margin
Policy provides that OCC margins
customer segregated futures accounts on
a gross margin basis to facilitate the
porting of futures customers in the event
of an FCM default. As noted above, the
requirement to collect gross margin for
customer futures accounts is established
at CFTC Regulation 39.13(g)(8)(i)(A),23
which applies to OCC by virtue of its
registration as a DCO. This is a
requirement that applies to OCC by
operation of law and does not need to
be restated in the Margin Policy.24
Lastly, the statement could be
interpreted to be contradictory to a later
statement in the same section that OCC
will require the larger of the gross or net
margin requirement calculated for the
account. For these reasons, OCC
proposes to delete the statement in its
entirety.
In the Stock Loan Positions section,
OCC proposes to revise its discussion of
add-on charges for stock loan positions
to enhance clarity. The Margin Policy
currently provides that OCC will
include add-on margin charges as
needed based on pricing and corporate
action conventions. Because there are
not different conventions to how
corporate actions are applied to stock
loan contracts, OCC proposes to instead
provide that add-on margin charges will
be included based on pricing
23 17
CFR 39.13(g)(8)(i)(A).
this margin calculation requirement is
codified in a regulation it would be potentially
confusing to continue stating that OCC margins
customer futures accounts on a gross basis ‘‘to
facilitate the porting of customers.’’ While this may
be the intended outcome of the gross margin
minimum requirement, it is more accurate that OCC
collects the required amount primarily to meet its
risk management obligations in accordance with
applicable regulations.
24 Because
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conventions and corporate action
entitlements of the applicable stock loan
program. OCC would remove the phrase
‘‘as needed’’ from the current text since
the relevant add-on margin charges are
driven by the pricing conventions and
cash entitlements of the program,
making that phrase redundant in the
context. The proposed revisions would
update and clarify the description of
OCC’s approach to add-on charges in
the Margin Policy without impacting
current OCC operations. In addition,
OCC would change an ‘‘i.e.,’’ to ‘‘e.g.,’’
in the same section because the
subsequent list of risk calculations is
non-exhaustive.
In the Cross-Margin section, OCC
proposes to expressly state that margin
requirements for cross-margin accounts
shall be calculated in accordance with
OCC’s margin methodology, while
taking into account any provisions of
the applicable cross-margin agreement.
The revised text would conform with
what is reflected in OCC Rule 704(a),
which provides that margin in respect of
cross-margin accounts shall be
determined by OCC in accordance with
that rule and the relevant cross-margin
agreement. In a footnote to the same
section, OCC notes that the
establishment, implementation,
maintenance and review of cross-margin
agreements is governed by the rule-filed
Third-Party Risk Management
Framework 25 and a list of underlying
procedures that support that
Framework. OCC proposes to streamline
this footnote by instead crossreferencing the ‘‘Third-Party Risk
Management Framework and
underlying procedures.’’ Reference to
each of the underlying procedures was
not intended to be a rule per se, and
eliminating this information from the
Margin Policy would encourage OCC
staff to use OCC’s internal system of
record to identify the procedures that
are related to the specific purpose or
function that they are performing
instead of relying on a list that may be
outdated or underinclusive.
In the Collateral section, the Margin
Policy states that margin deposits are
due on ‘‘the morning’’ following the
trade date. OCC proposes to amend
reference to the generally applicable
deadline, which could vary in certain
circumstances (e.g., with respect to
trades that clear on dates preceding a
25 See Exchange Act Release No. 90797 (Dec. 23,
2020), 85 FR 86592, 86593 (Dec. 30, 2020) (SR–
OCC–2020–014) (‘‘The [Third-Party Risk
Management Framework] describes OCC’s
framework for managing risk throughout the
relationship lifecycle (i.e., at on-boarding,
monitoring and off-boarding) for Clearing Members,
Financial Institutions, and vendors.’’).
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weekend or a bank holiday or where
OCC issues an intra-day margin call).
The reference would be updated to the
‘‘morning of the business day’’
following the trade date, as provided by
OCC Rule 601(a). The reference would
be further updated to provide that with
respect to intraday margin calls, margin
deposits are due at such other time as
provided by OCC Rule 609 and the
section of the CRM Policy that addresses
intra-day margin calls. The proposed
revisions would update and clarify the
description of OCC’s practices in the
Margin Policy to better reflect a wider
range of circumstances than are
currently contemplated therein, and
would not entail any changes to current
OCC operations or margin collection
practices.
The Collateral in Margins section
provides that OCC shall promote
incentives to hedge by including certain
forms of margin within the STANS
margin calculation, as specified in
referenced rules approved by the
Commission pursuant to section 19(b) of
the Exchange Act.26 OCC proposes to
delete extraneous information regarding
the content of OCC’s rules, including
that OCC’s rules include scenarios that
could impact Clearing Member
exposures as a result of the collateral
deposited. This information is implied
by the beginning of the sentence, which
explains that OCC intends to achieve
the desired result by including margin
collateral as specified in the referenced
documents, and need not be duplicated
in the Margin Policy.
The same section currently requires
QRM to perform an analysis, in
accordance with referenced procedures,
to confirm that risk interactions between
derivative and cash market positions are
being appropriately recognized. OCC
proposes to update the reference to
conform to the current name of the
referenced procedures. In addition, to
remove potential ambiguity regarding
the scope of the required analysis, OCC
proposes to specify that the analyses
performed by QRM in accordance with
the referenced procedures should
confirm that the STANS margin model
is effectively modeling the risk
interactions. This addition would clarify
that the Margin Policy requires QRM’s
analyses to confirm the effectiveness of
STANS’ modeling of the risk
interactions, but does not establish a
requirement that QRM separately
confirm the appropriate recognition of
risk interactions between derivative and
cash markets outside of the STANS
margin model. The scope of QRM’s
obligation to confirm that risk
26 15
U.S.C. 78s(b).
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interactions are being appropriately
recognized in STANS is reasonably and
fairly implied in the context of the
paragraph, which discusses collateral
that is included in STANS margin
calculations, but OCC proposes to add
specificity to enhance clarity regarding
QRM’s obligations.
In the Risk Factors section, OCC
proposes to change the description of its
evaluation of the appropriateness of risk
factors considered within its models to
strike ‘‘on an ongoing basis’’ and replace
it with ‘‘on a regular basis.’’ That section
lists several types of periodic reviews
designed to achieve this aim, including
reviews of Exchange proposals to list
new products pursuant to referenced
procedures, FRM’s daily backtesting,
monthly reporting of such backtesting
results to the Model Risk Working
Group (‘‘MRWG’’),27 and QRM’s review
of OCC’s margin methodology in
accordance with referenced procedures
to reasonably ensure that the margin
methodology incorporates all significant
risk factors and supports the robustness
of OCC’s margin resources, which QRM
performs monthly or more frequently as
required by regulations applicable to
OCC.28 In addition, as discussed
elsewhere in the Margin Policy, OCC’s
Model Risk Management business unit
performs an annual review of the overall
performance of the STANS margin
methodology and its associated models.
The periodicity of such reviews is
discussed elsewhere in the Margin
Policy. This revised text would be
consistent with similar revisions noted
above,29 as well as the timeline for
periodic reviews of risk model
performance conducted under
applicable policies and procedures. The
proposed rule change would not entail
a change to current OCC operations.
The same paragraph also provides
that FRM shall continually evaluate the
effectiveness of specified risk models.
OCC proposes to delete the modifier
‘‘continually’’ as it could be read to
create an expectation that OCC conducts
24/7 evaluations of its models. The
27 The MRWG is a cross-functional group
responsible for assisting OCC’s Management
Committee in overseeing and governing OCC’s
model-related risk issues and currently consists of
representatives from FRM, including QRM, and
from Corporate Risk Management, including Model
Risk Management.
28 See 17 CFR 240.17Ad–22(e)(6)(vi)(C) (requiring
a clearing agency to conduct sensitivity analysis of
its margin model and a review of its parameters and
assumptions for backtesting more frequently than
monthly during periods of time when the products
cleared or markets served display high volatility or
become less liquid, or when the size or
concentration of positions held by the covered
clearing agency’s participants increases or decreases
significantly).
29 See supra notes 14–15 and accompanying text.
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revisions would only change the
description of OCC’s practices in the
Margin Policy to enhance consistency
with regard to its current model
performance review process and would
not impact OCC operations.
In the same section, OCC proposes to
delete text indicating that QRM is
responsible for reasonably ensuring that
margin methodologies incentivize
Clearing Members to be aware of their
own risks and mitigate their exposures.
One of QRM’s primary responsibilities,
as discussed above, is to establish,
implement, maintain and review margin
methodologies to reasonably ensure that
they incorporate all significant risk
factors and support the robustness of
OCC’s margin resources. The measure of
any incentive effect from OCC’s margin
methodology on Clearing Members’
awareness of risk or mitigation of
exposures is inherently qualitative and
falls outside of QRM’s ordinary remit.
OCC further believes that well-designed
margin methodologies would naturally
support the creation of incentives at
each Clearing Member to be aware of
and mitigate their risks. Accordingly,
OCC proposes to remove QRM’s
responsibility to monitor indirect and
qualitative effects of the methodology at
third-party Clearing Members while
retaining that team’s primary
responsibilities with respect to
quantitative aspects of margin model
design, implementation, monitoring and
review processes.
The Market Data and Pricing
Considerations section provides that
P&M shall transmit pricing data to both
OCC’s primary and back-up data
centers, pursuant to a referenced
procedure. OCC proposes to delete this
operational detail with respect to OCC’s
current data infrastructure from the
Margin Policy. Changes in OCC’s data
infrastructure could render that
statement inaccurate and the reference
to OCC’s current primary and back-up
data centers is not intended to be a rule
per se.30 In any event, the statement
about transmission of data is reasonably
and fairly implied by the existing text of
the section, which provides that P&M
shall review the quality and
completeness of market data ‘‘prior to
distribution [to] downstream systems
and external consumers.’’
The same section also provides that
OCC shall rely upon real-time market
data in order to continually evaluate the
value of Clearing Member portfolios.
30 See Exchange Act Release No. 96113 (Oct. 20,
2022), 87 FR 64824 (Oct. 26, 2022) (SR–OCC–2021–
802) (SEC notice of no objection to OCC’s proposed
adoption of cloud infrastructure for OCC’s new
clearing, risk management, and data management
applications).
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OCC proposes to remove the ‘‘real-time’’
qualifier for enhanced accuracy because
other market data beyond real-time data
is also relevant to OCC’s evaluation
process. The proposed rule change
would clarify that OCC may use
intraday data. As above, the statement
that OCC ‘‘continually’’ evaluates the
value of portfolios could be read to
imply that OCC values portfolios on a
24/7 basis. OCC proposes to revise this
statement to say that it evaluates
portfolios ‘‘during market hours,’’ which
OCC believes to be consistent with its
regulatory and risk management
obligations. These revisions are for
clarification only and would not entail
any changes to current OCC operations.
The following paragraph in the same
section provides that P&M shall
systemically process and manually
validate referenced settlement values in
accordance with a referenced procedure.
OCC proposes to delete ‘‘systemically’’
with regard to processing and
‘‘manually’’ with regard to validations
in order to provide OCC with an
appropriate degree of flexibility in
determining how it shall process and
validate the referenced values.
Operational details regarding the
conduct of such processes and
validations are contemplated in the
referenced procedure. OCC believes it is
unnecessary to duplicate those
operational terms in the Margin Policy
as doing so creates the risk of
inaccuracy in the Margin Policy should
the relevant processes be amended in
the future in accordance with applicable
governance requirements. The proposed
revisions would remove from the
Margin Policy constraints on the
mechanical processes OCC could use to
process and validate referenced
settlement values, but would not
significantly impact OCC’s core
clearance, settlement or risk
management activities.
In the Recalibration section, OCC
proposes to update the discussion of the
recalibration process for STANS
econometric models to reflect its
automation. The revised text would
provide that recalibrations are to be
performed systemically as reflected in
the current STANS Methodology
Description.31 P&M would retain
responsibility for monitoring outputs of
the process and escalating issues and
the stated timeline for the processing
would not need to change. The
proposed revisions would update the
description of OCC’s mechanical
31 See Exchange Act Release No. 91079 (Feb. 8,
2021), 86 FR 9410 (Feb. 12, 2021) (SR–OCC–2020–
016) (approving the establishment of the STANS
Methodology Description).
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process for recalibrations to reflect the
automation of certain components, but
would not otherwise impact its overall
method for recalibrations or OCC’s core
clearance, settlement, and risk
management activities.
In the same section, OCC proposes to
add a footnote to explain that synthetic
futures represent an exception to the 10year lookback period for univariate
parameters. This revision does not
impact OCC’s operations as it merely
conforms the discussion in the Margin
Policy to be consistent with what is
reflected in the STANS Methodology
Description.32
The Stress Test Components section
of the Margin Policy currently provides
that FRM is required to continually
evaluate the portion of stress losses that
are not collected as margin against the
Clearing Member’s net capital, in
accordance with referenced procedures,
and require the Clearing Member to
deposit additional margin, in
accordance with Rules 601 and 609, in
an amount equal to the exposure in
excess of its net capital where FRM
determines that the uncollateralized
exposure exceeds the Clearing Member’s
ability to absorb the loss based on its
current capitalization. For clarity, OCC
proposes to add that OCC’s policy of
calling for additional margin in such
circumstances does not preclude OCC
from taking other protective measures
under OCC’s recently amended Rule 307
if FRM determines a Clearing Member’s
uncollateralized exposure presents
elevated risk to OCC, including
restrictions on distributions under Rule
307A, restrictions on certain
transactions, positions and activities
under Rule 307B, and additional
operational, personnel, financial
resource and risk management
requirements under Rule 307C.33
The SPAN section states that the
System for Portfolio Analysis of Risk
(‘‘SPAN’’) 34 is used to assess risk for a
wide variety of financial instruments,
including futures, options, physicals,
equities or any combination thereof.
OCC proposes to delete such
informational background on SPAN’s
capabilities as it is irrelevant to the
discussion of how OCC uses SPAN to
calculate margin requirements, which is
the focus of this section, and OCC does
32 See
id.
Exchange Act Release No. 97439 (May 5,
2023), 88 FR 30373, 30376 (May 11, 2023) (SR–
OCC–2023–002) (approving amendments to OCC’s
membership standards).
34 SPAN is a methodology developed by the
Chicago Mercantile Exchange and used by many
clearinghouses and exchanges around the world to
calculate margin requirements on futures and
options on futures.
33 See
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not use SPAN to assess risk for all the
instruments listed in that sentence. OCC
also proposes to relocate a statement
regarding OCC’s use of SPAN to
compute gross margin for all segregated
futures customers’ accounts within the
paragraph in order to enhance clarity.
OCC also proposes to revise the Scan
Ranges section of the Margin Policy,
which details certain functions related
to the SPAN methodology. While this
section accurately describes OCC’s use
of scan ranges to establish margin
covered under SPAN, OCC also
performs recalibration of spread rates
and other parameters under the SPAN
methodology. For completeness, OCC
proposes to specify parameters in
addition to scan ranges that are used to
calculate SPAN margin requirements.
These changes would align the text of
the Margin Policy with existing
practices. OCC also proposes to delete
the Scan Ranges section header in light
of the expanded scope of parameters
addressed thereunder. In the same
section, OCC proposes to extend P&M’s
recalibration responsibilities beyond
scan ranges to include the additional
parameters. These changes are
reasonably and fairly implied by the
SPAN section of the Margin Policy,
which requires OCC to compute gross
margin for all segregated futures
customers’ accounts using SPAN.
In the same section, OCC proposes to
revise its description of maintenance
and initial margin calculations. These
proposed changes are descriptive only
and would not substantively alter OCC’s
margin calculation process or the ratio
between the calculated amounts. This
section currently provides that
minimum scan ranges used to satisfy the
initial speculator margin and spread
rates shall exceed 110% of the 99% VaR
of the daily historical observations. To
enhance clarity around its initial and
maintenance margin calculations and
the ratio between the two values and
update terminology with the latest
conventions, OCC proposes to provide
that the scan ranges established for the
calculation of maintenance margin shall
exceed the 99% VaR of the daily
historical observations, and further
provide that the scan ranges established
for heightened risk profile margin
calculations shall be at least 110% of
that maintenance margin amount. These
revisions only change the description of
the two rates and the ratio between
them to enhance clarity and are
consistent with OCC’s current
calculation practices for maintenance
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and initial margin and the latest
terminology used by the CFTC.35
In the same section, OCC proposes to
add that inter-month spread charges, in
addition to SPAN scan ranges,
incorporate a long-run historical
estimate or look to periods of
heightened volatility to guard against
pro-cyclicality. The added reference to
‘‘inter-month spread charges’’ is
consistent with OCC’s current process
for calculating margin requirements
under SPAN. OCC also proposes to add
that the standard historical data lookback period used to establish scan
ranges shall be ‘‘at least’’ 500 business
days, except as provided in a referenced
procedure. The addition of ‘‘at least’’
would be clarifying and would not
impact OCC’s current approach to the
SPAN margin calculations. OCC also
proposes to remove ‘‘volatility’’ from the
phrase ‘‘long-run historical volatility
estimate,’’ which is only a textual
change and would not impact OCC’s
current approach to SPAN margin
calculations.
In the same section, OCC also
proposes to remove the parenthetical
example of unique risk characteristics
attributable to particular products. The
single example provided is not
exhaustive and the referenced
procedure includes additional detail
regarding risk characteristics.
Duplicating this information in the
Margin Policy is unnecessary and
creates the risk of inaccuracy in the
Margin Policy should the relevant
processes be amended in the future in
accordance with applicable governance
requirements.
In the Intraday Margin Calls section,
OCC proposes to change references to a
‘‘window’’ for issuing margin calls to a
‘‘standard time for processing’’, or
similar term. This change would
enhance the clarity of the discussion in
the Margin Policy by adopting uniform,
clear language to refer to margin calls
issued during the standard processing
timeline, without impacting OCC
operations associated with issuing
margin calls.
In the Extended Trading Hours
Margin Calls section, OCC proposes to
insert a reference to a ‘‘standard time for
processing’’ an extended trading hours
margin call and provide that OCC will
establish such standard time in the
referenced procedure. The use of the
‘‘standard time for processing’’ term is
intended to align with the adoption of
similar language in the immediately
35 See Final Rule, Derivatives Clearing
Organization General Provisions and Core
Principles (Dec. 20, 2019), 85 FR 4800 (Jan. 27,
2020) (amending CFTC Rule 39.13(g)(8)(ii)).
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preceding Intraday Margin Calls section,
as discussed above. The establishment
of the deadline in a referenced
procedure is consistent with and
reasonably and fairly implied by OCC
Rule 601(a), which authorizes OCC to
specify the time by which Clearing
Members are required to deposit margin
with the Corporation. The proposed
revision would not impact the
operations of OCC as it relates to OCC’s
core clearance, settlement, and risk
management activities. In the same
section OCC proposes to remove a
reference to the 9:00 a.m. CT deadline
for OCC to issue an extended trading
hours margin call. Rule 601(a)
authorizes OCC to specify the time by
which every Clearing Member shall be
obligated to deposit margin assets. OCC
believes that reflecting such operational
terms in the Margin Policy creates the
risk of inaccuracy in OCC’s Margin
Policy, which is filed as a rule with the
Commission, should the specified
deadline be amended or extended in
accordance with applicable governance
requirements. Accordingly, OCC has
determined to remove the specific
reference within OCC’s internal Margin
Policy and instead refer to applicable
procedures to establish the relevant
timeline by which the margin call must
be issued. OCC’s authority to amend or
extend the deadline to deposit margin is
fairly and reasonably implied by the text
of Rule 601(a), and the proposed
revisions would better enable OCC to
give effect to this authority.
The Holiday Margin Calls section
requires OCC to issue holiday margin
calls in specified amounts and
circumstances. Currently, that section
provides that when an account is
subject to both a holiday and position
risk margin call on the same day, OCC
applies the larger of the two.
Subsequent to the addition of this
provision to the Margin Policy, OCC
amended its rules to reflect Clearing
Fund margin calls—that is, margin calls
for a Clearing Member Group when an
estimate of its Clearing Fund Draw 36
exceeds 75% of the amount of the
current Clearing Fund.37 Pursuant to
OCC’s authority under OCC Rules
36 The term ‘‘Clearing Fund Draw’’ refers to an
estimated stress loss exposure in excess of margin
requirements.
37 See Exchange Act Release No. 83735 (July 27,
2018), 83 FR 37855 (Aug. 2, 2018) (SR–OCC–2018–
008) (amending Rule 609 related to intra-day
margin).
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601(c) 38 and 609,39 it is OCC’s practice
to issue a Clearing Fund margin call in
situations where a Clearing Member is
subject to these other types of margin
calls and the Clearing Fund margin call
is the largest of the three. OCC proposes
to update the Margin Policy to reflect
this practice. Specifying Clearing Fund
calls as an additional category of margin
call would align the discussion in the
Margin Policy with the types of calls
OCC issues today and would not entail
a change to current OCC operations or
margin collection processes.
The Review of Margin Methodology
section outlines Model Risk
Management’s responsibilities for
evaluating the overall performance of
STANS at least annually, in accordance
with referenced policies and
procedures, and for reporting its
findings to the Risk Committee, which
is tasked with reviewing the adequacy
of OCC’s margin and clearing fund
methodology, including the STANS
margin methodology, at least once every
twelve months. OCC proposes to delete
a duplicative reference in the Margin
Policy regarding Model Risk
Management’s obligation to produce an
annual report of the STANS margin
methodology, which is fairly and
reasonably implied in the preceding
sentence as well as the Risk Committee
Charter.40 OCC also proposes to delete
references to Model Risk Management’s
obligations to present its validation
findings and annual report of the
STANS margin methodology to the Risk
Committee. Model Risk Management is
the primary group responsible for
ensuring the completion of the annual
validation, which it conducts in
accordance with applicable procedures,
and reporting of its findings. Because
the requirement to validate STANS is
established in OCC’s rules and
applicable procedures establish how
Model Risk Management plans and
conducts its validation and reports any
findings to the Risk Committee, OCC
believes it is unnecessary to duplicate
such details in the Margin Policy as
doing so creates the risk of inaccuracy
38 See OCC Rule 601(c) (‘‘Notwithstanding any
other provision of this Rule 601, [OCC] may fix the
margin requirement for any account or any class of
cleared contracts at such amount as it deems
necessary or appropriate under the circumstances to
protect the respective interests of Clearing
Members, [OCC], and the public.’’)
39 See OCC Rule 609 (‘‘The Corporation may
require the deposit of additional margin (‘intra-day
margin’) by any Clearing Member in any account at
any time during any business day to . . . protect
[OCC], other Clearing Members or the general
public.’’).
40 See OCC Risk Committee Charter, available at
https://www.theocc.com/company-information/
documents-and-archives/board-charters (last
revised May 26, 2022).
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in the Margin Policy should the relevant
requirements or processes be amended
in the future in accordance with
applicable governance requirements.
Like the changes to the CRM Policy
discussed above, OCC proposes to make
clarifying, conforming and other nonsubstantive changes to the Margin
Policy. The proposed changes discussed
below would not substantively alter the
meaning of the revised provisions or the
substance or requirements of the Margin
Policy as they relate to OCC’s core
clearance, settlement, and risk
management activities. The following
conforming revisions are intended to
align the text of the Margin Policy with
existing provisions of the Rulebook, ByLaws or other documents, as applicable,
and to update the titles of documents
referenced in the Margin Policy:
• The STANS section describes
STANS as modeling the volatility of
individual products and the correlation
amongst products. OCC proposes to
replace references to ‘‘products’’ in this
sentence with references to ‘‘risk
factors.’’ These proposed revisions
would align references in the Margin
Policy and the STANS Methodology
Description without impacting OCC’s
operations or risk management
activities.
• The Recalibration section provides
that recalibrations will incorporate a
long-run historical volatility estimate,
which serves as a floor during periods
of low market volatility to reduce procyclicality in OCC’s margin estimates.
OCC proposes to replace ‘‘reduce’’ with
‘‘control,’’ to more affirmatively state
OCC’s intent in adopting volatility
floors.
• The Margin Policy currently
contains references to certain related
policies, procedures and other
documents that OCC maintains in
support of the Margin Policy. These
documents are reviewed and updated
on a periodic basis, which at times may
result in the consolidation of certain
related policies, procedures and
documents or changes in their names.
OCC proposes to revise the Margin
Policy to update internal policy and
procedure names to reflect any changes
resulting from these periodic reviews to
ensure the accuracy, consistency, and
clarity of the Margin Policy. The
proposed changes are administrative in
nature and are not intended to change
the substance of the Margin Policy.
The following clarifying revisions are
intended to restate existing provisions
for improved clarity and accuracy:
• In the Segregated Futures Customer
Gross Margining section, OCC proposes
to insert ‘‘for these accounts’’ to clarify
that OCC will effect gross margining for
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customer segregated futures accounts.
The revision is only intended to clarify
the applicability of the statement.
• In the Collateral in Margins section,
OCC proposes to revise ‘‘certain forms
of margin’’ within the STANS margin
calculation to ‘‘certain forms of
collateral’’ instead. This change is to
enhance clarity in the description of
OCC’s operations but does not change
the meaning of the provision or OCC’s
operations. The same section provides
that OCC’s Management Committee
shall be ultimately responsible for
determining which types of collateral
are included in STANS margin
calculations. OCC proposes to remove
‘‘ultimately’’ to enhance clarity, as the
Management Committee’s authority to
make such determinations derives from
the Board, which implies that the Board
has ‘‘ultimate’’ responsibility for such
decisions. OCC also proposes to change
a reference to ‘‘exchange traded fund[s]’’
in a parenthetical providing examples of
deposits of collateral eligible for
inclusion in STANS to ‘‘exchange
traded product[s]’’ because collateral-inmargin treatment also extends to
exchange traded notes.
• In the Market Data and Pricing
Considerations section, the Margin
Policy establishes that P&M shall
reasonably ensure that measures are
taken to review the quality and
completeness of market data prior to its
distribution. OCC proposes to remove
the qualifying language and establish
that P&M is responsible for reviewing
the quality and completeness of market
data, as opposed to reasonably ensuring
that measures are taken to review the
data, prior to its distribution. This
deletion would clarify P&M’s obligation
for reviewing market data quality and
completeness before it is distributed to
downstream systems and external
consumers. The proposed revision
would add clarity to the Margin Policy
and better ensure the integrity of market
data at the critical stage prior to its
downstream or external consumption.
• In the Recalibration section, the
Margin Policy provides that where P&M
has ‘‘reasonable grounds for believing
(e.g., with a newly created passive ETF
tracking a longstanding index) that a
suitable proxy exists,’’ such proxy may
be used in place of the default
distribution pursuant to the referenced
procedure. OCC proposes to restate this
section for additional clarity. The
revised text would state that where P&M
has ‘‘reasonable grounds for assigning a
suitable proxy (e.g., a newly created
passive ETF tracking a longstanding
index),’’ such proxy may be used in
place of the default distribution
pursuant to the referenced procedure.
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These revisions would more clearly
state P&M’s obligations as well as the
circumstances in which P&M may
exercise its discretion. In addition, OCC
would amend a reference to the Model
Risk Management business unit
(formerly known as the Model
Validation Group or ‘‘MVG’’) to reflect
the current name of that department,
consistent with changes that OCC made
to other such references in a prior rule
filing.41
• In the Add-on Charges section, the
Margin Policy states that in some
instances, exposures that may be
modeled outside of STANS through the
use of add-on charges may not require
sophisticated models to be derived. OCC
proposes to remove ‘‘in some instances’’
as it is implied by the beginning of the
sentence, which states that these
exposures ‘‘may’’ not require
sophisticated models to be derived, as
well as language in the next sentence
referring to ‘‘other instances.’’ In
addition, the Margin Policy states that
consistent with the referenced
procedure, MRWG has the discretion to
recommend approval of add-on margin
charges to the Management Committee.
OCC proposes to delete the reference to
MRWG’s discretion as it is implied by
the language that MRWG ‘‘may’’
recommend approval.
• In the Margin Monitoring section,
OCC proposes to clarify that FRM
conducts the backtests that are designed
by QRM. This division of labor is
implied in the preceding statements of
that section and is appropriately
reflected in the relevant procedures.
Finally, OCC proposes to make
typographical and administrative
changes to the Margin Policy intended
to correct spelling, punctuation and
grammar and remove unnecessary
verbiage in the Margin Policy.
(2) Statutory Basis
OCC believes the proposed rule
change is consistent with Section 17A of
the Act 42 and the rules thereunder
applicable to OCC by improving the
accuracy, clarity, and consistency of the
OCC Policies so that they remain
reasonably designed to achieve the
standards and requirements thereunder.
Section 17A(b)(3)(F) of the Act 43
requires, among other things, that the
rules of a clearing agency be designed to
promote the prompt and accurate
clearance and settlement of securities
41 See Exchange Act Release No. 95842 (Sept. 20,
2022), 87 FR 58409, 58419 (Sept. 26, 2022) (SR–
OCC–2022–010) (proposing conforming changes to
OCC’s risk management policies regarding the name
of OCC’s Model Risk Management business unit).
42 15 U.S.C. 78q–1.
43 15 U.S.C. 78q–1(b)(3)(F).
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transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions and to assure
the safeguarding of securities and funds
which are in the custody or control of
the clearing or agency or for which it is
responsible. In turn, Exchange Act Rule
17Ad–22(e)(1) through (3) require OCC
to maintain written policies and
procedures reasonably designed to,
among other things:
• ensure a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of OCC’s activities; 44
• provide for governance
arrangements that are clear and
transparent and specify clear and direct
lines of responsibility; 45 and
• maintain a risk management
framework that includes policies,
procedures and systems that are
designed to manage risks and which are
subject to periodic review and annual
approval by the Board.46
OCC believes that the proposed
changes, which are intended to better
reflect current practices, remove
extraneous information, and make other
non-substantive, clarifying and
administrative changes to the text of
those policies, are consistent with the
Exchange Act and these requirements
for the following reasons.
1. Update Descriptions To Better Align
With Current Practices
The proposed rule changes are
designed to align the text of the OCC
Policies with current practices and to
otherwise enhance accuracy, clarity and
consistency in the documents. The OCC
Policies, including descriptions of
practices and processes therein, are
subject to periodic review. The
proposed rule change would apply
recommendations made as part of OCC’s
annual review of the OCC Policies and
which are intended to ensure the OCC
Policies maintain accurate descriptions
of OCC practices and operations. These
changes are primarily clarifying in
nature and would not significantly alter
the substance or requirements of the
OCC Policies as they relate to core
clearing, settlement or risk management
activities. OCC believes improving the
clarity of the descriptions in the OCC
Policies, which are central to OCC’s
clearance and settlement activities, will,
in turn, promote the accurate clearance
and settlement of securities transactions
and the safeguarding of securities and
funds, in accordance with Section
17A(b)(3)(F) of the Exchange Act.47
44 17
CFR 240.17Ad–22(e)(1).
45 17 CFR 240.17Ad–22(e)(2).
46 17 CFR 240.17Ad–22(e)(3).
47 15 U.S.C. 78q–1(b)(3)(F).
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The proposed rule change would also
update descriptions of processes and
governance requirements in the OCC
Policies to align with current practices
and requirements. OCC believes these
proposed revisions would thus support
clarity in OCC’s governance
arrangements and better ensure that
OCC’s lines of responsibility are clear
and direct, in accordance with Exchange
Act Rule 17Ad–22(e)(2).48
The proposed rule change would
apply updates to the OCC Policies that
were recommended pursuant to annual
reviews by the Board. The proposed
revisions would not significantly impact
the practices relating to OCC’s core
clearance, settlement, and risk
management activities. Accordingly,
OCC believes the proposed rule changes
would support its obligation to maintain
a sound risk management framework
that is subject to periodic review and
annual approval by the Board in
accordance with 17Ad–22(e)(3).49
2. Delete Extraneous Information
The proposed rule change would
remove extraneous information,
including certain provisions that are
substantively duplicative of provisions
that are reasonably and fairly implied by
other OCC rules or that do not
independently meet the criteria of rules,
stated policies, practices or
interpretations. Certain provisions to be
removed consist of background
information that does not establish an
OCC requirement or impact its
practices. These proposed changes
would enhance clarity by deleting
provisions from the OCC Policies that
do not create OCC obligations or
substantively impact its practices or
operations. Other provisions to be
removed consist of text that duplicates
provisions found in OCC’s By-Laws and
Rules or other documentation filed with
the Commission. OCC believes that it
can avoid potential future confusion by
removing from the OCC Policies
information that is appropriately
maintained in other documentation.
Removing this information from the
OCC Policies will eliminate
inconsistencies that could arise from
maintaining it in multiple places with
different approval processes.
Accordingly, OCC believes that removal
of these extraneous provisions would
facilitate the effective administration of
OCC’s policies and procedures, which
support the prompt and accurate
clearance and settlement of securities
transactions and the safeguarding of
securities and funds, and thus is
48 17
49 17
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CFR 240.17Ad–22(e)(2).
CFR 240.17Ad–22(e)(3).
Frm 00132
Fmt 4703
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consistent with the requirements of
Section 17A(b)(3)(F) of the Exchange
Act.50 OCC also believes that removing
these duplicative provisions from the
OCC Policies would enhance clarity
around OCC’s governance arrangements,
better ensure clear and direct lines of
responsibility and prioritize efficient
governance processes for the relevant
provisions, in accordance with the
requirements of Exchange Act Rule
17Ad–22(e)(2).51
3. Non-Substantive, Clarifying and
Administrative Changes
OCC proposes to make other nonsubstantive, clarifying and
administrative changes to the OCC
Policies to enhance their accuracy,
clarity and consistency with other OCC
rules. By correcting typographical
errors, updating references to
documentation, and conforming
references with other documentation
and descriptions, the proposed revisions
would help facilitate the administration
of existing rules that are intended to
promote the prompt and accurate
clearance and settlement of securities
and derivatives transactions, in
accordance with Section 17A(b)(3)(F) of
the Exchange Act.52 In addition,
correcting errors, making clarifications
and conforming references and
descriptions within the OCC Policies
would improve their clarity, in
accordance with the requirements of
Exchange Act Rule 17Ad–22(e)(1).53
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 54
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC does not
believe that the proposed rule change
would have any impact or impose a
burden on competition. The proposed
rule change is intended to update
internal policies to better reflect OCC’s
current practices, remove duplicative
provisions that could result in overlap
or inconsistencies with other OCC
documentation and to make other
administrative updates that would have
no impact on Clearing Members or other
market participants. None of the
proposed updates to the OCC Policies
would affect Clearing Members’ access
to OCC’s services or impose any direct
burdens on Clearing Members.
50 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2).
52 15 U.S.C. 78q–1(b)(3)(F).
53 17 CFR 240.17Ad–22(e)(1).
54 15 U.S.C. 78q–1(b)(3)(I).
51 17
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Accordingly, the proposed rule change
would not unfairly inhibit access to
OCC’s services or disadvantage or favor
any particular user in relationship to
another user.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments 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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 55 and paragraph (f) of Rule
19b–4 56 thereunder. 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.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.57
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:
ddrumheller on DSK120RN23PROD with NOTICES1
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–2023–008 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–2023–008. 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
55 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
57 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Regulation 40.6.
56 17
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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 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. 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–2023–008 and should
be submitted on or before January 10,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–27912 Filed 12–19–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99182; File No. SR–
CboeBZX–2023–097]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule To Provide a Discount
on the Purchase of Historical Equity
Short Volume and Trade Reports
December 14, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
58 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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88173
notice is hereby given that on December
1, 2023, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. 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 BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend its Fee Schedule. 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/
equities/regulation/rule_filings/bzx/), 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
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
1. Purpose
The Exchange proposes to update its
Fee Schedule to provide a discount on
fees assessed to BZX Members
(‘‘Members’’) 3 and non-Members that
purchase $20,000 or more of U.S. Equity
Short Volume and Trades Reports
(‘‘Short Volume Reports’’), effective
3 See Rule 1.5(n) (‘‘Member’’). The term
‘‘Member’’ shall mean any registered broker or
dealer that has been admitted to membership in the
Exchange. A Member will have the status of a
‘‘member’’ of the Exchange as that term is defined
in Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership,
corporation, limited liability company or other
organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has
been approved by the Exchange.
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Agencies
[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88163-88173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27912]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99169; File No. SR-OCC-2023-008]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Concerning Amendments to the Options Clearing Corporation's Collateral
Risk Management Policy and Margin Policy
December 14, 2023.
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 December 4, 2023, The Options Clearing
Corporation (``OCC'' or ``Corporation'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by OCC. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(i) \3\ of the Act and Rule 19b-4(f)(1)
\4\ thereunder, such that the proposed rule change was immediately
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)(i).
\4\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would amend OCC's Collateral Risk
Management Policy (``CRM Policy'') and Margin Policy (collectively,
``OCC Policies''). The proposed changes are designed to update the OCC
Policies to better align the descriptions therein with OCC's current
practices, delete extraneous information, and make other non-
substantive clarifying, conforming and administrative changes.
The proposed changes to the OCC Policies are included in
confidential Exhibits 5A and 5B to File No. SR-OCC-2023-008. Material
proposed to be added to the OCC Policies 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
As the sole clearing agency for standardized equity options listed
on national securities exchanges registered with the Commission
(``listed options''), OCC is exposed to certain risks, including credit
risk arising from its relationships with the Clearing Members for which
OCC becomes the buyer to every seller and the seller to ever buyer with
respect to listed options. In order to manage counterparty credit risk
and mitigate related systemic risks, OCC requires Clearing Members to
collateralize financial obligations that result from maintaining
options, futures and stock loan positions at OCC.
OCC maintains policies filed with the Commission as OCC rules that
are designed to address such credit risk,
[[Page 88164]]
including the CRM Policy and the Margin Policy. The CRM Policy
identifies OCC's approach for managing the risks associated with
accepting collateral deposits.\6\ Specifically, the CRM Policy sets the
governance processes for establishing and maintaining standards used to
determine acceptable forms of collateral, as well as the methodology
for establishing the valuation practices, including applicable haircuts
and concentration limits to effectively manage OCC's credit
exposure.\7\ In addition, the CRM Policy describes the requirements for
periodically evaluating the forms of accepted collateral and the
ongoing adequacy of the valuation processes.\8\ The Margin Policy
describes OCC's approach to managing credit exposure presented by its
Clearing Members by requiring Clearing Members to deposit margin, which
OCC would use to cover losses if a member defaults.\9\ The Margin
Policy addresses positions considered for margin calculations, cross-
margining, treatment of collateral included in margin calculations, key
margin assumptions, OCC's margin methodologies, protocols for margin
calls and adjustments, and margin monitoring, including through daily
backtesting and model validation that OCC conducts to assess the
performance of its margin methodologies.\10\
---------------------------------------------------------------------------
\6\ See Exchange Act Release No. 82311 (Dec. 13, 2017), 82 FR
60252, 60252-53 (Dec. 19, 2017) (SR-OCC-2017-008).
\7\ See id.
\8\ See id. at 60253.
\9\ See Exchange Act Release No. 82658 (Feb. 7, 2018), 83 FR
6646, 6646 (Feb. 14, 2018) (SR-OCC-2017-007).
\10\ See id. at 6647.
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Consistent with regulatory obligations,\11\ OCC and its Board
reviews these risk management policies at least annually. Through these
annual reviews, OCC has identified proposed revisions intended to
revise certain descriptions to better reflect current practices, remove
extraneous information and make other non-substantive, clarifying and
administrative changes to the text of those policies. These changes are
designed to enhance the clarity of OCC's internal governance
arrangements and are not expected to have any impact on OCC's Clearing
Members or other market participants.
---------------------------------------------------------------------------
\11\ See 17 CFR 240.17Ad-22(e)(3)(i) (requiring, among other
things, that a covered clearing agency subject its risk management
policies, procedures and systems to review on a specified periodic
basis and approval by the board of directors annually).
---------------------------------------------------------------------------
(1) Purpose
OCC proposes to make the following changes to the CRM Policy and
Margin Policy to better reflect current practices, remove extraneous
information and make other non-substantive, clarifying and
administrative changes to the text of those policies.
1. CRM Policy
OCC proposes to add a statement in the Purpose section that the CRM
Policy sets forth processes to establish and maintain standards used to
``maintain a collateral system that is well-designed and operationally
flexible.'' OCC's Collateral Management system meets this standard
today and no changes to its operations would be required. The proposed
revision would merely clarify that OCC's collateral system conforms to
the standard established at Principle 5, Key Consideration 6 of the
Principles for Financial Market Infrastructures.\12\
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\12\ See Committee on Payment and Settlement Systems and
Technical Committee of the International Organization of Securities
Commissions (``CPSS-IOSCO''), Principles for financial market
infrastructures (Apr. 16, 2012) (stating that ``[a]n FMI should use
a collateral management system that is well-designed and
operationally flexible''), available at https://www.bis.org/publ/cpss101a.pdf. In 2014, the CPSS became the Committee on Payments and
Market Infrastructures (``CPMI'').
---------------------------------------------------------------------------
OCC proposes to insert an Applicability and Scope section that,
consistent with other recently filed policies,\13\ would identify the
primary OCC business units that support OCC's approach to managing the
risks associated with accepting collateral deposits, including but not
limited to Pricing and Margins (``P&M''), Collateral Services, and
Quantitative Risk Management (``QRM'').
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\13\ See Exchange Act Release No. 93916 (Jan. 6, 2022), 87 FR
1819, 1820 (Jan. 12, 2022) (SR-OCC-2021-014) (discussing the
applicability and scope of OCC's Cash and Investment Management
Policy).
---------------------------------------------------------------------------
OCC proposes to retitle the Policy Detail section as the Policy
Content section to conform with current OCC titling conventions as
reflected in other policies. OCC also proposes to amend a statement
therein that Clearing Members must maintain sufficient collateral at
OCC to meet their margin and clearing fund obligations ``at all
times.'' OCC proposes to remove this phrase that could imply that a
Clearing Member's failure to maintain sufficient collateral would
constitute a violation of OCC's Rules (i.e., if the value of the
collateral on deposit fell below the Clearing Member's margin
requirement). Such a reading would be inconsistent with OCC operations
and the implicit intent behind OCC Rules 601 and 1001, which establish
OCC's ability to call for margin and Clearing Fund collateral as
needed. The revised statement would better describe OCC's long-standing
requirements and practices.
OCC proposes to remove lists of acceptable margin and Clearing Fund
collateral types from the Margin and Clearing Fund sections. OCC Rules
604 and 610 describe asset types that OCC accepts as margin collateral
and OCC Rule 1002 describes Clearing Fund collateral. Because the list
of acceptable collateral to be removed is appropriately reflected in
the Rulebook, it need not be duplicated in the CRM Policy. Similarly,
OCC proposes to delete a statement regarding the current composition of
sovereign debt accepted by OCC in the Sovereign Credit Risk section.
This text provides background information regarding the current
composition of OCC's sovereign debt collateral and maintaining this
description in the CRM Policy text raises the risk of inaccuracy should
OCC's collateral composition change over time. The statement does not
establish a stated policy, practice or interpretation of OCC regarding
the forms of Government securities acceptable to OCC, which are
established by OCC Rules 604 and 1002.
OCC proposes to restate Financial Risk Management's (``FRM'')
stated obligation in the Market Risk section to value collateral
``continuously,'' to ``throughout regular market trading hours.'' The
modifier ``continuously'' could imply that FRM is required to value
collateral on a 24/7 basis. OCC's policies and procedures are designed
to set and enforce appropriately conservative haircuts for the
collateral it accepts,\14\ but OCC does not believe this would require
it to adhere to a standard of continuous and ongoing revaluation of
collateral. Accordingly, OCC proposes these revisions to more clearly
reflect its long-standing practices. Similarly, OCC proposes to restate
the obligation in the Valuations section from requiring P&M to perform
its collateral valuation processes ``on a continuous basis'' to
``during regular market trading hours.'' In each case the revised
statements are fairly and reasonably implied by OCC's rules.\15\
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\14\ See 17 CFR 240.17Ad-22(e)(5).
\15\ For example, the CRM Policy explains that OCC's approach to
valuation includes that the maximum period between collateral
revaluations is at least daily. See Exchange Act Release No. 82009
(Nov. 3, 2017), 82 FR 52079, 52080-81 (Nov. 9, 2017) (SR-OCC-2017-
008).
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OCC proposes to amend the description of its approach to
concentration risk in the Concentration Risk section. The current
description focuses on OCC's measures to mitigate
[[Page 88165]]
concentration risk in relatively limited scenarios, including where
appropriate to limit the aggregation or concentration of large
positions in a single security or mitigate price dislocation when
selling a large position into a thin market. This description does not
address other relevant instances where OCC could face or seek to
mitigate concentration risk. As such, OCC proposes to more broadly
describe its approach to mitigating concentration risk, which consists
of restrictions for certain assets intended to allow OCC to liquidate
collateral quickly without adverse price effects. The proposed
revisions would more fully describe OCC's approach to mitigating
concentration risk without altering the substance or requirements of
the CRM Policy as they relate to OCC's core risk management activities.
The Systems and Processing section describes OCC's collateral
management system as highly automated yet flexible enough to accept a
variety of collateral types. While this description of the system's
flexibility is accurate, it does not establish a rule, standard or
interpretation with respect to OCC's operation of the system. OCC
proposes to replace the extraneous discussion of flexibility with a
statement indicating that the system supports the maintenance and
processing of various asset types, which more objectively conveys
similar information. This section further provides that the collateral
management system maintains the same performance, efficiency and
effectiveness for each collateral type OCC accepts. OCC proposes to
delete this provision because different processing methods for
collateral types and associated timelines could render that statement
inaccurate and the discussion of the collateral system's capabilities
likewise does not establish a stated policy, practice or interpretation
and should not be considered a rule per se. The proposed revisions
would clarify the description of OCC's collateral management system in
accordance with current OCC operations.
In the Reconciliation section, OCC intends to clarify that the
information it uses in the daily balancing of collateral against
activity and inventory reports is not limited to end-of-day reports
provided by custody banks and depositories. Accordingly, OCC proposes
to remove the ``end-of-day'' modifier and include OCC's internal
systems within the description of potential sources of information and
reports used for daily balancing activity. These revisions are intended
to better reflect the sources of information OCC uses when conducting
its daily balancing activity.
The Reconciliation section also provides exceptions to the daily
monitoring requirement concerning certain collateral for which OCC's
daily balancing activities previously were impractical. OCC believes
these reviews and associated exceptions to the daily monitoring
requirement are no longer necessary. Specifically, OCC would delete
reference to the monthly reviews of collateral deposited pursuant to
letters of credit or depository receipts and security agreements. With
respect to letters of credit, the monthly reviews date to when
documentation for such collateral was maintained in physical files.
Currently, OCC verifies and electronically retains documentation for
letters of credit on the date a letter of credit is processed
consistent with the CRM Policy's daily monitoring requirement, making
the monthly review exception for letters of credit redundant and
unnecessary. With respect to depository receipts and security
agreements, the processing of Canadian Government securities, to which
those monthly reviews apply, no longer rely on such documentation. In
any event, Collateral Services conducts a daily inventory
reconciliation of Canadian Government securities, which is reasonably
and fairly implied by the generally applicable daily balancing
requirement under the Reconciliation section, discussed above.
Accordingly, OCC proposes to delete the reference to these monthly
reviews from the CRM Policy because the monthly reviews no longer serve
any practical purpose.
Similarly, OCC proposes to remove the CRM Policy's discussion of
the requirement that Collateral Services regularly review escrow
deposit banks to ensure acceptable and sufficient collateral is
maintained. This review dates to a time when OCC did not have daily
visibility into the actual collateral holdings held at the banks as
supporting collateral.\16\ OCC would review a collateral listing
supplied by the banks on a quarterly basis. Currently, all non-cash
collateral is pledged to OCC through the Depository Trust Company
(``DTC''), which not only provides OCC with visibility into the
holdings but allows OCC to validate and value the collateral in an
automated fashion prior to giving credit to such deposits.\17\ OCC
reconciles the non-cash inventory daily and performs a daily audit of
any cash collateral maintained at the escrow banks against what OCC
maintains in its systems. These daily reconciliation activities are
reasonably and fairly implied by the generally applicable daily
balancing requirement under the Reconciliation section, discussed
above.
---------------------------------------------------------------------------
\16\ See Exchange Act Release No. 79094 (Oct. 13, 2016), 81 FR
72129 (Oct. 19, 2016) (SR-OCC-2016-009) (approving changes to OCC's
escrow deposit program).
\17\ Id. at 72129.
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The Reconciliation section also requires OCC's Collateral Services
team to ``immediately address'' any discrepancies identified during its
activity reviews and inventory balancing. How Collateral Services
addresses such discrepancies is addressed in procedures maintained by
Collateral Services. OCC proposes to revise the text of this section to
recognize that Collateral Services maintains procedures to satisfy this
obligation.
OCC proposes to remove the entirety of the Margin Offset section,
which consists of a description of margin collateral assets that are
permitted to directly offset cleared positions (i.e., deposits in lieu
of margin) and a statement that cleared positions can be fully covered
by such assets and thus excluded from margin calculations. OCC Rules
610 and 601(f)(2) authorize such offsets and describe the collateral
assets permitted to be offset. As such, OCC believes it is unnecessary
to duplicate this information in the CRM Policy.
The Governance and Annual Review section provides that a
recommendation to add a new collateral type for margin or clearing fund
purposes must address whether the collateral should be subject to a
haircut or modeled within the System for Theoretical Analysis and
Numerical Simulation (``STANS''). OCC proposes to specify in the CRM
Policy that when the collateral type will be subject to haircuts, such
haircuts will be expressed as percentages, as is consistent with
current OCC practice.
In addition, OCC proposes to make clarifying, conforming and other
non-substantive changes to the CRM Policy. The proposed changes
discussed below would not substantively alter the meaning of the
revised provisions or the substance or requirements of the CRM Policy
as they relate to OCC's core clearance, settlement, and risk management
activities. The following conforming revisions are intended to align
the text of the CRM Policy with existing provisions of the Rulebook,
By-Laws or other documents, as applicable, and to update the titles of
documents referenced in the CRM Policy:
In the section to be renamed as Policy Content, and again
in the subsequent Margin section, OCC proposes to insert references to
Rule 610. Rule 610 establishes the rules around deposits in lieu of
margin,
[[Page 88166]]
which are a form of margin collateral. These changes would ensure
alignment between the text of the CRM Policy and the Rulebook with
respect to acceptable forms of margin collateral. In the amended Policy
Content section, OCC also proposes to add that Clearing Fund collateral
can be used to meet OCC liquidity needs for settlement. This change is
also consistent with existing practice, as codified in OCC Rule
1006(f).
OCC would revise two references to chapter 2 of the
``STANS Margin Methodology document'' to instead refer to the ``STANS
Methodology Description,'' which replaced the legacy STANS Margin
Methodology as the description of the STANS Methodology filed with the
Commission.\18\
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\18\ See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR
9410 (Feb. 12, 2021) (SR-OCC-2020-016) (approving the establishment
of the STANS Methodology Description).
---------------------------------------------------------------------------
The following clarifying revisions are intended to restate existing
provisions for improved clarity and accuracy:
In the Purpose section, OCC proposes to replace collateral
that ``OCC has determined exhibits low credit, market and liquidity
risks'' with collateral that ``is of low risk based on credit, market,
and liquidity characteristics.'' These revisions would not alter
currently existing standards or practices but more clearly state what
OCC's definition of high quality collateral is based on.
In the Margin section, OCC proposes to replace ``price''
with ``value'' in reference to the liquidation of margin assets at a
price that reasonably approximates the value given to the asset as a
collateral deposit, which would be consistent with the term ``value''
that is used later in the sentence.
In the Risk Considerations section, OCC proposes to insert
the word ``collateral'' after ``margin'' to align with the term
``Clearing Fund collateral'' used immediately thereafter. In light of
this alignment, OCC also proposes to insert ``or both'' to make clear
that the Credit and Liquidity Risk Working Group (``CLRWG'') \19\
determines which assets are considered acceptable for each category of
collateral, or both categories, as applicable.
---------------------------------------------------------------------------
\19\ CLRWG is a cross-functional group responsible for assisting
OCC's Management Committee in overseeing and governing OCC's credit
and liquidity risk management activities and currently consists of
representatives from Financial Risk Management--including Credit
Risk Management and Stress Testing and Liquidity Risk Management--
Corporate Risk Management, Treasury, and Operations.
---------------------------------------------------------------------------
In the Sovereign Credit Risk section, OCC proposes to
delete ``particular'' as a qualifier preceding ``foreign sovereign's
debt.'' The qualifier is unnecessary as OCC reviews each form of
collateral prior to accepting it as collateral, so the revision does
not substantively alter the meaning of the provision.
In the Valuations section, OCC proposes to restate how the
haircut determination and review process informs OCC's approach to
addressing procyclicality. The current policy states that such process
also ``protects against potential pro-cyclical concerns'' by
considering stressed market conditions. OCC proposes to delete
``potential'' and instead state that the process ``shall also protect
against pro-cyclical concerns'' by considering stressed market
conditions. The revisions would not substantively alter existing
processes but make more definitive OCC's intent to address pro-
cyclicality through its existing haircut determination and review
process. OCC proposes to remove ``in order'' from the same sentence as
it is a redundant statement of OCC's purpose, which is adequately
reflected in the statement.
The Haircuts section provides that changes to applicable
haircut rates shall be made in accordance with applicable authority
under Rule 604. OCC proposes to delete ``applicable authority under''
Rule 604 as it is redundant in the context of this sentence.
The Collateral Re-hypothecation and Substitution section
refers to ``Clearing Fund securities.'' OCC proposes to revise the
reference to ``Clearing Fund collateral'' for greater consistency with
the section header and discussion in the preceding sentence, which
refers to rehypothecation of ``margin collateral.''
Finally, OCC proposes to make typographical and administrative
changes to the CRM Policy intended to correct spelling, capitalization,
punctuation and grammar, remove unnecessary verbiage, and conform the
CRM Policy's format to OCC's latest policy template.
2. Margin Policy
OCC proposes the following changes to the Margin Policy identified
through its annual reviews of the policy.
In the Purpose section of the Margin Policy, OCC proposes to delete
``assure performance'' of Clearing Members as a stated purpose for
collecting margin. The act of collecting margin recognizes that no
counterparty's performance can be fully assured. The proposed revisions
would merely clarify the discussion in the Margin Policy without any
impact on the substance or requirements of OCC's margin collection
practices or Clearing Member obligations.
OCC proposes to insert an Applicability and Scope section, which,
similar to the change to the CRM Policy discussed above, would identify
the primary OCC business units that support OCC's approach to managing
margin and credit exposure presented by its Clearing Members, including
but not limited to P&M, Collateral Services, and QRM.
In the Net/Gross Margining Accounts section, OCC proposes to revise
the discussion of net and gross margining to focus on OCC's calculation
of margin rather than OCC's approach to liquidating positions in the
event of a default. The current text provides that two approaches under
applicable regulations to liquidating a Clearing Member's positions
include the immediate liquidation of positions that are margined on a
net omnibus basis and the porting of customer positions that are
margined on a gross basis. OCC believes it would be more appropriate to
frame this discussion in the Margin Policy in terms of margin
calculation considerations rather than position liquidation
considerations, which are covered in other OCC policies and
procedures.\20\ Accordingly, OCC proposes to restate this section in
terms of two approaches under applicable regulations for calculating
margin, which include margining positions on a net omnibus basis and
margining positions on a gross individual customer basis. The proposed
revision would more accurately reflect the nature of the applicable
regulatory provision while more clearly stating OCC's approach to
margin calculation in a manner that is consistent with its current
operations and margin calculation processes. At the same time, OCC
proposes to state in the Margin Policy that it calculates margin on a
customer gross basis for select accounts, which facilitates the porting
of futures Customer accounts in accordance with OCC's Rules or By-Laws.
The gross margin calculation is consistent with OCC's current practice
for customer segregated futures positions in accordance with U.S.
Commodity Futures Trading Commission (``CFTC'') Regulation
39.13(g)(8)(i)(A),\21\ which applies to OCC by virtue of its
registration as a derivatives clearing organization (``DCO''). Lastly,
OCC proposes to delete
[[Page 88167]]
a statement from this section indicating that the methodology used to
liquidate a customer account directly influences the manner in which
OCC margins the account. Liquidation methodology is but one of numerous
factors (e.g., position risk, concentration of positions, correlations
and offsets, and regulatory standards) influencing the manner in which
an account is margined. Each of the above revisions would be consistent
with OCC's current operations and margin calculation processes.
---------------------------------------------------------------------------
\20\ OCC's Default Management Policy outlines the steps that OCC
may take in the event of a Clearing Member's suspension, including
the close-out of positions. See Exchange Act Release No. 82310 (Dec.
13, 2017), 82 FR 60265 (Dec. 19, 2017) (SR-OCC-2017-010).
\21\ See 17 CFR 39.13(g)(8)(i)(A).
---------------------------------------------------------------------------
In the same section, OCC proposes to revise how it describes its
approach to liquidating and/or porting a suspended Clearing Member's
accounts. The Margin Policy currently provides that OCC's primary
approach with respect to the positions of a suspended Clearing Member
shall be immediate liquidation of net omnibus positions and porting of
futures customer positions margined on a gross basis. The Margin Policy
further specifies that accounts utilizing a net margining approach
shall be liquidated on a net omnibus basis either through market
transactions or an auction format. As above, OCC proposes to reframe
the discussion in the Margin Policy to focus on the calculation of
margin rather than considerations around liquidating positions, by
noting instead that the calculation of margin on a net basis is
consistent with OCC's primary approach for liquidating a Clearing
Member's positions. In light of this revised focus on margin
calculation rather than liquidation, OCC proposes to delete the
statement regarding how net margin accounts will be liquidated. The
proposed changes are intended to clarify the relationship between OCC's
margin calculation approach and its decisions to port or liquidate
positions in a default scenario, in accordance with applicable
regulations and OCC's existing Rules.\22\
---------------------------------------------------------------------------
\22\ See OCC Rule 1106(c) (providing that OCC shall close open
futures positions of a suspended Clearing Member in the most orderly
manner practicable).
---------------------------------------------------------------------------
The same section provides that gross margining of accounts ``shall
permit'' OCC to port individual customer accounts and associated margin
to a solvent futures commission merchant (``FCM''). This text could be
read to imply that gross margining ensures that OCC will be able to
port individual customer accounts and associated margin in all cases,
which cannot be guaranteed in advance. Accordingly, OCC proposes to
revise this statement to instead focus on the effect of gross margining
on OCC's decision-making by clarifying that gross margining permits OCC
to ``identify'' individual customer positions and margin deposits,
which facilitates porting along with associated margin deposits. As
provided in OCC Rule 1106 and implied by the proposed revision to this
statement, and to further ensure that OCC retains an appropriate and
necessary degree of flexibility to manage risk arising from a Clearing
Member default, OCC further proposes to state that utilizing gross
margining would not preclude OCC from liquidating those positions on a
net basis. Each of these proposed revisions would align the discussion
in the Margin Policy to be consistent with OCC's currently contemplated
approach to porting considerations as reflected in the Rules, and other
policies and procedures governing OCC's default management process, and
would not alter the substance or requirements of the Margin Policy as
they relate to OCC's core clearance, settlement, and risk management
activities.
In the Segregated Futures Customer Gross Margining section, the
Margin Policy provides that OCC margins customer segregated futures
accounts on a gross margin basis to facilitate the porting of futures
customers in the event of an FCM default. As noted above, the
requirement to collect gross margin for customer futures accounts is
established at CFTC Regulation 39.13(g)(8)(i)(A),\23\ which applies to
OCC by virtue of its registration as a DCO. This is a requirement that
applies to OCC by operation of law and does not need to be restated in
the Margin Policy.\24\ Lastly, the statement could be interpreted to be
contradictory to a later statement in the same section that OCC will
require the larger of the gross or net margin requirement calculated
for the account. For these reasons, OCC proposes to delete the
statement in its entirety.
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\23\ 17 CFR 39.13(g)(8)(i)(A).
\24\ Because this margin calculation requirement is codified in
a regulation it would be potentially confusing to continue stating
that OCC margins customer futures accounts on a gross basis ``to
facilitate the porting of customers.'' While this may be the
intended outcome of the gross margin minimum requirement, it is more
accurate that OCC collects the required amount primarily to meet its
risk management obligations in accordance with applicable
regulations.
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In the Stock Loan Positions section, OCC proposes to revise its
discussion of add-on charges for stock loan positions to enhance
clarity. The Margin Policy currently provides that OCC will include
add-on margin charges as needed based on pricing and corporate action
conventions. Because there are not different conventions to how
corporate actions are applied to stock loan contracts, OCC proposes to
instead provide that add-on margin charges will be included based on
pricing conventions and corporate action entitlements of the applicable
stock loan program. OCC would remove the phrase ``as needed'' from the
current text since the relevant add-on margin charges are driven by the
pricing conventions and cash entitlements of the program, making that
phrase redundant in the context. The proposed revisions would update
and clarify the description of OCC's approach to add-on charges in the
Margin Policy without impacting current OCC operations. In addition,
OCC would change an ``i.e.,'' to ``e.g.,'' in the same section because
the subsequent list of risk calculations is non-exhaustive.
In the Cross-Margin section, OCC proposes to expressly state that
margin requirements for cross-margin accounts shall be calculated in
accordance with OCC's margin methodology, while taking into account any
provisions of the applicable cross-margin agreement. The revised text
would conform with what is reflected in OCC Rule 704(a), which provides
that margin in respect of cross-margin accounts shall be determined by
OCC in accordance with that rule and the relevant cross-margin
agreement. In a footnote to the same section, OCC notes that the
establishment, implementation, maintenance and review of cross-margin
agreements is governed by the rule-filed Third-Party Risk Management
Framework \25\ and a list of underlying procedures that support that
Framework. OCC proposes to streamline this footnote by instead cross-
referencing the ``Third-Party Risk Management Framework and underlying
procedures.'' Reference to each of the underlying procedures was not
intended to be a rule per se, and eliminating this information from the
Margin Policy would encourage OCC staff to use OCC's internal system of
record to identify the procedures that are related to the specific
purpose or function that they are performing instead of relying on a
list that may be outdated or underinclusive.
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\25\ See Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR
86592, 86593 (Dec. 30, 2020) (SR-OCC-2020-014) (``The [Third-Party
Risk Management Framework] describes OCC's framework for managing
risk throughout the relationship lifecycle (i.e., at on-boarding,
monitoring and off-boarding) for Clearing Members, Financial
Institutions, and vendors.'').
---------------------------------------------------------------------------
In the Collateral section, the Margin Policy states that margin
deposits are due on ``the morning'' following the trade date. OCC
proposes to amend reference to the generally applicable deadline, which
could vary in certain circumstances (e.g., with respect to trades that
clear on dates preceding a
[[Page 88168]]
weekend or a bank holiday or where OCC issues an intra-day margin
call). The reference would be updated to the ``morning of the business
day'' following the trade date, as provided by OCC Rule 601(a). The
reference would be further updated to provide that with respect to
intraday margin calls, margin deposits are due at such other time as
provided by OCC Rule 609 and the section of the CRM Policy that
addresses intra-day margin calls. The proposed revisions would update
and clarify the description of OCC's practices in the Margin Policy to
better reflect a wider range of circumstances than are currently
contemplated therein, and would not entail any changes to current OCC
operations or margin collection practices.
The Collateral in Margins section provides that OCC shall promote
incentives to hedge by including certain forms of margin within the
STANS margin calculation, as specified in referenced rules approved by
the Commission pursuant to section 19(b) of the Exchange Act.\26\ OCC
proposes to delete extraneous information regarding the content of
OCC's rules, including that OCC's rules include scenarios that could
impact Clearing Member exposures as a result of the collateral
deposited. This information is implied by the beginning of the
sentence, which explains that OCC intends to achieve the desired result
by including margin collateral as specified in the referenced
documents, and need not be duplicated in the Margin Policy.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------
The same section currently requires QRM to perform an analysis, in
accordance with referenced procedures, to confirm that risk
interactions between derivative and cash market positions are being
appropriately recognized. OCC proposes to update the reference to
conform to the current name of the referenced procedures. In addition,
to remove potential ambiguity regarding the scope of the required
analysis, OCC proposes to specify that the analyses performed by QRM in
accordance with the referenced procedures should confirm that the STANS
margin model is effectively modeling the risk interactions. This
addition would clarify that the Margin Policy requires QRM's analyses
to confirm the effectiveness of STANS' modeling of the risk
interactions, but does not establish a requirement that QRM separately
confirm the appropriate recognition of risk interactions between
derivative and cash markets outside of the STANS margin model. The
scope of QRM's obligation to confirm that risk interactions are being
appropriately recognized in STANS is reasonably and fairly implied in
the context of the paragraph, which discusses collateral that is
included in STANS margin calculations, but OCC proposes to add
specificity to enhance clarity regarding QRM's obligations.
In the Risk Factors section, OCC proposes to change the description
of its evaluation of the appropriateness of risk factors considered
within its models to strike ``on an ongoing basis'' and replace it with
``on a regular basis.'' That section lists several types of periodic
reviews designed to achieve this aim, including reviews of Exchange
proposals to list new products pursuant to referenced procedures, FRM's
daily backtesting, monthly reporting of such backtesting results to the
Model Risk Working Group (``MRWG''),\27\ and QRM's review of OCC's
margin methodology in accordance with referenced procedures to
reasonably ensure that the margin methodology incorporates all
significant risk factors and supports the robustness of OCC's margin
resources, which QRM performs monthly or more frequently as required by
regulations applicable to OCC.\28\ In addition, as discussed elsewhere
in the Margin Policy, OCC's Model Risk Management business unit
performs an annual review of the overall performance of the STANS
margin methodology and its associated models. The periodicity of such
reviews is discussed elsewhere in the Margin Policy. This revised text
would be consistent with similar revisions noted above,\29\ as well as
the timeline for periodic reviews of risk model performance conducted
under applicable policies and procedures. The proposed rule change
would not entail a change to current OCC operations.
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\27\ The MRWG is a cross-functional group responsible for
assisting OCC's Management Committee in overseeing and governing
OCC's model-related risk issues and currently consists of
representatives from FRM, including QRM, and from Corporate Risk
Management, including Model Risk Management.
\28\ See 17 CFR 240.17Ad-22(e)(6)(vi)(C) (requiring a clearing
agency to conduct sensitivity analysis of its margin model and a
review of its parameters and assumptions for backtesting more
frequently than monthly during periods of time when the products
cleared or markets served display high volatility or become less
liquid, or when the size or concentration of positions held by the
covered clearing agency's participants increases or decreases
significantly).
\29\ See supra notes 14-15 and accompanying text.
---------------------------------------------------------------------------
The same paragraph also provides that FRM shall continually
evaluate the effectiveness of specified risk models. OCC proposes to
delete the modifier ``continually'' as it could be read to create an
expectation that OCC conducts 24/7 evaluations of its models. The
revisions would only change the description of OCC's practices in the
Margin Policy to enhance consistency with regard to its current model
performance review process and would not impact OCC operations.
In the same section, OCC proposes to delete text indicating that
QRM is responsible for reasonably ensuring that margin methodologies
incentivize Clearing Members to be aware of their own risks and
mitigate their exposures. One of QRM's primary responsibilities, as
discussed above, is to establish, implement, maintain and review margin
methodologies to reasonably ensure that they incorporate all
significant risk factors and support the robustness of OCC's margin
resources. The measure of any incentive effect from OCC's margin
methodology on Clearing Members' awareness of risk or mitigation of
exposures is inherently qualitative and falls outside of QRM's ordinary
remit. OCC further believes that well-designed margin methodologies
would naturally support the creation of incentives at each Clearing
Member to be aware of and mitigate their risks. Accordingly, OCC
proposes to remove QRM's responsibility to monitor indirect and
qualitative effects of the methodology at third-party Clearing Members
while retaining that team's primary responsibilities with respect to
quantitative aspects of margin model design, implementation, monitoring
and review processes.
The Market Data and Pricing Considerations section provides that
P&M shall transmit pricing data to both OCC's primary and back-up data
centers, pursuant to a referenced procedure. OCC proposes to delete
this operational detail with respect to OCC's current data
infrastructure from the Margin Policy. Changes in OCC's data
infrastructure could render that statement inaccurate and the reference
to OCC's current primary and back-up data centers is not intended to be
a rule per se.\30\ In any event, the statement about transmission of
data is reasonably and fairly implied by the existing text of the
section, which provides that P&M shall review the quality and
completeness of market data ``prior to distribution [to] downstream
systems and external consumers.''
---------------------------------------------------------------------------
\30\ See Exchange Act Release No. 96113 (Oct. 20, 2022), 87 FR
64824 (Oct. 26, 2022) (SR-OCC-2021-802) (SEC notice of no objection
to OCC's proposed adoption of cloud infrastructure for OCC's new
clearing, risk management, and data management applications).
---------------------------------------------------------------------------
The same section also provides that OCC shall rely upon real-time
market data in order to continually evaluate the value of Clearing
Member portfolios.
[[Page 88169]]
OCC proposes to remove the ``real-time'' qualifier for enhanced
accuracy because other market data beyond real-time data is also
relevant to OCC's evaluation process. The proposed rule change would
clarify that OCC may use intraday data. As above, the statement that
OCC ``continually'' evaluates the value of portfolios could be read to
imply that OCC values portfolios on a 24/7 basis. OCC proposes to
revise this statement to say that it evaluates portfolios ``during
market hours,'' which OCC believes to be consistent with its regulatory
and risk management obligations. These revisions are for clarification
only and would not entail any changes to current OCC operations.
The following paragraph in the same section provides that P&M shall
systemically process and manually validate referenced settlement values
in accordance with a referenced procedure. OCC proposes to delete
``systemically'' with regard to processing and ``manually'' with regard
to validations in order to provide OCC with an appropriate degree of
flexibility in determining how it shall process and validate the
referenced values. Operational details regarding the conduct of such
processes and validations are contemplated in the referenced procedure.
OCC believes it is unnecessary to duplicate those operational terms in
the Margin Policy as doing so creates the risk of inaccuracy in the
Margin Policy should the relevant processes be amended in the future in
accordance with applicable governance requirements. The proposed
revisions would remove from the Margin Policy constraints on the
mechanical processes OCC could use to process and validate referenced
settlement values, but would not significantly impact OCC's core
clearance, settlement or risk management activities.
In the Recalibration section, OCC proposes to update the discussion
of the recalibration process for STANS econometric models to reflect
its automation. The revised text would provide that recalibrations are
to be performed systemically as reflected in the current STANS
Methodology Description.\31\ P&M would retain responsibility for
monitoring outputs of the process and escalating issues and the stated
timeline for the processing would not need to change. The proposed
revisions would update the description of OCC's mechanical process for
recalibrations to reflect the automation of certain components, but
would not otherwise impact its overall method for recalibrations or
OCC's core clearance, settlement, and risk management activities.
---------------------------------------------------------------------------
\31\ See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR
9410 (Feb. 12, 2021) (SR-OCC-2020-016) (approving the establishment
of the STANS Methodology Description).
---------------------------------------------------------------------------
In the same section, OCC proposes to add a footnote to explain that
synthetic futures represent an exception to the 10-year lookback period
for univariate parameters. This revision does not impact OCC's
operations as it merely conforms the discussion in the Margin Policy to
be consistent with what is reflected in the STANS Methodology
Description.\32\
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\32\ See id.
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The Stress Test Components section of the Margin Policy currently
provides that FRM is required to continually evaluate the portion of
stress losses that are not collected as margin against the Clearing
Member's net capital, in accordance with referenced procedures, and
require the Clearing Member to deposit additional margin, in accordance
with Rules 601 and 609, in an amount equal to the exposure in excess of
its net capital where FRM determines that the uncollateralized exposure
exceeds the Clearing Member's ability to absorb the loss based on its
current capitalization. For clarity, OCC proposes to add that OCC's
policy of calling for additional margin in such circumstances does not
preclude OCC from taking other protective measures under OCC's recently
amended Rule 307 if FRM determines a Clearing Member's uncollateralized
exposure presents elevated risk to OCC, including restrictions on
distributions under Rule 307A, restrictions on certain transactions,
positions and activities under Rule 307B, and additional operational,
personnel, financial resource and risk management requirements under
Rule 307C.\33\
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\33\ See Exchange Act Release No. 97439 (May 5, 2023), 88 FR
30373, 30376 (May 11, 2023) (SR-OCC-2023-002) (approving amendments
to OCC's membership standards).
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The SPAN section states that the System for Portfolio Analysis of
Risk (``SPAN'') \34\ is used to assess risk for a wide variety of
financial instruments, including futures, options, physicals, equities
or any combination thereof. OCC proposes to delete such informational
background on SPAN's capabilities as it is irrelevant to the discussion
of how OCC uses SPAN to calculate margin requirements, which is the
focus of this section, and OCC does not use SPAN to assess risk for all
the instruments listed in that sentence. OCC also proposes to relocate
a statement regarding OCC's use of SPAN to compute gross margin for all
segregated futures customers' accounts within the paragraph in order to
enhance clarity.
---------------------------------------------------------------------------
\34\ SPAN is a methodology developed by the Chicago Mercantile
Exchange and used by many clearinghouses and exchanges around the
world to calculate margin requirements on futures and options on
futures.
---------------------------------------------------------------------------
OCC also proposes to revise the Scan Ranges section of the Margin
Policy, which details certain functions related to the SPAN
methodology. While this section accurately describes OCC's use of scan
ranges to establish margin covered under SPAN, OCC also performs
recalibration of spread rates and other parameters under the SPAN
methodology. For completeness, OCC proposes to specify parameters in
addition to scan ranges that are used to calculate SPAN margin
requirements. These changes would align the text of the Margin Policy
with existing practices. OCC also proposes to delete the Scan Ranges
section header in light of the expanded scope of parameters addressed
thereunder. In the same section, OCC proposes to extend P&M's
recalibration responsibilities beyond scan ranges to include the
additional parameters. These changes are reasonably and fairly implied
by the SPAN section of the Margin Policy, which requires OCC to compute
gross margin for all segregated futures customers' accounts using SPAN.
In the same section, OCC proposes to revise its description of
maintenance and initial margin calculations. These proposed changes are
descriptive only and would not substantively alter OCC's margin
calculation process or the ratio between the calculated amounts. This
section currently provides that minimum scan ranges used to satisfy the
initial speculator margin and spread rates shall exceed 110% of the 99%
VaR of the daily historical observations. To enhance clarity around its
initial and maintenance margin calculations and the ratio between the
two values and update terminology with the latest conventions, OCC
proposes to provide that the scan ranges established for the
calculation of maintenance margin shall exceed the 99% VaR of the daily
historical observations, and further provide that the scan ranges
established for heightened risk profile margin calculations shall be at
least 110% of that maintenance margin amount. These revisions only
change the description of the two rates and the ratio between them to
enhance clarity and are consistent with OCC's current calculation
practices for maintenance
[[Page 88170]]
and initial margin and the latest terminology used by the CFTC.\35\
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\35\ See Final Rule, Derivatives Clearing Organization General
Provisions and Core Principles (Dec. 20, 2019), 85 FR 4800 (Jan. 27,
2020) (amending CFTC Rule 39.13(g)(8)(ii)).
---------------------------------------------------------------------------
In the same section, OCC proposes to add that inter-month spread
charges, in addition to SPAN scan ranges, incorporate a long-run
historical estimate or look to periods of heightened volatility to
guard against pro-cyclicality. The added reference to ``inter-month
spread charges'' is consistent with OCC's current process for
calculating margin requirements under SPAN. OCC also proposes to add
that the standard historical data look-back period used to establish
scan ranges shall be ``at least'' 500 business days, except as provided
in a referenced procedure. The addition of ``at least'' would be
clarifying and would not impact OCC's current approach to the SPAN
margin calculations. OCC also proposes to remove ``volatility'' from
the phrase ``long-run historical volatility estimate,'' which is only a
textual change and would not impact OCC's current approach to SPAN
margin calculations.
In the same section, OCC also proposes to remove the parenthetical
example of unique risk characteristics attributable to particular
products. The single example provided is not exhaustive and the
referenced procedure includes additional detail regarding risk
characteristics. Duplicating this information in the Margin Policy is
unnecessary and creates the risk of inaccuracy in the Margin Policy
should the relevant processes be amended in the future in accordance
with applicable governance requirements.
In the Intraday Margin Calls section, OCC proposes to change
references to a ``window'' for issuing margin calls to a ``standard
time for processing'', or similar term. This change would enhance the
clarity of the discussion in the Margin Policy by adopting uniform,
clear language to refer to margin calls issued during the standard
processing timeline, without impacting OCC operations associated with
issuing margin calls.
In the Extended Trading Hours Margin Calls section, OCC proposes to
insert a reference to a ``standard time for processing'' an extended
trading hours margin call and provide that OCC will establish such
standard time in the referenced procedure. The use of the ``standard
time for processing'' term is intended to align with the adoption of
similar language in the immediately preceding Intraday Margin Calls
section, as discussed above. The establishment of the deadline in a
referenced procedure is consistent with and reasonably and fairly
implied by OCC Rule 601(a), which authorizes OCC to specify the time by
which Clearing Members are required to deposit margin with the
Corporation. The proposed revision would not impact the operations of
OCC as it relates to OCC's core clearance, settlement, and risk
management activities. In the same section OCC proposes to remove a
reference to the 9:00 a.m. CT deadline for OCC to issue an extended
trading hours margin call. Rule 601(a) authorizes OCC to specify the
time by which every Clearing Member shall be obligated to deposit
margin assets. OCC believes that reflecting such operational terms in
the Margin Policy creates the risk of inaccuracy in OCC's Margin
Policy, which is filed as a rule with the Commission, should the
specified deadline be amended or extended in accordance with applicable
governance requirements. Accordingly, OCC has determined to remove the
specific reference within OCC's internal Margin Policy and instead
refer to applicable procedures to establish the relevant timeline by
which the margin call must be issued. OCC's authority to amend or
extend the deadline to deposit margin is fairly and reasonably implied
by the text of Rule 601(a), and the proposed revisions would better
enable OCC to give effect to this authority.
The Holiday Margin Calls section requires OCC to issue holiday
margin calls in specified amounts and circumstances. Currently, that
section provides that when an account is subject to both a holiday and
position risk margin call on the same day, OCC applies the larger of
the two. Subsequent to the addition of this provision to the Margin
Policy, OCC amended its rules to reflect Clearing Fund margin calls--
that is, margin calls for a Clearing Member Group when an estimate of
its Clearing Fund Draw \36\ exceeds 75% of the amount of the current
Clearing Fund.\37\ Pursuant to OCC's authority under OCC Rules 601(c)
\38\ and 609,\39\ it is OCC's practice to issue a Clearing Fund margin
call in situations where a Clearing Member is subject to these other
types of margin calls and the Clearing Fund margin call is the largest
of the three. OCC proposes to update the Margin Policy to reflect this
practice. Specifying Clearing Fund calls as an additional category of
margin call would align the discussion in the Margin Policy with the
types of calls OCC issues today and would not entail a change to
current OCC operations or margin collection processes.
---------------------------------------------------------------------------
\36\ The term ``Clearing Fund Draw'' refers to an estimated
stress loss exposure in excess of margin requirements.
\37\ See Exchange Act Release No. 83735 (July 27, 2018), 83 FR
37855 (Aug. 2, 2018) (SR-OCC-2018-008) (amending Rule 609 related to
intra-day margin).
\38\ See OCC Rule 601(c) (``Notwithstanding any other provision
of this Rule 601, [OCC] may fix the margin requirement for any
account or any class of cleared contracts at such amount as it deems
necessary or appropriate under the circumstances to protect the
respective interests of Clearing Members, [OCC], and the public.'')
\39\ See OCC Rule 609 (``The Corporation may require the deposit
of additional margin (`intra-day margin') by any Clearing Member in
any account at any time during any business day to . . . protect
[OCC], other Clearing Members or the general public.'').
---------------------------------------------------------------------------
The Review of Margin Methodology section outlines Model Risk
Management's responsibilities for evaluating the overall performance of
STANS at least annually, in accordance with referenced policies and
procedures, and for reporting its findings to the Risk Committee, which
is tasked with reviewing the adequacy of OCC's margin and clearing fund
methodology, including the STANS margin methodology, at least once
every twelve months. OCC proposes to delete a duplicative reference in
the Margin Policy regarding Model Risk Management's obligation to
produce an annual report of the STANS margin methodology, which is
fairly and reasonably implied in the preceding sentence as well as the
Risk Committee Charter.\40\ OCC also proposes to delete references to
Model Risk Management's obligations to present its validation findings
and annual report of the STANS margin methodology to the Risk
Committee. Model Risk Management is the primary group responsible for
ensuring the completion of the annual validation, which it conducts in
accordance with applicable procedures, and reporting of its findings.
Because the requirement to validate STANS is established in OCC's rules
and applicable procedures establish how Model Risk Management plans and
conducts its validation and reports any findings to the Risk Committee,
OCC believes it is unnecessary to duplicate such details in the Margin
Policy as doing so creates the risk of inaccuracy
[[Page 88171]]
in the Margin Policy should the relevant requirements or processes be
amended in the future in accordance with applicable governance
requirements.
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\40\ See OCC Risk Committee Charter, available at https://www.theocc.com/company-information/documents-and-archives/board-charters (last revised May 26, 2022).
---------------------------------------------------------------------------
Like the changes to the CRM Policy discussed above, OCC proposes to
make clarifying, conforming and other non-substantive changes to the
Margin Policy. The proposed changes discussed below would not
substantively alter the meaning of the revised provisions or the
substance or requirements of the Margin Policy as they relate to OCC's
core clearance, settlement, and risk management activities. The
following conforming revisions are intended to align the text of the
Margin Policy with existing provisions of the Rulebook, By-Laws or
other documents, as applicable, and to update the titles of documents
referenced in the Margin Policy:
The STANS section describes STANS as modeling the
volatility of individual products and the correlation amongst products.
OCC proposes to replace references to ``products'' in this sentence
with references to ``risk factors.'' These proposed revisions would
align references in the Margin Policy and the STANS Methodology
Description without impacting OCC's operations or risk management
activities.
The Recalibration section provides that recalibrations
will incorporate a long-run historical volatility estimate, which
serves as a floor during periods of low market volatility to reduce
pro-cyclicality in OCC's margin estimates. OCC proposes to replace
``reduce'' with ``control,'' to more affirmatively state OCC's intent
in adopting volatility floors.
The Margin Policy currently contains references to certain
related policies, procedures and other documents that OCC maintains in
support of the Margin Policy. These documents are reviewed and updated
on a periodic basis, which at times may result in the consolidation of
certain related policies, procedures and documents or changes in their
names. OCC proposes to revise the Margin Policy to update internal
policy and procedure names to reflect any changes resulting from these
periodic reviews to ensure the accuracy, consistency, and clarity of
the Margin Policy. The proposed changes are administrative in nature
and are not intended to change the substance of the Margin Policy.
The following clarifying revisions are intended to restate existing
provisions for improved clarity and accuracy:
In the Segregated Futures Customer Gross Margining
section, OCC proposes to insert ``for these accounts'' to clarify that
OCC will effect gross margining for customer segregated futures
accounts. The revision is only intended to clarify the applicability of
the statement.
In the Collateral in Margins section, OCC proposes to
revise ``certain forms of margin'' within the STANS margin calculation
to ``certain forms of collateral'' instead. This change is to enhance
clarity in the description of OCC's operations but does not change the
meaning of the provision or OCC's operations. The same section provides
that OCC's Management Committee shall be ultimately responsible for
determining which types of collateral are included in STANS margin
calculations. OCC proposes to remove ``ultimately'' to enhance clarity,
as the Management Committee's authority to make such determinations
derives from the Board, which implies that the Board has ``ultimate''
responsibility for such decisions. OCC also proposes to change a
reference to ``exchange traded fund[s]'' in a parenthetical providing
examples of deposits of collateral eligible for inclusion in STANS to
``exchange traded product[s]'' because collateral-in-margin treatment
also extends to exchange traded notes.
In the Market Data and Pricing Considerations section, the
Margin Policy establishes that P&M shall reasonably ensure that
measures are taken to review the quality and completeness of market
data prior to its distribution. OCC proposes to remove the qualifying
language and establish that P&M is responsible for reviewing the
quality and completeness of market data, as opposed to reasonably
ensuring that measures are taken to review the data, prior to its
distribution. This deletion would clarify P&M's obligation for
reviewing market data quality and completeness before it is distributed
to downstream systems and external consumers. The proposed revision
would add clarity to the Margin Policy and better ensure the integrity
of market data at the critical stage prior to its downstream or
external consumption.
In the Recalibration section, the Margin Policy provides
that where P&M has ``reasonable grounds for believing (e.g., with a
newly created passive ETF tracking a longstanding index) that a
suitable proxy exists,'' such proxy may be used in place of the default
distribution pursuant to the referenced procedure. OCC proposes to
restate this section for additional clarity. The revised text would
state that where P&M has ``reasonable grounds for assigning a suitable
proxy (e.g., a newly created passive ETF tracking a longstanding
index),'' such proxy may be used in place of the default distribution
pursuant to the referenced procedure. These revisions would more
clearly state P&M's obligations as well as the circumstances in which
P&M may exercise its discretion. In addition, OCC would amend a
reference to the Model Risk Management business unit (formerly known as
the Model Validation Group or ``MVG'') to reflect the current name of
that department, consistent with changes that OCC made to other such
references in a prior rule filing.\41\
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\41\ See Exchange Act Release No. 95842 (Sept. 20, 2022), 87 FR
58409, 58419 (Sept. 26, 2022) (SR-OCC-2022-010) (proposing
conforming changes to OCC's risk management policies regarding the
name of OCC's Model Risk Management business unit).
---------------------------------------------------------------------------
In the Add-on Charges section, the Margin Policy states
that in some instances, exposures that may be modeled outside of STANS
through the use of add-on charges may not require sophisticated models
to be derived. OCC proposes to remove ``in some instances'' as it is
implied by the beginning of the sentence, which states that these
exposures ``may'' not require sophisticated models to be derived, as
well as language in the next sentence referring to ``other instances.''
In addition, the Margin Policy states that consistent with the
referenced procedure, MRWG has the discretion to recommend approval of
add-on margin charges to the Management Committee. OCC proposes to
delete the reference to MRWG's discretion as it is implied by the
language that MRWG ``may'' recommend approval.
In the Margin Monitoring section, OCC proposes to clarify
that FRM conducts the backtests that are designed by QRM. This division
of labor is implied in the preceding statements of that section and is
appropriately reflected in the relevant procedures.
Finally, OCC proposes to make typographical and administrative
changes to the Margin Policy intended to correct spelling, punctuation
and grammar and remove unnecessary verbiage in the Margin Policy.
(2) Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Act \42\ and the rules thereunder applicable to OCC by
improving the accuracy, clarity, and consistency of the OCC Policies so
that they remain reasonably designed to achieve the standards and
requirements thereunder. Section 17A(b)(3)(F) of the Act \43\ requires,
among other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
[[Page 88172]]
transactions and, to the extent applicable, derivative agreements,
contracts, and transactions and to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing or agency or for which it is responsible. In turn, Exchange
Act Rule 17Ad-22(e)(1) through (3) require OCC to maintain written
policies and procedures reasonably designed to, among other things:
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78q-1.
\43\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
ensure a well-founded, clear, transparent, and enforceable
legal basis for each aspect of OCC's activities; \44\
---------------------------------------------------------------------------
\44\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
provide for governance arrangements that are clear and
transparent and specify clear and direct lines of responsibility; \45\
and
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\45\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------
maintain a risk management framework that includes
policies, procedures and systems that are designed to manage risks and
which are subject to periodic review and annual approval by the
Board.\46\
---------------------------------------------------------------------------
\46\ 17 CFR 240.17Ad-22(e)(3).
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OCC believes that the proposed changes, which are intended to
better reflect current practices, remove extraneous information, and
make other non-substantive, clarifying and administrative changes to
the text of those policies, are consistent with the Exchange Act and
these requirements for the following reasons.
1. Update Descriptions To Better Align With Current Practices
The proposed rule changes are designed to align the text of the OCC
Policies with current practices and to otherwise enhance accuracy,
clarity and consistency in the documents. The OCC Policies, including
descriptions of practices and processes therein, are subject to
periodic review. The proposed rule change would apply recommendations
made as part of OCC's annual review of the OCC Policies and which are
intended to ensure the OCC Policies maintain accurate descriptions of
OCC practices and operations. These changes are primarily clarifying in
nature and would not significantly alter the substance or requirements
of the OCC Policies as they relate to core clearing, settlement or risk
management activities. OCC believes improving the clarity of the
descriptions in the OCC Policies, which are central to OCC's clearance
and settlement activities, will, in turn, promote the accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds, in accordance with Section
17A(b)(3)(F) of the Exchange Act.\47\
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\47\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The proposed rule change would also update descriptions of
processes and governance requirements in the OCC Policies to align with
current practices and requirements. OCC believes these proposed
revisions would thus support clarity in OCC's governance arrangements
and better ensure that OCC's lines of responsibility are clear and
direct, in accordance with Exchange Act Rule 17Ad-22(e)(2).\48\
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\48\ 17 CFR 240.17Ad-22(e)(2).
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The proposed rule change would apply updates to the OCC Policies
that were recommended pursuant to annual reviews by the Board. The
proposed revisions would not significantly impact the practices
relating to OCC's core clearance, settlement, and risk management
activities. Accordingly, OCC believes the proposed rule changes would
support its obligation to maintain a sound risk management framework
that is subject to periodic review and annual approval by the Board in
accordance with 17Ad-22(e)(3).\49\
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\49\ 17 CFR 240.17Ad-22(e)(3).
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2. Delete Extraneous Information
The proposed rule change would remove extraneous information,
including certain provisions that are substantively duplicative of
provisions that are reasonably and fairly implied by other OCC rules or
that do not independently meet the criteria of rules, stated policies,
practices or interpretations. Certain provisions to be removed consist
of background information that does not establish an OCC requirement or
impact its practices. These proposed changes would enhance clarity by
deleting provisions from the OCC Policies that do not create OCC
obligations or substantively impact its practices or operations. Other
provisions to be removed consist of text that duplicates provisions
found in OCC's By-Laws and Rules or other documentation filed with the
Commission. OCC believes that it can avoid potential future confusion
by removing from the OCC Policies information that is appropriately
maintained in other documentation. Removing this information from the
OCC Policies will eliminate inconsistencies that could arise from
maintaining it in multiple places with different approval processes.
Accordingly, OCC believes that removal of these extraneous provisions
would facilitate the effective administration of OCC's policies and
procedures, which support the prompt and accurate clearance and
settlement of securities transactions and the safeguarding of
securities and funds, and thus is consistent with the requirements of
Section 17A(b)(3)(F) of the Exchange Act.\50\ OCC also believes that
removing these duplicative provisions from the OCC Policies would
enhance clarity around OCC's governance arrangements, better ensure
clear and direct lines of responsibility and prioritize efficient
governance processes for the relevant provisions, in accordance with
the requirements of Exchange Act Rule 17Ad-22(e)(2).\51\
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\50\ 15 U.S.C. 78q-1(b)(3)(F).
\51\ 17 CFR 240.17Ad-22(e)(2).
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3. Non-Substantive, Clarifying and Administrative Changes
OCC proposes to make other non-substantive, clarifying and
administrative changes to the OCC Policies to enhance their accuracy,
clarity and consistency with other OCC rules. By correcting
typographical errors, updating references to documentation, and
conforming references with other documentation and descriptions, the
proposed revisions would help facilitate the administration of existing
rules that are intended to promote the prompt and accurate clearance
and settlement of securities and derivatives transactions, in
accordance with Section 17A(b)(3)(F) of the Exchange Act.\52\ In
addition, correcting errors, making clarifications and conforming
references and descriptions within the OCC Policies would improve their
clarity, in accordance with the requirements of Exchange Act Rule 17Ad-
22(e)(1).\53\
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\52\ 15 U.S.C. 78q-1(b)(3)(F).
\53\ 17 CFR 240.17Ad-22(e)(1).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \54\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would have any impact or impose a
burden on competition. The proposed rule change is intended to update
internal policies to better reflect OCC's current practices, remove
duplicative provisions that could result in overlap or inconsistencies
with other OCC documentation and to make other administrative updates
that would have no impact on Clearing Members or other market
participants. None of the proposed updates to the OCC Policies would
affect Clearing Members' access to OCC's services or impose any direct
burdens on Clearing Members.
[[Page 88173]]
Accordingly, the proposed rule change would not unfairly inhibit access
to OCC's services or disadvantage or favor any particular user in
relationship to another user.
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\54\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \55\ and paragraph (f) of Rule 19b-4 \56\
thereunder. 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.
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\55\ 15 U.S.C. 78s(b)(3)(A).
\56\ 17 CFR 240.19b-4(f).
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The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\57\
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\57\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Regulation 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-2023-008 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-2023-008. 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 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. 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-2023-008 and
should be submitted on or before January 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27912 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P