Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Options Clearing Corporation Concerning Modifications to Its Board Charter and Risk Committee Charter To Align With Recently Adopted CFTC Governance Requirements for Derivatives Clearing Organizations, 46205-46210 [2024-11572]
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Federal Register / Vol. 89, No. 103 / Tuesday, May 28, 2024 / Notices
become operative immediately upon
filing.
The Exchange states that waiver of the
operative delay would permit the
Exchange’s Routing Broker to
immediately implement the order
handling behavior described in the
proposal, which would benefit Users
who submit a routable order to the
Exchange and receive an execution on
an away Trading Center in fractional
pennies. The Exchange further states the
proposed rule change does not present
any new or novel issues, as at least one
other exchange indicated that its routing
broker performed similar rounding
behavior for orders received in odd-lot
or sub-penny increments that were
filled on away market centers and were
not compatible with existing exchange
system behavior.23 For these reasons,
and because the proposal does not raise
any new or novel issues, the
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the 30-day operative
delay and designates the proposal
operative upon filing.24
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 shall institute proceedings
under Section 19(b)(2)(B) 25 of the Act 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–
supra note 9.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
25 15 U.S.C. 78s(b)(2)(B).
CboeEDGA–2024–015 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–100194; File No. SR–OCC–
2024–005]
• 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–CboeEDGA–2024–015. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeEDGA–2024–015 and should
be submitted on or before June 18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–11582 Filed 5–24–24; 8:45 am]
BILLING CODE 8011–01–P
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May 21, 2024.
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 May 8, 2024, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared primarily by OCC.
OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A) 3 of the
Act and Rule 19b–4(f)(6) 4 thereunder.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change would
make modifications to its Board of
Directors Charter and Corporate
Governance Principles (‘‘Board
Charter’’) and Risk Committee Charter
(‘‘Risk Committee Charter’’) to comply
with recently adopted governance
requirements 5 by the Commodity
Futures Trading Commission (‘‘CFTC’’)
for derivatives clearing organizations
(‘‘DCOs’’) that became effective on July
13, 2023, and with which DCOs, like
OCC, must comply by July 12, 2024.
The proposed changes to OCC’s Board
Charter are included [sic] as Exhibit 5A
to File No. SR–OCC–2024–005 and
proposed changes to the Risk Committee
Charter are included [sic] as Exhibit 5B
to File No. SR–OCC–2024–005. Material
proposed to be added is underlined and
material proposed to be deleted is
marked in strikethrough text.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 See 88 FR 44675 (July 13, 2023) (‘‘CFTC
Adopting Release’’), https://www.govinfo.gov/
content/pkg/FR-2023-07-13/pdf/2023-14361.pdf.
2 17
24 For
18:43 May 24, 2024
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by The
Options Clearing Corporation
Concerning Modifications to Its Board
Charter and Risk Committee Charter
To Align With Recently Adopted CFTC
Governance Requirements for
Derivatives Clearing Organizations
1 15
23 See
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46205
26 17
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Federal Register / Vol. 89, No. 103 / Tuesday, May 28, 2024 / Notices
All terms with initial capitalization
that are not defined herein have the
same meaning as set forth in the OCC
By-Laws and Rules.6
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.
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(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
OCC is the sole clearing agency
registered with the Commission for
standardized equity options listed on
national securities exchanges. OCC also
clears and settles certain stock loan
transactions and transactions in futures
and options on futures. In connection
with its clearance and settlement of
transactions in securities, OCC is a
‘‘covered clearing agency’’ 7 regulated by
the Commission. In connection with its
clearance and settlement activities for
transactions in futures and options on
futures, OCC is a DCO regulated by the
CFTC. OCC is also designated as a
systemically important financial market
utility by the Financial Stability
Oversight Council pursuant to Title VIII
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010.
As a covered clearing agency and
DCO, OCC maintains a robust
governance structure that is designed to
comply with existing requirements of
the Commission and the CFTC.
Recently, the CFTC adopted new
regulations regarding governance
requirements for DCOs that supplement
the existing governance requirements
applicable to OCC as a DCO
(‘‘Governance Rules’’).8 The CFTC
Governance Rules require, among other
things, that: (i) DCOs establish and
consult with a risk management
committee on all matters that could
6 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.
7 The term ‘‘covered clearing agency’’ is defined
in Exchange Act Rule 17Ad-22(a)(5) to mean ‘‘a
registered clearing agency that provides the services
of a central counterparty or central securities
depository.’’
8 See 88 FR 44675 (July 13, 2023) (‘‘CFTC
Adopting Release’’), https://www.govinfo.gov/
content/pkg/FR-2023-07-13/pdf/2023-14361.pdf.
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18:43 May 24, 2024
Jkt 262001
materially affect the risk profile of the
DCO; (ii) DCOs implement certain
composition, rotation, and
documentation requirements for the risk
management committee; and (iii) DCOs
establish a risk advisory working group
that must convene at least two times per
year, and adopt written policies and
procedures related to the formation and
role of the risk management working
group. While OCC’s current governance
structure meets many of the
requirements of the Governance Rules,
OCC is proposing to clarify: (i) a smaller
subset of OCC’s existing Financial Risk
Advisory Committee (‘‘FRAC’’) will
serve as a non-Board-level risk
management committee described in the
Governance Rules; (ii) the entire FRAC
will serve as a non-Board-level risk
advisory working group described in the
Governance Rules; and (iii) governance
charters to reflect the requirements in
the Governance Rules described above.
DCOs, including OCC, are required to
comply with these new regulations by
July 12, 2024.
1. Purpose
The purpose of this proposed rule
change by OCC is to modify its Board
Charter and Risk Committee Charter to
implement changes that are designed to
comply with certain of the Governance
Rules. The Governance Rules are found
in CFTC Regulation 39.24.9 As part of
the Governance Rules, DCOs are
required to establish one or more risk
management committees that meet
certain composition requirements and to
require the DCO’s board of directors to
consult with such risk management
committee(s) on all matters that could
materially affect the risk profile of the
DCO and to consider and respond to
input from the risk management
committee(s) on such matters. In the
CFTC Adopting Release, the CFTC
clarifies that a DCO may structure the
required risk management committee as
either a non-Board-level advisory
committee or as a Board-level
committee.10 In this proposed rule
change, OCC intends to structure the
required risk management committee as
a non-Board-level committee. Therefore,
OCC is revising its Board Charter and
Risk Committee Charter to articulate the
role of the non-Board-level committee
and its responsibility to provide OCC’s
existing Board-level Risk Committee
with pertinent information to be
disseminated, as appropriate, for the
Board’s review and consideration on all
9 17
CFR 39.24.
CFTC Adopting Release at 44678.
10 See
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matters that could materially affect
OCC’s risk profile.
As described below, OCC already
maintains a robust governance structure
that is designed to promote clear and
transparent governance arrangements
that, among other things, help
effectively manage risks that arise in or
are borne by OCC as a covered clearing
agency and DCO. This structure is
shaped by existing Commission and
CFTC requirements, which are also
described in part below. Within OCC’s
existing governance structure, the FRAC
serves a similar purpose as the risk
management committee and risk
advisory working group described in the
Governance Rules. OCC intends to make
modifications to the FRAC to satisfy
both the risk management committee
and risk advisory working group
Governance Rules requirements by
designating a rotating smaller group of
FRAC members to comprise the nonBoard-level risk management
committee, and the FRAC will function
as the risk advisory working group. The
changes that OCC is proposing to its
Board Charter and Risk Committee
Charter to address the Governance Rules
for DCOs would become one facet of
OCC’s larger and overall governance
structure. Because OCC treats the Board
Charter and Risk Committee Charter as
‘‘rules’’ for purposes of Section 19(b) of
the Exchange Act, it is therefore
submitting the changes in connection
with this proposed rule change.11
OCC believes that the material aspects
of its operations will appropriately
comply with the new Governance Rules
by including the proposed provisions in
OCC’s Board Charter and Risk
Committee Charter. As detailed below,
these proposed provisions include
requiring the Board and the Risk
Committee to consult with and respond
to input from a new, non-Board-level
risk management committee on all
matters that could materially affect
OCC’s risk profile.
Existing Governance Structure
As part of OCC’s existing governance
structure, OCC already maintains a
Board-level Risk Committee. Therefore,
the new non-Board-level risk
management committee is not and will
not be the only aspect of OCC’s
governance structure that is designed to
provide appropriate consideration and
supervision over matters that could
materially affect OCC’s risk profile.
11 OCC intends to implement written policies and
procedures to comply with the remaining
requirements in the new CFTC requirements for
DCOs, and OCC believes that those written policies
and procedures will not require separate rule filings
with the Commission or the CFTC.
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Rather, such governance structure
mechanisms are already in place at OCC
and compliance with the new
Governance Rules will supplement
those existing mechanisms.
For example, as specified in the Risk
Committee Charter, the duties of the
Risk Committee in discharging oversight
include, but are not limited to,
reviewing the adequacy of OCC’s
management of risks related to credit
exposures (including margin and
clearing fund methodologies),
overseeing OCC’s risk models and risk
model validation process, reviewing and
approving new products that materially
impact OCC’s established risk profile
(and referring such products to the
Board for potential approval),
overseeing OCC’s framework for
membership of Clearing Members, and
considering and discussing input and
guidance from the FRAC relating to
financial risk issues.12
The Risk Committee is also just one
part of the more robust overall
governance structure that OCC
maintains to promote best practices and
to comply with existing Commission
and CFTC regulatory requirements that
apply to OCC as a covered clearing
agency and as a DCO. Certain of these
regulatory requirements concerning
OCC’s governance structure are
described in more detail below to
provide greater context about the
existing regulatory landscape to which
the new Governance Rules are being
added.
In connection with OCC’s existing
Board and Board committee structure,
OCC maintains charters for the Board
and all Board committees, Fitness
Standards for Directors, Clearing
Members and Others (‘‘Fitness
Standards’’), and a Code of Conduct for
OCC Directors (‘‘Code of Conduct’’). The
charters, Fitness Standards, and Code of
Conduct are all publicly available on
OCC’s website.13 The Board is
composed of directors who are Public
12 As described in more detail below, the
participants in the FRAC include members of OCC’s
management as well as representatives of parties
that participate in the markets that OCC serves,
such as Clearing Members, customers of Clearing
Members, exchanges, and other stakeholders.
13 See Board Charters, Board Committee Charters
and Other Governance Documents, available at
https://www.theocc.com/company-information/
documents-and-archives/board-charters.
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18:43 May 24, 2024
Jkt 262001
Directors,14 Exchange Directors,15
Member Directors,16 and a Management
Director.17 In this way, the directors
serving on the Board represent a range
of different stakeholders from the
markets that OCC serves. In addition,
the Board oversees six Board-level
committees that are composed of certain
Board directors and that assist the Board
in carrying out its supervisory
responsibilities. Aside from the Risk
Committee, the other committees are the
Audit Committee, Compensation and
Performance Committee, Governance
and Nominating Committee, Regulatory
Committee, and Technology Committee.
OCC also maintains the FRAC that
operates as a forum in which OCC seeks
feedback on financial risk initiatives.
Members of OCC management
participate in the FRAC along with
representatives of parties that
participate in the markets that OCC
serves, such as Clearing Members,
customers of Clearing Members,
exchanges, and other stakeholders.
Existing Regulatory Requirements
Regarding OCC’s Governance Structure
OCC’s existing governance structure,
as partially described above, is already
shaped by significant regulatory
requirements under the Exchange Act
and the Commodity Exchange Act
(‘‘CEA’’) that apply to OCC as a covered
clearing agency and DCO. Accordingly,
the Governance Rules for DCOs are
supplementary to these existing
regulatory obligations applicable to
OCC’s governance structure.
For example, the DCO core principles
in the CEA already require OCC to have
governance arrangements that are
transparent to permit the consideration
of the views of owners and
14 Terms regarding service by Public Directors are
set forth in OCC’s By-Laws and in OCC’s Fitness
Standards. For example, a Public Director must
have no affiliation with any national securities
exchange, national securities association,
designated contract market, futures commission
merchant, or broker or dealer in securities. See e.g.,
OCC By-Laws Article III, Section 6A; Fitness
Standards at ‘‘Additional Criteria for the Public
Directors’’.
15 Terms regarding service by Exchange Directors
are set forth in OCC’s By-Laws and in OCC’s Fitness
Standards. For example, the exchange nominating
the Exchange Director must own common stock of
OCC. See e.g., OCC By-Laws Article III, Section 6;
Fitness Standards at ‘‘Additional Criteria for
Exchange Directors’’.
16 Terms regarding service by Member Directors
are set forth in OCC’s By-Laws and in OCC’s Fitness
Standards. See e.g., OCC By-Laws Article III,
Section 2; Fitness Standards at ‘‘Additional Criteria
for Member Directors’’.
17 Terms regarding service by the Management
Director are set forth in OCC’s By-Laws and in
OCC’s Fitness Standards. For example, the
Management Director must be an OCC employee.
See e.g., OCC By-Laws Article III, Section 7.
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Frm 00153
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46207
participants.18 Similarly, because OCC
is a registered clearing agency its rules
must assure a fair representation of its
shareholders and participants in the
selection of its Directors and the
administration of its affairs.19 Part 39.24
of the CFTC’s regulations for DCOs also
requires OCC to have governance
arrangements that, among other things,
are clear and documented, describe the
structure in which the board of
directors, committees, and management
operate, and clearly specify the roles
and responsibilities of the board of
directors and its committees.20
Similarly, Exchange Act Rules 17Ad–
22(e)(2) and (3) require OCC as a
covered clearing agency to have
governance arrangements that, among
other things, provide for governance
arrangements that are clear and
transparent, specify clear and direct
lines of responsibility, consider the
interests of Clearing Members’
customers and other relevant
stakeholders, and that establish a risk
management committee of the board of
directors and an independent audit
committee of the board of directors.21
These obligations work in coordination
with a further obligation to maintain a
sound risk management framework for
managing risks that arise in or are borne
by OCC and for Board review and
approval of related policies and
procedures.22 In addition, provisions in
the CEA and CFTC regulations and
Commission rules under the Exchange
Act obligate OCC to have fitness
standards for Board directors, Clearing
Members and others.23 OCC’s
governance structure currently reflects
all of these requirements.
New CFTC DCO Governance
Requirements and Creation of a NonBoard-Level Risk Management
Committee
As part of OCC’s approach to comply
with the Governance Rules, OCC will
create a separate, non-Board-level risk
management committee. As noted
above, OCC already has a Risk
Committee that is a Board-level
committee. Creation of the new risk
management committee as a non-Boardlevel advisory committee will be
consistent with the CFTC Adopting
Release guidance that a DCO may
structure the required risk management
committee as either a non-Board-level
18 7
U.S.C. 7a–1(c)(2)(O)(i)(II).
U.S.C. 78q–1(b)(3)(C).
20 17 CFR 39.24(b)(1), (3), (5).
21 17 CFR 240.17Ad–(22)(e)(2)(i), (v), (vi), (3)(iv)
and (v).
22 17 CFR 240.17Ad–(22)(e)(3)(i).
23 7 U.S.C. 7a–1(c)(2)(O)(ii); 17 CFR 240.17Ad–
22(e)(2)(iv); 17 CFR 240.17Ad–25(c)(3).
19 15
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advisory committee or as a Board-level
committee.
While OCC’s existing governance
structure, including the consideration of
the FRAC’s input on risk initiatives, is
robust and meets the CFTC’s overall
objective in requiring governance
arrangements that are transparent, fulfill
the public interest, and permit the
consideration of the views of owners
and participants, OCC’s existing FRAC
requires slight modifications to ensure
continued compliance with the
Governance Rules. Specifically,
modifications are required to OCC’s
existing FRAC that are important to
include within OCC’s Risk Committee’s
delegation. These modifications, as
outlined in the proposed Risk
Committee Charter, (i) codify the
required oversight and consultation
between OCC’s existing Board-level Risk
Committee and the non-Board-level risk
management committee, and (ii)
establish the responsibility of OCC’s
existing Board-level Risk Committee to
provide the Board with pertinent
information for the Board’s review and
consideration for all matters that could
materially affect OCC’s risk profile from
the non-Board-level risk management
committee. Furthermore, modifications
to OCC’s existing FRAC are required to
codify a regular rotation of membership
and refine the current membership
composition. By proposing
modifications to OCC’s existing FRAC to
create a non-Board-level risk
management committee and a risk
advisory working group, OCC will
satisfy the membership composition and
rotation requirements outlined in the
Governance Rules.
The operation of the non-Board-level
risk management committee will be
controlled by written policies and
procedures that OCC will design to
ensure compliance with the new DCO
requirements. For example, the DCO
must maintain written policies and
procedures to make certain that the risk
management committee consultation
process is described in detail and to
include requirements for the DCO to
document the board’s consideration of
and response to risk management
committee input.24 A DCO is also
required to have written policies and
procedures related to the creation and
maintenance of minutes for each risk
management committee meeting.25
The changes that OCC is proposing to
its Board Charter and Risk Committee
Charter to comply with part of the
Governance Rules are described below,
and they are designed to ensure that the
24 17
CFR 39.24(b)(11)(i).
18:43 May 24, 2024
Proposed Changes to Board Charter
OCC proposes to modify the Board
Charter to provide two new aspects of
how the Board fulfills its oversight role.
Specifically, the Board Charter would
state that the Board would oversee
OCC’s process for consultation with the
new, non-Board-level risk management
committee and the consideration of, and
responses to, input from the non-Boardlevel risk management committee by the
Board through reports from the Risk
Committee. The Board would provide
oversight of this process and would
review and consider the discussions
with the Risk Committee regarding the
Risk Committee’s consultation with the
non-Board-level risk management
committee.26 The Board would also
become more directly involved in the
consultation and response process led
by the Risk Committee as it determines
appropriate in its business judgment.
In addition to the proposed changes
described above, OCC proposes to
incorporate several non-substantive
changes to the Board Charter, including
but not limited to, using initial
capitalization for the term ‘‘Executive
Session’’ consistently throughout the
document, eliminating unnecessary
words, and adding minor grammatical
updates and terms for clarity.
Proposed Changes to Risk Committee
Charter
OCC also proposes to modify the Risk
Committee Charter in a manner
consistent with the proposed changes to
the Board Charter. Specifically, the Risk
Committee Charter would be revised to
state that the Risk Committee would
have responsibility for consulting with
the non-Board-level risk management
26 The oversight process will be documented in
OCC’s FRAC Guiding Principles Document.
25 Id.
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Risk Committee and the Board work in
coordination to consult with the new
non-Board-level risk management
committee and to respond to input from
that committee on all matters that could
materially affect OCC’s risk profile.
Consistent with the descriptions above
of OCC’s existing governance structure
and the current Commission and CFTC
requirements that already shape it, the
proposed changes to the Board Charter
and Risk Committee Charter would
become part of the larger overall
governance structure that OCC
maintains to promote clear and
transparent governance arrangements
and to effectively manage risks that arise
within or are borne by OCC as a covered
clearing agency and DCO.
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committee 27 and for considering and
responding to input from that
committee on all matters that could
materially affect OCC’s risk profile. It
would also state that the Risk
Committee would provide relevant nonBoard-level risk management committee
input to the Board for its review and
consideration.
In addition to the proposed changes
described above, OCC proposes to
incorporate several non-substantive
changes to the Risk Committee Charter,
including but not limited to, eliminating
unnecessary words, and adding minor
grammatical updates and terms for
clarity and consistency.
2. Statutory Basis
Section 17A(b)(3)(F) of the Exchange
Act requires, among other things, that
the rules of a clearing agency must be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions, safeguard
securities and funds in its custody or
control or for which it is responsible,
and, in general, protect investors and
the public interest.28 In addition, Rule
17Ad–22(e)(3) requires OCC, as a
covered clearing agency, to maintain a
sound risk management framework for
comprehensively managing legal, credit,
liquidity, operational, general business,
investment, custody, and other risks
that arise in or are borne by the covered
clearing agency.29
OCC believes that the proposed rule
changes are consistent with these
requirements because the proposed rule
change is designed to modify OCC’s
Board Charter and Risk Committee
Charter to reflect how the Board and
Risk Committee would work in
coordination to consult with and
consider input from a new, non-Boardlevel risk management committee on all
matters that could materially affect
OCC’s risk profile and to consider and
respond to input from the non-Boardlevel risk management committee on
such matters. Implementation of these
proposed changes would promote OCC’s
compliance with the new Governance
Rules,30 which all DCOs much comply
with by July 12, 2024. Compliance with
applicable CFTC regulations is part of
OCC’s sound risk management
framework to manage legal and
regulatory risk. In addition,
27 As of the July 12, 2024, CFTC compliance date,
OCC’s FRAC will act as the non-Board-level risk
management committee. Although not anticipated,
changes to the name of the committee serving as the
non-Board-level risk committee could happen in
the future.
28 15 U.S.C. 78q–1(b)(3)(F).
29 17 CFR 240.17Ad–22(e)(3).
30 17 CFR 39.24.
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implementing the proposed duties of
the Board and Risk Committee within
the Board Charter and Risk Committee
Charter would promote management of
risk consistent with the requirements in
Rule 17Ad–22(e)(3) 31 and OCC’s
prompt and accurate clearance and
settlement of securities transactions,
safeguarding of securities and funds in
its custody or control or for which it is
responsible, and the protection of
investors consistent with 17A(b)(3)(F) of
the Exchange Act 32 because it would
involve the new, non-Board-level risk
management committee in OCC’s
process of assessing and managing risks
that could materially affect OCC’s risk
profile in a way that supplements OCC
existing process for managing such
risks, including through oversight by the
Risk Committee and the Board.
In addition, OCC believes the
proposed changes are consistent with
Rule 17Ad–22(e)(2). Specifically, Rule
17Ad–22(e)(2) requires OCC to, among
other things, provide for governance
arrangements that are clear and
transparent, clearly prioritize the safety
and efficiency of the covered clearing
agency and specify clear and direct lines
of responsibility. Modifying the Board
Charter and Risk Committee Charter
through the proposed changes described
above would be consistent with these
requirements because the changes
would document in a clear, direct and
transparent way the material aspects of
the process through which the Board
and Risk Committee would work in
coordination to consult with and
consider input from a new, non-Boardlevel risk management committee on all
matters that could materially affect
OCC’s risk profile and to consider and
respond to input from the non-Boardlevel risk management committee on
such matters.
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Exchange
Act 33 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 Exchange Act. OCC does
not believe that the proposed rule
changes to modify the Board Charter
and Risk Committee Charter to comply
with the Governance Rules would
impact or impose any burden on
competition. The proposed changes
would promote OCC’s compliance with
the Governance Rules that OCC must
comply with by July 12, 2024. The
31 17
CFR 240.17Ad–22(e)(3).
U.S.C. 78q–1(b)(3)(F).
33 15 U.S.C. 78q–1(b)(3)(I).
32 15
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proposed changes to the Board Charter
and Risk Committee Charter are
designed to clearly, directly and
transparently document the material
aspects of the process through which
the Board and Risk Committee would
work in coordination to consult with
and consider input from a new, nonBoard-level risk management committee
on all matters that could materially
affect OCC’s risk profile and to consider
and respond to input from the nonBoard-level risk management committee
on such matters. These changes to
OCC’s governance structure would
apply to all Clearing Members equally
and would not disadvantage or favor
any particular user in relation to another
user. Therefore, OCC believes that the
proposed changes would not impose
any burden on competition.
(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
Because the foregoing proposed rule
change does not:
(i) significantly affect the protection of
investors or the public interest;
(ii) impose any significant burden on
competition; and
(iii) become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 34 and Rule 19b–4(f)(6) 35
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.36
34 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
36 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Regulation 40.6.
35 17
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Frm 00155
Fmt 4703
Sfmt 4703
46209
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
OCC–2024–005 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–OCC–2024–005. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
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–2024–005 and should
be submitted on or before June 18, 2024.
E:\FR\FM\28MYN1.SGM
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46210
Federal Register / Vol. 89, No. 103 / Tuesday, May 28, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–11572 Filed 5–24–24; 8:45 am]
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[Release No. 34–100204; File No. SR–
FINRA–2024–008]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
FINRA Rule 12800 (Simplified
Arbitration) To Clarify and Amend the
Applicability of the Document
Production Lists
May 21, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 13,
2024, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) 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 by FINRA. 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
FINRA is proposing to amend the
FINRA Code of Arbitration Procedure
for Customer Disputes (‘‘Customer
Code’’) to clarify and, in some instances,
amend the applicability of the
Document Production Lists to
simplified customer arbitrations
administered under FINRA Rule 12800.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
khammond on DSKJM1Z7X2PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
37 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
18:43 May 24, 2024
Jkt 262001
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
I. Overview of the Document Production
Lists and Simplified Customer
Arbitrations
FINRA Dispute Resolution Services
(‘‘DRS’’) provides a Discovery Guide to
supplement the discovery rules
contained in the Customer Code and
help guide the parties and arbitrators
through the discovery process in
customer arbitrations.3 The Document
Production Lists, which are included in
the Discovery Guide and described in
FINRA Rule 12506, outline
presumptively discoverable documents
that the parties should exchange,
without arbitrator or DRS staff
intervention. Document Production
Lists 1 and 2 describe the documents
that are presumed to be discoverable in
all arbitrations between a customer and
a member firm or associated person
except in simplified customer
arbitrations as explained below.4 List 1
outlines the documents that member
firms and associated persons shall
produce; List 2 outlines the documents
that customers shall produce.5
The proposed rule change would
affect the applicability of the Document
Production Lists in simplified customer
arbitrations. Simplified customer
arbitrations are arbitrations in which the
dispute between a customer and
member firm or associated person
involves $50,000 or less, exclusive of
interest and expenses.6 There are three
types of simplified customer
arbitrations. If the customer does not
request a hearing, the arbitrator will
render an award based on the pleadings
and other materials submitted by the
parties (‘‘paper cases’’).7 If the customer
requests a hearing, the customer must
select between one of two hearing
options.8 If the customer requests an
3 See https://www.finra.org/sites/default/files/
ArbMed/p394527.pdf. The FINRA Discovery Guide
and Document Production Lists do not apply to
arbitrations administered under the Code of
Arbitration Procedure for Industry Disputes.
4 See FINRA Rule 12506(a).
5 See https://www.finra.org/sites/default/files/
ArbMed/p394527.pdf.
6 See FINRA Rule 12800(a).
7 See FINRA Rule 12800(c)(2).
8 See FINRA Rule 12800(c)(3).
PO 00000
Frm 00156
Fmt 4703
Sfmt 4703
Option One hearing under FINRA Rule
12800(c)(3)(A), the regular provisions of
the Customer Code relating to
prehearings and hearings, including all
fee provisions, apply (‘‘regular
hearing’’). The customer may also
request an Option Two special
proceeding, an abbreviated hearing,
under FINRA Rule 12800(c)(3)(B)
(‘‘special proceeding’’).
Currently, the Document Production
Lists do not apply in paper cases and
special proceedings.9 However, under
FINRA Rule 12800(g)(1), the arbitrator
may exercise discretion to choose to use
relevant portions of the Document
Production Lists in paper cases and
special proceedings ‘‘in a manner
consistent with the expedited nature of
simplified proceedings.’’ Absent such
an exercise of discretion by the
arbitrator, to obtain discovery in paper
cases and special proceedings, the
parties must request documents and
other information from each other,
pursuant to FINRA Rule 12800(g)(2).10
Therefore, under the current Customer
Code, no documents or information are
presumptively discoverable in paper
cases and special proceedings.
By contrast, the Document Production
Lists do apply in simplified customer
arbitrations in which the customer
requests a regular hearing. As noted
above, if the customer requests a regular
hearing during the simplified customer
arbitration, FINRA Rule 12800(c)(3)(A)
states that the ‘‘regular provisions’’ of
the Customer Code ‘‘relating to
prehearings and hearings’’ apply. DRS
has issued guidance clarifying this
language to mean that the Document
Production Lists apply in simplified
customer arbitrations in which the
customer requests a regular hearing.11
Consistent with this guidance, the
9 FINRA Rule 12800(g)(1) provides that the
Document Production Lists ‘‘do not apply to
arbitrations subject to this rule’’ (i.e., paper cases
and special proceedings).
10 FINRA Rule 12800(g)(2) provides that all
production requests must be served on all other
parties and filed with the Director within 30 days
from the date that the last answer is due; any
response or objection to a production request must
be served on all other parties and filed with the
Director within 10 days of the receipt of the request.
The term ‘‘Director’’ means the Director of DRS and,
unless the Customer Code provides that the Director
may not delegate a specific function, the term
includes FINRA staff to whom the Director has
delegated authority. See FINRA Rule 12100(m).
11 See FINRA DRS Party’s Reference Guide, p. 31,
https://www.finra.org/sites/default/files/PartysReference-Guide.pdf (explaining that ‘‘[t]he
Document Production Lists in the Discovery Guide
as described in FINRA Rule 12506 do not apply to
simplified [customer] arbitrations decided on the
papers or decided by special proceeding. However,
the Discovery Guide does apply to simplified cases
in which a customer requests a regular hearing.’’).
See also https://www.finra.org/arbitrationmediation/simplified-arbitrations.
E:\FR\FM\28MYN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 103 (Tuesday, May 28, 2024)]
[Notices]
[Pages 46205-46210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11572]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100194; File No. SR-OCC-2024-005]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by
The Options Clearing Corporation Concerning Modifications to Its Board
Charter and Risk Committee Charter To Align With Recently Adopted CFTC
Governance Requirements for Derivatives Clearing Organizations
May 21, 2024.
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 May 8, 2024, The Options Clearing Corporation
(``OCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared primarily by OCC. OCC
filed the proposed rule change pursuant to Section 19(b)(3)(A) \3\ of
the Act and Rule 19b-4(f)(6) \4\ thereunder. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would make modifications to its Board of
Directors Charter and Corporate Governance Principles (``Board
Charter'') and Risk Committee Charter (``Risk Committee Charter'') to
comply with recently adopted governance requirements \5\ by the
Commodity Futures Trading Commission (``CFTC'') for derivatives
clearing organizations (``DCOs'') that became effective on July 13,
2023, and with which DCOs, like OCC, must comply by July 12, 2024.
---------------------------------------------------------------------------
\5\ See 88 FR 44675 (July 13, 2023) (``CFTC Adopting Release''),
https://www.govinfo.gov/content/pkg/FR-2023-07-13/pdf/2023-14361.pdf.
---------------------------------------------------------------------------
The proposed changes to OCC's Board Charter are included [sic] as
Exhibit 5A to File No. SR-OCC-2024-005 and proposed changes to the Risk
Committee Charter are included [sic] as Exhibit 5B to File No. SR-OCC-
2024-005. Material proposed to be added is underlined and material
proposed to be deleted is marked in strikethrough text.
[[Page 46206]]
All terms with initial capitalization that are not defined herein
have the same meaning as set forth in the OCC By-Laws and Rules.\6\
---------------------------------------------------------------------------
\6\ 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
OCC is the sole clearing agency registered with the Commission for
standardized equity options listed on national securities exchanges.
OCC also clears and settles certain stock loan transactions and
transactions in futures and options on futures. In connection with its
clearance and settlement of transactions in securities, OCC is a
``covered clearing agency'' \7\ regulated by the Commission. In
connection with its clearance and settlement activities for
transactions in futures and options on futures, OCC is a DCO regulated
by the CFTC. OCC is also designated as a systemically important
financial market utility by the Financial Stability Oversight Council
pursuant to Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010.
---------------------------------------------------------------------------
\7\ The term ``covered clearing agency'' is defined in Exchange
Act Rule 17Ad-22(a)(5) to mean ``a registered clearing agency that
provides the services of a central counterparty or central
securities depository.''
---------------------------------------------------------------------------
As a covered clearing agency and DCO, OCC maintains a robust
governance structure that is designed to comply with existing
requirements of the Commission and the CFTC. Recently, the CFTC adopted
new regulations regarding governance requirements for DCOs that
supplement the existing governance requirements applicable to OCC as a
DCO (``Governance Rules'').\8\ The CFTC Governance Rules require, among
other things, that: (i) DCOs establish and consult with a risk
management committee on all matters that could materially affect the
risk profile of the DCO; (ii) DCOs implement certain composition,
rotation, and documentation requirements for the risk management
committee; and (iii) DCOs establish a risk advisory working group that
must convene at least two times per year, and adopt written policies
and procedures related to the formation and role of the risk management
working group. While OCC's current governance structure meets many of
the requirements of the Governance Rules, OCC is proposing to clarify:
(i) a smaller subset of OCC's existing Financial Risk Advisory
Committee (``FRAC'') will serve as a non-Board-level risk management
committee described in the Governance Rules; (ii) the entire FRAC will
serve as a non-Board-level risk advisory working group described in the
Governance Rules; and (iii) governance charters to reflect the
requirements in the Governance Rules described above. DCOs, including
OCC, are required to comply with these new regulations by July 12,
2024.
---------------------------------------------------------------------------
\8\ See 88 FR 44675 (July 13, 2023) (``CFTC Adopting Release''),
https://www.govinfo.gov/content/pkg/FR-2023-07-13/pdf/2023-14361.pdf.
---------------------------------------------------------------------------
1. Purpose
The purpose of this proposed rule change by OCC is to modify its
Board Charter and Risk Committee Charter to implement changes that are
designed to comply with certain of the Governance Rules. The Governance
Rules are found in CFTC Regulation 39.24.\9\ As part of the Governance
Rules, DCOs are required to establish one or more risk management
committees that meet certain composition requirements and to require
the DCO's board of directors to consult with such risk management
committee(s) on all matters that could materially affect the risk
profile of the DCO and to consider and respond to input from the risk
management committee(s) on such matters. In the CFTC Adopting Release,
the CFTC clarifies that a DCO may structure the required risk
management committee as either a non-Board-level advisory committee or
as a Board-level committee.\10\ In this proposed rule change, OCC
intends to structure the required risk management committee as a non-
Board-level committee. Therefore, OCC is revising its Board Charter and
Risk Committee Charter to articulate the role of the non-Board-level
committee and its responsibility to provide OCC's existing Board-level
Risk Committee with pertinent information to be disseminated, as
appropriate, for the Board's review and consideration on all matters
that could materially affect OCC's risk profile.
---------------------------------------------------------------------------
\9\ 17 CFR 39.24.
\10\ See CFTC Adopting Release at 44678.
---------------------------------------------------------------------------
As described below, OCC already maintains a robust governance
structure that is designed to promote clear and transparent governance
arrangements that, among other things, help effectively manage risks
that arise in or are borne by OCC as a covered clearing agency and DCO.
This structure is shaped by existing Commission and CFTC requirements,
which are also described in part below. Within OCC's existing
governance structure, the FRAC serves a similar purpose as the risk
management committee and risk advisory working group described in the
Governance Rules. OCC intends to make modifications to the FRAC to
satisfy both the risk management committee and risk advisory working
group Governance Rules requirements by designating a rotating smaller
group of FRAC members to comprise the non-Board-level risk management
committee, and the FRAC will function as the risk advisory working
group. The changes that OCC is proposing to its Board Charter and Risk
Committee Charter to address the Governance Rules for DCOs would become
one facet of OCC's larger and overall governance structure. Because OCC
treats the Board Charter and Risk Committee Charter as ``rules'' for
purposes of Section 19(b) of the Exchange Act, it is therefore
submitting the changes in connection with this proposed rule
change.\11\
---------------------------------------------------------------------------
\11\ OCC intends to implement written policies and procedures to
comply with the remaining requirements in the new CFTC requirements
for DCOs, and OCC believes that those written policies and
procedures will not require separate rule filings with the
Commission or the CFTC.
---------------------------------------------------------------------------
OCC believes that the material aspects of its operations will
appropriately comply with the new Governance Rules by including the
proposed provisions in OCC's Board Charter and Risk Committee Charter.
As detailed below, these proposed provisions include requiring the
Board and the Risk Committee to consult with and respond to input from
a new, non-Board-level risk management committee on all matters that
could materially affect OCC's risk profile.
Existing Governance Structure
As part of OCC's existing governance structure, OCC already
maintains a Board-level Risk Committee. Therefore, the new non-Board-
level risk management committee is not and will not be the only aspect
of OCC's governance structure that is designed to provide appropriate
consideration and supervision over matters that could materially affect
OCC's risk profile.
[[Page 46207]]
Rather, such governance structure mechanisms are already in place at
OCC and compliance with the new Governance Rules will supplement those
existing mechanisms.
For example, as specified in the Risk Committee Charter, the duties
of the Risk Committee in discharging oversight include, but are not
limited to, reviewing the adequacy of OCC's management of risks related
to credit exposures (including margin and clearing fund methodologies),
overseeing OCC's risk models and risk model validation process,
reviewing and approving new products that materially impact OCC's
established risk profile (and referring such products to the Board for
potential approval), overseeing OCC's framework for membership of
Clearing Members, and considering and discussing input and guidance
from the FRAC relating to financial risk issues.\12\
---------------------------------------------------------------------------
\12\ As described in more detail below, the participants in the
FRAC include members of OCC's management as well as representatives
of parties that participate in the markets that OCC serves, such as
Clearing Members, customers of Clearing Members, exchanges, and
other stakeholders.
---------------------------------------------------------------------------
The Risk Committee is also just one part of the more robust overall
governance structure that OCC maintains to promote best practices and
to comply with existing Commission and CFTC regulatory requirements
that apply to OCC as a covered clearing agency and as a DCO. Certain of
these regulatory requirements concerning OCC's governance structure are
described in more detail below to provide greater context about the
existing regulatory landscape to which the new Governance Rules are
being added.
In connection with OCC's existing Board and Board committee
structure, OCC maintains charters for the Board and all Board
committees, Fitness Standards for Directors, Clearing Members and
Others (``Fitness Standards''), and a Code of Conduct for OCC Directors
(``Code of Conduct''). The charters, Fitness Standards, and Code of
Conduct are all publicly available on OCC's website.\13\ The Board is
composed of directors who are Public Directors,\14\ Exchange
Directors,\15\ Member Directors,\16\ and a Management Director.\17\ In
this way, the directors serving on the Board represent a range of
different stakeholders from the markets that OCC serves. In addition,
the Board oversees six Board-level committees that are composed of
certain Board directors and that assist the Board in carrying out its
supervisory responsibilities. Aside from the Risk Committee, the other
committees are the Audit Committee, Compensation and Performance
Committee, Governance and Nominating Committee, Regulatory Committee,
and Technology Committee. OCC also maintains the FRAC that operates as
a forum in which OCC seeks feedback on financial risk initiatives.
Members of OCC management participate in the FRAC along with
representatives of parties that participate in the markets that OCC
serves, such as Clearing Members, customers of Clearing Members,
exchanges, and other stakeholders.
---------------------------------------------------------------------------
\13\ See Board Charters, Board Committee Charters and Other
Governance Documents, available at https://www.theocc.com/company-information/documents-and-archives/board-charters.
\14\ Terms regarding service by Public Directors are set forth
in OCC's By-Laws and in OCC's Fitness Standards. For example, a
Public Director must have no affiliation with any national
securities exchange, national securities association, designated
contract market, futures commission merchant, or broker or dealer in
securities. See e.g., OCC By-Laws Article III, Section 6A; Fitness
Standards at ``Additional Criteria for the Public Directors''.
\15\ Terms regarding service by Exchange Directors are set forth
in OCC's By-Laws and in OCC's Fitness Standards. For example, the
exchange nominating the Exchange Director must own common stock of
OCC. See e.g., OCC By-Laws Article III, Section 6; Fitness Standards
at ``Additional Criteria for Exchange Directors''.
\16\ Terms regarding service by Member Directors are set forth
in OCC's By-Laws and in OCC's Fitness Standards. See e.g., OCC By-
Laws Article III, Section 2; Fitness Standards at ``Additional
Criteria for Member Directors''.
\17\ Terms regarding service by the Management Director are set
forth in OCC's By-Laws and in OCC's Fitness Standards. For example,
the Management Director must be an OCC employee. See e.g., OCC By-
Laws Article III, Section 7.
---------------------------------------------------------------------------
Existing Regulatory Requirements Regarding OCC's Governance Structure
OCC's existing governance structure, as partially described above,
is already shaped by significant regulatory requirements under the
Exchange Act and the Commodity Exchange Act (``CEA'') that apply to OCC
as a covered clearing agency and DCO. Accordingly, the Governance Rules
for DCOs are supplementary to these existing regulatory obligations
applicable to OCC's governance structure.
For example, the DCO core principles in the CEA already require OCC
to have governance arrangements that are transparent to permit the
consideration of the views of owners and participants.\18\ Similarly,
because OCC is a registered clearing agency its rules must assure a
fair representation of its shareholders and participants in the
selection of its Directors and the administration of its affairs.\19\
Part 39.24 of the CFTC's regulations for DCOs also requires OCC to have
governance arrangements that, among other things, are clear and
documented, describe the structure in which the board of directors,
committees, and management operate, and clearly specify the roles and
responsibilities of the board of directors and its committees.\20\
Similarly, Exchange Act Rules 17Ad-22(e)(2) and (3) require OCC as a
covered clearing agency to have governance arrangements that, among
other things, provide for governance arrangements that are clear and
transparent, specify clear and direct lines of responsibility, consider
the interests of Clearing Members' customers and other relevant
stakeholders, and that establish a risk management committee of the
board of directors and an independent audit committee of the board of
directors.\21\ These obligations work in coordination with a further
obligation to maintain a sound risk management framework for managing
risks that arise in or are borne by OCC and for Board review and
approval of related policies and procedures.\22\ In addition,
provisions in the CEA and CFTC regulations and Commission rules under
the Exchange Act obligate OCC to have fitness standards for Board
directors, Clearing Members and others.\23\ OCC's governance structure
currently reflects all of these requirements.
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\18\ 7 U.S.C. 7a-1(c)(2)(O)(i)(II).
\19\ 15 U.S.C. 78q-1(b)(3)(C).
\20\ 17 CFR 39.24(b)(1), (3), (5).
\21\ 17 CFR 240.17Ad-(22)(e)(2)(i), (v), (vi), (3)(iv) and (v).
\22\ 17 CFR 240.17Ad-(22)(e)(3)(i).
\23\ 7 U.S.C. 7a-1(c)(2)(O)(ii); 17 CFR 240.17Ad-22(e)(2)(iv);
17 CFR 240.17Ad-25(c)(3).
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New CFTC DCO Governance Requirements and Creation of a Non-Board-Level
Risk Management Committee
As part of OCC's approach to comply with the Governance Rules, OCC
will create a separate, non-Board-level risk management committee. As
noted above, OCC already has a Risk Committee that is a Board-level
committee. Creation of the new risk management committee as a non-
Board-level advisory committee will be consistent with the CFTC
Adopting Release guidance that a DCO may structure the required risk
management committee as either a non-Board-level
[[Page 46208]]
advisory committee or as a Board-level committee.
While OCC's existing governance structure, including the
consideration of the FRAC's input on risk initiatives, is robust and
meets the CFTC's overall objective in requiring governance arrangements
that are transparent, fulfill the public interest, and permit the
consideration of the views of owners and participants, OCC's existing
FRAC requires slight modifications to ensure continued compliance with
the Governance Rules. Specifically, modifications are required to OCC's
existing FRAC that are important to include within OCC's Risk
Committee's delegation. These modifications, as outlined in the
proposed Risk Committee Charter, (i) codify the required oversight and
consultation between OCC's existing Board-level Risk Committee and the
non-Board-level risk management committee, and (ii) establish the
responsibility of OCC's existing Board-level Risk Committee to provide
the Board with pertinent information for the Board's review and
consideration for all matters that could materially affect OCC's risk
profile from the non-Board-level risk management committee.
Furthermore, modifications to OCC's existing FRAC are required to
codify a regular rotation of membership and refine the current
membership composition. By proposing modifications to OCC's existing
FRAC to create a non-Board-level risk management committee and a risk
advisory working group, OCC will satisfy the membership composition and
rotation requirements outlined in the Governance Rules.
The operation of the non-Board-level risk management committee will
be controlled by written policies and procedures that OCC will design
to ensure compliance with the new DCO requirements. For example, the
DCO must maintain written policies and procedures to make certain that
the risk management committee consultation process is described in
detail and to include requirements for the DCO to document the board's
consideration of and response to risk management committee input.\24\ A
DCO is also required to have written policies and procedures related to
the creation and maintenance of minutes for each risk management
committee meeting.\25\
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\24\ 17 CFR 39.24(b)(11)(i).
\25\ Id.
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The changes that OCC is proposing to its Board Charter and Risk
Committee Charter to comply with part of the Governance Rules are
described below, and they are designed to ensure that the Risk
Committee and the Board work in coordination to consult with the new
non-Board-level risk management committee and to respond to input from
that committee on all matters that could materially affect OCC's risk
profile. Consistent with the descriptions above of OCC's existing
governance structure and the current Commission and CFTC requirements
that already shape it, the proposed changes to the Board Charter and
Risk Committee Charter would become part of the larger overall
governance structure that OCC maintains to promote clear and
transparent governance arrangements and to effectively manage risks
that arise within or are borne by OCC as a covered clearing agency and
DCO.
Proposed Changes to Board Charter
OCC proposes to modify the Board Charter to provide two new aspects
of how the Board fulfills its oversight role. Specifically, the Board
Charter would state that the Board would oversee OCC's process for
consultation with the new, non-Board-level risk management committee
and the consideration of, and responses to, input from the non-Board-
level risk management committee by the Board through reports from the
Risk Committee. The Board would provide oversight of this process and
would review and consider the discussions with the Risk Committee
regarding the Risk Committee's consultation with the non-Board-level
risk management committee.\26\ The Board would also become more
directly involved in the consultation and response process led by the
Risk Committee as it determines appropriate in its business judgment.
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\26\ The oversight process will be documented in OCC's FRAC
Guiding Principles Document.
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In addition to the proposed changes described above, OCC proposes
to incorporate several non-substantive changes to the Board Charter,
including but not limited to, using initial capitalization for the term
``Executive Session'' consistently throughout the document, eliminating
unnecessary words, and adding minor grammatical updates and terms for
clarity.
Proposed Changes to Risk Committee Charter
OCC also proposes to modify the Risk Committee Charter in a manner
consistent with the proposed changes to the Board Charter.
Specifically, the Risk Committee Charter would be revised to state that
the Risk Committee would have responsibility for consulting with the
non-Board-level risk management committee \27\ and for considering and
responding to input from that committee on all matters that could
materially affect OCC's risk profile. It would also state that the Risk
Committee would provide relevant non-Board-level risk management
committee input to the Board for its review and consideration.
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\27\ As of the July 12, 2024, CFTC compliance date, OCC's FRAC
will act as the non-Board-level risk management committee. Although
not anticipated, changes to the name of the committee serving as the
non-Board-level risk committee could happen in the future.
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In addition to the proposed changes described above, OCC proposes
to incorporate several non-substantive changes to the Risk Committee
Charter, including but not limited to, eliminating unnecessary words,
and adding minor grammatical updates and terms for clarity and
consistency.
2. Statutory Basis
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that the rules of a clearing agency must be designed to promote
the prompt and accurate clearance and settlement of securities
transactions, safeguard securities and funds in its custody or control
or for which it is responsible, and, in general, protect investors and
the public interest.\28\ In addition, Rule 17Ad-22(e)(3) requires OCC,
as a covered clearing agency, to maintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency.\29\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ 17 CFR 240.17Ad-22(e)(3).
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OCC believes that the proposed rule changes are consistent with
these requirements because the proposed rule change is designed to
modify OCC's Board Charter and Risk Committee Charter to reflect how
the Board and Risk Committee would work in coordination to consult with
and consider input from a new, non-Board-level risk management
committee on all matters that could materially affect OCC's risk
profile and to consider and respond to input from the non-Board-level
risk management committee on such matters. Implementation of these
proposed changes would promote OCC's compliance with the new Governance
Rules,\30\ which all DCOs much comply with by July 12, 2024. Compliance
with applicable CFTC regulations is part of OCC's sound risk management
framework to manage legal and regulatory risk. In addition,
[[Page 46209]]
implementing the proposed duties of the Board and Risk Committee within
the Board Charter and Risk Committee Charter would promote management
of risk consistent with the requirements in Rule 17Ad-22(e)(3) \31\ and
OCC's prompt and accurate clearance and settlement of securities
transactions, safeguarding of securities and funds in its custody or
control or for which it is responsible, and the protection of investors
consistent with 17A(b)(3)(F) of the Exchange Act \32\ because it would
involve the new, non-Board-level risk management committee in OCC's
process of assessing and managing risks that could materially affect
OCC's risk profile in a way that supplements OCC existing process for
managing such risks, including through oversight by the Risk Committee
and the Board.
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\30\ 17 CFR 39.24.
\31\ 17 CFR 240.17Ad-22(e)(3).
\32\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, OCC believes the proposed changes are consistent with
Rule 17Ad-22(e)(2). Specifically, Rule 17Ad-22(e)(2) requires OCC to,
among other things, provide for governance arrangements that are clear
and transparent, clearly prioritize the safety and efficiency of the
covered clearing agency and specify clear and direct lines of
responsibility. Modifying the Board Charter and Risk Committee Charter
through the proposed changes described above would be consistent with
these requirements because the changes would document in a clear,
direct and transparent way the material aspects of the process through
which the Board and Risk Committee would work in coordination to
consult with and consider input from a new, non-Board-level risk
management committee on all matters that could materially affect OCC's
risk profile and to consider and respond to input from the non-Board-
level risk management committee on such matters.
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Exchange Act \33\ 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 Exchange
Act. OCC does not believe that the proposed rule changes to modify the
Board Charter and Risk Committee Charter to comply with the Governance
Rules would impact or impose any burden on competition. The proposed
changes would promote OCC's compliance with the Governance Rules that
OCC must comply with by July 12, 2024. The proposed changes to the
Board Charter and Risk Committee Charter are designed to clearly,
directly and transparently document the material aspects of the process
through which the Board and Risk Committee would work in coordination
to consult with and consider input from a new, non-Board-level risk
management committee on all matters that could materially affect OCC's
risk profile and to consider and respond to input from the non-Board-
level risk management committee on such matters. These changes to OCC's
governance structure would apply to all Clearing Members equally and
would not disadvantage or favor any particular user in relation to
another user. Therefore, OCC believes that the proposed changes would
not impose any burden on competition.
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\33\ 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
Because the foregoing proposed rule change does not:
(i) significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \34\ and
Rule 19b-4(f)(6) \35\ thereunder.
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\36\
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\36\ 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-2024-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-OCC-2024-005. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
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-2024-005 and
should be submitted on or before June 18, 2024.
[[Page 46210]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11572 Filed 5-24-24; 8:45 am]
BILLING CODE 8011-01-P
