Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to Its Rules and Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description, 56452-56456 [2024-14971]

Download as PDF 56452 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices equity and ETF options trades.20 Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity and ETF options order flow. More specifically, in April 2024, the Exchange had 13.71% market share of executed volume of multiply-listed equity and ETF options trades.21 The Exchange believes that the proposed rule change reflects this competitive environment because it modifies the Exchange’s fees in a manner designed to incent OTP Holders to direct trading to the Exchange, to provide liquidity and to attract order flow. To the extent that this purpose is achieved, all the Exchange’s market participants should benefit from the improved market quality and increased opportunities for price improvement. The Exchange believes that the proposed change could promote competition between the Exchange and other execution venues, including options exchanges that offer comparable rates for Customer liquidity removing interest,22 by encouraging additional orders to be sent to the Exchange for execution. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action lotter on DSK11XQN23PROD with NOTICES1 The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 23 of the Act and subparagraph (f)(2) of Rule 19b–4 24 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such 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 20 The OCC publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https:// www.theocc.com/Market-Data/Market-DataReports/Volume-and-Open-Interest/MonthlyWeekly-Volume-Statistics. 21 Based on a compilation of OCC data for monthly volume of equity-based options and monthly volume of equity-based ETF options, see id., the Exchanges market share in equity-based options increased from 12.54% for the month of April 2023 to 13.71% for the month of April 2024. 22 See notes 16–17, supra. 23 15 U.S.C. 78s(b)(3)(A). 24 17 CFR 240.19b–4(f)(2). VerDate Sep<11>2014 18:00 Jul 08, 2024 Jkt 262001 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: 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– NYSEARCA–2024–57 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–NYSEARCA–2024–57. 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 PO 00000 25 15 U.S.C. 78s(b)(2)(B). Frm 00177 Fmt 4703 Sfmt 4703 withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2024–57 and should be submitted on or before July 30, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–14972 Filed 7–8–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100455; File No. SR–OCC– 2024–006] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to Its Rules and Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description July 2, 2024. I. Introduction On May 2, 2024, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change (the ‘‘Proposed Rule Change’’) to amend its Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description (‘‘Methodology Description’’) to incorporate additional stress scenarios into OCC’s financial resource sufficiency monitoring and its Rules to clarify OCC’s practice of collecting additional collateral from its members based on such monitoring. The Proposed Rule Change was published for comment in the Federal Register on May 21, 2024.3 The Commission has not received any comments on the Proposed Rule Change. For the reasons discussed below, the Commission is approving the Proposed Rule Change. II. Description of the Proposed Rule Change As a clearing agency, OCC faces a number of risks including credit and 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 100147 (May 15, 2024), 89 FR 44752 (May 21, 2024) (File No. SR–OCC–2024–006) (‘‘Notice’’). 1 15 E:\FR\FM\09JYN1.SGM 09JYN1 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 liquidity risk.4 OCC manages its credit and liquidity risk, in part, by performing daily stress testing 5 that covers a wide range of scenarios.6 OCC groups its stress testing scenarios into different categories, including Sufficiency Scenarios and Informational Scenarios.7 Sufficiency Scenarios are designed to measure the potential exposures that a Clearing Member Group’s portfolios present relative to OCC’s credit and liquidity resources so that OCC can determine the potential need to call for additional collateral, either as margin or as Clearing Fund collateral, or adjust the forms of collateral on deposit.8 Specifically, depending on Sufficiency Scenario results, OCC Rules 609 or 1001 may allow or require OCC to call for additional margin or Clearing Fund resources from a Clearing Member.9 Moreover, under OCC Rules 601 and 609, OCC could require that a Clearing Member provide additional resources in the form of cash.10 In contrast, OCC uses Informational Scenarios to monitor and assess the size of OCC’s prefunded financial resources against a wide range of stress scenarios for informational and risk monitoring purposes.11 These scenarios are not used to determine the size of OCC’s financial resources; however, OCC’s Risk Committee may approve adjustments with respect to how OCC categorizes these scenarios.12 For example, OCC’s Risk Committee could approve the recategorization of an Informational Scenario as a Sufficiency Scenario.13 The Proposed Rule Change would make three groups of changes related to OCC’s Sufficiency Scenarios. First, it 4 Credit Risk is the risk that a counterparty will be unable to meet fully its financial obligations when due, or at any time in the future. Liquidity Risk is the risk that a counterparty will have insufficient funds to meet its financial obligations as and when expected, although it may be able to do so in the future. Bank for International Settlements & International Organization of Securities Commissions, Principles for Financial Market Infrastructures, https://www.bis.org/cpmi/ publ/d101a.pdf. 5 Stress testing is the estimation of credit or liquidity exposures that would result from the realization of potential stress scenarios, such as extreme price changes, multiple defaults, or changes in other valuation inputs and assumptions. 17 CFR 240.17Ad–22(a). 6 Notice, 89 FR at 44753; see OCC Rule 609, OCC Rule 1001. 7 Capitalized terms used but not defined herein have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ publications/bylaws.jsp. 8 Notice, 89 FR at 44753. 9 Id. 10 Id. at 44754 n.20. 11 Id. at 44753. 12 Id. 13 Id. VerDate Sep<11>2014 18:00 Jul 08, 2024 Jkt 262001 would recategorize two Informational Scenarios as Sufficiency Scenarios by making changes to the Methodology Description.14 As a result, the two recategorized scenarios would be used to determine potential calls for additional collateral. Second, the Proposed Rule Change would add detail to OCC’s Rules outlining circumstances under which OCC could require Clearing Members to contribute additional collateral due to the results of Sufficiency Scenarios. Third, the Proposed Rule Change would make minor formatting and grammatical changes to the Methodology Description and the Rules. A. Recategorization of Scenarios OCC’s Methodology Description lists a subset of the Sufficiency Scenarios that have been implemented in OCC’s stress testing system. The Sufficiency Scenarios on this list are historical scenarios that replicate historical events under current market conditions. For example, among the listed Sufficiency Scenarios are scenarios that replicate the largest rally/decline in 2008. To replicate historical events in its current Sufficiency Scenarios, OCC applies one of three price shocks to risk factors in a predetermined order, also referred to as a waterfall.15 As its first choice for a price shock, OCC uses the returns of the risk factor observed during the historical event. If such returns do not exist, or are otherwise unavailable, OCC uses the market return from the risk factor’s corresponding sector as the price shock. If neither the risk factor return nor the market sector return is available, OCC uses a beta approach to set the price shock.16 Currently, OCC applies this waterfall to determine price shocks for the 2008 largest rally/decline Sufficiency Scenarios. Some of OCC’s Informational Scenarios use a different approach to 14 The Methodology Description describes the Comprehensive Stress Testing and Clearing Fund Methodology, and Liquidity Risk Management Description that OCC uses to analyze the adequacy of its financial resources and to challenge its risk management framework. Id. at 44573 n.5. 15 Risk factors are products or attributes whose historical data are used to estimate and simulate the risk for an associated product. Id. at 44574 n.12. 16 Beta is the sensitivity of a security with respect to its corresponding risk driver. Id. at 44754 n.14. Examples of risk drivers include price and volatility with respect to equity securities. Different categories of products—for example, collateral positions in U.S. Government Securities versus Canadian Government Securities—have different risk drivers. Id. at 44754 n.15. The risk driver shock is the return of a risk driver from a historical event. Id. at 44754. The beta approach is the application of the shock of a risk driver to the beta of the related risk factor, which generates a ‘‘risk driver beta derived price shock.’’ PO 00000 Frm 00178 Fmt 4703 Sfmt 4703 56453 determine the price shock applied to risk factors than the existing Sufficiency Scenarios use, which yields different outcomes. For example, some existing Informational Scenarios are variations of the 2008 largest rally/decline Sufficiency Scenarios that directly apply the risk driver beta-derived price shock as the price shock instead of using the waterfall approach. As part of the regular review of the output of its stress scenarios, OCC found that the variations of the 2008 largest rally/ decline Informational Scenarios described above yielded exposures that were consistently higher than those generated by the corresponding Sufficiency Scenarios.17 To enhance its ability to manage risks, OCC proposes recategorizing such variations of the 2008 largest rally/decline scenarios from Informational Scenarios to Sufficiency Scenarios by adding them to the Sufficiency Scenarios listed in OCC’s Methodology Description.18 This would allow the newly-recategorized Sufficiency Scenarios to be used to drive the size of the Clearing Fund and calls for additional margin, which is not the case while they remain categorized as Informational Scenarios.19 B. Changes to the Rules Related to IntraDay Margin and the Clearing Fund OCC also proposes changes to its Rules to clarify OCC’s practice of collecting additional collateral from its members based on stress scenario monitoring. Specifically, OCC proposes changes to Rule 609, which governs intra-day margin, and Rule 1001(c), which governs intra-month clearing fund sizing adjustments. OCC proposes these changes to align the Rules with OCC’s current practices and procedures.20 Some of the proposed changes to Rule 609 clarify OCC’s approach to situations where a Clearing Member Group is subject to an intra-day margin call under more than one Sufficiency Stress Test. Rule 609(a)(5) currently provides that OCC may require the Clearing Member Group responsible for a stress test exposure to deposit intra-day margin if a Sufficiency Stress Test identifies an exposure that exceeds 75% of the current Clearing Fund requirement less deficits.21 In the event of such a margin call, OCC’s current practice is to compare the margin call amount to existing intra-day margin call amounts for the monthly period under OCC Rule 17 Id. at 44753. 18 Id. 19 Id. 20 Id. 21 Id. E:\FR\FM\09JYN1.SGM at 44754–55. at 44754; OCC Rule 609(a)(5). 09JYN1 56454 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices 609(a)(5). A new margin call is issued when the margin call amount is greater than existing intra-day margin call amounts under Rule 609(a)(5). The updated margin call amount would remain in effect until either the next monthly resizing of the Clearing Fund, or the amount is superseded by a larger margin call amount.22 To reflect this current practice,23 and consistent with the Clearing Fund Methodology Policy,24 OCC proposes adding language to Rule 609(a)(5) noting that if a Clearing Member Group is subject to intra-day margin calls under more than one Sufficiency Stress Test, the largest call will be applied and remain in effect until the next monthly resizing.25 Separately, OCC proposes to conform Rule 609(a)(5) to OCC’s existing policies.26 As noted above, current Rule 609(a)(5) requires the Clearing Member Group responsible for a stress test exposure to deposit margin intra-day if a Sufficiency Stress Test identifies an exposure that exceeds 75% of the current Clearing Fund requirement less deficits. OCC’s Clearing Fund Methodology Policy contains similar language with a notable difference. Specifically, the Clearing Fund Methodology Policy does not include the ‘‘less deficits’’ language, while such language is in OCC Rule 609(a)(5).27 This language was removed from the Clearing Fund Methodology Policy in an effort to conform the Clearing Fund Methodology Policy to changes to OCC’s Rules, shortening the number of days a Clearing Member has to meet funding obligations related to the Clearing Fund.28 Given the previous change to its rules, OCC considers the ‘‘less deficits’’ language in each document unnecessary.29 As such, OCC proposes removing the ‘‘less deficits’’ language from Rule 609(a)(5) to promote consistency within its rules.30 22 Notice, 89 FR at 44754. lotter on DSK11XQN23PROD with NOTICES1 23 Id. 24 Securities Exchange Act Release No. 83406 (June 11, 2018), 83 FR 28018, 28025 (June 15, 2018) (File No. SR–OCC–2018–008). 25 While a margin call imposed as the result of a Sufficiency Stress Test will remain in effect until the next monthly Clearing Fund resizing, the imposition of such a margin call would not preclude OCC from making additional margin calls driven by subsequent Sufficiency Stress Tests prior to the monthly resizing. 26 Notice, 89 FR at 44755. 27 Id. 28 Securities Exchange Act Release No. 94950 (May 19, 2022), 87 FR 31916, 31918 (May 25, 2022) (File No. SR–OCC–2022–004). Prior to approval of SR–OCC–2022–004, Clearing Members had two days to deposit additional required Clearing Fund assets. In SR–OCC–2022–004, OCC proposed to shorten this period. Id.; Notice, 89 FR at 44755. 29 Notice, 89 FR at 44755. 30 Id. VerDate Sep<11>2014 18:00 Jul 08, 2024 Jkt 262001 OCC also proposes changes to Rule 1001(c) to reflect its current practices.31 Rule 1001(c) currently indicates that, if at any time between regular monthly calculations of the size of the Clearing Fund a Sufficiency Stress Test identifies a breach that exceeds 90% of the size of the Clearing Fund requirement (less any margin collected as a result of a Sufficiency Stress Test breach pursuant to Rule 609), the calculated size of the Clearing Fund shall be increased. As is reflected in OCC’s Clearing Fund Methodology Policy, OCC’s current practice is to include margin called, rather than only margin collected, in the amount subtracted in the calculation from Rule 1001(c).32 To align the descriptions in OCC’s Rules with OCC’s current practices, OCC proposes adding ‘‘or to be collected’’ to the text or Rule 1001(c).33 C. Minor Formatting and Grammatical Changes OCC also proposes several minor formatting and grammatical changes to its rules. In the Methodology Description, OCC proposes minor edits to correct the formatting of footnotes. Additionally, in the Rules, OCC proposes replacing the words ‘‘such that’’ with ‘‘from’’ and adding the word ‘‘that’’ to Rule 609(a)(5) so that it reads ‘‘stress test exposures from a Sufficiency Stress Test (as defined in Rule 1001(a)) that identifies an exposure’’ instead of ‘‘stress test exposures such that a Sufficiency Stress Test (as defined in Rule 1001(a)) identifies an exposure.’’ III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act requires the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the Proposed Rule Change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the organization.34 Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization [‘SRO’] that proposed the rule change.’’ 35 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to 31 Id. at 44755 n.27. at 44755. 34 15 U.S.C. 78s(b)(2)(C). 35 Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). PO 00000 32 Id. 33 Id. Frm 00179 Fmt 4703 Sfmt 4703 support an affirmative Commission finding,36 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the applicable rules and regulations.37 Moreover, ‘‘unquestioning reliance’’ on an SRO’s representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change.38 After carefully considering the Proposed Rule Change, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, for the reasons given below, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act 39 and Rule 17Ad–22(e)(4) thereunder.40 A. Consistency With Section 17A(b)(3)(F) of the Act Under Section 17A(b)(3)(F) of the Act, OCC’s rules, among other things, must be ‘‘designed to promote the prompt and accurate clearance and settlement of securities transactions . . . derivative agreements, contracts, and transactions . . . and to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.’’ 41 Based on its review of the record, and for the reasons discussed below, OCC’s changes are consistent with Section 17A(b)(3)(F) of the Act 42 because they decrease the likelihood of loss mutualization, may increase, and cannot decrease, the amount of financial resources that OCC collects to address credit losses that could arise from the default of a Clearing Member, and support OCC’s robust default management system. OCC’s proposal to elevate Informational Scenarios to Sufficiency Scenarios may decrease the likelihood of loss mutualization. As noted above, OCC proposes to expand the scope of stress scenarios against which OCC monitors its financial resources by elevating, from Informational Scenarios to Sufficiency Scenarios, variations on their 2008 largest rally/decline scenarios, which first apply the risk driver beta-derived price shock as the 36 Id. 37 Id. 38 Susquehanna Int’l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (‘‘Susquehanna’’). 39 15 U.S.C. 78q–1(b)(3)(F). 40 17 CFR 240.17Ad–22(e)(4). 41 15 U.S.C. 78q–1(b)(3)(F). 42 Id. E:\FR\FM\09JYN1.SGM 09JYN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices price shock as opposed to using the waterfall approach. Once these scenarios are elevated to Sufficiency Scenarios, they would be used to determine whether it is necessary to call for additional margin intra-day or an increase to the size of the Clearing Fund intra-month.43 By elevating the Informational Scenarios to Sufficiency Scenarios, OCC creates a wider range of stress scenarios. Having a wider range of stress scenarios may, in turn, increase the likelihood that OCC will have sufficient collateral on hand to address a default without resorting to loss mutualization through the use of nondefaulting Clearing Members’ contributions to the Clearing Fund. Because it avoids loss mutualization, the Proposed Rule Change is consistent with the safeguarding of securities and funds which are in OCC’s custody or control. OCC’s proposed changes to its Sufficiency Stress Tests also may increase, and cannot decrease, the amount of financial resources that OCC collects to address credit losses that could arise from the default of a Clearing Member. Based on the impact analyses filed with this Proposed Rule Change, the proposed change could result in OCC calling for additional resources available for resolving a member default. The data provided demonstrates that the proposed scenarios could produce more conservative results relative to the current 2008 largest rally/decline scenarios. Because OCC does not propose removing any of its existing Sufficiency Scenarios, the proposed changes could not reduce the resources OCC would collect. By maintaining, and potentially increasing, the financial resources OCC collects to address credit losses that could arise from the default of a Clearing Member, the proposed change to OCC’s stress tests would potentially help OCC recover from the default of a Clearing Member and could make OCC’s default waterfall more robust. As such, it would increase the likelihood that OCC would be able to provide clearing services during and after a Clearing Member default, which is consistent with OCC’s ability to promptly and accurately clear and settle securities transactions for participants in the options markets during periods of market stress. Separately, the proposed changes to conform OCC’s Rules 609 and 1001 to current practice would continue to support OCC’s risk management systems. As described above, the proposed changes would make minor 43 OCC Rule 609(a)(5); OCC Rule 1001(c). VerDate Sep<11>2014 18:00 Jul 08, 2024 Jkt 262001 changes, remove unnecessary language, and acknowledge that, when determining whether to call for additional collateral based on OCC’s Sufficiency Stress Tests, if a Clearing Member Group is subject to intra-day margin calls under more than one Sufficiency Stress Test, only the largest margin call will be applied and remain in effect until the next monthly resizing. Further, OCC proposes that it account for margin called as a result of a Sufficiency Stress Test breach under Rule 609 when determining whether it must increase the size of the Clearing Fund. Such changes would not reduce the total resources called by OCC. Continuing to require that members contribute resources based on the exposures they pose (as measured by the Sufficiency Scenarios) would increase the likelihood that OCC would have sufficient resources to manage its exposure to such a member in the event of a default. This would increase the likelihood that OCC could promptly and accurately clear transactions in the event of a default. Additionally, requiring members to contribute resources based on the exposures they pose would increase OCC’s ability to manage a default with the defaulter’s resources and would reduce the risk that OCC would be required to use the resources of other members to manage a default, consistent with OCC’s ability to safeguard the funds and securities of such non-defaulting members. Further, OCC’s rules require that members meet such calls in a timely manner.44 As a result, OCC’s rules do not preclude OCC from taking additional steps, such as suspending a member, if it does not receive the required resources promptly. Thus, OCC’s rules, both current and as proposed, allow OCC to act quickly to mitigate potential losses and liquidity shortfalls. Such authority reduces the risk that OCC would be unable to continue providing clearance and settlement services, which is consistent with the promotion of the prompt and accurate settlement of securities for the markets OCC serves. Based on the foregoing, the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Act.45 B. Consistency With Rule 17Ad–22(e)(4) Under the Act Rule 17Ad–22(e)(4) requires covered clearing agencies to establish, 44 See e.g., OCC Rule 609(a) (requiring that members meet intra-day margin calls within one hour of issuance). 45 15 U.S.C. 78q–1(b)(3)(F). PO 00000 Frm 00180 Fmt 4703 Sfmt 4703 56455 implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by testing the sufficiency of its total financial resources available to meet the minimum financial resource requirements under Rules 17Ad– 22(e)(4)(i) through (iii) under the Act.46 Under Rule 17Ad–22(e)(4)(vi)(A), OCC’s policies and procedures should provide that OCC conduct such stress testing of its total financial resources once each day using standard predetermined parameters and assumptions.47 The Proposed Rule Change is consistent with Rule 17Ad–22(e)(4)(vi) because it broadens the scope of stress scenarios that OCC conducts to test its financial resources. Expanding the scope of stress scenarios against which OCC monitors its financial resources would increase the likelihood that OCC maintains sufficient financial resources at all times.48 This Proposed Rule Change would expand the scope of stress scenarios by elevating two Informational Scenarios to Sufficiency Scenarios. This expansion could result in the collection of additional resources available for resolving a member default, which, in turn, would increase the likelihood that OCC maintains sufficient financial resources at all times.49 Based on the foregoing, the Proposed Rule Change is consistent with the requirements of Rule 17Ad–22(e)(4) under the Act.50 IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act, and in particular, Section 17A(b)(3)(F) of the Act 51 and Rule 17Ad–22(e)(4).52 It is therefore ordered pursuant to Section 19(b)(2) of the Act that the 46 17 CFR 240.17Ad–22(e)(4)(vi). CFR 240.17Ad–22(e)(4)(vi)(A). 48 See Securities Exchange Act Release No. 90827 (Dec. 30, 2020), 86 FR 659, 661 (Jan. 6, 2021) (File No. SR–OCC–2020–015); Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855, 37863 (Aug. 2, 2018) (File No. SR–OCC–2018–008). 49 The Proposed Rule Change does not alter OCC’s daily implementation of its Sufficiency Stress Tests. Notice, 89 FR at 44753. Thus, the OCC’s Sufficiency Stress Testing continues to be consistent with Rule 17Ad–22(e)(4)(vi)(A)’s daily testing requirements. 50 17 CFR 240.17Ad–22(e)(4). 51 15 U.S.C. 78q–1(b)(3)(F). 52 17 CFR 240.17Ad–22(e)(4). 47 17 E:\FR\FM\09JYN1.SGM 09JYN1 56456 Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices Proposed Rule Change (SR–OCC–2024– 006) be, and hereby is, approved.53 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.54 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–14971 Filed 7–8–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–629, OMB Control No. 3235–0719] lotter on DSK11XQN23PROD with NOTICES1 Proposed Collection; Comment Request; Extension: Rules 13n–1–13n– 12; Form SDR Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information provided for in Rules 13n–1 through 13n–12 (17 CFR 240.13n–1 through 240.13n–12) and Form SDR (‘‘Rules’’), under the Securities Exchange Act of 1934 (15 U.S.C. 78m(n)(3) et seq.). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Under the Rules, security-based swap data repositories (‘‘SDRs’’) are required to register with the Commission by filing a completed Form SDR (the filing of a completed Form SDR also constitutes an application for registration as a securities information processor (‘‘SIP’’)). SDRs are also required to abide by certain minimum standards set out in the Rules, including a requirement to update Form SDR, abide by certain duties and core principles, maintain data in accordance with the rules, keep systems in accordance with the Rules, keep records, provide reports to the Commission, maintain the privacy of security-based swaps (‘‘SBSs’’) data, make certain disclosures, and designate a Chief Compliance Officer. In addition, there are a number of collections of information contained in the Rules. The information collected pursuant to the 53 In approving the Proposed Rule Change, the Commission considered the proposal’s impacts on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 54 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:00 Jul 08, 2024 Jkt 262001 Rules is necessary to carry out the mandates of the Dodd-Frank Act and help ensure an orderly and transparent market for SBSs. Assuming a maximum of three SDRs, the Commission estimates that the total burden for the Rules and Form SDR for all respondents is 127,505 hours annually and approximately 382,511 burden hours for all respondents over three years. In addition, the Commission estimates that the total cost of the Rules and Form SDR for all respondents is approximately $29,905,416 annually and approximately $89,716,248 for all respondents over three years. Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by September 9, 2024. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Austin Gerig, Director/Chief Data Officer, Securities and Exchange Commission, c/o Oluwaseun Ajayi, 100 F Street NE, Washington, DC 20549, or send an email to: PRA_Mailbox@ sec.gov. Dated: July 3, 2024. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–15026 Filed 7–8–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100459; File No. SR–NYSE– 2023–36] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Withdrawal of Proposed Rule Change Regarding Enhancements to Its DMM Program July 3, 2024. On October 23, 2023, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) PO 00000 Frm 00181 Fmt 4703 Sfmt 9990 filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend its Designated Market Maker (‘‘DMM’’) program. The proposed rule change was published for comment in the Federal Register on November 13, 2023.3 On December 13, 2023, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On February 9, 2024, the Commission instituted proceedings pursuant to Section 19(b)(2)(B) of the Act 6 to determine whether to approve or disapprove the proposed rule change.7 On May 8, 2024, pursuant to Section 19(b)(2) of the Act,8 the Commission designated a longer period within which to approve or disapprove the proposed rule change.9 On June 28, 2024, NYSE withdrew the proposed rule change (SR–NYSE–2023– 36). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–15036 Filed 7–8–24; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 98869 (Nov. 6, 2023), 88 FR 77625 (Nov. 13, 2023) (SR– NYSE–2023–36). Comments received on the proposed rule change are available at: https:// www.sec.gov/comments/sr-nyse-2023-36/ srnyse202336.htm. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 99161 (Dec. 13, 2023), 88 FR 87829 (Dec. 19, 2023). The Commission designated February 11, 2024, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 99511 (Feb. 9, 2024), 89 FR 11893 (Feb. 15, 2024). 8 15 U.S.C. 78s(b)(2). 9 See Securities Exchange Act Release No. 100080 (May 8, 2024), 89 FR 42007 (May 14, 2024). The Commission designated July 10, 2024, as the date by which the Commission shall approve or disapprove the proposed rule change. 10 17 CFR 200.30–3(a)(12). 2 17 E:\FR\FM\09JYN1.SGM 09JYN1

Agencies

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56452-56456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14971]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100455; File No. SR-OCC-2024-006]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change by The Options Clearing 
Corporation Concerning Amendments to Its Rules and Comprehensive Stress 
Testing & Clearing Fund Methodology, and Liquidity Risk Management 
Description

July 2, 2024.

I. Introduction

    On May 2, 2024, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change (the 
``Proposed Rule Change'') to amend its Comprehensive Stress Testing & 
Clearing Fund Methodology, and Liquidity Risk Management Description 
(``Methodology Description'') to incorporate additional stress 
scenarios into OCC's financial resource sufficiency monitoring and its 
Rules to clarify OCC's practice of collecting additional collateral 
from its members based on such monitoring. The Proposed Rule Change was 
published for comment in the Federal Register on May 21, 2024.\3\ The 
Commission has not received any comments on the Proposed Rule Change. 
For the reasons discussed below, the Commission is approving the 
Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 100147 (May 15, 2024), 
89 FR 44752 (May 21, 2024) (File No. SR-OCC-2024-006) (``Notice'').
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II. Description of the Proposed Rule Change

    As a clearing agency, OCC faces a number of risks including credit 
and

[[Page 56453]]

liquidity risk.\4\ OCC manages its credit and liquidity risk, in part, 
by performing daily stress testing \5\ that covers a wide range of 
scenarios.\6\
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    \4\ Credit Risk is the risk that a counterparty will be unable 
to meet fully its financial obligations when due, or at any time in 
the future. Liquidity Risk is the risk that a counterparty will have 
insufficient funds to meet its financial obligations as and when 
expected, although it may be able to do so in the future. Bank for 
International Settlements & International Organization of Securities 
Commissions, Principles for Financial Market Infrastructures, 
https://www.bis.org/cpmi/publ/d101a.pdf.
    \5\ Stress testing is the estimation of credit or liquidity 
exposures that would result from the realization of potential stress 
scenarios, such as extreme price changes, multiple defaults, or 
changes in other valuation inputs and assumptions. 17 CFR 240.17Ad-
22(a).
    \6\ Notice, 89 FR at 44753; see OCC Rule 609, OCC Rule 1001.
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    OCC groups its stress testing scenarios into different categories, 
including Sufficiency Scenarios and Informational Scenarios.\7\ 
Sufficiency Scenarios are designed to measure the potential exposures 
that a Clearing Member Group's portfolios present relative to OCC's 
credit and liquidity resources so that OCC can determine the potential 
need to call for additional collateral, either as margin or as Clearing 
Fund collateral, or adjust the forms of collateral on deposit.\8\ 
Specifically, depending on Sufficiency Scenario results, OCC Rules 609 
or 1001 may allow or require OCC to call for additional margin or 
Clearing Fund resources from a Clearing Member.\9\ Moreover, under OCC 
Rules 601 and 609, OCC could require that a Clearing Member provide 
additional resources in the form of cash.\10\ In contrast, OCC uses 
Informational Scenarios to monitor and assess the size of OCC's 
prefunded financial resources against a wide range of stress scenarios 
for informational and risk monitoring purposes.\11\ These scenarios are 
not used to determine the size of OCC's financial resources; however, 
OCC's Risk Committee may approve adjustments with respect to how OCC 
categorizes these scenarios.\12\ For example, OCC's Risk Committee 
could approve the recategorization of an Informational Scenario as a 
Sufficiency Scenario.\13\
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    \7\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
    \8\ Notice, 89 FR at 44753.
    \9\ Id.
    \10\ Id. at 44754 n.20.
    \11\ Id. at 44753.
    \12\ Id.
    \13\ Id.
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    The Proposed Rule Change would make three groups of changes related 
to OCC's Sufficiency Scenarios. First, it would recategorize two 
Informational Scenarios as Sufficiency Scenarios by making changes to 
the Methodology Description.\14\ As a result, the two recategorized 
scenarios would be used to determine potential calls for additional 
collateral. Second, the Proposed Rule Change would add detail to OCC's 
Rules outlining circumstances under which OCC could require Clearing 
Members to contribute additional collateral due to the results of 
Sufficiency Scenarios. Third, the Proposed Rule Change would make minor 
formatting and grammatical changes to the Methodology Description and 
the Rules.
---------------------------------------------------------------------------

    \14\ The Methodology Description describes the Comprehensive 
Stress Testing and Clearing Fund Methodology, and Liquidity Risk 
Management Description that OCC uses to analyze the adequacy of its 
financial resources and to challenge its risk management framework. 
Id. at 44573 n.5.
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A. Recategorization of Scenarios

    OCC's Methodology Description lists a subset of the Sufficiency 
Scenarios that have been implemented in OCC's stress testing system. 
The Sufficiency Scenarios on this list are historical scenarios that 
replicate historical events under current market conditions. For 
example, among the listed Sufficiency Scenarios are scenarios that 
replicate the largest rally/decline in 2008.
    To replicate historical events in its current Sufficiency 
Scenarios, OCC applies one of three price shocks to risk factors in a 
predetermined order, also referred to as a waterfall.\15\ As its first 
choice for a price shock, OCC uses the returns of the risk factor 
observed during the historical event. If such returns do not exist, or 
are otherwise unavailable, OCC uses the market return from the risk 
factor's corresponding sector as the price shock. If neither the risk 
factor return nor the market sector return is available, OCC uses a 
beta approach to set the price shock.\16\ Currently, OCC applies this 
waterfall to determine price shocks for the 2008 largest rally/decline 
Sufficiency Scenarios.
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    \15\ Risk factors are products or attributes whose historical 
data are used to estimate and simulate the risk for an associated 
product. Id. at 44574 n.12.
    \16\ Beta is the sensitivity of a security with respect to its 
corresponding risk driver. Id. at 44754 n.14. Examples of risk 
drivers include price and volatility with respect to equity 
securities. Different categories of products--for example, 
collateral positions in U.S. Government Securities versus Canadian 
Government Securities--have different risk drivers. Id. at 44754 
n.15. The risk driver shock is the return of a risk driver from a 
historical event. Id. at 44754. The beta approach is the application 
of the shock of a risk driver to the beta of the related risk 
factor, which generates a ``risk driver beta derived price shock.''
---------------------------------------------------------------------------

    Some of OCC's Informational Scenarios use a different approach to 
determine the price shock applied to risk factors than the existing 
Sufficiency Scenarios use, which yields different outcomes. For 
example, some existing Informational Scenarios are variations of the 
2008 largest rally/decline Sufficiency Scenarios that directly apply 
the risk driver beta-derived price shock as the price shock instead of 
using the waterfall approach. As part of the regular review of the 
output of its stress scenarios, OCC found that the variations of the 
2008 largest rally/decline Informational Scenarios described above 
yielded exposures that were consistently higher than those generated by 
the corresponding Sufficiency Scenarios.\17\ To enhance its ability to 
manage risks, OCC proposes recategorizing such variations of the 2008 
largest rally/decline scenarios from Informational Scenarios to 
Sufficiency Scenarios by adding them to the Sufficiency Scenarios 
listed in OCC's Methodology Description.\18\ This would allow the 
newly-recategorized Sufficiency Scenarios to be used to drive the size 
of the Clearing Fund and calls for additional margin, which is not the 
case while they remain categorized as Informational Scenarios.\19\
---------------------------------------------------------------------------

    \17\ Id. at 44753.
    \18\ Id.
    \19\ Id.
---------------------------------------------------------------------------

B. Changes to the Rules Related to Intra-Day Margin and the Clearing 
Fund

    OCC also proposes changes to its Rules to clarify OCC's practice of 
collecting additional collateral from its members based on stress 
scenario monitoring. Specifically, OCC proposes changes to Rule 609, 
which governs intra-day margin, and Rule 1001(c), which governs intra-
month clearing fund sizing adjustments. OCC proposes these changes to 
align the Rules with OCC's current practices and procedures.\20\
---------------------------------------------------------------------------

    \20\ Id. at 44754-55.
---------------------------------------------------------------------------

    Some of the proposed changes to Rule 609 clarify OCC's approach to 
situations where a Clearing Member Group is subject to an intra-day 
margin call under more than one Sufficiency Stress Test. Rule 609(a)(5) 
currently provides that OCC may require the Clearing Member Group 
responsible for a stress test exposure to deposit intra-day margin if a 
Sufficiency Stress Test identifies an exposure that exceeds 75% of the 
current Clearing Fund requirement less deficits.\21\ In the event of 
such a margin call, OCC's current practice is to compare the margin 
call amount to existing intra-day margin call amounts for the monthly 
period under OCC Rule

[[Page 56454]]

609(a)(5). A new margin call is issued when the margin call amount is 
greater than existing intra-day margin call amounts under Rule 
609(a)(5). The updated margin call amount would remain in effect until 
either the next monthly resizing of the Clearing Fund, or the amount is 
superseded by a larger margin call amount.\22\ To reflect this current 
practice,\23\ and consistent with the Clearing Fund Methodology 
Policy,\24\ OCC proposes adding language to Rule 609(a)(5) noting that 
if a Clearing Member Group is subject to intra-day margin calls under 
more than one Sufficiency Stress Test, the largest call will be applied 
and remain in effect until the next monthly resizing.\25\
---------------------------------------------------------------------------

    \21\ Id. at 44754; OCC Rule 609(a)(5).
    \22\ Notice, 89 FR at 44754.
    \23\ Id.
    \24\ Securities Exchange Act Release No. 83406 (June 11, 2018), 
83 FR 28018, 28025 (June 15, 2018) (File No. SR-OCC-2018-008).
    \25\ While a margin call imposed as the result of a Sufficiency 
Stress Test will remain in effect until the next monthly Clearing 
Fund resizing, the imposition of such a margin call would not 
preclude OCC from making additional margin calls driven by 
subsequent Sufficiency Stress Tests prior to the monthly resizing.
---------------------------------------------------------------------------

    Separately, OCC proposes to conform Rule 609(a)(5) to OCC's 
existing policies.\26\ As noted above, current Rule 609(a)(5) requires 
the Clearing Member Group responsible for a stress test exposure to 
deposit margin intra-day if a Sufficiency Stress Test identifies an 
exposure that exceeds 75% of the current Clearing Fund requirement less 
deficits. OCC's Clearing Fund Methodology Policy contains similar 
language with a notable difference. Specifically, the Clearing Fund 
Methodology Policy does not include the ``less deficits'' language, 
while such language is in OCC Rule 609(a)(5).\27\ This language was 
removed from the Clearing Fund Methodology Policy in an effort to 
conform the Clearing Fund Methodology Policy to changes to OCC's Rules, 
shortening the number of days a Clearing Member has to meet funding 
obligations related to the Clearing Fund.\28\ Given the previous change 
to its rules, OCC considers the ``less deficits'' language in each 
document unnecessary.\29\ As such, OCC proposes removing the ``less 
deficits'' language from Rule 609(a)(5) to promote consistency within 
its rules.\30\
---------------------------------------------------------------------------

    \26\ Notice, 89 FR at 44755.
    \27\ Id.
    \28\ Securities Exchange Act Release No. 94950 (May 19, 2022), 
87 FR 31916, 31918 (May 25, 2022) (File No. SR-OCC-2022-004). Prior 
to approval of SR-OCC-2022-004, Clearing Members had two days to 
deposit additional required Clearing Fund assets. In SR-OCC-2022-
004, OCC proposed to shorten this period. Id.; Notice, 89 FR at 
44755.
    \29\ Notice, 89 FR at 44755.
    \30\ Id.
---------------------------------------------------------------------------

    OCC also proposes changes to Rule 1001(c) to reflect its current 
practices.\31\ Rule 1001(c) currently indicates that, if at any time 
between regular monthly calculations of the size of the Clearing Fund a 
Sufficiency Stress Test identifies a breach that exceeds 90% of the 
size of the Clearing Fund requirement (less any margin collected as a 
result of a Sufficiency Stress Test breach pursuant to Rule 609), the 
calculated size of the Clearing Fund shall be increased. As is 
reflected in OCC's Clearing Fund Methodology Policy, OCC's current 
practice is to include margin called, rather than only margin 
collected, in the amount subtracted in the calculation from Rule 
1001(c).\32\ To align the descriptions in OCC's Rules with OCC's 
current practices, OCC proposes adding ``or to be collected'' to the 
text or Rule 1001(c).\33\
---------------------------------------------------------------------------

    \31\ Id.
    \32\ Id. at 44755 n.27.
    \33\ Id. at 44755.
---------------------------------------------------------------------------

C. Minor Formatting and Grammatical Changes

    OCC also proposes several minor formatting and grammatical changes 
to its rules. In the Methodology Description, OCC proposes minor edits 
to correct the formatting of footnotes. Additionally, in the Rules, OCC 
proposes replacing the words ``such that'' with ``from'' and adding the 
word ``that'' to Rule 609(a)(5) so that it reads ``stress test 
exposures from a Sufficiency Stress Test (as defined in Rule 1001(a)) 
that identifies an exposure'' instead of ``stress test exposures such 
that a Sufficiency Stress Test (as defined in Rule 1001(a)) identifies 
an exposure.''

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act requires the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
the Proposed Rule Change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the 
organization.\34\ Under the Commission's Rules of Practice, the 
``burden to demonstrate that a proposed rule change is consistent with 
the Exchange Act and the rules and regulations issued thereunder . . . 
is on the self-regulatory organization [`SRO'] that proposed the rule 
change.'' \35\ The description of a proposed rule change, its purpose 
and operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\36\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\37\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\38\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2)(C).
    \35\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \36\ Id.
    \37\ Id.
    \38\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
---------------------------------------------------------------------------

    After carefully considering the Proposed Rule Change, the 
Commission finds that the Proposed Rule Change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to OCC. More specifically, for the reasons given 
below, the Commission finds that the Proposed Rule Change is consistent 
with Section 17A(b)(3)(F) of the Act \39\ and Rule 17Ad-22(e)(4) 
thereunder.\40\
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78q-1(b)(3)(F).
    \40\ 17 CFR 240.17Ad-22(e)(4).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Act

    Under Section 17A(b)(3)(F) of the Act, OCC's rules, among other 
things, must be ``designed to promote the prompt and accurate clearance 
and settlement of securities transactions . . . derivative agreements, 
contracts, and transactions . . . and to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.'' \41\ Based on its 
review of the record, and for the reasons discussed below, OCC's 
changes are consistent with Section 17A(b)(3)(F) of the Act \42\ 
because they decrease the likelihood of loss mutualization, may 
increase, and cannot decrease, the amount of financial resources that 
OCC collects to address credit losses that could arise from the default 
of a Clearing Member, and support OCC's robust default management 
system.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78q-1(b)(3)(F).
    \42\ Id.
---------------------------------------------------------------------------

    OCC's proposal to elevate Informational Scenarios to Sufficiency 
Scenarios may decrease the likelihood of loss mutualization. As noted 
above, OCC proposes to expand the scope of stress scenarios against 
which OCC monitors its financial resources by elevating, from 
Informational Scenarios to Sufficiency Scenarios, variations on their 
2008 largest rally/decline scenarios, which first apply the risk driver 
beta-derived price shock as the

[[Page 56455]]

price shock as opposed to using the waterfall approach. Once these 
scenarios are elevated to Sufficiency Scenarios, they would be used to 
determine whether it is necessary to call for additional margin intra-
day or an increase to the size of the Clearing Fund intra-month.\43\ By 
elevating the Informational Scenarios to Sufficiency Scenarios, OCC 
creates a wider range of stress scenarios. Having a wider range of 
stress scenarios may, in turn, increase the likelihood that OCC will 
have sufficient collateral on hand to address a default without 
resorting to loss mutualization through the use of non-defaulting 
Clearing Members' contributions to the Clearing Fund. Because it avoids 
loss mutualization, the Proposed Rule Change is consistent with the 
safeguarding of securities and funds which are in OCC's custody or 
control.
---------------------------------------------------------------------------

    \43\ OCC Rule 609(a)(5); OCC Rule 1001(c).
---------------------------------------------------------------------------

    OCC's proposed changes to its Sufficiency Stress Tests also may 
increase, and cannot decrease, the amount of financial resources that 
OCC collects to address credit losses that could arise from the default 
of a Clearing Member. Based on the impact analyses filed with this 
Proposed Rule Change, the proposed change could result in OCC calling 
for additional resources available for resolving a member default. The 
data provided demonstrates that the proposed scenarios could produce 
more conservative results relative to the current 2008 largest rally/
decline scenarios. Because OCC does not propose removing any of its 
existing Sufficiency Scenarios, the proposed changes could not reduce 
the resources OCC would collect. By maintaining, and potentially 
increasing, the financial resources OCC collects to address credit 
losses that could arise from the default of a Clearing Member, the 
proposed change to OCC's stress tests would potentially help OCC 
recover from the default of a Clearing Member and could make OCC's 
default waterfall more robust. As such, it would increase the 
likelihood that OCC would be able to provide clearing services during 
and after a Clearing Member default, which is consistent with OCC's 
ability to promptly and accurately clear and settle securities 
transactions for participants in the options markets during periods of 
market stress.
    Separately, the proposed changes to conform OCC's Rules 609 and 
1001 to current practice would continue to support OCC's risk 
management systems. As described above, the proposed changes would make 
minor changes, remove unnecessary language, and acknowledge that, when 
determining whether to call for additional collateral based on OCC's 
Sufficiency Stress Tests, if a Clearing Member Group is subject to 
intra-day margin calls under more than one Sufficiency Stress Test, 
only the largest margin call will be applied and remain in effect until 
the next monthly resizing. Further, OCC proposes that it account for 
margin called as a result of a Sufficiency Stress Test breach under 
Rule 609 when determining whether it must increase the size of the 
Clearing Fund. Such changes would not reduce the total resources called 
by OCC. Continuing to require that members contribute resources based 
on the exposures they pose (as measured by the Sufficiency Scenarios) 
would increase the likelihood that OCC would have sufficient resources 
to manage its exposure to such a member in the event of a default. This 
would increase the likelihood that OCC could promptly and accurately 
clear transactions in the event of a default. Additionally, requiring 
members to contribute resources based on the exposures they pose would 
increase OCC's ability to manage a default with the defaulter's 
resources and would reduce the risk that OCC would be required to use 
the resources of other members to manage a default, consistent with 
OCC's ability to safeguard the funds and securities of such non-
defaulting members.
    Further, OCC's rules require that members meet such calls in a 
timely manner.\44\ As a result, OCC's rules do not preclude OCC from 
taking additional steps, such as suspending a member, if it does not 
receive the required resources promptly. Thus, OCC's rules, both 
current and as proposed, allow OCC to act quickly to mitigate potential 
losses and liquidity shortfalls. Such authority reduces the risk that 
OCC would be unable to continue providing clearance and settlement 
services, which is consistent with the promotion of the prompt and 
accurate settlement of securities for the markets OCC serves.
---------------------------------------------------------------------------

    \44\ See e.g., OCC Rule 609(a) (requiring that members meet 
intra-day margin calls within one hour of issuance).
---------------------------------------------------------------------------

    Based on the foregoing, the Proposed Rule Change is consistent with 
the requirements of Section 17A(b)(3)(F) of the Act.\45\
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(4) Under the Act

    Rule 17Ad-22(e)(4) requires covered clearing agencies to establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to effectively identify, measure, monitor, and 
manage its credit exposures to participants and those arising from its 
payment, clearing, and settlement processes by testing the sufficiency 
of its total financial resources available to meet the minimum 
financial resource requirements under Rules 17Ad-22(e)(4)(i) through 
(iii) under the Act.\46\ Under Rule 17Ad-22(e)(4)(vi)(A), OCC's 
policies and procedures should provide that OCC conduct such stress 
testing of its total financial resources once each day using standard 
predetermined parameters and assumptions.\47\
---------------------------------------------------------------------------

    \46\ 17 CFR 240.17Ad-22(e)(4)(vi).
    \47\ 17 CFR 240.17Ad-22(e)(4)(vi)(A).
---------------------------------------------------------------------------

    The Proposed Rule Change is consistent with Rule 17Ad-22(e)(4)(vi) 
because it broadens the scope of stress scenarios that OCC conducts to 
test its financial resources. Expanding the scope of stress scenarios 
against which OCC monitors its financial resources would increase the 
likelihood that OCC maintains sufficient financial resources at all 
times.\48\ This Proposed Rule Change would expand the scope of stress 
scenarios by elevating two Informational Scenarios to Sufficiency 
Scenarios. This expansion could result in the collection of additional 
resources available for resolving a member default, which, in turn, 
would increase the likelihood that OCC maintains sufficient financial 
resources at all times.\49\
---------------------------------------------------------------------------

    \48\ See Securities Exchange Act Release No. 90827 (Dec. 30, 
2020), 86 FR 659, 661 (Jan. 6, 2021) (File No. SR-OCC-2020-015); 
Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR 
37855, 37863 (Aug. 2, 2018) (File No. SR-OCC-2018-008).
    \49\ The Proposed Rule Change does not alter OCC's daily 
implementation of its Sufficiency Stress Tests. Notice, 89 FR at 
44753. Thus, the OCC's Sufficiency Stress Testing continues to be 
consistent with Rule 17Ad-22(e)(4)(vi)(A)'s daily testing 
requirements.
---------------------------------------------------------------------------

    Based on the foregoing, the Proposed Rule Change is consistent with 
the requirements of Rule 17Ad-22(e)(4) under the Act.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 240.17Ad-22(e)(4).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act, 
and in particular, Section 17A(b)(3)(F) of the Act \51\ and Rule 17Ad-
22(e)(4).\52\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78q-1(b)(3)(F).
    \52\ 17 CFR 240.17Ad-22(e)(4).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the

[[Page 56456]]

Proposed Rule Change (SR-OCC-2024-006) be, and hereby is, approved.\53\
---------------------------------------------------------------------------

    \53\ In approving the Proposed Rule Change, the Commission 
considered the proposal's impacts on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
---------------------------------------------------------------------------

    \54\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-14971 Filed 7-8-24; 8:45 am]
BILLING CODE 8011-01-P
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