Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Options Clearing Corporation Concerning Updates to OCC's Capital Management Policy, 79668-79672 [2024-22265]
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Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Notices
furtherance of the purposes of the Act.
As discussed above, market participants
are not forced to connect to and trade
on all exchanges. The Exchange believes
that the proposed pass-through of costs
for materials for technical support will
not cause any burden on inter-market
competition because none of these
changes impact other exchanges’ ability
to compete.
Accordingly, the Exchange does not
believe its proposed fee changes impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 11 and Rule
19b–4(f)(2) 12 thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
ddrumheller on DSK120RN23PROD with NOTICES1
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
MIAX–2024–36 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.
11 15
12 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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17:51 Sep 27, 2024
All submissions should refer to file
number SR–MIAX–2024–36. 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–MIAX–2024–36 and should be
submitted on or before October 21,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–22262 Filed 9–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101151; File No. SR OCC–
2024–012]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by The
Options Clearing Corporation
Concerning Updates to OCC’s Capital
Management Policy
Jkt 262001
CFR 200.30–3(a)(12).
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This proposed rule change would to:
(1) revise OCC’s Capital Management
Policy to update its plan for raising
additional capital (‘‘Replenishment
Plan’’) should OCC experience potential
general business losses, (2) amend
OCC’s schedule of fees necessary to
reflect the proposed change in OCC’s
Capital Management Plan, and (3)
update OCC Rule 101 to maintain
consistency with the proposed change
in OCC’s Capital Management Policy.
Proposed changes to OCC’s Capital
Management Policy, schedule of fees,
and Rule 101 are included in Exhibits
5A, 5B, and 5C to File No. SR–OCC–
2024–012, respectively. Material
proposed to be added is marked by
underlining and material proposed to be
deleted is marked in strikethrough text.
All capitalized terms not defined herein
have the same meaning as set forth in
the OCC By-Laws and Rules.5
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.
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 https://www.theocc.com/Company-Information/
Documents-and-Archives/By-Laws-and-Rules.
2 17
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
PO 00000
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
1 15
September 24, 2024.
13 17
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on September 16, 2024, The
Options Clearing Corporation (‘‘OCC’’ or
‘‘Corporation’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by OCC. OCC filed
the proposed rule change pursuant to
Section 19(b)(3)(A) 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.
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Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Notices
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
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1. Purpose
OCC’s Capital Management Policy
was adopted in 2019, and it establishes
the principles used to quantify, monitor
and manage the level of OCC’s Equity 6
such that OCC maintains liquid net
assets funded by equity (‘‘LNAFBE’’) 7 to
cover potential general business losses
and continue operations and services as
a going concern if losses materialize
under a range of scenarios, including
adverse market conditions.
A main component of the Capital
Management Policy is OCC’s plan to
replenish its capital in the event it falls
close to or below its target capital (as
defined below, ‘‘Replenishment Plan’’),
as required by SEC Rule 17Ad–
22(e)(15)(iii).8 This rule provides that
OCC must maintain a ‘‘viable plan,
approved by the board of directors and
updated at least annually, for raising
additional Equity should its Equity fall
close to or below the amount required
under SEC Rule 17Ad–22(e)(15)(ii).’’ 9 In
satisfaction with SEC Rule 17Ad–
22(e)(15)(iii), OCC’s Replenishment Plan
establishes a plan for accessing
additional capital should OCC’s Equity
fall below certain thresholds.
OCC’s existing Replenishment Plan
provides that (i) should OCC’s Equity
less the Minimum Corporate
Contribution fall below 110% of the
Target Capital Requirement (as defined
by the Capital Management Policy,
‘‘Early Warning’’), Management would
recommend to the Board whether to
implement a fee increase in an amount
the Board determines necessary and
appropriate to raise additional Equity;
(ii) should OCC’s Equity less the
Minimum Corporate Contribution fall
below 90% of the Target Capital
Requirement or fall below the Target
Capital Requirement for a period of
ninety consecutive days (as defined in
the Capital Management Policy,
‘‘Trigger Event’’), OCC would contribute
the funds held under OCC’s Executive
Deferred Compensation Plan Trust
which are (a) deposited on and after
January 1, 2020 in respect of the
Corporation’s Executive Deferred
Compensation Plan (‘‘EDCP’’) and (b) in
6 The Capital Management Policy defines
‘‘Equity’’ as shareholders’ equity as shown on
OCC’s Statement of Financial Condition.
7 The Capital Management Policy defines
‘‘LNAFBE’’ as the level of cash and cash
equivalents, no greater than Equity, less any
approved adjustments (i.e., agency-related liabilities
such as Section 31 fees held by OCC and the
Minimum Corporate Contribution).
8 17 CFR 240.17Ad–22(e)(15)(iii).
9 Id. (emphasis added).
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excess of amounts necessary to pay for
the benefits accrued and vested under
the EDCP as of such date (defined in
Chapter 1 of OCC’s Rules as ‘‘EDCP
Unvested Balance’’); and (iii) should the
contribution of the EDCP Unvested
Balance fail to cure the Trigger Event, or
if a further Trigger Event occurs, OCC
will charge an Operational Loss Fee in
equal shares to the Clearing Members.
OCC’s existing Replenishment Plan
states that in the event of a Trigger
Event, OCC will first contribute the
funds necessary to cure such loss with
the EDCP Unvested Balance. If the loss
cannot be cured after applying all
available EDCP Unvested Balance, OCC
will then charge an Operational Loss
Fee in equal share to each Clearing
Member.
The purpose of this proposed rule
change is to revise the Replenishment
Plan in the Capital Management Policy
so that the Early Warning and Trigger
Event are measured against LNAFBE
rather than Equity. At the time the
Capital Management Policy was
adopted, LNAFBE and Equity were
much closer in size than they are
currently. Given the growing difference
between Equity and LNAFBE, it is
possible that in the event of an
operational loss, LNAFBE may fall
below the Target Capital Requirement,
but Equity would remain above the
Early Warning and Trigger Event. In that
instance, OCC would not be able to
access the Operational Loss Fee to bring
LNAFBE above the Target Capital
Requirement because OCC’s Equity
would still be above the Trigger Event.
Consequently, OCC proposes to amend
the Replenishment Plan in the Capital
Management Policy such that the Early
Warning and Trigger Event are
measured against LNAFBE, rather than
Equity. As defined in the Capital
Management Policy, LNAFBE will
always be less than or equal to Equity.
By amending the Replenishment Plan in
the Capital Management Policy so that
the Early Warning and Trigger Event are
measured against LNAFBE, rather than
Equity, OCC will have the ability to
access its Replenishment Plan,
including the Operational Loss Fee, in
the event its LNAFBE falls below
regulatory minimums.
To implement the proposed changes
in the Replenishment Plan in the
Capital Management Policy, OCC also
proposes to update its schedule of fees
to revise the Operational Loss Fee such
that OCC would charge the Operational
Loss Fee if OCC’s LNAFBE falls below
the Trigger Event.
PO 00000
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79669
Proposed Changes
As described in detail below, OCC
proposes to revise the Replenishment
Plan under its Capital Management
Policy so that the Early Warning and
Trigger Event are measured against
LNAFBE, rather than Equity. OCC also
proposes to make conforming changes to
its schedule of fees necessary to
implement the proposed changes in the
Replenishment Plan to promote
compliance with SEC Rule 17Ad–
22(e)(15)(iii).
In addition, OCC proposes to
incorporate several non-substantive
changes to the Capital Management
Policy, including updating the header
text at the beginning of the document to
incorporate additional sections to
promote clarity and consistency for
document use and management.
Specifically, OCC’s proposed changes
add the following sections to the header
at the beginning of the document: (i)
Policy Owner, (ii) Document Type, (iii)
Board Approval, (iv) Rule Filed, and (iv)
Version Number. To promote additional
clarity, OCC’s proposed changes also
add the term ‘‘version’’ prior to the
header labeled as ‘‘effective date.’’
Finally, OCC’s proposed changes
eliminate the header labeled as ‘‘scope’’
as OCC believes this section is
unnecessary for document use and
management.
Replenishment Plan
i. Early Warning
OCC would revise the Replenishment
Plan’s Early Warning so that it is
measured against LNAFBE. Specifically,
the Capital Management Policy would
define the Early Warning to be when
LNAFBE, rather than Equity less the
Minimum Corporate Contribution, falls
below 110% of the Target Capital
Requirement.10 OCC proposes replacing
Equity with LNAFBE within the Capital
Management Policy to reflect this
change to the Early Warning as well as
the change to the definition of Trigger
Event described below. After this
10 OCC’s Capital Management Policy explains
how OCC sets its Target Capital Requirement,
including how OCC may set its Target Capital
Requirement to retain ‘‘additional Equity generated
from revenue.’’ To conform with the proposed
changes, OCC proposes to modify those references
to ‘‘additional Equity generated from revenue, in
the form of LNAFBE.’’ Specifically, OCC’s proposed
changes would clarify that OCC can retain
additional Equity generated from revenue, in the
form of LNAFBE, for capital expenditures following
a recommendation by Management and Board
approval. OCC’s proposed changes would also
clarify that the Board would (a) determine if the
capital needs are necessary and appropriate and, if
so, (b) determine whether to (i) increase the Target
Capital Requirement or (ii) retain the additional
Equity, in the form of LNAFBE, as an amount in
excess of the Target Capital Requirement.
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Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
replacement, the Capital Management
Policy would explain that in the event
of an operational loss, OCC would first
use LNAFBE, rather than Equity less the
Minimum Corporate Contribution,
above 110% of Target Capital. The
proposed changes would further
describe that in the event OCC’s
LNAFBE, rather than equity, breaches
the Early Warning, Management would
recommend to the Board whether to
implement a fee increase in an amount
the Board determines necessary and
appropriate to raise additional LNAFBE,
rather than Equity. The
recommendation whether to implement
the fee increase would be informed by
several factors including, but not
limited to, the facts, circumstances and
root cause of a decrease in LNAFBE,
rather than Equity, below the Early
Warning.
ii. Trigger Event
OCC would further revise the
Replenishment Plan’s Trigger Event so
that it is measured against LNAFBE.
Specifically, the Capital Management
Policy would define a Trigger Event to
be when OCC’s LNAFBE, rather than
Equity less the Minimum Corporate
Contribution, falls below 90% of the
Target Capital Requirement or remains
below the Target Capital Requirement
for ninety consecutive calendar days. If
a Trigger Event occurs, OCC would first
contribute the funds necessary to cure
such loss with the EDCP Unvested
Balance. To reflect the new definition of
Trigger Event, the Capital Management
Policy would be changed to explain that
if OCC’s LNAFBE, rather than Equity,
remains below 90% of the Target
Capital Requirement after applying the
EDCP Unvested Balance, or if a further
Trigger Event occurs after applying all
available EDCP Unvested Balance, OCC
would charge an Operational Loss Fee 11
in equal share to each Clearing Member
payable on five business days’ notice, to
raise additional capital. The Capital
Management Policy would be edited to
provide that, in the event less than the
full amount of the maximum
Operational Loss Fee is needed to return
OCC’s LNAFBE, rather than Equity, to
110% of the Target Capital
Requirement, OCC would charge only
that amount necessary to return OCC’s
LNAFBE, rather than Equity, to 110% of
the Target Capital Requirement. This
change better ensures that OCC holds
the mandated amount of LNAFBE. The
proposed changes to the Capital
Management Policy would also remove
11 OCC has outlined when the Operational Loss
Fee can be charged in OCC’s Schedule of Fees in
Exhibit 5B.
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the term ‘‘threshold’’ after Early
Warning and Trigger Event where the
Early Warning and Trigger Event
already incorporate that concept and
clarify that Trigger means Trigger Event
in the Replenishment Plan.
Capital Monitoring
OCC proposes to update the heading
of section B in Exhibit 5A from
‘‘Monitoring Equity Levels’’ to ‘‘Capital
Monitoring’’ to more closely align with
the other headings throughout this
document, and clarify the information
that is described in this section. The
Capital Management Policy describes
how Management reviews periodic
analyses of LNAFBE, including
projecting future volume, expenses,
cash flows, capital needs and other
factors to help ensure adequate financial
resources are available to meet general
business obligations. The proposed
changes to the Capital Management
Policy would provide that Management
also reviews an analysis of LNAFBE, as
opposed to Equity,12 at least monthly to
ensure: (i) an Early Warning has not
occurred or is not reasonably expected
to occur prior to the next review; and
(ii) a Trigger Event has not occurred and
is not expected to occur prior to the next
review. The Capital Management Policy
would explain that at each regularly
scheduled Board and Compensation and
Performance Committee (‘‘CPC’’)
meeting, the Chief Financial Officer
(‘‘CFO’’) would report on the firm’s
LNAFBE, rather than Equity, relative to
the Target Capital Requirements, Early
Warning and Trigger Event. The Capital
Management Policy would also provide
that if OCC suffers a catastrophic or
sizable loss during the month, and such
loss amount is known or can reasonably
be estimated, Management should
review a forecast of the impact on
LNAFBE, rather than Equity. Finally,
the Capital Management Policy would
state that if such forecast demonstrates
that LNAFBE, rather than Equity, has
fallen below the Early Warning or
Trigger Event, Management should
promptly notify the Board.
Capital Management
In addition to the Replenishment
Plan, the Capital Management Policy
also addresses certain actions the Board
may take based on, and which impact,
12 Separately from the Capital Management
Policy’s measurement of LNAFBE against the Early
Warning and Trigger Event, OCC also reviews its
Equity on an at-least monthly basis for purposes of
measuring its financial resources, including OCC’s
own capital and any other financial resources
deemed acceptable by the CFTC, to satisfy the
CFTC’s requirement that OCC cover its operating
costs for a period of at least one year on a rolling
basis. See 17 CFR 39.11(a)(2).
PO 00000
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the level of OCC’s Equity or LNAFBE,
including the circumstances under
which the Board may consider using
tools to lower Clearing Members’ cost of
participation such as through a fee
decrease, fee hold and fee refund.
Consistent with the changes to measure
the aforementioned thresholds against
LNAFBE, OCC would amend the Capital
Management Policy to provide that the
Board may only use such tools if
LNAFBE, rather than Equity, is above
110% of the Target Capital
Requirement. In practice, OCC would
not have taken such measures if its
LNAFBE was below 110% of the Target
Capital Requirement. This change
would clearly express that practice in
the Capital Management Policy.
Proposed Changes to OCC Rule 101
Consistent with the proposed changes
to the Capital Management Policy, OCC
also proposes to amend the definition of
‘‘Target Capital Requirement’’ as
defined in OCC Rule 101.13 The Rules
use that term to provide for the variable
amount of skin-in-the-game (i.e.,
LNAFBE in excess of 110% of the Target
Capital Requirement) that OCC would
contribute to cover losses or liquidity
shortfalls arising from a Clearing
Member default under OCC Rule 1006
in specified circumstances. As
described in Exhibit 5C to File No. SR–
OCC–2024–012, OCC proposes to
replace the term ‘‘shareholders’ equity’’
with ‘‘liquid net asses funded by equity
(‘‘LNAFBE’’)’’ within the definition of
Target Capital Requirement. Revising
the definition of Target Capital
Requirement to refer to the level of
LNAFBE, as opposed to shareholder’s
equity, would maintain consistency
with the above referenced changes to
OCC’s Capital Management Policy.
Fee Schedule
OCC would also amend its fee
schedule to reflect the conditions under
which it would charge the Operational
Loss Fee. As described in Exhibit 5B to
File No. SR–OCC–2024–012, OCC
would charge the Operational Loss Fee
in equal shares to Clearing Members to
raise additional capital if OCC’s
LNAFBE, as opposed to Equity less the
Minimum Corporate Contribution, falls
below 90% of the Target Capital
Requirement or below the Target Capital
Requirement for a period of ninety
consecutive calendar days, after first
applying the unvested balance held in
respect of OCC’s EDCP. Furthermore, if
less than the full amount of the
13 https://www.theocc.com/CompanyInformation/Documents-and-Archives/By-Lawsand-Rules.
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maximum Operational Loss Fee is
needed to return OCC’s LNAFBE, as
opposed to Equity, to 110% of the
Target Capital Requirement, OCC would
charge only that amount necessary to
return OCC’s LNAFBE to 110% of the
Target Capital Requirement.
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2. Statutory Basis
OCC believes the proposed rule
change is consistent with Section 17A of
the Exchange Act 14 and the rules and
regulations thereunder. In particular,
OCC believes that the Capital
Management Policy is consistent with
Section 17A(b)(3)(F) of the Exchange
Act 15 and Rule 17Ad–22(e)(15).16
Section 17A(b)(3)(F) of the Exchange
Act requires, in part, that the rules of a
clearing agency be designed to promote
the prompt and accurate clearance and
settlement of securities transactions,
and, in general, to protect investors and
the public interest.17 The Capital
Management Policy is designed to
ensure that OCC holds sufficient
LNAFBE such that it could continue to
promptly and accurately clear and settle
securities transactions even if it suffered
significant operational losses. Holding
sufficient LNAFBE would help OCC to
absorb such operational losses and
avoid a disruption that could negatively
impact OCC’s prompt and accurate
clearing and settlement of transactions.
Furthermore, by maintaining sufficient
LNAFBE, OCC will ensure adequate
financial resources are available to meet
general business obligations. In
addition, OCC would protect the
interests of investors and the general
public through the Capital Management
Policy, which is designed to ensure that
such losses would not result in a failure
or disruption of a Systemically
Important Financial Market Utility
(‘‘SIFMU’’), as OCC is designated by the
Financial Stability Oversight Council
(‘‘FSOC’’) pursuant to the Payment,
Clearing and Settlement Supervision
Act.18 FSOC has concluded that a
failure or disruption at OCC would
negatively affect significant dollar value
and volume transactions in the options
and futures markets, impose material
losses on OCC counterparties and create
liquidity and credit problems for
financial institutions and others that
rely on the markets OCC serves, and that
such credit and liquidity problems
would spread quickly and broadly
among financial institutions and other
14 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
16 17 CFR 240.17Ad–22(e)(15).
17 15 U.S.C. 78q–1(b)(3)(F).
18 12 U.S.C. 5463.
15 15
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markets. 19 Accordingly, FSOC
determined that a failure or disruption
at OCC could threaten the stability of
the U.S. financial system.20 Therefore,
OCC believes that the Capital
Management Policy, which is
reasonably designed to ensure that OCC
has sufficient LNAFBE to continue
operations in the event of an operational
loss, is consistent with the requirements
of Section 17A(b)(3)(F) of the Exchange
Act by protecting investors and the
public interest.21
Rule 17Ad–22(e)(15)(iii) requires, in
part, that OCC establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
identify, monitor, and manage OCC’s
general business risk, including by
maintaining a viable plan, approved by
the Board and updated at least annually,
for raising additional equity should its
equity fall below the required amount
under Rule 17Ad–22(e)(15)(ii).22 The
amendments to the Replenishment Plan
in the Capital Management Policy,
OCC’s schedule of fees, and OCC’s Rules
are reasonably designed to establish a
viable plan to raise additional capital in
an amount up to the amount the Board
determines annually to be sufficient to
ensure recovery or orderly wind-down
should OCC’s LNAFBE fall close to or
below its Target Capital Requirements.
In addition, by providing that the Early
Warning and Trigger Event be measured
against LNAFBE, rather than Equity,
this will ensure that OCC has access to
its Replenishment Plan, including the
Operational Loss Fee, to cover potential
general business losses so that OCC can
continue operations and services as a
going concern if those losses
materialize, as required under Rule
17Ad–22(e)(15).23 Furthermore, this
proposed rule change would effectuate
changes to the Replenishment Plan
approved by OCC’s Board during its
annual review, consistent with Rule
17Ad–22(e)(15)(iii).24
The Capital Management Policy is
also designed to identify, monitor and
manage OCC’s general business risk,
consistent with Rule 17Ad–22(e)(15),25
by providing that OCC would perform
an analysis of its LNAFBE on at least a
monthly basis to ensure that OCC’s
LNAFBE has not fallen below the Early
Warning or Trigger Event and is not
likely to fall below those thresholds
19 FSOC Annual Report, Appendix A, at 187
(2012), available at https://home.treasury.gov/
system/files/261/here.pdf.
20 Id.
21 15 U.S.C. 78q–1(b)(3)(F).
22 17 CFR 240.17Ad–22(e)(15)(iii).
23 17 CFR 240.17Ad–22(e)(15).
24 17 CFR 240.17Ad–22(e)(15)(iii).
25 17 CFR 240.17Ad–22(e)(15).
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79671
prior to the next review. The Capital
Management Policy’s requirement that
Management report on the firm’s
LNAFBE relative to the Early Warning
and Trigger Event at each regularly
scheduled Board meeting is also
designed to identify, monitor, and
manage OCC’s general business risk.
The Capital Management Policy’s
requirement that the Board be promptly
notified in the event of an Early
Warning or Trigger Event is also
reasonably designed to ensure that OCC
can act quickly to ensure OCC’s
compliance with the LNAFBE-holding
requirements of Rule 17Ad–22(e)(15).26
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 27
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC believes that
the proposed changes to its Capital
Management Policy and its schedule of
fees to measure the Early Warning and
Trigger Event against LNAFBE, rather
than Equity, and to its Rules, would not
have any impact, or impose any burden,
on competition that is not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. As
described above, the Replenishment
Plan is designed for OCC to access
additional capital should OCC’s
LNAFBE fall below certain thresholds
so OCC can meet the requirements of
SEC Rule 17Ad–22(e)(15) and serve its
Clearing Members and the public
interest.
Any barrier to entry that the
Operational Loss Fee may impose is
appropriate in furtherance of the
Exchange Act, and the rules the SEC has
promulgated thereunder. Pursuant to
SEC Rule 17Ad–22(e)(15)(iii),28 OCC
must hold minimum LNAFBE and have
a viable plan to replenish equity should
OCC’s equity fall close to or below those
minimums. It is entirely appropriate
that the Clearing Members that benefit
equally from OCC’s services share the
burden equally should OCC experience
an operational loss that threatens its
ability to continue providing those
services and comply with its regulatory
obligations.
26 Id.
27 15
28 17
E:\FR\FM\30SEN1.SGM
U.S.C. 78q–1(b)(3)(I).
CFR 240.17Ad–22(e)(15)(iii).
30SEN1
79672
Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Notices
(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 change and none have
been received. OCC will notify the
Commission of any written comments
received by OCC. OCC will notify the
Commission of any written comments
received by OCC.
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 29 and Rule 19b–4(f)(6) 30
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.31
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
ddrumheller on DSK120RN23PROD with NOTICES1
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
OCC–2024–012 on the subject line.
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–OCC–2024–012. 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–2024–012 and
should be submitted on or before
October 21, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–22265 Filed 9–27–24; 8:45 am]
BILLING CODE 8011–01–P
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
31 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Regulation 40.6.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101148; File No. SR–
SAPPHIRE–2024–28]
Self-Regulatory Organizations; MIAX
Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule
September 24, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 10, 2024, MIAX Sapphire,
LLC (‘‘MIAX Sapphire’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
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
The Exchange is filing a proposal to
amend the MIAX Sapphire Options
Exchange Fee Schedule (the ‘‘Fee
Schedule’’) to amend Section 5)f),
Technical Support Request Fee.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/all-options-exchanges/rulefilings, at MIAX Sapphire’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
29 15
30 17
VerDate Sep<11>2014
17:51 Sep 27, 2024
Jkt 262001
1 15
32 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00172
Fmt 4703
Sfmt 4703
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
30SEN1
]]>Agencies
[Federal Register Volume 89, Number 189 (Monday, September 30, 2024)]
[Notices]
[Pages 79668-79672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22265]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101151; File No. SR OCC-2024-012]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by
The Options Clearing Corporation Concerning Updates to OCC's Capital
Management Policy
September 24, 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 September 16, 2024, The Options Clearing
Corporation (``OCC'' or ``Corporation'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by OCC. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A) \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 to: (1) revise OCC's Capital
Management Policy to update its plan for raising additional capital
(``Replenishment Plan'') should OCC experience potential general
business losses, (2) amend OCC's schedule of fees necessary to reflect
the proposed change in OCC's Capital Management Plan, and (3) update
OCC Rule 101 to maintain consistency with the proposed change in OCC's
Capital Management Policy.
Proposed changes to OCC's Capital Management Policy, schedule of
fees, and Rule 101 are included in Exhibits 5A, 5B, and 5C to File No.
SR-OCC-2024-012, respectively. Material proposed to be added is marked
by underlining and material proposed to be deleted is marked in
strikethrough text. All capitalized terms not defined herein have the
same meaning as set forth in the OCC By-Laws and Rules.\5\
---------------------------------------------------------------------------
\5\ 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.
[[Page 79669]]
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
OCC's Capital Management Policy was adopted in 2019, and it
establishes the principles used to quantify, monitor and manage the
level of OCC's Equity \6\ such that OCC maintains liquid net assets
funded by equity (``LNAFBE'') \7\ to cover potential general business
losses and continue operations and services as a going concern if
losses materialize under a range of scenarios, including adverse market
conditions.
---------------------------------------------------------------------------
\6\ The Capital Management Policy defines ``Equity'' as
shareholders' equity as shown on OCC's Statement of Financial
Condition.
\7\ The Capital Management Policy defines ``LNAFBE'' as the
level of cash and cash equivalents, no greater than Equity, less any
approved adjustments (i.e., agency-related liabilities such as
Section 31 fees held by OCC and the Minimum Corporate Contribution).
---------------------------------------------------------------------------
A main component of the Capital Management Policy is OCC's plan to
replenish its capital in the event it falls close to or below its
target capital (as defined below, ``Replenishment Plan''), as required
by SEC Rule 17Ad-22(e)(15)(iii).\8\ This rule provides that OCC must
maintain a ``viable plan, approved by the board of directors and
updated at least annually, for raising additional Equity should its
Equity fall close to or below the amount required under SEC Rule 17Ad-
22(e)(15)(ii).'' \9\ In satisfaction with SEC Rule 17Ad-22(e)(15)(iii),
OCC's Replenishment Plan establishes a plan for accessing additional
capital should OCC's Equity fall below certain thresholds.
---------------------------------------------------------------------------
\8\ 17 CFR 240.17Ad-22(e)(15)(iii).
\9\ Id. (emphasis added).
---------------------------------------------------------------------------
OCC's existing Replenishment Plan provides that (i) should OCC's
Equity less the Minimum Corporate Contribution fall below 110% of the
Target Capital Requirement (as defined by the Capital Management
Policy, ``Early Warning''), Management would recommend to the Board
whether to implement a fee increase in an amount the Board determines
necessary and appropriate to raise additional Equity; (ii) should OCC's
Equity less the Minimum Corporate Contribution fall below 90% of the
Target Capital Requirement or fall below the Target Capital Requirement
for a period of ninety consecutive days (as defined in the Capital
Management Policy, ``Trigger Event''), OCC would contribute the funds
held under OCC's Executive Deferred Compensation Plan Trust which are
(a) deposited on and after January 1, 2020 in respect of the
Corporation's Executive Deferred Compensation Plan (``EDCP'') and (b)
in excess of amounts necessary to pay for the benefits accrued and
vested under the EDCP as of such date (defined in Chapter 1 of OCC's
Rules as ``EDCP Unvested Balance''); and (iii) should the contribution
of the EDCP Unvested Balance fail to cure the Trigger Event, or if a
further Trigger Event occurs, OCC will charge an Operational Loss Fee
in equal shares to the Clearing Members.
OCC's existing Replenishment Plan states that in the event of a
Trigger Event, OCC will first contribute the funds necessary to cure
such loss with the EDCP Unvested Balance. If the loss cannot be cured
after applying all available EDCP Unvested Balance, OCC will then
charge an Operational Loss Fee in equal share to each Clearing Member.
The purpose of this proposed rule change is to revise the
Replenishment Plan in the Capital Management Policy so that the Early
Warning and Trigger Event are measured against LNAFBE rather than
Equity. At the time the Capital Management Policy was adopted, LNAFBE
and Equity were much closer in size than they are currently. Given the
growing difference between Equity and LNAFBE, it is possible that in
the event of an operational loss, LNAFBE may fall below the Target
Capital Requirement, but Equity would remain above the Early Warning
and Trigger Event. In that instance, OCC would not be able to access
the Operational Loss Fee to bring LNAFBE above the Target Capital
Requirement because OCC's Equity would still be above the Trigger
Event. Consequently, OCC proposes to amend the Replenishment Plan in
the Capital Management Policy such that the Early Warning and Trigger
Event are measured against LNAFBE, rather than Equity. As defined in
the Capital Management Policy, LNAFBE will always be less than or equal
to Equity. By amending the Replenishment Plan in the Capital Management
Policy so that the Early Warning and Trigger Event are measured against
LNAFBE, rather than Equity, OCC will have the ability to access its
Replenishment Plan, including the Operational Loss Fee, in the event
its LNAFBE falls below regulatory minimums.
To implement the proposed changes in the Replenishment Plan in the
Capital Management Policy, OCC also proposes to update its schedule of
fees to revise the Operational Loss Fee such that OCC would charge the
Operational Loss Fee if OCC's LNAFBE falls below the Trigger Event.
Proposed Changes
As described in detail below, OCC proposes to revise the
Replenishment Plan under its Capital Management Policy so that the
Early Warning and Trigger Event are measured against LNAFBE, rather
than Equity. OCC also proposes to make conforming changes to its
schedule of fees necessary to implement the proposed changes in the
Replenishment Plan to promote compliance with SEC Rule 17Ad-
22(e)(15)(iii).
In addition, OCC proposes to incorporate several non-substantive
changes to the Capital Management Policy, including updating the header
text at the beginning of the document to incorporate additional
sections to promote clarity and consistency for document use and
management. Specifically, OCC's proposed changes add the following
sections to the header at the beginning of the document: (i) Policy
Owner, (ii) Document Type, (iii) Board Approval, (iv) Rule Filed, and
(iv) Version Number. To promote additional clarity, OCC's proposed
changes also add the term ``version'' prior to the header labeled as
``effective date.'' Finally, OCC's proposed changes eliminate the
header labeled as ``scope'' as OCC believes this section is unnecessary
for document use and management.
Replenishment Plan
i. Early Warning
OCC would revise the Replenishment Plan's Early Warning so that it
is measured against LNAFBE. Specifically, the Capital Management Policy
would define the Early Warning to be when LNAFBE, rather than Equity
less the Minimum Corporate Contribution, falls below 110% of the Target
Capital Requirement.\10\ OCC proposes replacing Equity with LNAFBE
within the Capital Management Policy to reflect this change to the
Early Warning as well as the change to the definition of Trigger Event
described below. After this
[[Page 79670]]
replacement, the Capital Management Policy would explain that in the
event of an operational loss, OCC would first use LNAFBE, rather than
Equity less the Minimum Corporate Contribution, above 110% of Target
Capital. The proposed changes would further describe that in the event
OCC's LNAFBE, rather than equity, breaches the Early Warning,
Management would recommend to the Board whether to implement a fee
increase in an amount the Board determines necessary and appropriate to
raise additional LNAFBE, rather than Equity. The recommendation whether
to implement the fee increase would be informed by several factors
including, but not limited to, the facts, circumstances and root cause
of a decrease in LNAFBE, rather than Equity, below the Early Warning.
---------------------------------------------------------------------------
\10\ OCC's Capital Management Policy explains how OCC sets its
Target Capital Requirement, including how OCC may set its Target
Capital Requirement to retain ``additional Equity generated from
revenue.'' To conform with the proposed changes, OCC proposes to
modify those references to ``additional Equity generated from
revenue, in the form of LNAFBE.'' Specifically, OCC's proposed
changes would clarify that OCC can retain additional Equity
generated from revenue, in the form of LNAFBE, for capital
expenditures following a recommendation by Management and Board
approval. OCC's proposed changes would also clarify that the Board
would (a) determine if the capital needs are necessary and
appropriate and, if so, (b) determine whether to (i) increase the
Target Capital Requirement or (ii) retain the additional Equity, in
the form of LNAFBE, as an amount in excess of the Target Capital
Requirement.
---------------------------------------------------------------------------
ii. Trigger Event
OCC would further revise the Replenishment Plan's Trigger Event so
that it is measured against LNAFBE. Specifically, the Capital
Management Policy would define a Trigger Event to be when OCC's LNAFBE,
rather than Equity less the Minimum Corporate Contribution, falls below
90% of the Target Capital Requirement or remains below the Target
Capital Requirement for ninety consecutive calendar days. If a Trigger
Event occurs, OCC would first contribute the funds necessary to cure
such loss with the EDCP Unvested Balance. To reflect the new definition
of Trigger Event, the Capital Management Policy would be changed to
explain that if OCC's LNAFBE, rather than Equity, remains below 90% of
the Target Capital Requirement after applying the EDCP Unvested
Balance, or if a further Trigger Event occurs after applying all
available EDCP Unvested Balance, OCC would charge an Operational Loss
Fee \11\ in equal share to each Clearing Member payable on five
business days' notice, to raise additional capital. The Capital
Management Policy would be edited to provide that, in the event less
than the full amount of the maximum Operational Loss Fee is needed to
return OCC's LNAFBE, rather than Equity, to 110% of the Target Capital
Requirement, OCC would charge only that amount necessary to return
OCC's LNAFBE, rather than Equity, to 110% of the Target Capital
Requirement. This change better ensures that OCC holds the mandated
amount of LNAFBE. The proposed changes to the Capital Management Policy
would also remove the term ``threshold'' after Early Warning and
Trigger Event where the Early Warning and Trigger Event already
incorporate that concept and clarify that Trigger means Trigger Event
in the Replenishment Plan.
---------------------------------------------------------------------------
\11\ OCC has outlined when the Operational Loss Fee can be
charged in OCC's Schedule of Fees in Exhibit 5B.
---------------------------------------------------------------------------
Capital Monitoring
OCC proposes to update the heading of section B in Exhibit 5A from
``Monitoring Equity Levels'' to ``Capital Monitoring'' to more closely
align with the other headings throughout this document, and clarify the
information that is described in this section. The Capital Management
Policy describes how Management reviews periodic analyses of LNAFBE,
including projecting future volume, expenses, cash flows, capital needs
and other factors to help ensure adequate financial resources are
available to meet general business obligations. The proposed changes to
the Capital Management Policy would provide that Management also
reviews an analysis of LNAFBE, as opposed to Equity,\12\ at least
monthly to ensure: (i) an Early Warning has not occurred or is not
reasonably expected to occur prior to the next review; and (ii) a
Trigger Event has not occurred and is not expected to occur prior to
the next review. The Capital Management Policy would explain that at
each regularly scheduled Board and Compensation and Performance
Committee (``CPC'') meeting, the Chief Financial Officer (``CFO'')
would report on the firm's LNAFBE, rather than Equity, relative to the
Target Capital Requirements, Early Warning and Trigger Event. The
Capital Management Policy would also provide that if OCC suffers a
catastrophic or sizable loss during the month, and such loss amount is
known or can reasonably be estimated, Management should review a
forecast of the impact on LNAFBE, rather than Equity. Finally, the
Capital Management Policy would state that if such forecast
demonstrates that LNAFBE, rather than Equity, has fallen below the
Early Warning or Trigger Event, Management should promptly notify the
Board.
---------------------------------------------------------------------------
\12\ Separately from the Capital Management Policy's measurement
of LNAFBE against the Early Warning and Trigger Event, OCC also
reviews its Equity on an at-least monthly basis for purposes of
measuring its financial resources, including OCC's own capital and
any other financial resources deemed acceptable by the CFTC, to
satisfy the CFTC's requirement that OCC cover its operating costs
for a period of at least one year on a rolling basis. See 17 CFR
39.11(a)(2).
---------------------------------------------------------------------------
Capital Management
In addition to the Replenishment Plan, the Capital Management
Policy also addresses certain actions the Board may take based on, and
which impact, the level of OCC's Equity or LNAFBE, including the
circumstances under which the Board may consider using tools to lower
Clearing Members' cost of participation such as through a fee decrease,
fee hold and fee refund. Consistent with the changes to measure the
aforementioned thresholds against LNAFBE, OCC would amend the Capital
Management Policy to provide that the Board may only use such tools if
LNAFBE, rather than Equity, is above 110% of the Target Capital
Requirement. In practice, OCC would not have taken such measures if its
LNAFBE was below 110% of the Target Capital Requirement. This change
would clearly express that practice in the Capital Management Policy.
Proposed Changes to OCC Rule 101
Consistent with the proposed changes to the Capital Management
Policy, OCC also proposes to amend the definition of ``Target Capital
Requirement'' as defined in OCC Rule 101.\13\ The Rules use that term
to provide for the variable amount of skin-in-the-game (i.e., LNAFBE in
excess of 110% of the Target Capital Requirement) that OCC would
contribute to cover losses or liquidity shortfalls arising from a
Clearing Member default under OCC Rule 1006 in specified circumstances.
As described in Exhibit 5C to File No. SR-OCC-2024-012, OCC proposes to
replace the term ``shareholders' equity'' with ``liquid net asses
funded by equity (``LNAFBE'')'' within the definition of Target Capital
Requirement. Revising the definition of Target Capital Requirement to
refer to the level of LNAFBE, as opposed to shareholder's equity, would
maintain consistency with the above referenced changes to OCC's Capital
Management Policy.
---------------------------------------------------------------------------
\13\ https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
---------------------------------------------------------------------------
Fee Schedule
OCC would also amend its fee schedule to reflect the conditions
under which it would charge the Operational Loss Fee. As described in
Exhibit 5B to File No. SR-OCC-2024-012, OCC would charge the
Operational Loss Fee in equal shares to Clearing Members to raise
additional capital if OCC's LNAFBE, as opposed to Equity less the
Minimum Corporate Contribution, falls below 90% of the Target Capital
Requirement or below the Target Capital Requirement for a period of
ninety consecutive calendar days, after first applying the unvested
balance held in respect of OCC's EDCP. Furthermore, if less than the
full amount of the
[[Page 79671]]
maximum Operational Loss Fee is needed to return OCC's LNAFBE, as
opposed to Equity, to 110% of the Target Capital Requirement, OCC would
charge only that amount necessary to return OCC's LNAFBE to 110% of the
Target Capital Requirement.
2. Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Exchange Act \14\ and the rules and regulations thereunder.
In particular, OCC believes that the Capital Management Policy is
consistent with Section 17A(b)(3)(F) of the Exchange Act \15\ and Rule
17Ad-22(e)(15).\16\
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1.
\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Exchange Act requires, in part, that
the rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, and, in
general, to protect investors and the public interest.\17\ The Capital
Management Policy is designed to ensure that OCC holds sufficient
LNAFBE such that it could continue to promptly and accurately clear and
settle securities transactions even if it suffered significant
operational losses. Holding sufficient LNAFBE would help OCC to absorb
such operational losses and avoid a disruption that could negatively
impact OCC's prompt and accurate clearing and settlement of
transactions. Furthermore, by maintaining sufficient LNAFBE, OCC will
ensure adequate financial resources are available to meet general
business obligations. In addition, OCC would protect the interests of
investors and the general public through the Capital Management Policy,
which is designed to ensure that such losses would not result in a
failure or disruption of a Systemically Important Financial Market
Utility (``SIFMU''), as OCC is designated by the Financial Stability
Oversight Council (``FSOC'') pursuant to the Payment, Clearing and
Settlement Supervision Act.\18\ FSOC has concluded that a failure or
disruption at OCC would negatively affect significant dollar value and
volume transactions in the options and futures markets, impose material
losses on OCC counterparties and create liquidity and credit problems
for financial institutions and others that rely on the markets OCC
serves, and that such credit and liquidity problems would spread
quickly and broadly among financial institutions and other markets.
\19\ Accordingly, FSOC determined that a failure or disruption at OCC
could threaten the stability of the U.S. financial system.\20\
Therefore, OCC believes that the Capital Management Policy, which is
reasonably designed to ensure that OCC has sufficient LNAFBE to
continue operations in the event of an operational loss, is consistent
with the requirements of Section 17A(b)(3)(F) of the Exchange Act by
protecting investors and the public interest.\21\
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 12 U.S.C. 5463.
\19\ FSOC Annual Report, Appendix A, at 187 (2012), available at
https://home.treasury.gov/system/files/261/here.pdf.
\20\ Id.
\21\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rule 17Ad-22(e)(15)(iii) requires, in part, that OCC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to identify, monitor, and manage OCC's general
business risk, including by maintaining a viable plan, approved by the
Board and updated at least annually, for raising additional equity
should its equity fall below the required amount under Rule 17Ad-
22(e)(15)(ii).\22\ The amendments to the Replenishment Plan in the
Capital Management Policy, OCC's schedule of fees, and OCC's Rules are
reasonably designed to establish a viable plan to raise additional
capital in an amount up to the amount the Board determines annually to
be sufficient to ensure recovery or orderly wind-down should OCC's
LNAFBE fall close to or below its Target Capital Requirements. In
addition, by providing that the Early Warning and Trigger Event be
measured against LNAFBE, rather than Equity, this will ensure that OCC
has access to its Replenishment Plan, including the Operational Loss
Fee, to cover potential general business losses so that OCC can
continue operations and services as a going concern if those losses
materialize, as required under Rule 17Ad-22(e)(15).\23\ Furthermore,
this proposed rule change would effectuate changes to the Replenishment
Plan approved by OCC's Board during its annual review, consistent with
Rule 17Ad-22(e)(15)(iii).\24\
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\22\ 17 CFR 240.17Ad-22(e)(15)(iii).
\23\ 17 CFR 240.17Ad-22(e)(15).
\24\ 17 CFR 240.17Ad-22(e)(15)(iii).
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The Capital Management Policy is also designed to identify, monitor
and manage OCC's general business risk, consistent with Rule 17Ad-
22(e)(15),\25\ by providing that OCC would perform an analysis of its
LNAFBE on at least a monthly basis to ensure that OCC's LNAFBE has not
fallen below the Early Warning or Trigger Event and is not likely to
fall below those thresholds prior to the next review. The Capital
Management Policy's requirement that Management report on the firm's
LNAFBE relative to the Early Warning and Trigger Event at each
regularly scheduled Board meeting is also designed to identify,
monitor, and manage OCC's general business risk. The Capital Management
Policy's requirement that the Board be promptly notified in the event
of an Early Warning or Trigger Event is also reasonably designed to
ensure that OCC can act quickly to ensure OCC's compliance with the
LNAFBE-holding requirements of Rule 17Ad-22(e)(15).\26\
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\25\ 17 CFR 240.17Ad-22(e)(15).
\26\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \27\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC believes
that the proposed changes to its Capital Management Policy and its
schedule of fees to measure the Early Warning and Trigger Event against
LNAFBE, rather than Equity, and to its Rules, would not have any
impact, or impose any burden, on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act. As
described above, the Replenishment Plan is designed for OCC to access
additional capital should OCC's LNAFBE fall below certain thresholds so
OCC can meet the requirements of SEC Rule 17Ad-22(e)(15) and serve its
Clearing Members and the public interest.
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\27\ 15 U.S.C. 78q-1(b)(3)(I).
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Any barrier to entry that the Operational Loss Fee may impose is
appropriate in furtherance of the Exchange Act, and the rules the SEC
has promulgated thereunder. Pursuant to SEC Rule 17Ad-
22(e)(15)(iii),\28\ OCC must hold minimum LNAFBE and have a viable plan
to replenish equity should OCC's equity fall close to or below those
minimums. It is entirely appropriate that the Clearing Members that
benefit equally from OCC's services share the burden equally should OCC
experience an operational loss that threatens its ability to continue
providing those services and comply with its regulatory obligations.
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\28\ 17 CFR 240.17Ad-22(e)(15)(iii).
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[[Page 79672]]
(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 change and none have been received. OCC will
notify the Commission of any written comments received by OCC. OCC will
notify the Commission of any written comments received by OCC.
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 \29\ and
Rule 19b-4(f)(6) \30\ thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 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.\31\
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\31\ 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-2024-012 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-2024-012. 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-2024-012 and should
be submitted on or before October 21, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22265 Filed 9-27-24; 8:45 am]
BILLING CODE 8011-01-P
