Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Amendment No. 3 to Proposed Rule Change by The Options Clearing Corporation To Establish a Margin Add-On Charge That Would Be Applied to All Clearing Member Accounts To Help Mitigate the Risks Arising From Intraday and Overnight Trading Activity, 7722-7731 [2025-01412]
Download as PDF
7722
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Notices
would resolve inconsistent model
assumptions by aligning the day count
convention across models. The
proposed changes would also provide
for implied volatility shocks to options
with tenors of less than one month that
are consistent with historical evidence,
rather than simply applying the shocks
generated for 1M options. Each of the
proposed changes is designed to more
accurately reflect the particular
attributes of the options OCC clears. In
the context of STANS, therefore, the
proposed changes would support the
production of margining requirements
consistent with such attributes. In the
context of OCC’s CST methodology, the
changes would provide a more accurate
basis on which to test the sufficiency of
OCC’s financial resources.
Accordingly, the Proposed Rule
Change is consistent with Rules 17Ad–
22(e)(4) and (6) under the Exchange
Act.29
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B. Consistency With Section
17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange
Act requires, among other things, that
the rules of a clearing agency be
designed 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.30 As
discussed above, the proposed changes
would improve the performance of the
models comprising STANS and the CST
methodology by, among other things,
supporting the production of margining
requirements consistent with the
particular attributes of the products that
OCC clears and providing a more
accurate basis on which to test the
sufficiency of OCC’s financial resources.
These changes will, in turn, help ensure
that OCC collects appropriate Clearing
Fund collateral and reduce the
likelihood that OCC would need to
utilitze Clearing Fund collateral of nondefaulting clearing members in the
event of a default. For these reasons,
OCC’s proposed update to its Margin
Policy in the manner described above is
consistent with the safeguarding of
securities and funds which are in OCC’s
custody or control or for which it is
responsible. Accordingly, the Proposed
Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of
the Exchange Act.31
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
29 17 CFR 240.17Ad–22(e)(4) and 17 CFR
240.17Ad–22(e)(6).
30 15 U.S.C. 78q–1(b)(3)(F).
31 15 U.S.C. 78q–1(b)(3)(F).
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Rule Change is consistent with the
requirements of the Exchange Act, and
in particular, the requirements of
Section 17A of the Exchange Act 32 and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,33
that the Proposed Rule Change (SR–
OCC–2024–016) be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025–01414 Filed 1–21–25; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–102202; File No. SR–OCC–
2024–010]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Amendment No. 3 to
Proposed Rule Change by The Options
Clearing Corporation To Establish a
Margin Add-On Charge That Would Be
Applied to All Clearing Member
Accounts To Help Mitigate the Risks
Arising From Intraday and Overnight
Trading Activity
January 15, 2025.
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 January 14, 2025, The
Options Clearing Corporation (‘‘OCC’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
This amendment (‘‘Amendment No. 3’’)
to the proposed rule change as
described in Items I, II, and III below,
which Items have been prepared
primarily by OCC. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
On July 25, 2024, OCC filed the
proposed rule change File No. SR–OCC–
32 In approving the Proposed Rule Change, the
Commission has considered the proposed rules’
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
33 15 U.S.C. 78s(b)(2).
34 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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2024–010 (‘‘Initial Filing’’).3 On January
8, 2025, OCC filed Amendment No. 2 to
the Initial Filing (‘‘Amendment No. 2’’).
This Amendment No. 3 to the Initial
Filing is identical in substance to
Amendment No. 2 but includes changes
to references and table format to
facilitate publication of the notice of
filing in the Federal Register and
supersedes Amendment No. 2.
Amendment No. 3 would establish a
margin add-on charge that would be
applied to all Clearing Member accounts
to help mitigate the risks arising from
intraday and overnight trading activity.
Through this amendment OCC is
incorporating certain modifications to
its proposal to address comments from
industry participants. OCC also intends
to conform the proposed rule change to
the Commission’s final rule 4 amending
the Covered Clearing Agency (‘‘CCA’’)
Standards concerning intraday margin
calls, and to extend the implementation
timeframe to address industry concerns
and participants’ desire for additional
time to prepare for the proposed
changes. This Amendment No. 3 would
modify those aspects of the proposal as
further described below and amend and
restate the Initial Filing.
Proposed changes to OCC’s Rules are
contained in Exhibit 5A to Amendment
No. 3 to File No. SR–OCC–2024–010.
Proposed changes to OCC’s Margin
Policy are contained in confidential
Exhibit 5B to Amendment No. 3 to File
No. SR–OCC–2024–010. Material
proposed to be added is marked by
italicizing and material proposed to be
deleted is marked with strikethrough
text. All terms with initial capitalization
that are not otherwise 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),
3 See Exchange Act Release No. 100664 (Aug.6,
2024), 89 FR 65695 (Aug. 12, 2024) (File No. SR–
OCC–2024–010).
4 See Exchange Act Release No. 101446 (Oct. 25,
2024), 89 FR 91000 (Nov 18, 2024) (File No. S7–
10–23).
5 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://www.theocc.com/
Company-Information/Documents-and-Archives/
By-Laws-and-Rules.
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Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Notices
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
On July 25, 2024, OCC filed with the
Commission a proposed rule change,
SR–OCC–2024–010 to establish a
margin add-on charge (the ‘‘Intraday
Risk Charge’’) that would be applied to
all Clearing Member accounts to assist
with mitigating the risks arising from
intraday and overnight trading activity.
On September 4, 2024, OCC amended
the filing to include as Exhibit 2 an
information memorandum OCC
published on its website informing
OCC’s membership of the details of the
margin add-on charge. The Commission
received comments regarding the
proposed rule change 6 and on
November 7, 2024, issued an order
instituting proceedings, pursuant to
7723
Section 19(b)(2)(B) of the Exchange Act,
to determine whether to approve or
disapprove the proposed rule change.
Based on the comments the
Commission received and a recent
release of the Commission’s October 25,
2024, final rule amending the CCA
Standards,7 OCC is filing this
amendment to the Initial Filing.
Material changes to the Initial Filing
and the rationale for such amendments
are summarized in the following table:
TABLE 1—SUMMARY OF CHANGES PROPOSED BY AMENDMENT NO. 3
[Footnotes at end of table.]
Initial filing
Amendment
Rationale for
amendment
The Intraday Risk Charge would be calculated
based on the average of the previous
month’s daily peak intraday risk increases
observed from 20- minute snapshots in overnight and regular trading hours, between
12:30 a.m. through 3:15 p.m. Central Time.
The Intraday Risk Charge would be calculated
based on the average of the previous
month’s daily peak intraday risk increases
observed from 20-minute snapshots between 11:00 a.m. through 12:30 p.m. Central Time.
An OCC Officer may issue a margin call if a
verified intraday risk increase during regular
trading hours is greater than 3 standard deviations of a Clearing Member’s Intraday
Risk Charge.
An OCC Officer may issue a margin call at a
single intraday collection time if a Clearing
Member’s verified intraday risk increase at
or around 12:00 p.m. Central Time is greater than 3 standard deviations of the previous month’s daily peak intraday risk increases, observed from 20-minute snapshots between 12:30 a.m. through 3:15 p.m.
Central Time.
Industry participants commented that 20minute snapshots during trading hours were
too frequent, and suggested the OCC use
fewer snapshots at predictable intervals.a
OCC would continue to manage the intraday
risk associated with overnight trading activity through its existing extended trading
hour procedures.b
The single collection timeframe aligns with (1)
the timeframe in which the observations for
the Intraday Risk Charge are measured,
and (2) OCC’s current scheduled Portfolio
Revaluation margin calls previous approved
by the Commission.c
Measuring against the Clearing Member’s
peak intraday risk increases from both overnight and regular trading hours would result
in a manageable number of potential risk increases to investigate for purposes of
issuing margin calls, allowing OCC to focus
on intraday activity presenting the most risk.
This amendment aligns with (1) Commission
guidance in the above-referenced final rule
that schedule intraday margin calls may not
be sufficient and that CCAs need to have
the ability to make unscheduled intraday
margin calls,d and (2) OCC’s current Portfolio Revaluation margin call process in allowing margin calls to be issued outside the
single intraday collection time with escalated approvals
Industry participants have commented that
120 days is insufficient for them to prepare
for the changes.
The proposed implementation dates are within
the compliance period for the Commission’s
above-referenced final rule, which requires
a CCA to implement rule-filed changes by
December 15, 2025.e
120-day implementation period following receipt of all necessary regulatory approval.
OCC would continue to monitor for breaches
of the 3 standard deviation threshold in 20minute snapshots throughout the trading
day, and would continue to have authority
to issue an intraday margin call under Rule
609, as it does today. Margin calls issued
outside of the single intraday collection time
must be approved by the Chief Financial
Risk Officer, Chief Executive Officer, Chief
Operation Officer, or Chief Risk Officer.
OCC would implement the changes in September 2025.
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a See, e.g., letter from Kimberly Unger, CEO and Executive Director, The Security Traders Association of New York, Inc. dated October 30,
2024, available at https://www.sec.gov/comments/sr-occ-2024-010/srocc2024010.htm.
b See Exchange Act Release No. 74268 (Feb. 12, 2015), 80 FR 8917 (Feb. 19, 2015) (SR–OCC–2014–24) (SR–OCC–2014–24) (requiring
Clearing Members qualified to participate in overnight trading sessions to provide an additional margin requirement in an amount of the lesser of
$10 million or 10% of the Clearing Member’s net capital).
c See Exchange Act Release No. 82658 (Feb. 7, 2018), 83 FR 6646, 6648 (SR–OCC–2017–007).
d See Exchange Act Release No. 101446, supra note 7, 89 FR 91005.
e Id. at 91037.
6 Comments on the proposed rule change are
available at https://www.sec.gov/comments/sr-occ2024-010/srocc2024010.htm.
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7 See Exchange Act Release No. 101446 (Oct. 25,
2024), 89 FR 91000 (Nov. 18, 2024) (amending 17
CFR 240.17Ad–22–22(e)(6)(ii)).
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Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Notices
(1) Purpose
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Background
OCC is the sole clearing agency for
standardized equity options listed on
national securities exchanges registered
with the Commission. OCC also clears
stock loan and futures transactions. In
its role as a clearing agency, OCC
guarantees the performance of its
Clearing Members for all transactions
cleared by OCC by becoming the buyer
to every seller and the seller to every
buyer (or the lender to every borrower
and the borrower to every lender, in the
case of stock loan transactions). These
clearing activities could expose OCC to
financial risks if a Clearing Member fails
to fulfil its obligations to OCC. In its role
as guarantor for all transactions cleared
through OCC, one of the more material
risks related to a Clearing Member’s
failure to perform is credit risk arising
from the activity of the Clearing
Members whose performance OCC
guarantees. OCC manages these
financial risks through financial
safeguards, including the collection of
margin collateral from Clearing
Members designed to, among other
things, address the market risk
associated with a Clearing Member’s
positions during the period of time OCC
has determined it would take to
liquidate those positions.
At the start of each business day, OCC
collects margin requirements for each
marginable account calculated by OCC’s
proprietary System for Theoretical
Analysis and Numerical Simulation
(‘‘STANS’’) based on the account’s endof-day positions from the previous
business day.8 OCC also makes intraday
margin calls in defined circumstances.
For example, pursuant to OCC Rule 609
and OCC’s Margin Policy, which has
been filed with and approved as a rule
by the Commission,9 OCC requires the
deposit of intraday margin to reflect
changes in the value of securities
8 OCC makes its STANS Methodology Description
available to Clearing Members. An overview of the
STANs methodology is posted to OCC’s public
website: https://www.theocc.com/RiskManagement/Margin-Methodology.
9 See Exchange Act Release Nos. 100998 (Sept.
11, 2024), 89 FR 76171 (Sept. 17, 2024) (SR–OCC–
2024–009); 99169 (Dec. 14, 2023), 88 FR 88163
(Dec. 20, 2023) (SR–OCC–2023–008); 98101 (Aug.
10, 2023), 88 FR 55775 (Aug. 16, 2023) (SR–OCC–
2022–012); 96566 (Dec. 22, 2022), 87 FR 80207
(Dec. 29, 2022) (SR–OCC–2022–010); 91079 (Feb. 8,
2021), 86 FR 9410 (Feb. 12, 2021) (SR–OCC–2020–
016); 90797 (Dec. 23, 2020), 85 FR 86592 (Dec. 30,
2020) (SR–OCC–2020–014); 87718 (Dec. 11, 2019),
84 FR 68992 (Dec. 17, 2019) (SR–OCC–2019–010);
86436 (July 23, 2019), 84 FR 36632 (July 29, 2019)
(SR–OCC–2019–006); 86119 (June 17, 2019), 84 FR
29267 (June 21, 2019) (SR–OCC–2019–004); 83799
(Aug. 8, 2018), 83 FR 40379 (Aug. 14, 2018) (SR–
OCC–2018–010); 82658 (Feb. 7, 2018), 83 FR 6646
(Feb. 14, 2018) (SR–OCC–2017–007).
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deposited by the Clearing Member as
margin when certain defined thresholds
are breached.10 OCC also issues intraday
margin calls when unrealized losses
observed for an account based on
positions from extended trading hours
(‘‘ETH’’) 11 exceed certain thresholds.12
In addition, OCC maintains broad
authority under OCC Rule 609 to issue
intraday margin calls or otherwise set a
Clearing Member’s margin requirement
in other circumstances, including as a
protective measure pursuant to Rule
307.13
Since the time these existing margin
collection processes were established,
OCC has observed a significant increase
in contract volume and, in particular,
volume in option contracts traded on
the day of their expiration—so-called
‘‘zero-days-to-expiration’’ or ‘‘0DTE’’
options.14 Currently, 0DTE option
trading volume can spike to up to 40%
of total trading volume on Friday
expirations.15 This increase in 0DTE
options trading has coincided with the
proliferation of option expiries.
Traditionally, listed options expired on
the third Friday of the month.16 In 2005,
the Chicago Board Options Exchange
(‘‘Cboe’’), one of the participant
exchanges for which OCC provides
clearance and settlement services, began
10 See OCC Rule 609(a) (‘‘[OCC] may require the
deposit of additional margin (‘intra-day margin’) by
any Clearing Member in any account at any time
during any business day to reflect changes in: . . .
(3) the value of securities deposited by the Clearing
Member as margin . . . .’’); Exchange Act Release
No. 82658, supra note 9, 83 FR 6648 (‘‘Pursuant to
the Margin Policy, OCC issues margin calls during
standard trading hours when unrealized losses
exceeding 50% of an account’s total risk charges are
observed for that account based on start-of-day
positions.’’).
11 ETH refers to trades executed in extended and
overnight trading sessions offered by exchanges for
which OCC provides clearance and settlement
services. See Exchange Act Release No. 73343 (Oct.
14, 2014), 79 FR 62684 (Oct. 20, 2014) (SR–OCC–
2014–805).
12 See Exchange Act Release No. 82355 (Dec. 19,
2017), 82 FR 61060, 61064 (Dec. 26, 2017) (SR–
OCC–2017–007) (codifying in the Margin Policy the
ETH intraday margin call OCC would issue prior to
9:00 a.m. Central Time when: (1) unrealized losses
observed for an account, based on new ETH
positions, exceed 25% of that account’s total risk
charges and (2) the overall Clearing Member
portfolio is also experiencing losses).
13 See OCC Rule 307C(b) (providing for protective
measures in the form of requiring Clearing Members
to adjust the amount or composition of margin,
including but not limited to requiring the deposit
of additional margin).
14 OCC has provided a confidential Exhibit 3A to
Amendment No. 3 to File No. SR–OCC–2024–010
a 2023 study it conducted of its risk exposure to
short-dated options.
15 Id. at 3–4.
16 Originally, options expiries occurred on the
Saturday following the third Friday before the
industry moved to Friday expirations in 2013. See
Exchange Act Release No. 69772 (June 17, 2013), 78
FR 37645 (June 21, 2013) (File No. SR–OCC–2013–
04).
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listing weekly options on the S&P 500
Index (‘‘SPX’’) expiring each Friday of
the month, and subsequently introduced
Monday and Wednesday weekly SPX
expirations in 2016 before adding
Tuesday and Thursday weekly SPX
expirations in 2022.17 Weekly and daily
expiration cycles were introduced to
options on other indexes, single-name
stocks, and exchange traded products
(e.g., ETFs). As a result, options now
expire every trading day of the year.
The increase in 0DTE options trading
combined with increased intraday
trading activity across other products
poses challenges to OCC’s risk
management, particularly with respect
to the management of OCC’s overnight
and intraday risk exposure to its
Clearing Members in between the
collections of margin at the start of each
business day. Because OCC’s STANS
margin calculation is based on end-ofday positions, the margin requirement
may not account for 0DTE options
trading activity, since the Clearing
Member would have either traded out of
or exercised the options position, or the
option would have expired by the end
of the day. Similarly, in the current
system the risk increase from intraday
trading activity across other products
would only be captured once end-of-day
positions are established, which when
margin calculations are applied would
not account for the intraday risk
increase from any positions that were
traded out of. In addition, OCC’s
portfolio revaluation process for
purposes of determining intraday
margin calls to address the change in
value of margin collateral is based on a
Clearing Member’s start-of-day collateral
deposits, which would not include
margin for 0DTE options or intraday
positions. For these reasons OCC
proposes to establish the Intraday Risk
Charge add-on to capture such risk
increases, and the associated Intraday
Monitoring Thresholds regime to
observe and measure risk increasing
activity.
Proposed Changes
Based on industry and participant
feedback and to conform to the recent
release of the Commission’s final rule
amending the CCA Standards
concerning intraday margin calls, and in
order to mitigate OCC’s intraday risk
exposures, OCC proposes to: (i) narrow
the window over which the Intraday
Risk Charge would be calculated to
between 11:00 a.m. to 12:30 p.m.
Central Time, (ii) to remove any
17 See Cboe, The Rise of SPX & 0DTE Options, at
5 (July 27, 2023), available at https://go.cboe.com/
l/77532/2023-07-27/ffc83k.
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reference to the Intraday Risk Charge
with respect to the Intraday Monitoring
Thresholds and limit the issuance of a
margin calls to a single intraday
collection time at or around 12:00 p.m.
Central Time, (iii) clarify that intraday
margin calls would be issued at a single
intraday collection time, and any
margin calls outside of the collection
time must be approved by the Chief
Financial Risk Officer, Chief Executive
Officer, Chief Operations Officer, or
Chief Risk Officer, (iv) provide FRM
Officers with discretion on whether to
issue or not issue a margin call based on
certain facts and circumstances, while
also requiring the documentation of
such decisions, and (v) extend the
implementation time frame from within
120 days of approval to September of
2025 to align with the projected Ovation
release date, and provide more time for
industry participants to prepare for the
proposed rule change.
1. Intraday Risk Charge Add-On
In the Initial Filing,18 OCC had
proposed a margin add-on charge (the
‘‘Intraday Risk Charge’’), which would
be calculated using the system currently
employed to monitor Clearing Members’
overnight trading activity. Through
OCC’s Watch Level surveillance under
its Third-Party Risk Management
Framework, OCC has also used this
system to identify patterns of risk
increasing activity in 0DTE options for
purposes of considering and calculating
protective measures in the form of
additional margin for particular Clearing
Members when certain thresholds have
been breached relative to a Clearing
Member’s net capital. OCC proposed to
extend that approach to all Clearing
Members (without regard to net capital
thresholds) and with respect to all
products OCC clears.
OCC’s current intraday margin system
recalculates the STANS margin risk
using portfolio position sets updated
every 20 minutes between 8:30 a.m. and
6:30 p.m. Central Time, and at-least
every hour during ETH sessions. OCC
considers that 20 minutes is sufficient
time under OCC’s current system
capabilities to provide consistent and
reliable snapshot results at a steady
cadence during regular trading hours
with heavy trading activity. Outside of
regular trading hours and during
overnight trading, hourly intervals
between snapshots were deemed more
appropriate because of the significantly
lower trading activity. OCC currently
employs and will continue to use the
intraday margin system for ETH
18 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65696–98.
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monitoring, including to determine
when to issue an ETH margin call.19
This system calculates a forecasted
margin requirement as if the positions at
that point in time were present during
the previous night’s margin calculation.
Results that show an increase to the
prior night’s margin requirement based
on the STANS expected shortfall and
stress test components are considered
risk increasing. OCC would use the
outputs from the previous night’s daily
STANS methodology calculation,
incorporating current portfolio changes,
to monitor that day’s peak intraday risk
increases. Under the Initial Filing,20 the
Intraday Risk Charge would have been
calculated monthly as at least the
average of the peak intraday risk
increases (i.e., an average of the largest
risk increase calculated on each
business day of the lookback period) as
measured throughout overnight and
regular trading hours (i.e., between
12:30 a.m. through 3:15 p.m.).
OCC proposes to amend the proposed
Intraday Risk Charge so that it is
determined based on a narrower
monitoring interval. Specifically, OCC
would calculate the Intraday Risk
Charge based on the average daily
increased risk identified through OCC’s
current intraday margin system between
the hours of 11:00 a.m. and 12:30 p.m.
Central Time; provided however, that
OCC may adjust the Intraday Risk
Charge as described further below. This
change would address comments that
the 20-minute snapshots during
overnight and intraday trading hours
were too frequent and suggested that
OCC use fewer snapshots at predictable
intervals. In particular, by narrowing the
window, Execution-Only Clearing
Members 21 that are able to allocate
trades prior to that window may
eliminate or significantly reduce their
intraday risk exposure for purposes of
determining an Intraday Risk Charge.
As under the Initial Filing,22 the
Intraday Risk Charge would be
calculated on the first business day of
the month and would be based on data
and STANS outputs generated over the
lookback period, which will be set as
the previous month. The Intraday Risk
19 See Exchange Act Release No. 74268, supra
Table 1 note b, 80 FR 8919 (describing the
thresholds for overnight monitoring and potential
margin calls).
20 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65696.
21 OCC’s By-Laws define ‘‘Execution-Only
Clearing Members’’ to mean a Clearing Member
approved to act only as a Clearing Member that
transfers confirmed trades or allocates position so
other Clearing Members, and not to carry positions
in its accounts with the OCC on a routine basis.
22 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65696.
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7725
Charge would be calculated monthly as
at least the average of the peak intraday
risk increases over the shorter duration.
OCC considers the one-month lookback
period, a timeframe that includes one
monthly and multiple weekly standard
expirations, to be a conservative
approach that would react faster to
recent changes in the risk behavior of
Clearing Members compared to a more
extended lookback period and produces
more relevant forecasts for the next
monitoring cycle.23
As under the Initial Filing,24 the
calculation of the peak intraday activity
would capture all products that OCC
clears, including 0DTE options. The
Intraday Risk Charge would apply to all
margin accounts other than crossmargin accounts for OCC’s crossmargining program with the Chicago
Mercantile Exchange (‘‘CME’’), which
do not currently support intraday
position feeds. OCC would retain
authority to increase the amount of the
charge for a particular Clearing Member
beyond the average of the peaks, either
when adjusting the Intraday Risk Charge
on a monthly basis or on an intra-month
basis, when conditions would warrant a
different approach consistent with
maintaining sufficient financial
resources to cover OCC’s intraday credit
exposure. Conditions that would cause
OCC to increase the Intraday Risk
Charge above the minimum amount
include when OCC determines it
maintains insufficient margin resources
to cover the pattern or distribution of
risk increases over the previous
lookback period, or in cases of an
account’s business expansion. OCC
would also have authority to decrease
the amount of the charge, which would
be limited to a Clearing Member’s
business reduction, termination of
account(s), transfer of positions to
different account(s), or the imposition of
protective measures under Rule 307B.
Such charge adjustments may apply to
particular or all Clearing Members.
To effect the proposed changes, OCC
proposes to amend Rule 601 by adding
23 OCC also considered lookback periods of less
than one-month, including a one-week period, and
observed that any lookback period less than onemonth was operationally intensive to implement.
Establishing a monthly cadence allows OCC to
investigate and exclude results from the intraday
risk system that are not attributable to actual risk
increasing activity, such as results caused by
corporate actions. In any case, using a one-week
lookback period would result in procyclical effects.
Intraday Risk Charge moves for Clearing Members
from one week to another would reduce the
predictability of the add-on charge on Clearing
Member margin requirements. As described above,
OCC believes the one-month lookback provides a
more conservative and relevant forecasts.
24 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65696–97.
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a new paragraph (i) as described above
to incorporate the shorter time frame
involved in the calculation of the
Intraday Risk Charge. As in the Initial
Filing,25 OCC proposes to define the
Intraday Risk Charge under proposed
Rule 601(i)(1) to mean the additional
margin assets required from a Clearing
Member to mitigate any increased risk
exposure to OCC not otherwise covered
by the margin requirements already
calculated in accordance with Rule 601
and OCC’s policies and procedures. To
reflect the narrower time from which
the observations that determine the
Intraday Risk Charge would be drawn,
Rule 601(i)(1) would further provide
that OCC may assess the Intraday Risk
Charge as part of the Clearing Member’s
daily margin required, as needed, to
mitigate exposure and cover
uncollateralized risk resulting from
‘‘intraday trading activities,’’ as opposed
to ‘‘overnight and intraday trading
activities’’ as proposed in the Initial
Filing.26 In the amended proposal, OCC
would similarly remove other references
to overnight trading activity from the
OCC Rules and Margin Policy as
proposed in the Initial Filing.
Proposed Rule 601(i)(2) would be
modified to provide the method of
calculation for the Intraday Risk Charge
add-on, which would generally be set as
the average of the peak intraday risk
increases from portfolio position
changes between 11:00 a.m. and 12:30
p.m. Central Time over the preceding
month.27 Proposed Rule 601(i)(3),
would remain unchanged from the
Initial Filing.28 Specifically, that Rule
would provide that OCC retains
authority to adjust the Intraday Risk
Charge if OCC determines that
circumstances particular to a Clearing
Member’s activity would warrant a
different approach consistent with
maintaining sufficient financial
resources to cover OCC’s intraday credit
exposure. Any adjustment under this
Rule to decrease the amount of the
Intraday Risk Charge calculated from
the previous month’s intraday risk
increases would be limited to a Clearing
25 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65697.
26 As discussed above, OCC would continue to
address intraday risk exposure from overnight
trading activity as it currently does under its ETH
procedures. See supra Table 1 note b and
accompanying text. Clearing Members trading
during ETH hours will still be obligated to pay an
ETH margin add-on charge, and any ETH related
risk controls will continue to operate independently
from the proposed Intraday Risk Charge changes.
27 A lookback of one month was selected to
represent a complete monthly options expiration
cycle.
28 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65697.
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Member’s business reduction,
termination of account(s), transfer of
positions to different account(s), or the
imposition of protective measures under
Rule 307B. Rule 601(i)(3) would also
provide that OCC retains the authority
to adjust the Intraday Risk Charge more
frequently than monthly.
OCC would also amend its Margin
Policy to describe material aspects of
the Intraday Risk Charge as discussed
herein. As under the Initial Filing,29 the
new charge would be added to the
‘‘Add-On Charges’’ section. That
proposed addition, as amended, would
provide that between 11:00 a.m. through
12:30 p.m., OCC measures the intraday
exposure to each margin account for
which intraday position information is
available to identify intraday risk
increases above the baseline STANS risk
measurement. The proposed
amendments to the Margin Policy
would define this time window as the
‘‘Intraday Risk Charge Measurement
Time.’’ As under the Initial Filing,30 the
Margin Policy would define ‘‘risk
increases’’ in this context as results that
show an increase to a portfolio’s prior
night calculated risk measurement
based on the STANS expected shortfall
and stress test components.
As under the Initial Filing,31 the
Margin Policy would further provide
that on at least a monthly basis, OCC’s
Financial Risk Management department
(‘‘FRM’’) reviews and verifies the daily
peak increases in the Intraday Risk
Charge Measurement Time based on a
referenced procedure maintained by
FRM’s Market Risk business unit.32 This
verification of risk-increasing activity is
intended to address certain known
limitations in OCC’s existing intraday
system.33 For example, the system does
not take into account options affected by
corporate action adjustments and newly
listed option series or strikes, which do
not receive adjusted metrics until the
next overnight margin calculation
process. In addition, the 20-minute
snapshot generated by the system may
not capture a complete trade in a single
snapshot, which may result in a
misalignment of the peak calculation for
an account. The snapshot timing may
also cause collateral movements to be
recorded as risk-increasing deposits
instead of being risk-reducing
29 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65697.
30 Id.
31 Id.
32 OCC has provided as confidential Exhibit 3B to
Amendment No. 3 to File No. SR–OCC–2024–010
a copy of the referenced procedure, the Market Risk
Monitoring Procedure, marked to indicate changes
that OCC intends to implement upon regulatory
approval of this proposal.
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movements. Pursuant to the referenced
procedures, Market Risk would verify
the peak daily results to prevent
erroneous results from affecting the
calculation of the Intraday Risk Charge.
This verification process is similar to,
and would proceed in a similar manner
as, Market Risk’s long-standing process
for verifying results from OCC’s system
for monitoring a portfolio’s unrealized
losses based on current prices and startof-day positions for purposes of
charging intraday margin calls.34 Upon
completion of the verification process,
OCC would apply the Intraday Risk
Charge to Clearing Members for the
upcoming month.
As under the Initial Filing,35 the
Margin Policy would provide that OCC
may impose the Intraday Risk Charge in
the amount of the average of the verified
peak daily risk increases in the Intraday
Risk Charge Measurement Time over the
prior month with FRM Officer 36
approval. Adjustments to the charge can
occur at the time of the monthly review
or on an intramonth basis, e.g., in
response to the intraday monitoring
thresholds discussed below. Reductions
would be limited to persistent changes
in clearing activity that would reduce
the risk profile of the account, e.g.,
business reduction, account
terminations transfer of positions to
different account(s), or the imposition of
protective measures under Rule 307B.
Any changes that would increase the
charge over the minimum calculated
may result from changes in the pattern
or distribution of risk increases over the
previous lookback period or persistent
changes in clearing activity that would
increase the risk profile of the account,
e.g. business expansions. If the FRM
Officer recommends any changes to an
Intraday Risk Charge, the Model Risk
Working Group (‘‘MRWG’’) must review
and is authorized to escalate the
recommendation to the Office of the
Chief Executive Officer, who must
review and is authorized to approve the
changes.37 The Margin Policy vests
review responsibility and escalation
authority to the MRWG because it is a
cross-functional group responsible for
assisting OCC’s management in
overseeing OCC’s model-related risk
35 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65697–98.
36 Officers are identified in OCC’s By-Laws. See
OCC By-Law Art IV. In this context, an FRM Officer
would include any member of FRM appointed by
the Chief Executive Officer or Chief Operating
Officer, including a Managing Director, Executive
Director or Executive Principal. Id., at § 9.
37 Such changes to the Intraday Risk Charge must
be based on the current charge being insufficient as
defined in Exhibit 5A and confidential Exhibit 5B
to Amendment No. 3 to File No. SR–OCC–2024–
010.
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comprised of representatives from
relevant OCC business units. OCC
believes that the MRWG is the
appropriate decisionmaker to consider
whether a higher Intraday Risk Charge
is warranted because it is composed of
the subject matter experts most familiar
with the performance of and risks
associated with OCC’s margin models,
including personnel in OCC’s Model
Risk Management business unit, who,
under OCC’s Risk Management
Framework, are responsible for
evaluating model parameters and
assumptions and providing effective
and independent challenge through
OCC’s model lifecycle.38
OCC has reviewed the potential
impact of the proposed add-on charge
on all Clearing Members over a thirteenmonth period.39 OCC has observed that
the proposed add-on would have
generated a margin increase of less than
1.1% in the aggregate on average,40
representing almost $1.099 billion
across all Clearing Members out of
margin requirements. For comparison,
under the Initial Filing, the proposed
add-on would have generated an
average margin increase of
approximately $1.968 billion, less than
7727
a 1.9% increase. Of the ten firms that
would be most impacted, which
collectively represent approximately
73% of the additional margin that
would have been assessed, the average
daily margin percentage increases
ranges from approximately 1% to less
than 15%, based on data from
September 2023 to September 2024, or
between $22 million and $315 million.
As compared to the Initial Filing, that
aggregate amount of the additional
margin would be distributed across
market-maker, firm and customer
accounts as follows:
TABLE 2—IMPACT BY ACCOUNT TYPE
Initial filing
Market-Maker Accounts .................................................................................................
Firm Accounts ................................................................................................................
Customer Accounts .......................................................................................................
All Accounts ............................................................................................................
$276.6 million.
$306.3 million.
$516.7 million.
$1.0996 billion.
Under the Initial Filing,41 OCC
proposed to establish monitoring and
escalation criteria when a Clearing
Member’s intraday risk increase departs
significantly from the activity that set
the Intraday Risk Charge (‘‘Intraday
Monitoring Thresholds’’). Generally, the
new credit risk thresholds would have
been specified as a set of levels based on
standard deviations from a Clearing
Member’s Intraday Risk Charge. While
OCC has narrowed the window of time
for purposes of calculating the Intraday
Risk Charge, OCC intends to continue to
monitor for intraday risk increases
throughout regular trading hours.
OCC proposes to establish the
Intraday Monitoring Thresholds as
statistical measures (e.g., one, two or
three standard deviations) above a
Clearing Member’s peak intraday risk
increases over the prior month. OCC
would measure the Intraday Monitoring
Threshold for each Clearing Member
against the average over the lookback
period of the verified peak intraday risk
increases determined between 12:30
a.m. and 3:15 p.m. (i.e., the same
window as for the Intraday Risk Charge
under the Initial Filing). OCC believes
that measuring the thresholds using this
longer window, rather than against the
Intraday Risk Charge as proposed to be
amended above,42 would result in a
more manageable number of potential
risk increases for escalation, allowing
OCC decisionmakers to focus on
potential changes in activity that
present the most risk. As under the
Initial Filing,43 OCC proposes to amend
the section of the Margin Policy that
currently addresses margin calls and
adjustments. The Margin Policy would
provide that FRM would establish and
maintain Intraday Monitoring
Thresholds in referenced market risk
procedures for verified intraday risk
increases that are greater than statistical
measures above a Clearing Member’s
average over the lookback period
determined between 12:30 a.m. and 3:15
p.m. Central Time. This average would
be determined separately and
independently of the Intraday Risk
Charge across Clearing Member
accounts.
As under the Initial Filing,44 the
Margin Policy would also provide that
FRM coordinates a review of those
thresholds, as well as the calculation
and lookback period, on an at least
annual basis, or on an ad-hoc basis, as
needed. OCC retains the authority to
adjust the Intraday Monitoring
Thresholds, as well as the calculation
and lookback period, based on the
review of intraday risk posed by
Clearing Member’s portfolio changes.
Any such adjustment to the Intraday
Monitoring Thresholds, calculation, or
lookback period may apply to particular
or all Clearing Members depending on
an analysis of the activity generating
peak intraday margin numbers, the
number of breaches above the
monitoring thresholds, and overall
market activity and trends within the
lookback period. The review would be
presented to the MRWG, which must
review and is authorized to escalate any
38 See Exchange Act Release No. 95842, 87 FR
58416 (File No. SR–OCC–2022–010) (filing to
establish OCC’s Risk Management Framework).
OCC Risk Management Framework is available on
OCC’s public website: https://www.theocc.com/riskmanagement/risk-management-framework.
39 This impact assessment does not account for
potential changes in Clearing Member behavior that
might further reduce the impact. To the extent a
Clearing Member allocates trades to other Clearing
Members under OCC’s Clearing Member Trade
Assignment (‘‘CMTA’’) Rules or otherwise reduces
its intraday risk in advance of the Intraday Risk
Measurement Time, the actual impact of the
Intraday Risk Charge may be less.
40 OCC has included as confidential Exhibit 3C to
Amendment No. 3 to File No. SR–OCC–2024–010
an assessment of the impact of the Intraday Risk
Charge on OCC’s Clearing Members. Exhibit 3C to
the Initial Filing used data from 2023. Exhibit 3C
to Amendment No. 3 uses data from September
2023 through September 2024.
41 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65698.
42 As indicated in the impact assessment above,
the proposed amendments to the Intraday Risk
Charge would have the effect of reducing the
charge, which would make breaches of the Intraday
Monitoring Thresholds more likely if measured
against the Intraday Risk Charge as proposed to be
amended.
43 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65698.
44 Id.
With respect to firms classified as
Execution-Only Clearing Members, the
add-on charge would generate
approximately $23.4 million of
additional margin in the aggregate,
down from $39.4 million under the
Initial Filing, assuming that ExecutionOnly Clearing Members made no
changes to allocate trades prior to the
Intraday Risk Charge Measurement
Time.
2. Intraday Monitoring Thresholds
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$392.1 million .....................
$590.5 million .....................
$986.1 million .....................
$1.9686 billion ....................
Proposed amendment
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recommended changes to the Office of
the Chief Executive Officer, who must
review and is authorized to approve
them. OCC’s Risk Committee will be
notified of all changes. As discussed
above,45 OCC believes that the MRWG is
the appropriate decision-maker to
consider any changes to the Monitoring
Thresholds because it is composed of
the subject matter experts most familiar
with the performance of and risks
associated with OCC’s margin models.
3. Intraday Margin Calls
In the Initial Filing,46 OCC proposed
to issue margin calls on individual
Clearing Member accounts if the
verified intraday risk increases for those
accounts breach and exceed the Intraday
Risk Monitoring thresholds (e.g., in
excess of three standard deviations).
Under the proposed amendments, OCC
would maintain the proposed margin
call, but would specify a scheduled,
single collection time in which such a
margin call would be collected in the
ordinary course while maintaining
authority to issue an unscheduled
margin call outside that timeframe in
extraordinary circumstances with
additional escalations. As discussed
below, these amendments are intended
to align with OCC’s existing intraday
margin call processes and the
Commission’s October 25, 2024, final
order amending the CCA Standards.
As under the Initial Filing,47 the
Margin Policy would provide that on at
least a daily basis, FRM would review
the intraday risk increases generated by
the intraday risk system against the
Intraday Monitoring Thresholds. As
proposed to be amended, the Margin
Policy would provide that if a verified
intraday risk increase breach at or
around 12:00 p.m. Central Time is
greater than the Intraday Monitoring
Thresholds, the Margin Policy would
provide that an FRM Officer may issue
a margin call,48 make a margin
adjustment to lock up excess collateral,
or recommend protective measures
under Rule 307. The Margin Policy
would further be amended to provide
that any such margin call issued by an
FRM Officer would be collected as a
single intraday collection time.
Accordingly, the Margin Policy as
amended would now provide a single,
45 See
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supra note 25 and accompanying text.
Exchange Act Release No. 100664, supra
note 3, 89 FR 65698.
47 Id.
48 Margin calls in this context are demands by
OCC to Clearing Members for the deposit of
additional margin in immediately available funds to
increase their margin resources to meet increased
margin requirements. Margin calls are issued
subject to OCC’s policies and procedures.
scheduled time for the issuance and
collection of such intraday margin calls.
This collection timeframe aligns with
the timeframe during which the
observations for the Intraday Risk
Charge are measured, and gives Clearing
Members greater certainty about when
the activity that would inform the call
would be measured and the call
imposed. The timing also aligns with
the timing for OCC’s current Portfolio
Revaluation margin calls, which are
generally collected at a single time
based on a measurement of a portfolio’s
profit and loss at or around noon.49 As
with OCC’s existing margin calls, the
proposed margin call would be subject
to a price minimum below which OCC
generally would not issue a call.50
Specifically, OCC has established a
$500,000 price minimum for issuing
margin calls, which aligns with the
minimum Clearing Fund deposit
required of each Clearing Member.51
The Margin Policy would further
provide that any margin calls issued
outside of the standard processing time
window must be approved by the Chief
Financial Risk Officer, Chief Executive
Officer, Chief Operating Officer, or Chief
Risk Officer. This change aligns with
OCC’s current Portfolio Revaluation
margin call process in allowing margin
calls to be issued outside the single
intraday collection time in exceptional
circumstances with escalated approval.
OCC believes that margin calls issued
outside the single intraday collection
time would be the exception, rather
than the rule. This change also aligns
with Commission guidance from its
October 25, 2024, final rule amending
the CCA Standards, suggesting that
scheduled intraday margin calls may
not be sufficient and that CCAs would
need to have the ability to make
unscheduled intraday margin calls.52
The Margin Policy would be further
revised to state that any margin call
would be calculated as the difference
between the reviewed intraday risk
increase at the single intraday collection
time at or around 12:00 p.m. Central
Time and the Intraday Risk Charge.
Intraday margin calls would only be
increasing financial resources to OCC.
Generally, an intraday margin call
would be released the next business
day.
46 See
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49 See Exchange Act Release No. 82658, supra
Table 1 note c, 83 FR 6648 (approving OCC’s
Margin Policy, including the timing of margin
calls).
50 Id. (approving OCC’s Margin Policy, including
the price minimum for margin calls).
51 See OCC Rule 1002(d).
52 See supra Table 1 note d and accompanying
text.
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Data from September 2023 to
September 2024 indicates there would
have been approximately 1024 potential
margin calls issued under the proposed
changes, as amended. The number of
potential margin calls would not change
as a result of the amendments to the
Initial Filing. As amended, the average
daily margin call amount would have
been $27 million, as opposed to $25.1
million under the Initial Filing. This
increase is attributable to the decrease
in the pre-funded Intraday Risk Charge
resulting from the proposed
amendments to the Initial Filing.
4. Discretion To Issue Margin Calls
OCC also proposes to modify the
Margin Policy to add a provision
whereby an FRM Officer will have the
discretion to decide whether to issue or
not issue a margin call, if in their
judgement the call is not necessary to
effectively manage the risk posed to
OCC based on the specific facts and
circumstances. As under the Initial
Filing, such circumstances would
include instances where OCC’s intraday
risk system may produce results that
may not indicate actual risk increasing
activity,53 such as (i) when the intraday
risk increase can be attributed to one or
more intraday events or actions
including but not limited to portfolio
level changes resulting from positive
offsetting P&L amounts or positive
offsetting asset values for options and
collateral, or from non-risk increasing
events such as the substitution of
collateral or the pledging of additional
valued securities within the same
account, or (ii) if the risk increase in the
account is the result of a corporate
action, or the result of position transfers
between accounts such as delayed
CMTA’s from execution-only accounts,
or when a P&L unrealized loss generates
a margin call that exceeds the intraday
margin call. In addition, as proposed to
be amended, the Margin Policy would
provide that such circumstances also,
including but not limited to,
circumstances in which issuing a call
would not align with broader systemic
objectives such as minimizing potential
procyclical effects and potential
participant defaults.
In all such cases, the FRM Officer
would be required to document the
basis for their decision not to issue a
margin call at the single intraday
collection time for an account breaching
the Intraday Risk Monitoring Threshold
53 The Initial Filing discussed certain limitations
of the intraday risk system that may result in
erroneous intraday risk increases. See Exchange Act
Release No. 100664, supra note 3, 89 FR 65697.
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at or around 12:00 p.m. Central Time.54
These proposed change from the Initial
Filing are aligned with the
Commission’s guidance on intraday
margin calls issued in its October 25,
2024, final rule amending the CCA
Standards, concerning intraday margin
calls.55 The change is also aligned with
the documentation requirement in new
SEC Rule 17Ad–22(e)(6)(ii)(D), which
requires a CCA to document when it
determines not to issue an intraday call
pursuant to its written policies and
procedures.56
5. Implementation Timeframe
In the Initial Filing,57 OCC proposed
a 120-day implementation timeframe
based on the amount of time OCC
believed it would need to deploy system
changes following receipt of all
necessary regulatory approval. Industry
participants have commented on the
proposal that more time is required for
them to prepare for the changes.
Accordingly, OCC proposes to extend
the implementation period. Subject to
regulatory approval of the proposal,
OCC plans to implement the proposed
changes in September of 2025. OCC will
announce the implementation date of
the proposed changes by an Information
Memorandum posted to its public
website at least 4 weeks prior to
implementation. This proposed
implementation is designed to align
with, but is not contingent on, OCC’s
planned replacement of its core
clearance and settlement system,
ENCORE, with a new system, Ovation.
The proposed implementation dates are
within the compliance period for the
Commission’s October 25, 2024, final
rule, which requires a CCA to
implement rule-filed changes by
December 15, 2025.58
(2) Statutory Basis
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OCC believes that the proposed
changes are consistent with Section
17A(b)(3)(F) of the Exchange Act 59 and
SEC Rule 17Ad–22(e)(6)(ii)
54 For the avoidance of doubt, this documentation
requirement would not extend to monitoring of
Intraday Risk Monitoring Threshold breaches
outside of the single intraday collection period,
notwithstanding OCC’s authority to make an
exception to its written policies and procedures to
issue a margin call for activity falling outside that
period.
55 See Exchange Act Release No. 101446, supra
note 4, 89 FR 91009–10 (discussing factors for CCAs
to consider when determining whether to issue an
intraday margin call).
56 17 CFR 240.17Ad–22(e)(6)(ii)(D).
57 See Exchange Act Release No. 100664, supra
note 3, 89 FR 65698.
58 See supra Table 1 note e and accompanying
text.
59 15 U.S.C. 78q–1(b)(3)(F).
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thereunder.60 Section 17A(b)(3)(F) of
the Act 61 requires, among other things,
that the rules of a clearing agency be
designed to promote the prompt and
accurate clearance and settlement of
securities and derivatives transactions
and, in general protect investors and the
public interest. OCC proposes to
introduce a new Intraday Risk Charge
add-on with certain associated
monitoring procedures and establish
new risk-based credit risk monitoring
thresholds. The proposed rule change as
described above would enhance OCC’s
framework for measuring, monitoring,
and managing its credit risk. Currently,
OCC may be exposed to increased credit
exposure from uncollateralized intraday
trading activity, including that of 0DTE
options that is not otherwise
collateralized and captured by OCC’s
current margin system at the start of
each business day. OCC believes the
proposed changes would enable OCC to
mitigate the credit exposure resulting
from the increased risk of intraday
trading that includes 0DTE option
contracts by using the system it
currently operates to monitor overnight
trading activity. The Intraday Risk
Charge would provide OCC with
additional margin resources to help
mitigate this risk and allow OCC to
continue to provide prompt and
accurate clearance and settlement
services of securities and derivatives
transactions without disruption in the
event of a Clearing Member default.
Given OCC’s designation as a
systemically important financial market
utility,62 OCC believes that changes that
promote the prompt and accurate
clearance and settlement thereby is in
the public interest and the interests of
investors. For these reasons, OCC
believes the proposed changes are
designed to promote the prompt and
accurate clearance and settlement of
securities transactions in accordance
with Section 17A(b)(3)(F) of the
Exchange Act.63
Rule 17Ad–22(e)(6)(ii), as recently
amended, requires OCC to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum:
(A) Marks participant positions to
market and collects margin (including
variation margin or equivalent charges if
relevant) at least daily;
(B) Monitors intraday exposures on an
ongoing basis;
(C) Includes the authority and
operational capacity to make intraday
margin calls, as frequently as
circumstances warrant, including (1)
when risk thresholds specified by OCC
are breached, or (2) when the products
cleared or markets served display
elevated volatility; and
(D) Documents when OCC determines
not to make an intraday call pursuant to
its written policies and procedures
required under Rule 17Ad–
22(e)(6)(ii)(C).64
OCC’s existing margin processes are
already designed to mark positions to
market and collect margin at least daily,
consistent with Rule 17Ad–
22(e)(6)(ii)(A).65 Under the proposed
changes, OCC would monitor accounts
intraday activity in 20 minute intervals
and would have the authority and
operational capacity under OCC’s
existing Rule 609 to issue a margin call
or take other action under Rule 307 to
protect OCC based on the result of such
monitoring, consistent with new Rule
17Ad–22(e)(6)(ii)(B).66 Specifically, the
Margin Policy would define risk
thresholds—the Intraday Monitoring
Threshold—for monitoring intraday
exposure for purposes of issuing
potential margin calls, consistent with
Rule 17Ad–22(e)(6)(ii)(C).67
In general, OCC would issue a
Clearing Member a margin call during
the scheduled intraday collection time
in the event that Clearing Member’s
intraday risk increase, as measured at or
around 12:00 p.m. Central Time
breached the proposed Intraday
Monitoring Threshold. The scheduled
intraday margin call aligns with the
timing of OCC’s existing intraday
margin calls when unrealized losses
exceeding 50% of an account’s total risk
charges are observed for that account
based on start-of-day positions, which
were previously approved by the
Commission.68 However, as the
Commission has noted, covered clearing
agencies also need the authority and
operational capacity to issue
unscheduled margin calls.69
Accordingly, OCC would maintain
authority to make an exception to its
general policy of issuing scheduled
intraday margin calls with escalated
64 17
60 17
CFR 240.17Ad–22(e)(6)(ii).
61 15 U.S.C. 78q–1(b)(3)(F).
62 The Financial Stability Oversight Council
designated OCC as a SIFMU under Title VIII of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, 12 U.S.C. 5463.
63 15 U.S.C. 78q–1(b)(3)(F).
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Fmt 4703
Sfmt 4703
7729
CFR 240.17Ad–22(e)(6)(ii).
CFR 240.17Ad–22(e)(6)(ii)(A).
66 17 CFR 240.17Ad–22(e)(6)(ii)(B).
67 17 CFR 240.17Ad–22(e)(6)(ii)(C).
68 See supra Table 1 note c and accompanying
text.
69 See supra Table 1 note d and accompanying
text.
65 17
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approvals from OCC’s most senior
Officers.
In addition, consistent with
Commission guidance from its October
25, 2024, final rule,70 OCC’s policies
and procedures would preserve OCC’s
authority to determine not to issue an
intraday margin call at the scheduled
time, notwithstanding a breach of the
Intraday Monitoring Thresholds, if OCC
determines that the call is not necessary
to effectively manage the risk posed to
OCC based on the specific facts and
circumstances, including, but not
limited to, in circumstances in which
the intraday risk system may not reflect
actual intraday risk increases,71 or in
circumstances in which issuing a call
would not align with broader systemic
objectives such as minimizing potential
procyclical effects and potential
participant defaults. In cases in which
OCC does not issue a margin call at the
single collection time under its policies
and procedures when the Intraday
Monitoring Thresholds are breached,
the Margin Policy would require that an
FRM Officer document that decision,
consistent with, consistent with Rule
17Ad–22(e)(6)(ii)(D).72 Accordingly,
OCC believes that the proposal is
consistent with Rule 17Ad–
22(e)(6)(ii).73
For the above reasons, OCC believes
that the proposed rule change is
consistent with Section 17A of the
Exchange Act 74 and the rules and
regulations thereunder applicable to
OCC.
lotter on DSK11XQN23PROD with NOTICES1
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) requires that the
rules of a clearing agency do not impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.75 The
proposed introduction of the new
Intraday Risk Charge add-on and
establishment of new credit risk
monitoring thresholds would be used by
OCC to manage its credit risk across all
Clearing Members. Accordingly, OCC
does not believe that the proposed rule
change would unfairly hinder access to
OCC’s services.
While the proposed rule change may
impact different accounts to a greater or
lesser degree depending on each
Clearing Member’s trading activity,
including portfolios containing a greater
volume of 0DTE option positions, OCC
70 See
supra note 55 and accompanying text.
e.g., supra notes 32–46 and accompanying
71 See,
text.
72 17
CFR 240.17Ad–22(e)(6)(ii)(D).
73 Id.
74 15
75 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(I).
VerDate Sep<11>2014
18:16 Jan 21, 2025
does not believe that the proposed rule
change would impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. As
discussed above, OCC is obligated under
the Exchange Act and the regulations
thereunder to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
cover its credit exposures to its
participants by establishing a risk-based
margin system that, among other things,
(i) considers, and produces margin
levels commensurate with the risks and
particular attributes of each relevant
product, portfolio, and market, (ii)
monitor intraday exposures on an
ongoing basis, and (iii) maintain the
authority and operational capacity to
make intraday margin calls, as
frequently as circumstances warrant,
including when thresholds specified by
the CCA are breached or when the
products cleared or markets served
display elevated volatility.76 Overall,
the impact analysis from the proposed
baseline approach indicates there would
be on average a small add-on included
across all Clearing Member margin
requirements, with the more significant
add-on charges attributed to Clearing
Members in a manner that ties with
their intraday trading activities and the
increased risk they present. OCC notes
that while the impact analysis is based
on prior activity, OCC expects that the
impact of the add-on charge when
released in production may be less than
predicted. This is because OCC expects
Clearing Members may adjust their
behaviors through different means such
as allocating their trades earlier and
more often throughout the day, or
working to better understand their
customers trading and allocation
strategies, in order to minimize the
effects of the Intraday Risk Charge on
their portfolios.
Moreover, the proposed rule change
relates to risk management changes
designed to mitigate OCC’s credit
exposure from the increased risk
generated from Clearing Member trading
activities that includes 0DTE option
contracts. As noted above, the risk
exposure from the significant increase
in intraday trading activity of 0DTE
options may not be adequately captured
under OCC’s current margin system.
OCC believes the Intraday Risk Charge
would be a risk-based approach suitable
to mitigate the increased intraday risk
exposure presented to OCC from such
trading activities.
Furthermore, the proposed rule
change would be applied uniformly
76 See
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Frm 00077
Fmt 4703
Sfmt 4703
across all Clearing Members and affect
all cleared products. In response to
feedback from industry participants, the
amendments to the proposal would
provide additional clarity to
participants by shortening the time
horizon for assessing the Intraday Risk
Charge, while also designating a
singular intraday margin issue
collection time for potential margin
calls in the ordinary course. These
changes are designed to address
feedback from industry participants to
provide them with the necessary
predictability they need to allocate
trades within their portfolio more often
throughout the day while also allowing
Clearing Members to actively manage
their exposure to the Intraday Risk
Charge. Accordingly, OCC believes that
the proposed rule change would not
impose any burden or impact on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
(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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
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/
E:\FR\FM\22JAN1.SGM
22JAN1
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Notices
rules-regulations/self-regulatoryorganization-rulemaking); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
OCC–2024–010 on the subject line.
Paper Comments
lotter on DSK11XQN23PROD with NOTICES1
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to file
number SR–OCC–2024–010. 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-regulations/self-regulatoryorganization-rulemaking). 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–2024–010 and should
be submitted on or before February 12,
2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.77
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025–01412 Filed 1–21–25; 8:45 am]
BILLING CODE 8011–01–P
77 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:56 Jan 21, 2025
Jkt 265001
DEPARTMENT OF STATE
[Public Notice 12589]
60-Day Notice of Proposed Information
Collection: Overseas Vetting
Questionnaire
Notice of request for public
comment.
ACTION:
The Department of State is
seeking Office of Management and
Budget (OMB) approval for the
information collection described below.
In accordance with the Paperwork
Reduction Act of 1995, we are
requesting comments on this collection
from all interested individuals and
organizations. The purpose of this
notice is to allow 60 days for public
comment preceding submission of the
collection to OMB.
DATES: The Department will accept
comments from the public up to March
24, 2025.
ADDRESSES: You may submit comments
by any of the following methods:
• Web: Persons with access to the
internet may comment on this notice by
going to www.Regulations.gov. You can
search for the document by entering
‘‘Docket Number: DOS–2024–0044’’ in
the Search field. Then click the
‘‘Comment Now’’ button and complete
the comment form.
• Email: hanksdp@state.gov.
Regular Mail: Send written comments
to: Attn: Dustin Hanks, DS/SI/PSS, SA–
20 10th Fl., 2201 C St. NW, Washington,
DC 20522–2210.
You must include the DS form
number (if applicable), information
collection title, and the OMB control
number in any correspondence.
FOR FURTHER INFORMATION CONTACT:
Direct requests for additional
information regarding the collection
listed in this notice, including requests
for copies of the proposed collection
instrument and supporting documents,
to Dustin Hanks, DS/SI/PSS, SA–20
10th Fl., 2201 C St. NW, Washington,
DC 20522–2210, who may be reached on
(202)949–6965 or at hanksdp@state.gov.
SUPPLEMENTARY INFORMATION:
• Title of Information Collection:
Overseas Vetting Questionnaire.
• OMB Control Number: None.
• Type of Request: New collection.
• Originating Office: Office of
Personnel Security and Suitability, DS/
SI/PSS.
• Form Number: DS–7801.
• Respondents: Individuals subject to
Department of State background
investigations, reinvestigations, and
continuous vetting.
• Estimated Number of Respondents:
25,000.
SUMMARY:
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Frm 00078
Fmt 4703
Sfmt 4703
7731
• Estimated Number of Responses:
25,000.
• Average Time per Response: 70
minutes.
• Total Estimated Burden Time:
29,167 annual hours.
• Frequency: Once per request.
• Obligation to Respond: Voluntary
for applicants and required for
incumbents.
We are soliciting public comments to
permit the Department to:
• Evaluate whether the proposed
information collection is necessary for
the proper functions of the Department.
• Evaluate the accuracy of our
estimate of the time and cost burden for
this proposed collection, including the
validity of the methodology and
assumptions used.
• Enhance the quality, utility, and
clarity of the information to be
collected.
• Minimize the reporting burden on
those who are to respond, including the
use of automated collection techniques
or other forms of information
technology.
Please note that comments submitted
in response to this Notice are public
record. Before including any detailed
personal information, you should be
aware that your comments as submitted,
including your personal information,
will be available for public review.
Abstract of Proposed Collection
The information solicited on this form
will be used to conduct background
investigations, reinvestigations, and
continuous vetting of persons for
eligibility for logical access, physical
access, credentialing, and fitness to
perform work overseas for or on behalf
of the U.S. Government as Locally
Employed (LE) Staff and locally-hired
third party contractors employed
overseas at a U.S. Mission. For
applicants, this form is to be used only
after a conditional offer of employment
has been made. This form is not to be
used for national security positions.
Methodology
The collection of information will be
presented to respondents as an
electronically fillable form as well as
through a static web page that will
produce an electronic form.
Erin Smart,
Senior Coordinator for Security
Infrastructure, Bureau of Diplomatic Security,
Department of State.
[FR Doc. 2025–01447 Filed 1–21–25; 8:45 am]
BILLING CODE 4710–43–P
E:\FR\FM\22JAN1.SGM
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Agencies
[Federal Register Volume 90, Number 13 (Wednesday, January 22, 2025)]
[Notices]
[Pages 7722-7731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01412]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102202; File No. SR-OCC-2024-010]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Amendment No. 3 to Proposed Rule Change by The
Options Clearing Corporation To Establish a Margin Add-On Charge That
Would Be Applied to All Clearing Member Accounts To Help Mitigate the
Risks Arising From Intraday and Overnight Trading Activity
January 15, 2025.
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 January 14, 2025, The Options Clearing
Corporation (``OCC'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') This amendment (``Amendment No. 3'') to the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared primarily by OCC. 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.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
On July 25, 2024, OCC filed the proposed rule change File No. SR-
OCC-2024-010 (``Initial Filing'').\3\ On January 8, 2025, OCC filed
Amendment No. 2 to the Initial Filing (``Amendment No. 2''). This
Amendment No. 3 to the Initial Filing is identical in substance to
Amendment No. 2 but includes changes to references and table format to
facilitate publication of the notice of filing in the Federal Register
and supersedes Amendment No. 2. Amendment No. 3 would establish a
margin add-on charge that would be applied to all Clearing Member
accounts to help mitigate the risks arising from intraday and overnight
trading activity. Through this amendment OCC is incorporating certain
modifications to its proposal to address comments from industry
participants. OCC also intends to conform the proposed rule change to
the Commission's final rule \4\ amending the Covered Clearing Agency
(``CCA'') Standards concerning intraday margin calls, and to extend the
implementation timeframe to address industry concerns and participants'
desire for additional time to prepare for the proposed changes. This
Amendment No. 3 would modify those aspects of the proposal as further
described below and amend and restate the Initial Filing.
---------------------------------------------------------------------------
\3\ See Exchange Act Release No. 100664 (Aug.6, 2024), 89 FR
65695 (Aug. 12, 2024) (File No. SR-OCC-2024-010).
\4\ See Exchange Act Release No. 101446 (Oct. 25, 2024), 89 FR
91000 (Nov 18, 2024) (File No. S7-10-23).
---------------------------------------------------------------------------
Proposed changes to OCC's Rules are contained in Exhibit 5A to
Amendment No. 3 to File No. SR-OCC-2024-010. Proposed changes to OCC's
Margin Policy are contained in confidential Exhibit 5B to Amendment No.
3 to File No. SR-OCC-2024-010. Material proposed to be added is marked
by italicizing and material proposed to be deleted is marked with
strikethrough text. All terms with initial capitalization that are not
otherwise defined herein have the same meaning as set forth in the OCC
By-Laws and Rules.\5\
---------------------------------------------------------------------------
\5\ OCC's By-Laws and Rules can be found on OCC's public
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B),
[[Page 7723]]
and (C) below, of the most significant aspects of these statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
On July 25, 2024, OCC filed with the Commission a proposed rule
change, SR-OCC-2024-010 to establish a margin add-on charge (the
``Intraday Risk Charge'') that would be applied to all Clearing Member
accounts to assist with mitigating the risks arising from intraday and
overnight trading activity. On September 4, 2024, OCC amended the
filing to include as Exhibit 2 an information memorandum OCC published
on its website informing OCC's membership of the details of the margin
add-on charge. The Commission received comments regarding the proposed
rule change \6\ and on November 7, 2024, issued an order instituting
proceedings, pursuant to Section 19(b)(2)(B) of the Exchange Act, to
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\6\ Comments on the proposed rule change are available at https://www.sec.gov/comments/sr-occ-2024-010/srocc2024010.htm.
---------------------------------------------------------------------------
Based on the comments the Commission received and a recent release
of the Commission's October 25, 2024, final rule amending the CCA
Standards,\7\ OCC is filing this amendment to the Initial Filing.
Material changes to the Initial Filing and the rationale for such
amendments are summarized in the following table:
---------------------------------------------------------------------------
\7\ See Exchange Act Release No. 101446 (Oct. 25, 2024), 89 FR
91000 (Nov. 18, 2024) (amending 17 CFR 240.17Ad-22-22(e)(6)(ii)).
Table 1--Summary of Changes Proposed by Amendment No. 3
[Footnotes at end of table.]
------------------------------------------------------------------------
Rationale for
Initial filing Amendment amendment
------------------------------------------------------------------------
The Intraday Risk Charge would The Intraday Risk Industry
be calculated based on the Charge would be participants
average of the previous month's calculated based commented that 20-
daily peak intraday risk on the average of minute snapshots
increases observed from 20- the previous during trading
minute snapshots in overnight month's daily hours were too
and regular trading hours, peak intraday frequent, and
between 12:30 a.m. through 3:15 risk increases suggested the OCC
p.m. Central Time. observed from 20- use fewer
minute snapshots snapshots at
between 11:00 predictable
a.m. through intervals.\a\
12:30 p.m. OCC would continue
Central Time. to manage the
intraday risk
associated with
overnight trading
activity through
its existing
extended trading
hour
procedures.\b\
An OCC Officer may issue a An OCC Officer may The single
margin call if a verified issue a margin collection
intraday risk increase during call at a single timeframe aligns
regular trading hours is intraday with (1) the
greater than 3 standard collection time timeframe in
deviations of a Clearing if a Clearing which the
Member's Intraday Risk Charge. Member's verified observations for
intraday risk the Intraday Risk
increase at or Charge are
around 12:00 p.m. measured, and (2)
Central Time is OCC's current
greater than 3 scheduled
standard Portfolio
deviations of the Revaluation
previous month's margin calls
daily peak previous approved
intraday risk by the
increases, Commission.\c\
observed from 20- Measuring against
minute snapshots the Clearing
between 12:30 Member's peak
a.m. through 3:15 intraday risk
p.m. Central Time. increases from
both overnight
and regular
trading hours
would result in a
manageable number
of potential risk
increases to
investigate for
purposes of
issuing margin
calls, allowing
OCC to focus on
intraday activity
presenting the
most risk.
OCC would continue This amendment
to monitor for aligns with (1)
breaches of the 3 Commission
standard guidance in the
deviation above-referenced
threshold in 20- final rule that
minute snapshots schedule intraday
throughout the margin calls may
trading day, and not be sufficient
would continue to and that CCAs
have authority to need to have the
issue an intraday ability to make
margin call under unscheduled
Rule 609, as it intraday margin
does today. calls,\d\ and (2)
Margin calls OCC's current
issued outside of Portfolio
the single Revaluation
intraday margin call
collection time process in
must be approved allowing margin
by the Chief calls to be
Financial Risk issued outside
Officer, Chief the single
Executive intraday
Officer, Chief collection time
Operation with escalated
Officer, or Chief approvals
Risk Officer.
120-day implementation period OCC would Industry
following receipt of all implement the participants have
necessary regulatory approval. changes in commented that
September 2025. 120 days is
insufficient for
them to prepare
for the changes.
The proposed
implementation
dates are within
the compliance
period for the
Commission's
above-referenced
final rule, which
requires a CCA to
implement rule-
filed changes by
December 15,
2025.\e\
------------------------------------------------------------------------
\a\ See, e.g., letter from Kimberly Unger, CEO and Executive Director,
The Security Traders Association of New York, Inc. dated October 30,
2024, available at https://www.sec.gov/comments/sr-occ-2024-010/srocc2024010.htm.
\b\ See Exchange Act Release No. 74268 (Feb. 12, 2015), 80 FR 8917 (Feb.
19, 2015) (SR-OCC-2014-24) (SR-OCC-2014-24) (requiring Clearing
Members qualified to participate in overnight trading sessions to
provide an additional margin requirement in an amount of the lesser of
$10 million or 10% of the Clearing Member's net capital).
\c\ See Exchange Act Release No. 82658 (Feb. 7, 2018), 83 FR 6646, 6648
(SR-OCC-2017-007).
\d\ See Exchange Act Release No. 101446, supra note 7, 89 FR 91005.
\e\ Id. at 91037.
[[Page 7724]]
(1) Purpose
Background
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission.
OCC also clears stock loan and futures transactions. In its role as a
clearing agency, OCC guarantees the performance of its Clearing Members
for all transactions cleared by OCC by becoming the buyer to every
seller and the seller to every buyer (or the lender to every borrower
and the borrower to every lender, in the case of stock loan
transactions). These clearing activities could expose OCC to financial
risks if a Clearing Member fails to fulfil its obligations to OCC. In
its role as guarantor for all transactions cleared through OCC, one of
the more material risks related to a Clearing Member's failure to
perform is credit risk arising from the activity of the Clearing
Members whose performance OCC guarantees. OCC manages these financial
risks through financial safeguards, including the collection of margin
collateral from Clearing Members designed to, among other things,
address the market risk associated with a Clearing Member's positions
during the period of time OCC has determined it would take to liquidate
those positions.
At the start of each business day, OCC collects margin requirements
for each marginable account calculated by OCC's proprietary System for
Theoretical Analysis and Numerical Simulation (``STANS'') based on the
account's end-of-day positions from the previous business day.\8\ OCC
also makes intraday margin calls in defined circumstances. For example,
pursuant to OCC Rule 609 and OCC's Margin Policy, which has been filed
with and approved as a rule by the Commission,\9\ OCC requires the
deposit of intraday margin to reflect changes in the value of
securities deposited by the Clearing Member as margin when certain
defined thresholds are breached.\10\ OCC also issues intraday margin
calls when unrealized losses observed for an account based on positions
from extended trading hours (``ETH'') \11\ exceed certain
thresholds.\12\ In addition, OCC maintains broad authority under OCC
Rule 609 to issue intraday margin calls or otherwise set a Clearing
Member's margin requirement in other circumstances, including as a
protective measure pursuant to Rule 307.\13\
---------------------------------------------------------------------------
\8\ OCC makes its STANS Methodology Description available to
Clearing Members. An overview of the STANs methodology is posted to
OCC's public website: https://www.theocc.com/Risk-Management/Margin-Methodology.
\9\ See Exchange Act Release Nos. 100998 (Sept. 11, 2024), 89 FR
76171 (Sept. 17, 2024) (SR-OCC-2024-009); 99169 (Dec. 14, 2023), 88
FR 88163 (Dec. 20, 2023) (SR-OCC-2023-008); 98101 (Aug. 10, 2023),
88 FR 55775 (Aug. 16, 2023) (SR-OCC-2022-012); 96566 (Dec. 22,
2022), 87 FR 80207 (Dec. 29, 2022) (SR-OCC-2022-010); 91079 (Feb. 8,
2021), 86 FR 9410 (Feb. 12, 2021) (SR-OCC-2020-016); 90797 (Dec. 23,
2020), 85 FR 86592 (Dec. 30, 2020) (SR-OCC-2020-014); 87718 (Dec.
11, 2019), 84 FR 68992 (Dec. 17, 2019) (SR-OCC-2019-010); 86436
(July 23, 2019), 84 FR 36632 (July 29, 2019) (SR-OCC-2019-006);
86119 (June 17, 2019), 84 FR 29267 (June 21, 2019) (SR-OCC-2019-
004); 83799 (Aug. 8, 2018), 83 FR 40379 (Aug. 14, 2018) (SR-OCC-
2018-010); 82658 (Feb. 7, 2018), 83 FR 6646 (Feb. 14, 2018) (SR-OCC-
2017-007).
\10\ See OCC Rule 609(a) (``[OCC] may require the deposit of
additional margin (`intra-day margin') by any Clearing Member in any
account at any time during any business day to reflect changes in: .
. . (3) the value of securities deposited by the Clearing Member as
margin . . . .''); Exchange Act Release No. 82658, supra note 9, 83
FR 6648 (``Pursuant to the Margin Policy, OCC issues margin calls
during standard trading hours when unrealized losses exceeding 50%
of an account's total risk charges are observed for that account
based on start-of-day positions.'').
\11\ ETH refers to trades executed in extended and overnight
trading sessions offered by exchanges for which OCC provides
clearance and settlement services. See Exchange Act Release No.
73343 (Oct. 14, 2014), 79 FR 62684 (Oct. 20, 2014) (SR-OCC-2014-
805).
\12\ See Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR
61060, 61064 (Dec. 26, 2017) (SR-OCC-2017-007) (codifying in the
Margin Policy the ETH intraday margin call OCC would issue prior to
9:00 a.m. Central Time when: (1) unrealized losses observed for an
account, based on new ETH positions, exceed 25% of that account's
total risk charges and (2) the overall Clearing Member portfolio is
also experiencing losses).
\13\ See OCC Rule 307C(b) (providing for protective measures in
the form of requiring Clearing Members to adjust the amount or
composition of margin, including but not limited to requiring the
deposit of additional margin).
---------------------------------------------------------------------------
Since the time these existing margin collection processes were
established, OCC has observed a significant increase in contract volume
and, in particular, volume in option contracts traded on the day of
their expiration--so-called ``zero-days-to-expiration'' or ``0DTE''
options.\14\ Currently, 0DTE option trading volume can spike to up to
40% of total trading volume on Friday expirations.\15\ This increase in
0DTE options trading has coincided with the proliferation of option
expiries. Traditionally, listed options expired on the third Friday of
the month.\16\ In 2005, the Chicago Board Options Exchange (``Cboe''),
one of the participant exchanges for which OCC provides clearance and
settlement services, began listing weekly options on the S&P 500 Index
(``SPX'') expiring each Friday of the month, and subsequently
introduced Monday and Wednesday weekly SPX expirations in 2016 before
adding Tuesday and Thursday weekly SPX expirations in 2022.\17\ Weekly
and daily expiration cycles were introduced to options on other
indexes, single-name stocks, and exchange traded products (e.g., ETFs).
As a result, options now expire every trading day of the year.
---------------------------------------------------------------------------
\14\ OCC has provided a confidential Exhibit 3A to Amendment No.
3 to File No. SR-OCC-2024-010 a 2023 study it conducted of its risk
exposure to short-dated options.
\15\ Id. at 3-4.
\16\ Originally, options expiries occurred on the Saturday
following the third Friday before the industry moved to Friday
expirations in 2013. See Exchange Act Release No. 69772 (June 17,
2013), 78 FR 37645 (June 21, 2013) (File No. SR-OCC-2013-04).
\17\ See Cboe, The Rise of SPX & 0DTE Options, at 5 (July 27,
2023), available at https://go.cboe.com/l/77532/2023-07-27/ffc83k.
---------------------------------------------------------------------------
The increase in 0DTE options trading combined with increased
intraday trading activity across other products poses challenges to
OCC's risk management, particularly with respect to the management of
OCC's overnight and intraday risk exposure to its Clearing Members in
between the collections of margin at the start of each business day.
Because OCC's STANS margin calculation is based on end-of-day
positions, the margin requirement may not account for 0DTE options
trading activity, since the Clearing Member would have either traded
out of or exercised the options position, or the option would have
expired by the end of the day. Similarly, in the current system the
risk increase from intraday trading activity across other products
would only be captured once end-of-day positions are established, which
when margin calculations are applied would not account for the intraday
risk increase from any positions that were traded out of. In addition,
OCC's portfolio revaluation process for purposes of determining
intraday margin calls to address the change in value of margin
collateral is based on a Clearing Member's start-of-day collateral
deposits, which would not include margin for 0DTE options or intraday
positions. For these reasons OCC proposes to establish the Intraday
Risk Charge add-on to capture such risk increases, and the associated
Intraday Monitoring Thresholds regime to observe and measure risk
increasing activity.
Proposed Changes
Based on industry and participant feedback and to conform to the
recent release of the Commission's final rule amending the CCA
Standards concerning intraday margin calls, and in order to mitigate
OCC's intraday risk exposures, OCC proposes to: (i) narrow the window
over which the Intraday Risk Charge would be calculated to between
11:00 a.m. to 12:30 p.m. Central Time, (ii) to remove any
[[Page 7725]]
reference to the Intraday Risk Charge with respect to the Intraday
Monitoring Thresholds and limit the issuance of a margin calls to a
single intraday collection time at or around 12:00 p.m. Central Time,
(iii) clarify that intraday margin calls would be issued at a single
intraday collection time, and any margin calls outside of the
collection time must be approved by the Chief Financial Risk Officer,
Chief Executive Officer, Chief Operations Officer, or Chief Risk
Officer, (iv) provide FRM Officers with discretion on whether to issue
or not issue a margin call based on certain facts and circumstances,
while also requiring the documentation of such decisions, and (v)
extend the implementation time frame from within 120 days of approval
to September of 2025 to align with the projected Ovation release date,
and provide more time for industry participants to prepare for the
proposed rule change.
1. Intraday Risk Charge Add-On
In the Initial Filing,\18\ OCC had proposed a margin add-on charge
(the ``Intraday Risk Charge''), which would be calculated using the
system currently employed to monitor Clearing Members' overnight
trading activity. Through OCC's Watch Level surveillance under its
Third-Party Risk Management Framework, OCC has also used this system to
identify patterns of risk increasing activity in 0DTE options for
purposes of considering and calculating protective measures in the form
of additional margin for particular Clearing Members when certain
thresholds have been breached relative to a Clearing Member's net
capital. OCC proposed to extend that approach to all Clearing Members
(without regard to net capital thresholds) and with respect to all
products OCC clears.
---------------------------------------------------------------------------
\18\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65696-98.
---------------------------------------------------------------------------
OCC's current intraday margin system recalculates the STANS margin
risk using portfolio position sets updated every 20 minutes between
8:30 a.m. and 6:30 p.m. Central Time, and at-least every hour during
ETH sessions. OCC considers that 20 minutes is sufficient time under
OCC's current system capabilities to provide consistent and reliable
snapshot results at a steady cadence during regular trading hours with
heavy trading activity. Outside of regular trading hours and during
overnight trading, hourly intervals between snapshots were deemed more
appropriate because of the significantly lower trading activity. OCC
currently employs and will continue to use the intraday margin system
for ETH monitoring, including to determine when to issue an ETH margin
call.\19\ This system calculates a forecasted margin requirement as if
the positions at that point in time were present during the previous
night's margin calculation. Results that show an increase to the prior
night's margin requirement based on the STANS expected shortfall and
stress test components are considered risk increasing. OCC would use
the outputs from the previous night's daily STANS methodology
calculation, incorporating current portfolio changes, to monitor that
day's peak intraday risk increases. Under the Initial Filing,\20\ the
Intraday Risk Charge would have been calculated monthly as at least the
average of the peak intraday risk increases (i.e., an average of the
largest risk increase calculated on each business day of the lookback
period) as measured throughout overnight and regular trading hours
(i.e., between 12:30 a.m. through 3:15 p.m.).
---------------------------------------------------------------------------
\19\ See Exchange Act Release No. 74268, supra Table 1 note b,
80 FR 8919 (describing the thresholds for overnight monitoring and
potential margin calls).
\20\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65696.
---------------------------------------------------------------------------
OCC proposes to amend the proposed Intraday Risk Charge so that it
is determined based on a narrower monitoring interval. Specifically,
OCC would calculate the Intraday Risk Charge based on the average daily
increased risk identified through OCC's current intraday margin system
between the hours of 11:00 a.m. and 12:30 p.m. Central Time; provided
however, that OCC may adjust the Intraday Risk Charge as described
further below. This change would address comments that the 20-minute
snapshots during overnight and intraday trading hours were too frequent
and suggested that OCC use fewer snapshots at predictable intervals. In
particular, by narrowing the window, Execution-Only Clearing Members
\21\ that are able to allocate trades prior to that window may
eliminate or significantly reduce their intraday risk exposure for
purposes of determining an Intraday Risk Charge.
---------------------------------------------------------------------------
\21\ OCC's By-Laws define ``Execution-Only Clearing Members'' to
mean a Clearing Member approved to act only as a Clearing Member
that transfers confirmed trades or allocates position so other
Clearing Members, and not to carry positions in its accounts with
the OCC on a routine basis.
---------------------------------------------------------------------------
As under the Initial Filing,\22\ the Intraday Risk Charge would be
calculated on the first business day of the month and would be based on
data and STANS outputs generated over the lookback period, which will
be set as the previous month. The Intraday Risk Charge would be
calculated monthly as at least the average of the peak intraday risk
increases over the shorter duration. OCC considers the one-month
lookback period, a timeframe that includes one monthly and multiple
weekly standard expirations, to be a conservative approach that would
react faster to recent changes in the risk behavior of Clearing Members
compared to a more extended lookback period and produces more relevant
forecasts for the next monitoring cycle.\23\
---------------------------------------------------------------------------
\22\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65696.
\23\ OCC also considered lookback periods of less than one-
month, including a one-week period, and observed that any lookback
period less than one-month was operationally intensive to implement.
Establishing a monthly cadence allows OCC to investigate and exclude
results from the intraday risk system that are not attributable to
actual risk increasing activity, such as results caused by corporate
actions. In any case, using a one-week lookback period would result
in procyclical effects. Intraday Risk Charge moves for Clearing
Members from one week to another would reduce the predictability of
the add-on charge on Clearing Member margin requirements. As
described above, OCC believes the one-month lookback provides a more
conservative and relevant forecasts.
---------------------------------------------------------------------------
As under the Initial Filing,\24\ the calculation of the peak
intraday activity would capture all products that OCC clears, including
0DTE options. The Intraday Risk Charge would apply to all margin
accounts other than cross-margin accounts for OCC's cross-margining
program with the Chicago Mercantile Exchange (``CME''), which do not
currently support intraday position feeds. OCC would retain authority
to increase the amount of the charge for a particular Clearing Member
beyond the average of the peaks, either when adjusting the Intraday
Risk Charge on a monthly basis or on an intra-month basis, when
conditions would warrant a different approach consistent with
maintaining sufficient financial resources to cover OCC's intraday
credit exposure. Conditions that would cause OCC to increase the
Intraday Risk Charge above the minimum amount include when OCC
determines it maintains insufficient margin resources to cover the
pattern or distribution of risk increases over the previous lookback
period, or in cases of an account's business expansion. OCC would also
have authority to decrease the amount of the charge, which would be
limited to a Clearing Member's business reduction, termination of
account(s), transfer of positions to different account(s), or the
imposition of protective measures under Rule 307B. Such charge
adjustments may apply to particular or all Clearing Members.
---------------------------------------------------------------------------
\24\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65696-97.
---------------------------------------------------------------------------
To effect the proposed changes, OCC proposes to amend Rule 601 by
adding
[[Page 7726]]
a new paragraph (i) as described above to incorporate the shorter time
frame involved in the calculation of the Intraday Risk Charge. As in
the Initial Filing,\25\ OCC proposes to define the Intraday Risk Charge
under proposed Rule 601(i)(1) to mean the additional margin assets
required from a Clearing Member to mitigate any increased risk exposure
to OCC not otherwise covered by the margin requirements already
calculated in accordance with Rule 601 and OCC's policies and
procedures. To reflect the narrower time from which the observations
that determine the Intraday Risk Charge would be drawn, Rule 601(i)(1)
would further provide that OCC may assess the Intraday Risk Charge as
part of the Clearing Member's daily margin required, as needed, to
mitigate exposure and cover uncollateralized risk resulting from
``intraday trading activities,'' as opposed to ``overnight and intraday
trading activities'' as proposed in the Initial Filing.\26\ In the
amended proposal, OCC would similarly remove other references to
overnight trading activity from the OCC Rules and Margin Policy as
proposed in the Initial Filing.
---------------------------------------------------------------------------
\25\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65697.
\26\ As discussed above, OCC would continue to address intraday
risk exposure from overnight trading activity as it currently does
under its ETH procedures. See supra Table 1 note b and accompanying
text. Clearing Members trading during ETH hours will still be
obligated to pay an ETH margin add-on charge, and any ETH related
risk controls will continue to operate independently from the
proposed Intraday Risk Charge changes.
---------------------------------------------------------------------------
Proposed Rule 601(i)(2) would be modified to provide the method of
calculation for the Intraday Risk Charge add-on, which would generally
be set as the average of the peak intraday risk increases from
portfolio position changes between 11:00 a.m. and 12:30 p.m. Central
Time over the preceding month.\27\ Proposed Rule 601(i)(3), would
remain unchanged from the Initial Filing.\28\ Specifically, that Rule
would provide that OCC retains authority to adjust the Intraday Risk
Charge if OCC determines that circumstances particular to a Clearing
Member's activity would warrant a different approach consistent with
maintaining sufficient financial resources to cover OCC's intraday
credit exposure. Any adjustment under this Rule to decrease the amount
of the Intraday Risk Charge calculated from the previous month's
intraday risk increases would be limited to a Clearing Member's
business reduction, termination of account(s), transfer of positions to
different account(s), or the imposition of protective measures under
Rule 307B. Rule 601(i)(3) would also provide that OCC retains the
authority to adjust the Intraday Risk Charge more frequently than
monthly.
---------------------------------------------------------------------------
\27\ A lookback of one month was selected to represent a
complete monthly options expiration cycle.
\28\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65697.
---------------------------------------------------------------------------
OCC would also amend its Margin Policy to describe material aspects
of the Intraday Risk Charge as discussed herein. As under the Initial
Filing,\29\ the new charge would be added to the ``Add-On Charges''
section. That proposed addition, as amended, would provide that between
11:00 a.m. through 12:30 p.m., OCC measures the intraday exposure to
each margin account for which intraday position information is
available to identify intraday risk increases above the baseline STANS
risk measurement. The proposed amendments to the Margin Policy would
define this time window as the ``Intraday Risk Charge Measurement
Time.'' As under the Initial Filing,\30\ the Margin Policy would define
``risk increases'' in this context as results that show an increase to
a portfolio's prior night calculated risk measurement based on the
STANS expected shortfall and stress test components.
---------------------------------------------------------------------------
\29\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65697.
\30\ Id.
---------------------------------------------------------------------------
As under the Initial Filing,\31\ the Margin Policy would further
provide that on at least a monthly basis, OCC's Financial Risk
Management department (``FRM'') reviews and verifies the daily peak
increases in the Intraday Risk Charge Measurement Time based on a
referenced procedure maintained by FRM's Market Risk business unit.\32\
This verification of risk-increasing activity is intended to address
certain known limitations in OCC's existing intraday system.\33\ For
example, the system does not take into account options affected by
corporate action adjustments and newly listed option series or strikes,
which do not receive adjusted metrics until the next overnight margin
calculation process. In addition, the 20-minute snapshot generated by
the system may not capture a complete trade in a single snapshot, which
may result in a misalignment of the peak calculation for an account.
The snapshot timing may also cause collateral movements to be recorded
as risk-increasing deposits instead of being risk-reducing movements.
Pursuant to the referenced procedures, Market Risk would verify the
peak daily results to prevent erroneous results from affecting the
calculation of the Intraday Risk Charge. This verification process is
similar to, and would proceed in a similar manner as, Market Risk's
long-standing process for verifying results from OCC's system for
monitoring a portfolio's unrealized losses based on current prices and
start-of-day positions for purposes of charging intraday margin
calls.\34\ Upon completion of the verification process, OCC would apply
the Intraday Risk Charge to Clearing Members for the upcoming month.
---------------------------------------------------------------------------
\31\ Id.
\32\ OCC has provided as confidential Exhibit 3B to Amendment
No. 3 to File No. SR-OCC-2024-010 a copy of the referenced
procedure, the Market Risk Monitoring Procedure, marked to indicate
changes that OCC intends to implement upon regulatory approval of
this proposal.
---------------------------------------------------------------------------
As under the Initial Filing,\35\ the Margin Policy would provide
that OCC may impose the Intraday Risk Charge in the amount of the
average of the verified peak daily risk increases in the Intraday Risk
Charge Measurement Time over the prior month with FRM Officer \36\
approval. Adjustments to the charge can occur at the time of the
monthly review or on an intramonth basis, e.g., in response to the
intraday monitoring thresholds discussed below. Reductions would be
limited to persistent changes in clearing activity that would reduce
the risk profile of the account, e.g., business reduction, account
terminations transfer of positions to different account(s), or the
imposition of protective measures under Rule 307B. Any changes that
would increase the charge over the minimum calculated may result from
changes in the pattern or distribution of risk increases over the
previous lookback period or persistent changes in clearing activity
that would increase the risk profile of the account, e.g. business
expansions. If the FRM Officer recommends any changes to an Intraday
Risk Charge, the Model Risk Working Group (``MRWG'') must review and is
authorized to escalate the recommendation to the Office of the Chief
Executive Officer, who must review and is authorized to approve the
changes.\37\ The Margin Policy vests review responsibility and
escalation authority to the MRWG because it is a cross-functional group
responsible for assisting OCC's management in overseeing OCC's model-
related risk
[[Page 7727]]
comprised of representatives from relevant OCC business units. OCC
believes that the MRWG is the appropriate decisionmaker to consider
whether a higher Intraday Risk Charge is warranted because it is
composed of the subject matter experts most familiar with the
performance of and risks associated with OCC's margin models, including
personnel in OCC's Model Risk Management business unit, who, under
OCC's Risk Management Framework, are responsible for evaluating model
parameters and assumptions and providing effective and independent
challenge through OCC's model lifecycle.\38\
---------------------------------------------------------------------------
\35\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65697-98.
\36\ Officers are identified in OCC's By-Laws. See OCC By-Law
Art IV. In this context, an FRM Officer would include any member of
FRM appointed by the Chief Executive Officer or Chief Operating
Officer, including a Managing Director, Executive Director or
Executive Principal. Id., at Sec. 9.
\37\ Such changes to the Intraday Risk Charge must be based on
the current charge being insufficient as defined in Exhibit 5A and
confidential Exhibit 5B to Amendment No. 3 to File No. SR-OCC-2024-
010.
\38\ See Exchange Act Release No. 95842, 87 FR 58416 (File No.
SR-OCC-2022-010) (filing to establish OCC's Risk Management
Framework). OCC Risk Management Framework is available on OCC's
public website: https://www.theocc.com/risk-management/risk-management-framework.
---------------------------------------------------------------------------
OCC has reviewed the potential impact of the proposed add-on charge
on all Clearing Members over a thirteen-month period.\39\ OCC has
observed that the proposed add-on would have generated a margin
increase of less than 1.1% in the aggregate on average,\40\
representing almost $1.099 billion across all Clearing Members out of
margin requirements. For comparison, under the Initial Filing, the
proposed add-on would have generated an average margin increase of
approximately $1.968 billion, less than a 1.9% increase. Of the ten
firms that would be most impacted, which collectively represent
approximately 73% of the additional margin that would have been
assessed, the average daily margin percentage increases ranges from
approximately 1% to less than 15%, based on data from September 2023 to
September 2024, or between $22 million and $315 million.
---------------------------------------------------------------------------
\39\ This impact assessment does not account for potential
changes in Clearing Member behavior that might further reduce the
impact. To the extent a Clearing Member allocates trades to other
Clearing Members under OCC's Clearing Member Trade Assignment
(``CMTA'') Rules or otherwise reduces its intraday risk in advance
of the Intraday Risk Measurement Time, the actual impact of the
Intraday Risk Charge may be less.
\40\ OCC has included as confidential Exhibit 3C to Amendment
No. 3 to File No. SR-OCC-2024-010 an assessment of the impact of the
Intraday Risk Charge on OCC's Clearing Members. Exhibit 3C to the
Initial Filing used data from 2023. Exhibit 3C to Amendment No. 3
uses data from September 2023 through September 2024.
---------------------------------------------------------------------------
As compared to the Initial Filing, that aggregate amount of the
additional margin would be distributed across market-maker, firm and
customer accounts as follows:
Table 2--Impact by Account Type
------------------------------------------------------------------------
Proposed
Initial filing amendment
------------------------------------------------------------------------
Market-Maker Accounts............ $392.1 million.... $276.6 million.
Firm Accounts.................... $590.5 million.... $306.3 million.
Customer Accounts................ $986.1 million.... $516.7 million.
All Accounts................. $1.9686 billion... $1.0996 billion.
------------------------------------------------------------------------
With respect to firms classified as Execution-Only Clearing
Members, the add-on charge would generate approximately $23.4 million
of additional margin in the aggregate, down from $39.4 million under
the Initial Filing, assuming that Execution-Only Clearing Members made
no changes to allocate trades prior to the Intraday Risk Charge
Measurement Time.
2. Intraday Monitoring Thresholds
Under the Initial Filing,\41\ OCC proposed to establish monitoring
and escalation criteria when a Clearing Member's intraday risk increase
departs significantly from the activity that set the Intraday Risk
Charge (``Intraday Monitoring Thresholds''). Generally, the new credit
risk thresholds would have been specified as a set of levels based on
standard deviations from a Clearing Member's Intraday Risk Charge.
While OCC has narrowed the window of time for purposes of calculating
the Intraday Risk Charge, OCC intends to continue to monitor for
intraday risk increases throughout regular trading hours.
---------------------------------------------------------------------------
\41\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65698.
---------------------------------------------------------------------------
OCC proposes to establish the Intraday Monitoring Thresholds as
statistical measures (e.g., one, two or three standard deviations)
above a Clearing Member's peak intraday risk increases over the prior
month. OCC would measure the Intraday Monitoring Threshold for each
Clearing Member against the average over the lookback period of the
verified peak intraday risk increases determined between 12:30 a.m. and
3:15 p.m. (i.e., the same window as for the Intraday Risk Charge under
the Initial Filing). OCC believes that measuring the thresholds using
this longer window, rather than against the Intraday Risk Charge as
proposed to be amended above,\42\ would result in a more manageable
number of potential risk increases for escalation, allowing OCC
decisionmakers to focus on potential changes in activity that present
the most risk. As under the Initial Filing,\43\ OCC proposes to amend
the section of the Margin Policy that currently addresses margin calls
and adjustments. The Margin Policy would provide that FRM would
establish and maintain Intraday Monitoring Thresholds in referenced
market risk procedures for verified intraday risk increases that are
greater than statistical measures above a Clearing Member's average
over the lookback period determined between 12:30 a.m. and 3:15 p.m.
Central Time. This average would be determined separately and
independently of the Intraday Risk Charge across Clearing Member
accounts.
---------------------------------------------------------------------------
\42\ As indicated in the impact assessment above, the proposed
amendments to the Intraday Risk Charge would have the effect of
reducing the charge, which would make breaches of the Intraday
Monitoring Thresholds more likely if measured against the Intraday
Risk Charge as proposed to be amended.
\43\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65698.
---------------------------------------------------------------------------
As under the Initial Filing,\44\ the Margin Policy would also
provide that FRM coordinates a review of those thresholds, as well as
the calculation and lookback period, on an at least annual basis, or on
an ad-hoc basis, as needed. OCC retains the authority to adjust the
Intraday Monitoring Thresholds, as well as the calculation and lookback
period, based on the review of intraday risk posed by Clearing Member's
portfolio changes. Any such adjustment to the Intraday Monitoring
Thresholds, calculation, or lookback period may apply to particular or
all Clearing Members depending on an analysis of the activity
generating peak intraday margin numbers, the number of breaches above
the monitoring thresholds, and overall market activity and trends
within the lookback period. The review would be presented to the MRWG,
which must review and is authorized to escalate any
[[Page 7728]]
recommended changes to the Office of the Chief Executive Officer, who
must review and is authorized to approve them. OCC's Risk Committee
will be notified of all changes. As discussed above,\45\ OCC believes
that the MRWG is the appropriate decision-maker to consider any changes
to the Monitoring Thresholds because it is composed of the subject
matter experts most familiar with the performance of and risks
associated with OCC's margin models.
---------------------------------------------------------------------------
\44\ Id.
\45\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------
3. Intraday Margin Calls
In the Initial Filing,\46\ OCC proposed to issue margin calls on
individual Clearing Member accounts if the verified intraday risk
increases for those accounts breach and exceed the Intraday Risk
Monitoring thresholds (e.g., in excess of three standard deviations).
Under the proposed amendments, OCC would maintain the proposed margin
call, but would specify a scheduled, single collection time in which
such a margin call would be collected in the ordinary course while
maintaining authority to issue an unscheduled margin call outside that
timeframe in extraordinary circumstances with additional escalations.
As discussed below, these amendments are intended to align with OCC's
existing intraday margin call processes and the Commission's October
25, 2024, final order amending the CCA Standards.
---------------------------------------------------------------------------
\46\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65698.
---------------------------------------------------------------------------
As under the Initial Filing,\47\ the Margin Policy would provide
that on at least a daily basis, FRM would review the intraday risk
increases generated by the intraday risk system against the Intraday
Monitoring Thresholds. As proposed to be amended, the Margin Policy
would provide that if a verified intraday risk increase breach at or
around 12:00 p.m. Central Time is greater than the Intraday Monitoring
Thresholds, the Margin Policy would provide that an FRM Officer may
issue a margin call,\48\ make a margin adjustment to lock up excess
collateral, or recommend protective measures under Rule 307. The Margin
Policy would further be amended to provide that any such margin call
issued by an FRM Officer would be collected as a single intraday
collection time. Accordingly, the Margin Policy as amended would now
provide a single, scheduled time for the issuance and collection of
such intraday margin calls. This collection timeframe aligns with the
timeframe during which the observations for the Intraday Risk Charge
are measured, and gives Clearing Members greater certainty about when
the activity that would inform the call would be measured and the call
imposed. The timing also aligns with the timing for OCC's current
Portfolio Revaluation margin calls, which are generally collected at a
single time based on a measurement of a portfolio's profit and loss at
or around noon.\49\ As with OCC's existing margin calls, the proposed
margin call would be subject to a price minimum below which OCC
generally would not issue a call.\50\ Specifically, OCC has established
a $500,000 price minimum for issuing margin calls, which aligns with
the minimum Clearing Fund deposit required of each Clearing Member.\51\
---------------------------------------------------------------------------
\47\ Id.
\48\ Margin calls in this context are demands by OCC to Clearing
Members for the deposit of additional margin in immediately
available funds to increase their margin resources to meet increased
margin requirements. Margin calls are issued subject to OCC's
policies and procedures.
\49\ See Exchange Act Release No. 82658, supra Table 1 note c,
83 FR 6648 (approving OCC's Margin Policy, including the timing of
margin calls).
\50\ Id. (approving OCC's Margin Policy, including the price
minimum for margin calls).
\51\ See OCC Rule 1002(d).
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The Margin Policy would further provide that any margin calls
issued outside of the standard processing time window must be approved
by the Chief Financial Risk Officer, Chief Executive Officer, Chief
Operating Officer, or Chief Risk Officer. This change aligns with OCC's
current Portfolio Revaluation margin call process in allowing margin
calls to be issued outside the single intraday collection time in
exceptional circumstances with escalated approval. OCC believes that
margin calls issued outside the single intraday collection time would
be the exception, rather than the rule. This change also aligns with
Commission guidance from its October 25, 2024, final rule amending the
CCA Standards, suggesting that scheduled intraday margin calls may not
be sufficient and that CCAs would need to have the ability to make
unscheduled intraday margin calls.\52\
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\52\ See supra Table 1 note d and accompanying text.
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The Margin Policy would be further revised to state that any margin
call would be calculated as the difference between the reviewed
intraday risk increase at the single intraday collection time at or
around 12:00 p.m. Central Time and the Intraday Risk Charge. Intraday
margin calls would only be increasing financial resources to OCC.
Generally, an intraday margin call would be released the next business
day.
Data from September 2023 to September 2024 indicates there would
have been approximately 1024 potential margin calls issued under the
proposed changes, as amended. The number of potential margin calls
would not change as a result of the amendments to the Initial Filing.
As amended, the average daily margin call amount would have been $27
million, as opposed to $25.1 million under the Initial Filing. This
increase is attributable to the decrease in the pre-funded Intraday
Risk Charge resulting from the proposed amendments to the Initial
Filing.
4. Discretion To Issue Margin Calls
OCC also proposes to modify the Margin Policy to add a provision
whereby an FRM Officer will have the discretion to decide whether to
issue or not issue a margin call, if in their judgement the call is not
necessary to effectively manage the risk posed to OCC based on the
specific facts and circumstances. As under the Initial Filing, such
circumstances would include instances where OCC's intraday risk system
may produce results that may not indicate actual risk increasing
activity,\53\ such as (i) when the intraday risk increase can be
attributed to one or more intraday events or actions including but not
limited to portfolio level changes resulting from positive offsetting
P&L amounts or positive offsetting asset values for options and
collateral, or from non-risk increasing events such as the substitution
of collateral or the pledging of additional valued securities within
the same account, or (ii) if the risk increase in the account is the
result of a corporate action, or the result of position transfers
between accounts such as delayed CMTA's from execution-only accounts,
or when a P&L unrealized loss generates a margin call that exceeds the
intraday margin call. In addition, as proposed to be amended, the
Margin Policy would provide that such circumstances also, including but
not limited to, circumstances in which issuing a call would not align
with broader systemic objectives such as minimizing potential
procyclical effects and potential participant defaults.
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\53\ The Initial Filing discussed certain limitations of the
intraday risk system that may result in erroneous intraday risk
increases. See Exchange Act Release No. 100664, supra note 3, 89 FR
65697.
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In all such cases, the FRM Officer would be required to document
the basis for their decision not to issue a margin call at the single
intraday collection time for an account breaching the Intraday Risk
Monitoring Threshold
[[Page 7729]]
at or around 12:00 p.m. Central Time.\54\ These proposed change from
the Initial Filing are aligned with the Commission's guidance on
intraday margin calls issued in its October 25, 2024, final rule
amending the CCA Standards, concerning intraday margin calls.\55\ The
change is also aligned with the documentation requirement in new SEC
Rule 17Ad-22(e)(6)(ii)(D), which requires a CCA to document when it
determines not to issue an intraday call pursuant to its written
policies and procedures.\56\
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\54\ For the avoidance of doubt, this documentation requirement
would not extend to monitoring of Intraday Risk Monitoring Threshold
breaches outside of the single intraday collection period,
notwithstanding OCC's authority to make an exception to its written
policies and procedures to issue a margin call for activity falling
outside that period.
\55\ See Exchange Act Release No. 101446, supra note 4, 89 FR
91009-10 (discussing factors for CCAs to consider when determining
whether to issue an intraday margin call).
\56\ 17 CFR 240.17Ad-22(e)(6)(ii)(D).
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5. Implementation Timeframe
In the Initial Filing,\57\ OCC proposed a 120-day implementation
timeframe based on the amount of time OCC believed it would need to
deploy system changes following receipt of all necessary regulatory
approval. Industry participants have commented on the proposal that
more time is required for them to prepare for the changes. Accordingly,
OCC proposes to extend the implementation period. Subject to regulatory
approval of the proposal, OCC plans to implement the proposed changes
in September of 2025. OCC will announce the implementation date of the
proposed changes by an Information Memorandum posted to its public
website at least 4 weeks prior to implementation. This proposed
implementation is designed to align with, but is not contingent on,
OCC's planned replacement of its core clearance and settlement system,
ENCORE, with a new system, Ovation. The proposed implementation dates
are within the compliance period for the Commission's October 25, 2024,
final rule, which requires a CCA to implement rule-filed changes by
December 15, 2025.\58\
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\57\ See Exchange Act Release No. 100664, supra note 3, 89 FR
65698.
\58\ See supra Table 1 note e and accompanying text.
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(2) Statutory Basis
OCC believes that the proposed changes are consistent with Section
17A(b)(3)(F) of the Exchange Act \59\ and SEC Rule 17Ad-22(e)(6)(ii)
thereunder.\60\ Section 17A(b)(3)(F) of the Act \61\ requires, among
other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
and derivatives transactions and, in general protect investors and the
public interest. OCC proposes to introduce a new Intraday Risk Charge
add-on with certain associated monitoring procedures and establish new
risk-based credit risk monitoring thresholds. The proposed rule change
as described above would enhance OCC's framework for measuring,
monitoring, and managing its credit risk. Currently, OCC may be exposed
to increased credit exposure from uncollateralized intraday trading
activity, including that of 0DTE options that is not otherwise
collateralized and captured by OCC's current margin system at the start
of each business day. OCC believes the proposed changes would enable
OCC to mitigate the credit exposure resulting from the increased risk
of intraday trading that includes 0DTE option contracts by using the
system it currently operates to monitor overnight trading activity. The
Intraday Risk Charge would provide OCC with additional margin resources
to help mitigate this risk and allow OCC to continue to provide prompt
and accurate clearance and settlement services of securities and
derivatives transactions without disruption in the event of a Clearing
Member default. Given OCC's designation as a systemically important
financial market utility,\62\ OCC believes that changes that promote
the prompt and accurate clearance and settlement thereby is in the
public interest and the interests of investors. For these reasons, OCC
believes the proposed changes are designed to promote the prompt and
accurate clearance and settlement of securities transactions in
accordance with Section 17A(b)(3)(F) of the Exchange Act.\63\
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\59\ 15 U.S.C. 78q-1(b)(3)(F).
\60\ 17 CFR 240.17Ad-22(e)(6)(ii).
\61\ 15 U.S.C. 78q-1(b)(3)(F).
\62\ The Financial Stability Oversight Council designated OCC as
a SIFMU under Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, 12 U.S.C. 5463.
\63\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(6)(ii), as recently amended, requires OCC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum:
(A) Marks participant positions to market and collects margin
(including variation margin or equivalent charges if relevant) at least
daily;
(B) Monitors intraday exposures on an ongoing basis;
(C) Includes the authority and operational capacity to make
intraday margin calls, as frequently as circumstances warrant,
including (1) when risk thresholds specified by OCC are breached, or
(2) when the products cleared or markets served display elevated
volatility; and
(D) Documents when OCC determines not to make an intraday call
pursuant to its written policies and procedures required under Rule
17Ad-22(e)(6)(ii)(C).\64\
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\64\ 17 CFR 240.17Ad-22(e)(6)(ii).
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OCC's existing margin processes are already designed to mark
positions to market and collect margin at least daily, consistent with
Rule 17Ad-22(e)(6)(ii)(A).\65\ Under the proposed changes, OCC would
monitor accounts intraday activity in 20 minute intervals and would
have the authority and operational capacity under OCC's existing Rule
609 to issue a margin call or take other action under Rule 307 to
protect OCC based on the result of such monitoring, consistent with new
Rule 17Ad-22(e)(6)(ii)(B).\66\ Specifically, the Margin Policy would
define risk thresholds--the Intraday Monitoring Threshold--for
monitoring intraday exposure for purposes of issuing potential margin
calls, consistent with Rule 17Ad-22(e)(6)(ii)(C).\67\
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\65\ 17 CFR 240.17Ad-22(e)(6)(ii)(A).
\66\ 17 CFR 240.17Ad-22(e)(6)(ii)(B).
\67\ 17 CFR 240.17Ad-22(e)(6)(ii)(C).
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In general, OCC would issue a Clearing Member a margin call during
the scheduled intraday collection time in the event that Clearing
Member's intraday risk increase, as measured at or around 12:00 p.m.
Central Time breached the proposed Intraday Monitoring Threshold. The
scheduled intraday margin call aligns with the timing of OCC's existing
intraday margin calls when unrealized losses exceeding 50% of an
account's total risk charges are observed for that account based on
start-of-day positions, which were previously approved by the
Commission.\68\ However, as the Commission has noted, covered clearing
agencies also need the authority and operational capacity to issue
unscheduled margin calls.\69\ Accordingly, OCC would maintain authority
to make an exception to its general policy of issuing scheduled
intraday margin calls with escalated
[[Page 7730]]
approvals from OCC's most senior Officers.
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\68\ See supra Table 1 note c and accompanying text.
\69\ See supra Table 1 note d and accompanying text.
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In addition, consistent with Commission guidance from its October
25, 2024, final rule,\70\ OCC's policies and procedures would preserve
OCC's authority to determine not to issue an intraday margin call at
the scheduled time, notwithstanding a breach of the Intraday Monitoring
Thresholds, if OCC determines that the call is not necessary to
effectively manage the risk posed to OCC based on the specific facts
and circumstances, including, but not limited to, in circumstances in
which the intraday risk system may not reflect actual intraday risk
increases,\71\ or in circumstances in which issuing a call would not
align with broader systemic objectives such as minimizing potential
procyclical effects and potential participant defaults. In cases in
which OCC does not issue a margin call at the single collection time
under its policies and procedures when the Intraday Monitoring
Thresholds are breached, the Margin Policy would require that an FRM
Officer document that decision, consistent with, consistent with Rule
17Ad-22(e)(6)(ii)(D).\72\ Accordingly, OCC believes that the proposal
is consistent with Rule 17Ad-22(e)(6)(ii).\73\
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\70\ See supra note 55 and accompanying text.
\71\ See, e.g., supra notes 32-46 and accompanying text.
\72\ 17 CFR 240.17Ad-22(e)(6)(ii)(D).
\73\ Id.
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For the above reasons, OCC believes that the proposed rule change
is consistent with Section 17A of the Exchange Act \74\ and the rules
and regulations thereunder applicable to OCC.
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\74\ 15 U.S.C. 78q-1.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) requires that the rules of a clearing agency
do not impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\75\ The proposed introduction
of the new Intraday Risk Charge add-on and establishment of new credit
risk monitoring thresholds would be used by OCC to manage its credit
risk across all Clearing Members. Accordingly, OCC does not believe
that the proposed rule change would unfairly hinder access to OCC's
services.
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\75\ 15 U.S.C. 78q-1(b)(3)(I).
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While the proposed rule change may impact different accounts to a
greater or lesser degree depending on each Clearing Member's trading
activity, including portfolios containing a greater volume of 0DTE
option positions, OCC does not believe that the proposed rule change
would impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act. As discussed above,
OCC is obligated under the Exchange Act and the regulations thereunder
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, among
other things, (i) considers, and produces margin levels commensurate
with the risks and particular attributes of each relevant product,
portfolio, and market, (ii) monitor intraday exposures on an ongoing
basis, and (iii) maintain the authority and operational capacity to
make intraday margin calls, as frequently as circumstances warrant,
including when thresholds specified by the CCA are breached or when the
products cleared or markets served display elevated volatility.\76\
Overall, the impact analysis from the proposed baseline approach
indicates there would be on average a small add-on included across all
Clearing Member margin requirements, with the more significant add-on
charges attributed to Clearing Members in a manner that ties with their
intraday trading activities and the increased risk they present. OCC
notes that while the impact analysis is based on prior activity, OCC
expects that the impact of the add-on charge when released in
production may be less than predicted. This is because OCC expects
Clearing Members may adjust their behaviors through different means
such as allocating their trades earlier and more often throughout the
day, or working to better understand their customers trading and
allocation strategies, in order to minimize the effects of the Intraday
Risk Charge on their portfolios.
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\76\ See 17 CFR 240.17Ad-22(e)(6)(i)-(ii).
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Moreover, the proposed rule change relates to risk management
changes designed to mitigate OCC's credit exposure from the increased
risk generated from Clearing Member trading activities that includes
0DTE option contracts. As noted above, the risk exposure from the
significant increase in intraday trading activity of 0DTE options may
not be adequately captured under OCC's current margin system. OCC
believes the Intraday Risk Charge would be a risk-based approach
suitable to mitigate the increased intraday risk exposure presented to
OCC from such trading activities.
Furthermore, the proposed rule change would be applied uniformly
across all Clearing Members and affect all cleared products. In
response to feedback from industry participants, the amendments to the
proposal would provide additional clarity to participants by shortening
the time horizon for assessing the Intraday Risk Charge, while also
designating a singular intraday margin issue collection time for
potential margin calls in the ordinary course. These changes are
designed to address feedback from industry participants to provide them
with the necessary predictability they need to allocate trades within
their portfolio more often throughout the day while also allowing
Clearing Members to actively manage their exposure to the Intraday Risk
Charge. Accordingly, OCC believes that the proposed rule change would
not impose any burden or impact on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.
(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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
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/
[[Page 7731]]
rules-regulations/self-regulatory-organization-rulemaking); or
Send an email to [email protected]. Please include
file number SR-OCC-2024-010 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to file number SR-OCC-2024-010. 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-regulations/self-regulatory-organization-rulemaking). 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-2024-010 and
should be submitted on or before February 12, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\77\
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\77\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01412 Filed 1-21-25; 8:45 am]
BILLING CODE 8011-01-P