Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Relating to The Options Clearing Corporation's Proposed Amendments to Certain Key Terms of a Master Repurchase Agreement for a Committed Liquidity Facility With a Bank Counterparty as Part of the Options Clearing Corporation's Overall Liquidity Plan, 10734-10738 [2025-03071]

Download as PDF 10734 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices rule-comments@sec.gov. Please include file number SR–CboeEDGX–2025–010 on the subject line. Alternatively, paper comments may be sent to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeEDGX– 2025–010. 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/rulesregulations/self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-CboeEDGX2025-010). Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeEDGX–2025–010 and should be submitted on or before March 19, 2025. Clearing Corporation (‘‘OCC’’ or ‘‘Corporation’’) filed with the Securities and Exchange Commission (‘‘Commission’’) an advance notice 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 advance notice from interested persons. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Sherry R. Haywood, Assistant Secretary. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, OCC included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. 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) and (B) below, of the most significant aspects of these statements. [FR Doc. 2025–03073 Filed 2–25–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102462; File No. SR–OCC– 2025–801] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Relating to The Options Clearing Corporation’s Proposed Amendments to Certain Key Terms of a Master Repurchase Agreement for a Committed Liquidity Facility With a Bank Counterparty as Part of the Options Clearing Corporation’s Overall Liquidity Plan khammond on DSK9W7S144PROD with NOTICES February 20, 2025. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled Payment, Clearing and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) 2 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),3 notice is hereby given that on February 14, 2025, The Options 6 17 CFR 200.30–3(a)(12). U.S.C. 5465(e)(1). 2 17 CFR 240.19b–4(n)(1)(i). 3 15 U.S.C. 78a et seq. 18:26 Feb 25, 2025 (A) Clearing Agency’s Statement on Comments on the Advance Notice 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. (B) Advance Notice Filed Pursuant to Section 806(e) of the Payment, Clearing, and Settlement Supervision Act Description of the Proposed Change OCC is the sole clearing agency for standardized equity options listed on national securities exchanges registered with the Commission. In its role as a registered clearing agency, and as a derivatives clearing organization (‘‘DCO’’) registered with the Commodity 4 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. 1 12 VerDate Sep<11>2014 I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This advance notice is submitted in connection with a proposed change to its operations in the form of amendments to certain key terms of a Master Repurchase Agreement for a committed liquidity facility with a bank counterparty as part of OCC’s overall liquidity plan. The proposed change does not require any changes to the text of OCC’s By-Laws or Rules. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC ByLaws and Rules.4 Jkt 265001 PO 00000 Frm 00025 Fmt 4703 Sfmt 4703 Futures Trading Commission (‘‘CFTC’’), OCC acts as a central counterparty (‘‘CCP’’) that guarantees all contracts it clears. That is, OCC becomes the buyer to every seller and the seller to every buyer. In its role as guarantor, OCC is exposed to risks from a Clearing Member’s failure to fulfill its obligations. In the event of a Clearing Member default, OCC would be obligated to fulfill that member’s cleared transactions and meet settlement obligations in a timely manner. OCC manages these financial risks by maintaining an overall liquidity plan that provides access to a diverse set of funding sources, including a syndicated bank credit facility 5 and a program for accessing additional committed sources of liquidity that do not increase the concentration of OCC’s counterparty exposure (‘‘Non-Bank Liquidity Facility’’).6 These facilities provide OCC with cash in exchange for collateral, such as U.S. Government securities deposited by Clearing Members in satisfaction of their Clearing Fund requirements. Together with the minimum amount of cash OCC requires each Clearing Member to deposit in the Clearing Fund (‘‘Clearing Fund Cash Requirement’’) 7 and any excess cash a Clearing Member may choose to maintain up to its required Clearing Fund contribution,8 the facilities comprise part of OCC’s qualifying liquid resources to satisfy its regulatory obligations.9 5 See, e.g., Exchange Act Release No. 88971 (May 28, 2020), 85 FR 34257 (June 3, 2020) (SR–OCC– 2020–804). 6 See, e.g., Exchange Act Release No. 89039 (June 10, 2020), 85 FR 36444 (June 16, 2020) (SR–OCC– 2020–803). 7 See OCC Rule 1002. 8 Clearing Members that choose to satisfy their Clearing Fund requirement with more than the minimum amount of cash may choose to do so, in part, because of the interest earned on Clearing Fund cash held at a Federal Reserve Bank, which OCC passes through to the Clearing Member. See OCC Rule 1002(b). Substitution of U.S. Government securities in place of excess cash is subject to a twoday notification period, which aligns with OCC’s liquidation time horizon for managing a Clearing Member default. See OCC Rule 1002(a)(iv). Accordingly, OCC considers excess cash up to the Clearing Member’s Clearing Fund requirement as part of its ‘‘Available Liquidity Resources’’ under its Liquidity Risk Management Framework. See Exchange Act Release No. 89014 (June 4, 2020), 85 FR 35446, 35447 (June 10, 2020) (SR–OCC–2020– 003). 9 See 17 CFR 17ad–22(e)(7)(i) (requiring covered clearing agencies to, among other things, maintain sufficient liquid resources to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes the default of the participant family that would generate the largest aggregate payment obligation in extreme but plausible market conditions); 17 CFR 39.11(e) (requiring that a DCO effectively measure, monitor, E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices khammond on DSK9W7S144PROD with NOTICES In 2020, OCC also entered into a oneyear Master Repurchase Agreement (‘‘MRA’’), otherwise known as a ‘‘repo,’’ with a bank counterparty,10 and most recently in 2022 filed an advance notice to establish an MRA with a bank counterparty on an ongoing basis with a commitment amount of up to $1 billion (the ‘‘Bank Repo Facility’’).11 Under the Bank Repo Facility, the buyer (i.e., the bank counterparty) would purchase U.S. Government securities from OCC from time to time in exchange for a buyer payment to OCC in immediately available funds (‘‘Purchase Price’’). The buyer would simultaneously agree to transfer the purchased securities back to OCC at a specified later date (‘‘Repurchase Date’’), or on OCC’s demand against the transfer of funds from OCC to the buyer, where the funds would be equal to the outstanding Purchase Price plus the accrued and unpaid price differential (together, ‘‘Repurchase Price’’). The 2022 advance notice also discussed the MRA terms OCC would require under the Bank Repo Facility, including that, like the current Non-Bank Liquidity Facility,12 the buyer may not pledge, charge, encumber, hypothecate, transfer, dispose of, or otherwise grant any third party any interest in (i.e., ‘‘rehypothecate’’) any eligible securities.13 This prohibition on rehypothecation was intended to prevent the bank from granting any third party an interest in purchased securities in order to reduce the risk that the third party could interfere with the buyer’s transfer of the U.S. Government securities collateral to OCC on the Repurchase Date.14 The parties have yet to execute the Bank Repo Facility following the Commission’s notice of no objection for OCC’s 2022 advance notice. The prohibition on rehypothecation is not a standard feature for bilateral repo transactions like the one contemplated by the Bank Repo Facility and its inclusion in the MRA made the transaction less commercially appealing and manage its liquidity risks such that it can, at a minimum, fulfill its cash obligations when due and that that financial resources allocated to meet its requirements shall be sufficiently liquid to enable the DCO to fulfill its obligations as a central counterparty during a one-day settlement cycle). 10 See Exchange Act Release No. 88317 (Mar. 4, 2020), 85 FR 13681 (Mar. 9, 2020) (SR–OCC–2020– 801). 11 See Exchange Act Release No. 95669 (Sept. 2, 2022), 87 FR 55064 (Sept. 8, 2022) (SR–OCC–2022– 802). 12 Exchange Act Release No. 89039, supra note 6, at 36445 n.14 and accompanying text. 13 See Exchange Act Release No. 95669, supra note 11, at 55064–66. 14 Id. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 to the bank counterparty than initially anticipated. The delay in implementing the Bank Repo Facility has not, however, materially affected OCC’s liquidity risk management because OCC has, since its 2022 expansion of the Non-Bank Liquidity Facility,15 generally maintained sufficient capacity under its other committed facilities to exchange all U.S. Government securities deposited in respect of the Clearing Fund. Proposed Change On a regular basis, OCC reviews its access to such liquidity facilities to calibrate its potential funding requirements to meet payment obligations under stressed market conditions. The review and ongoing negotiations with the bank counterparty identified an opportunity for OCC to provide terms that would be more commercially attractive, thereby allowing OCC and its bank counterparty to move forward with the Bank Repo Facility. Specifically, OCC proposes to modify the Bank Repo Facility to provide for a limited right to rehypothecate the non-customer collateral,16 provided that the rehypothecation is: (i) within a tri-party repo program 17 of a third-party custodian where the buyer would hold the eligible securities in a custodial account; and (ii) only to a third-party cash investor (e.g., large institutional money market funds) that is legally restricted from further pledging, charging, encumbering, hypothecating, transferring, disposing of or otherwise granting any interest in the purchased securities. These limitations would ensure that the securities remain at the buyer’s custodial bank in a segregated account on behalf of the third-party cash investor. OCC believes these terms would create the required commercial incentives to move forward with the Bank Repo Facility. The remainder of the other terms and conditions of the 15 See Exchange Act Release No. 89039, supra note 6. 16 Clearing Fund collateral and non-customer margin collateral of any suspended Clearing Member may be pledged under the Bank Repo Facility. OCC Rule 1006(f) and OCC Rule 1104(b) provide for and authorize OCC to obtain funds from third parties to meet its obligations. The officers who may exercise this authority include the Chairman, Chief Executive Officer, and Chief Operating Officer. Clearing Fund collateral is distinct from, and does not include, margin collateral related to customer positions. 17 Tri-party repos use a custodian bank that provides collateral valuation, margining, and management services to the counterparties to the agreement. OCC understands that unlike with respect to the bilateral repo market, prohibiting further rehypothecation is not uncommon in the triparty repo market. PO 00000 Frm 00026 Fmt 4703 Sfmt 4703 10735 Bank Repo Facility addressed in the 2022 advance notice would remain unchanged, including the conditions under which OCC would file another advance notice with respect to annual renewals or changes to the Bank Repo Facility.18 Anticipated Effect on and Management of Risk Like any liquidity resource, the Bank Repo Facility would involve certain risks, most of which are standard to any repo transaction. OCC has structured the program to mitigate and address such risks. As discussed above, OCC plays a crucial role as a clearing agency by ensuring timely fulfillment of settlement obligations and mitigating the risks related to settlement failures. Therefore, it is essential for OCC to have continuous, reliable, and consistent access to funds from a diverse group of liquidity sources to settle its obligations. In removing the prohibition and establishing a limited rehypothecation right, OCC believes it can expand access to new sources of funding by offering standard market terms that would encourage the bank counterparty to enter into and execute an MRA pursuant to the revised terms of the Bank Repo Facility. OCC understands that the ability to rehypothecate would provide the bank with favorable capital treatment, allowing for reduced pricing and a larger commitment size (subject to the Bank Repo Facility’s currently approved $1 billion maximum). Increasing access to additional sources of liquidity would, in turn, promote the reduction of OCC’s liquidity risk from the default or suspension of a member or the other circumstances in which it may access the Clearing Fund to meet liquidity needs. The Bank Repo Facility, once in place, would also help OCC address the risks arising from a change in circumstances that may remove or restrict access to one or more of OCC’s other current liquidity facilities. This facility would act as an alternative source of liquidity providing OCC with ability to reallocate across existing facilities as necessary to avoid a 18 Exchange Act Release No. 95669, supra note 11, at 55066 (‘‘OCC would submit another advance notice with respect to such renewal for the same term only under one of the following conditions: (1) OCC determines its liquidity needs merit funding levels above the $1 billion; (2) OCC should seek to change the terms and conditions of the MRA in a manner that materially affects the nature or level of risk presented by OCC; (3) OCC should seek to add counterparties or substitute the bank counterparty to the Bank Repo Facility program; or (4) the bank counterparty has experienced a negative change to its credit profile or a material adverse change since the latest renewal of the MRA’’). E:\FR\FM\26FEN1.SGM 26FEN1 khammond on DSK9W7S144PROD with NOTICES 10736 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices shortfall in its overall resources and meet liquidity demands relative to OCC’s base liquidity resources. The new facility will also help OCC to operationally manage allocations across funding sources more effectively based on pricing, market conditions, and liquidity needs. Furthermore, OCC believes it can mitigate the risks attendant to the Bank Repo Facility without prohibiting rehypothecation by the buyer. First, nothing in OCC’s current By-Laws or Rules limit how OCC may use the Clearing Fund collateral, or what rights it may grant others in respect of Clearing Fund collateral, to address a Clearing Member default or other circumstance in which use of Clearing Fund collateral is permitted. To the contrary, OCC is authorized to take possession of the Government securities deposited by Clearing Members as contributions to the Clearing Fund to borrow or otherwise obtain funds through means determined to be reasonable at the discretion of OCC’s Chairman, Chief Executive Officer or Chief Operating Officer, including, without limitation, pledging such assets as security for loans or using such assets to effect repurchase, securities lending or other transactions.19 Second, OCC has already mitigated one of the risks relating to the prohibition on rehypothecation. Prior to 2021, there was ambiguity as to whether OCC was obligated to honor a Clearing Member’s request to substitute Clearing Fund collateral after OCC had initiated a draw through one of the facilities, or otherwise initiated a borrowing using Clearing Fund collateral under OCC Rule 1006(f). Given this ambiguity, OCC has historically included terms in its facilities that would allow OCC to substitute any collateral by a specified time so that OCC could then honor its Clearing Members’ substitution requests.20 The prohibition on rehypothecation facilitated such substitution by ensuring that a third party could not interfere with OCC’s ability to honor a Clearing Member’s substitution request. However, OCC has since amended OCC Rule 1006(f) to make clear that OCC has the authority to reject substitution requests for securities contributed to the Clearing Fund that the Corporation has taken possession of to borrow funds from 19 See OCC Rule 1006(f)(2)(A)(iii). e.g., Exchange Act Release Nos. 95669, supra note 11, at 55065 n.25 and accompanying text; 88317, supra note 10, at 13682; 73979 (Jan. 2, 2015), 80 FR 1062, 1064 (Jan. 8, 2015) (SR–OCC– 2014–809). 20 See, VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 OCC’s liquidity facilities.21 While OCC may facilitate substitutions following a draw as a convenience and accommodation to Clearing Members, it is no longer required to do so. Third, OCC would mitigate the risk that a third-party could interfere with the buyer’s ability to return the purchased securities on the Repurchase Date through the limitations on the rehypothecation right that OCC is proposing based on its negotiations with the bank counterparty. Such rehypothecation would be limited to cash investors (e.g., large institutional money market funds) who are party to a tri-party repo agreement with the bank counterparty. These third parties would be prohibited from themselves rehypothecating the collateral, which would be maintained in the tri-party custodial bank. Additionally, a bank counterparty’s failure to return the Clearing Fund collateral on the Repurchase Date due to the interference of a third-party or otherwise would itself be a condition under which OCC could utilize Clearing Fund collateral or charge the Clearing Fund in order to manage OCC’s liquidity risk and meet daily settlement obligations.22 Finally, OCC’s rights under the agreement would not be impaired by the bankruptcy or receivership of the bank counterparty. A repo falls within the safe harbors from an automatic stay under the Bankruptcy Code.23 A repo is also a qualified financial contract (‘‘QFC’’) under the Federal Deposit Insurance Act (‘‘FDIA’’) 24 and Title II of Dodd-Frank.25 Accordingly, OCC’s rights under the repo agreement to terminate, liquidate or accelerate would not be subject to the 90-day stay in receivership.26 21 See Exchange Act Release No. 89014, supra note 8, at 35450. 22 See OCC Rule 1006(a) (providing that the Clearing Fund may be used for borrowings, or to make good losses or expenses suffered by OCC resulting from borrowings, as a result of, among other things, the failure of any bank to perform its obligations to OCC); Rule 1006(f)(1)(C) (authorizing OCC to initiate a borrowing using Clearing Fund collateral when OCC reasonably believes it necessary to borrow to meet its liquidity needs for daily settlement as a result of, among other things, the failure of any bank to perform any obligation to OCC when due). 23 11 U.S.C. 559. 24 12 U.S.C. 1821(e)(8)(D)(ii)(I). The FDIA is applicable to insured national banks and statecharted banks when an institution becomes insolvent and the Federal Deposit Insurance Corporation (‘‘FDIC’’) is appointed as a receiver. 25 12 U.S.C. 5390(c)(8)(D)(i). Title II of DoddFrank is applicable to FDIC-insured banks that are designated as systemically important financial institutions (‘‘SIFIs’’). 26 See, e.g., 12 U.S.C. 5390(c)(8)(A) (‘‘no person shall be stayed or prohibited from exercising . . . (i) any right that such person has to cause the PO 00000 Frm 00027 Fmt 4703 Sfmt 4703 Consistency With the Payment, Clearing and Settlement Supervision Act The stated purpose of the Clearing Supervision Act is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.27 Section 805(a)(2) of the Clearing Supervision Act 28 also authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like OCC, for which the Commission is the supervisory agency. Section 805(b) of the Clearing Supervision Act 29 states that the objectives and principles for risk management standards prescribed under Section 805(a) shall be to: • promote robust risk management; • promote safety and soundness; • reduce systemic risks; and • support the stability of the broader financial system. The Commission has adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act and the Exchange Act in furtherance of these objectives and principles.30 Rule 17Ad–22 requires registered clearing agencies, like OCC, to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.31 Therefore, the Commission has stated 32 that it believes it is appropriate to review changes proposed in advance notices against Rule 17Ad–22 and the objectives and principles of these risk management standards as described in Section 805(b) of the Clearing Supervision Act.33 OCC believes that the proposed changes are consistent with Section termination, liquidation, or acceleration of any [QFC] with a covered financial company which arises upon the date of appointment of the [FDIC] as receiver for such covered financial company or at any time after such appointment’’). 27 12 U.S.C. 5461(b). 28 12 U.S.C. 5464(a)(2). 29 12 U.S.C. 5464(b). 30 17 CFR 240.17ad–22. See Exchange Act Release Nos. 68080 (Oct. 22, 2012), 77 FR 66220 (Nov. 2, 2012) (S7–08–11) (‘‘Clearing Agency Standards’’); 78961 (Sept. 28, 2016), 81 FR 70786 (Oct. 13, 2016) (S7–03–14) (‘‘Standards for Covered Clearing Agencies’’). 31 17 CFR 240.17ad–22. 32 See, e.g., Exchange Act Release No. 86182 (June 24, 2019), 84 FR 31128, 31129 (June 28, 2019) (SR– OCC–2019–803). 33 12 U.S.C. 5464(b). E:\FR\FM\26FEN1.SGM 26FEN1 khammond on DSK9W7S144PROD with NOTICES Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices 805(b)(1) of the Clearing Supervision Act 34 because the proposed modified terms of the MRA under the Bank Repo Facility would provide OCC with access to an additional source of committed liquidity and provide a new funding option within its risk management toolbox to manage financial obligations more efficiently and effectively. The Bank Repo Facility, as described above, is structured to mitigate the risks that arise in connection with this committed liquidity facility by allowing OCC to move forward with the Bank Repo Facility while managing the related risks by granting the buyer a limited rehypothecation right. In this way, the proposed changes are designed to promote robust risk management; promote safety and soundness; reduce systemic risks; and support the stability of the broader financial system. Rule 17Ad–22(e)(7)(i) under the Exchange Act requires that OCC establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain sufficient liquid resources at the minimum in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes, but is not limited to, the default of the participant family that would generate the largest aggregate payment obligation for the covered clearing agency in extreme but plausible market conditions.35 As described above, the proposed change would allow OCC to implement the Bank Repo Facility, which would in turn help provide OCC with a readily available liquidity resource that would enable it to continue to meet its obligations in a timely manner and address OCC’s liquidity demands under stressed or volatile market conditions. Accordingly, OCC believes that the proposal is consistent with Rule 17Ad–22(e)(7)(i).36 Rule 17Ad–22(e)(7)(ii) under the Exchange Act requires OCC to establish, implement, maintain and enforce written policies and procedures reasonably designed to hold qualifying liquid resources sufficient to satisfy the minimum liquidity resource requirement under Rule 17Ad– 22(e)(7)(i) in the currency for which OCC has payment obligations owed to Clearing Members.37 Rule 17Ad– 22(a)(14) of the Act defines ‘‘qualifying liquid resources’’ to include, among other things, lines of credit without material adverse change provisions, which are readily available and convertible into cash.38 As described above the proposed change to the Bank Repo Facility would provide OCC with an additional committed liquidity resource, which would help ensure OCC has sufficient, readily available qualifying liquid resources to meet settlement obligations and its minimum liquidity resource requirements. Accordingly, OCC believes that the proposal is consistent with Rule 17Ad– 22(e)(7)(ii).39 Rule 17Ad–22(e)(21) under the Exchange Act requires OCC to establish, implement, maintain and enforce written policies and procedures reasonably designed to be efficient and effective in meeting the requirements of its participants and the markets it serves and regularly review the efficiency and effectiveness of, among other things, its operating structure, including risk management policies, procedures and systems.40 OCC has, through its regular review of its liquidity funding arrangements and negotiations with the bank counterparty, identified an impediment to the implementation of an additional liquidity source that would further diversify OCC’s liquidity funding resources. The current prohibition on rehypothecation has prevented execution of the facility on commercially acceptable terms. Removing this impediment would allow OCC to implement the facility for a greater amount and for a lower cost. Because OCC operates under a financial market utility model and principally funds its operations through the collection of clearing fees, such costs are ultimately borne by Clearing Members and, in turn, market participants. Establishing access to a facility as part of OCC’s overall liquidity plan and diverse set of liquidity sources that is comparable or lower in cost to OCC’s other liquidity facilities would help OCC manage its operations in an efficient and effective manner. Accordingly, OCC believes that the changes to the Bank Repo Facility are reasonably designed to manage OCC’s liquidity risk in an efficient and effective manner, consistent with Rule 17Ad–22(e)(21)(ii).41 For the foregoing reasons, OCC believes that the proposed changes are consistent with Section 805(b)(1) of the 38 17 34 12 35 17 CFR 240.17ad–22(a) ‘‘Qualifying liquid resources’’. 39 17 CFR 240.17ad–22(e)(7)(ii). 40 17 CFR 17ad–22(e)(21)(ii). 41 Id. U.S.C. 5464(b)(1). CFR 240.17ad–22(e)(7)(i). 36 Id. 37 17 CFR 240.17ad–22(e)(7)(ii). VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 PO 00000 Frm 00028 Fmt 4703 Sfmt 4703 10737 Clearing Supervision Act 42 and Rules 17Ad–22(e)(7) and (e)(21) under the Exchange Act.43 III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date that the proposed change was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. The clearing agency shall not implement the proposed change if the Commission has any objection to the proposed change. The Commission may extend period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission or the Board of Governors of the Federal Reserve System providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. The clearing agency shall post notice on its website of proposed changes that are implemented. 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 advance notice is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2025–801 on the subject line. Paper Comments • Send paper comments in triplicate to Vanessa Countryman, Secretary, Securities and Exchange Commission, 42 12 43 17 E:\FR\FM\26FEN1.SGM U.S.C. 5464(b)(1). CFR 240.17ad–22(e)(7), (21). 26FEN1 10738 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices 100 F Street NE, Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION All submissions should refer to File Number SR–OCC–2025–801. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the advance notice that are filed with the Commission, and all written communications relating to the advance notice 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 10:00 a.m. and 3:00 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–2025–801 and should be submitted on or before March 19, 2025. [Release No. 34–102463; File No. SR–ISE– 2024–62] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.44 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03071 Filed 2–25–25; 8:45 am] khammond on DSK9W7S144PROD with NOTICES BILLING CODE 8011–01–P Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change Regarding Position and Exercise Limits and Flexible Exchange Options for iShares Bitcoin Trust ETF February 20, 2025. On December 20, 2024, Nasdaq ISE, LLC filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change regarding position and exercise limits and Flexible Exchange Options for iShares Bitcoin Trust ETF. The proposed rule change was published for comment in the Federal Register on January 6, 2025.3 The Commission has received comments on the proposed rule change.4 Section 19(b)(2) of the Act 5 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is February 20, 2025. The Commission is extending this 45-day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates April 6, 2025 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–ISE–2024–62). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03072 Filed 2–25–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102468; File No. SR– NYSEARCA–2024–70] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Designation of a Longer Period for Commission Action on Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the COtwo Advisors Physical European Carbon Allowance Trust Under NYSE Arca Rule 8.201–E (Commodity-Based Trust Shares) February 20, 2025. On August 19, 2024, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the COtwo Advisors Physical European Carbon Allowance Trust under NYSE Arca Rule 8.201–E (Commodity-Based Trust Shares). The proposed rule change was published for comment in the Federal Register on September 5, 2024.3 On October 16, 2024, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On November 22, 2024, the Exchange filed Amendment No. 1 to the proposed rule change, and on December 3, 2024, the Commission issued notice of filing of Amendment No. 1 to the proposed rule change and instituted proceedings pursuant to Section 19(b)(2)(B) of the Act 6 to determine whether to approve 7 17 1 15 44 17 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 102065 (Dec. 31, 2024), 90 FR 704. 4 Comments on the proposal are available at: https://www.sec.gov/comments/sr-ise-2024-62/ srise202462.htm. 5 15 U.S.C. 78s(b)(2). 6 Id. CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 PO 00000 Frm 00029 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(31). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 100877 (Aug. 29, 2024), 89 FR 72524. The Commission has not received any comments. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 101360, 89 FR 84406 (Oct. 22, 2024). 6 15 U.S.C. 78s(b)(2)(B). 1 15 E:\FR\FM\26FEN1.SGM 26FEN1

Agencies

[Federal Register Volume 90, Number 37 (Wednesday, February 26, 2025)]
[Notices]
[Pages 10734-10738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03071]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102462; File No. SR-OCC-2025-801]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice Relating to The Options Clearing 
Corporation's Proposed Amendments to Certain Key Terms of a Master 
Repurchase Agreement for a Committed Liquidity Facility With a Bank 
Counterparty as Part of the Options Clearing Corporation's Overall 
Liquidity Plan

February 20, 2025.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) \2\ of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\3\ notice is hereby given that on 
February 14, 2025, The Options Clearing Corporation (``OCC'' or 
``Corporation'') filed with the Securities and Exchange Commission 
(``Commission'') an advance notice 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 advance notice 
from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice is submitted in connection with a proposed 
change to its operations in the form of amendments to certain key terms 
of a Master Repurchase Agreement for a committed liquidity facility 
with a bank counterparty as part of OCC's overall liquidity plan. The 
proposed change does not require any changes to the text of OCC's By-
Laws or Rules. 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.\4\
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    \4\ 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 Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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) and (B) 
below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice 
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.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Payment, 
Clearing, and Settlement Supervision Act

Description of the Proposed Change
    OCC is the sole clearing agency for standardized equity options 
listed on national securities exchanges registered with the Commission. 
In its role as a registered clearing agency, and as a derivatives 
clearing organization (``DCO'') registered with the Commodity Futures 
Trading Commission (``CFTC''), OCC acts as a central counterparty 
(``CCP'') that guarantees all contracts it clears. That is, OCC becomes 
the buyer to every seller and the seller to every buyer. In its role as 
guarantor, OCC is exposed to risks from a Clearing Member's failure to 
fulfill its obligations. In the event of a Clearing Member default, OCC 
would be obligated to fulfill that member's cleared transactions and 
meet settlement obligations in a timely manner.
    OCC manages these financial risks by maintaining an overall 
liquidity plan that provides access to a diverse set of funding 
sources, including a syndicated bank credit facility \5\ and a program 
for accessing additional committed sources of liquidity that do not 
increase the concentration of OCC's counterparty exposure (``Non-Bank 
Liquidity Facility'').\6\ These facilities provide OCC with cash in 
exchange for collateral, such as U.S. Government securities deposited 
by Clearing Members in satisfaction of their Clearing Fund 
requirements. Together with the minimum amount of cash OCC requires 
each Clearing Member to deposit in the Clearing Fund (``Clearing Fund 
Cash Requirement'') \7\ and any excess cash a Clearing Member may 
choose to maintain up to its required Clearing Fund contribution,\8\ 
the facilities comprise part of OCC's qualifying liquid resources to 
satisfy its regulatory obligations.\9\
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    \5\ See, e.g., Exchange Act Release No. 88971 (May 28, 2020), 85 
FR 34257 (June 3, 2020) (SR-OCC-2020-804).
    \6\ See, e.g., Exchange Act Release No. 89039 (June 10, 2020), 
85 FR 36444 (June 16, 2020) (SR-OCC-2020-803).
    \7\ See OCC Rule 1002.
    \8\ Clearing Members that choose to satisfy their Clearing Fund 
requirement with more than the minimum amount of cash may choose to 
do so, in part, because of the interest earned on Clearing Fund cash 
held at a Federal Reserve Bank, which OCC passes through to the 
Clearing Member. See OCC Rule 1002(b). Substitution of U.S. 
Government securities in place of excess cash is subject to a two-
day notification period, which aligns with OCC's liquidation time 
horizon for managing a Clearing Member default. See OCC Rule 
1002(a)(iv). Accordingly, OCC considers excess cash up to the 
Clearing Member's Clearing Fund requirement as part of its 
``Available Liquidity Resources'' under its Liquidity Risk 
Management Framework. See Exchange Act Release No. 89014 (June 4, 
2020), 85 FR 35446, 35447 (June 10, 2020) (SR-OCC-2020-003).
    \9\ See 17 CFR 17ad-22(e)(7)(i) (requiring covered clearing 
agencies to, among other things, maintain sufficient liquid 
resources to effect same-day and, where appropriate, intraday and 
multiday settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios that 
includes the default of the participant family that would generate 
the largest aggregate payment obligation in extreme but plausible 
market conditions); 17 CFR 39.11(e) (requiring that a DCO 
effectively measure, monitor, and manage its liquidity risks such 
that it can, at a minimum, fulfill its cash obligations when due and 
that that financial resources allocated to meet its requirements 
shall be sufficiently liquid to enable the DCO to fulfill its 
obligations as a central counterparty during a one-day settlement 
cycle).

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[[Page 10735]]

    In 2020, OCC also entered into a one-year Master Repurchase 
Agreement (``MRA''), otherwise known as a ``repo,'' with a bank 
counterparty,\10\ and most recently in 2022 filed an advance notice to 
establish an MRA with a bank counterparty on an ongoing basis with a 
commitment amount of up to $1 billion (the ``Bank Repo Facility'').\11\ 
Under the Bank Repo Facility, the buyer (i.e., the bank counterparty) 
would purchase U.S. Government securities from OCC from time to time in 
exchange for a buyer payment to OCC in immediately available funds 
(``Purchase Price''). The buyer would simultaneously agree to transfer 
the purchased securities back to OCC at a specified later date 
(``Repurchase Date''), or on OCC's demand against the transfer of funds 
from OCC to the buyer, where the funds would be equal to the 
outstanding Purchase Price plus the accrued and unpaid price 
differential (together, ``Repurchase Price''). The 2022 advance notice 
also discussed the MRA terms OCC would require under the Bank Repo 
Facility, including that, like the current Non-Bank Liquidity 
Facility,\12\ the buyer may not pledge, charge, encumber, hypothecate, 
transfer, dispose of, or otherwise grant any third party any interest 
in (i.e., ``rehypothecate'') any eligible securities.\13\ This 
prohibition on rehypothecation was intended to prevent the bank from 
granting any third party an interest in purchased securities in order 
to reduce the risk that the third party could interfere with the 
buyer's transfer of the U.S. Government securities collateral to OCC on 
the Repurchase Date.\14\
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    \10\ See Exchange Act Release No. 88317 (Mar. 4, 2020), 85 FR 
13681 (Mar. 9, 2020) (SR-OCC-2020-801).
    \11\ See Exchange Act Release No. 95669 (Sept. 2, 2022), 87 FR 
55064 (Sept. 8, 2022) (SR-OCC-2022-802).
    \12\ Exchange Act Release No. 89039, supra note 6, at 36445 n.14 
and accompanying text.
    \13\ See Exchange Act Release No. 95669, supra note 11, at 
55064-66.
    \14\ Id.
---------------------------------------------------------------------------

    The parties have yet to execute the Bank Repo Facility following 
the Commission's notice of no objection for OCC's 2022 advance notice. 
The prohibition on rehypothecation is not a standard feature for 
bilateral repo transactions like the one contemplated by the Bank Repo 
Facility and its inclusion in the MRA made the transaction less 
commercially appealing to the bank counterparty than initially 
anticipated. The delay in implementing the Bank Repo Facility has not, 
however, materially affected OCC's liquidity risk management because 
OCC has, since its 2022 expansion of the Non-Bank Liquidity 
Facility,\15\ generally maintained sufficient capacity under its other 
committed facilities to exchange all U.S. Government securities 
deposited in respect of the Clearing Fund.
---------------------------------------------------------------------------

    \15\ See Exchange Act Release No. 89039, supra note 6.
---------------------------------------------------------------------------

Proposed Change
    On a regular basis, OCC reviews its access to such liquidity 
facilities to calibrate its potential funding requirements to meet 
payment obligations under stressed market conditions. The review and 
ongoing negotiations with the bank counterparty identified an 
opportunity for OCC to provide terms that would be more commercially 
attractive, thereby allowing OCC and its bank counterparty to move 
forward with the Bank Repo Facility. Specifically, OCC proposes to 
modify the Bank Repo Facility to provide for a limited right to 
rehypothecate the non-customer collateral,\16\ provided that the 
rehypothecation is: (i) within a tri-party repo program \17\ of a 
third-party custodian where the buyer would hold the eligible 
securities in a custodial account; and (ii) only to a third-party cash 
investor (e.g., large institutional money market funds) that is legally 
restricted from further pledging, charging, encumbering, hypothecating, 
transferring, disposing of or otherwise granting any interest in the 
purchased securities. These limitations would ensure that the 
securities remain at the buyer's custodial bank in a segregated account 
on behalf of the third-party cash investor. OCC believes these terms 
would create the required commercial incentives to move forward with 
the Bank Repo Facility. The remainder of the other terms and conditions 
of the Bank Repo Facility addressed in the 2022 advance notice would 
remain unchanged, including the conditions under which OCC would file 
another advance notice with respect to annual renewals or changes to 
the Bank Repo Facility.\18\
---------------------------------------------------------------------------

    \16\ Clearing Fund collateral and non-customer margin collateral 
of any suspended Clearing Member may be pledged under the Bank Repo 
Facility. OCC Rule 1006(f) and OCC Rule 1104(b) provide for and 
authorize OCC to obtain funds from third parties to meet its 
obligations. The officers who may exercise this authority include 
the Chairman, Chief Executive Officer, and Chief Operating Officer. 
Clearing Fund collateral is distinct from, and does not include, 
margin collateral related to customer positions.
    \17\ Tri-party repos use a custodian bank that provides 
collateral valuation, margining, and management services to the 
counterparties to the agreement. OCC understands that unlike with 
respect to the bilateral repo market, prohibiting further 
rehypothecation is not uncommon in the tri-party repo market.
    \18\ Exchange Act Release No. 95669, supra note 11, at 55066 
(``OCC would submit another advance notice with respect to such 
renewal for the same term only under one of the following 
conditions: (1) OCC determines its liquidity needs merit funding 
levels above the $1 billion; (2) OCC should seek to change the terms 
and conditions of the MRA in a manner that materially affects the 
nature or level of risk presented by OCC; (3) OCC should seek to add 
counterparties or substitute the bank counterparty to the Bank Repo 
Facility program; or (4) the bank counterparty has experienced a 
negative change to its credit profile or a material adverse change 
since the latest renewal of the MRA'').
---------------------------------------------------------------------------

Anticipated Effect on and Management of Risk
    Like any liquidity resource, the Bank Repo Facility would involve 
certain risks, most of which are standard to any repo transaction. OCC 
has structured the program to mitigate and address such risks. As 
discussed above, OCC plays a crucial role as a clearing agency by 
ensuring timely fulfillment of settlement obligations and mitigating 
the risks related to settlement failures. Therefore, it is essential 
for OCC to have continuous, reliable, and consistent access to funds 
from a diverse group of liquidity sources to settle its obligations. In 
removing the prohibition and establishing a limited rehypothecation 
right, OCC believes it can expand access to new sources of funding by 
offering standard market terms that would encourage the bank 
counterparty to enter into and execute an MRA pursuant to the revised 
terms of the Bank Repo Facility. OCC understands that the ability to 
rehypothecate would provide the bank with favorable capital treatment, 
allowing for reduced pricing and a larger commitment size (subject to 
the Bank Repo Facility's currently approved $1 billion maximum). 
Increasing access to additional sources of liquidity would, in turn, 
promote the reduction of OCC's liquidity risk from the default or 
suspension of a member or the other circumstances in which it may 
access the Clearing Fund to meet liquidity needs.
    The Bank Repo Facility, once in place, would also help OCC address 
the risks arising from a change in circumstances that may remove or 
restrict access to one or more of OCC's other current liquidity 
facilities. This facility would act as an alternative source of 
liquidity providing OCC with ability to reallocate across existing 
facilities as necessary to avoid a

[[Page 10736]]

shortfall in its overall resources and meet liquidity demands relative 
to OCC's base liquidity resources. The new facility will also help OCC 
to operationally manage allocations across funding sources more 
effectively based on pricing, market conditions, and liquidity needs.
    Furthermore, OCC believes it can mitigate the risks attendant to 
the Bank Repo Facility without prohibiting rehypothecation by the 
buyer. First, nothing in OCC's current By-Laws or Rules limit how OCC 
may use the Clearing Fund collateral, or what rights it may grant 
others in respect of Clearing Fund collateral, to address a Clearing 
Member default or other circumstance in which use of Clearing Fund 
collateral is permitted. To the contrary, OCC is authorized to take 
possession of the Government securities deposited by Clearing Members 
as contributions to the Clearing Fund to borrow or otherwise obtain 
funds through means determined to be reasonable at the discretion of 
OCC's Chairman, Chief Executive Officer or Chief Operating Officer, 
including, without limitation, pledging such assets as security for 
loans or using such assets to effect repurchase, securities lending or 
other transactions.\19\
---------------------------------------------------------------------------

    \19\ See OCC Rule 1006(f)(2)(A)(iii).
---------------------------------------------------------------------------

    Second, OCC has already mitigated one of the risks relating to the 
prohibition on rehypothecation. Prior to 2021, there was ambiguity as 
to whether OCC was obligated to honor a Clearing Member's request to 
substitute Clearing Fund collateral after OCC had initiated a draw 
through one of the facilities, or otherwise initiated a borrowing using 
Clearing Fund collateral under OCC Rule 1006(f). Given this ambiguity, 
OCC has historically included terms in its facilities that would allow 
OCC to substitute any collateral by a specified time so that OCC could 
then honor its Clearing Members' substitution requests.\20\ The 
prohibition on rehypothecation facilitated such substitution by 
ensuring that a third party could not interfere with OCC's ability to 
honor a Clearing Member's substitution request. However, OCC has since 
amended OCC Rule 1006(f) to make clear that OCC has the authority to 
reject substitution requests for securities contributed to the Clearing 
Fund that the Corporation has taken possession of to borrow funds from 
OCC's liquidity facilities.\21\ While OCC may facilitate substitutions 
following a draw as a convenience and accommodation to Clearing 
Members, it is no longer required to do so.
---------------------------------------------------------------------------

    \20\ See, e.g., Exchange Act Release Nos. 95669, supra note 11, 
at 55065 n.25 and accompanying text; 88317, supra note 10, at 13682; 
73979 (Jan. 2, 2015), 80 FR 1062, 1064 (Jan. 8, 2015) (SR-OCC-2014-
809).
    \21\ See Exchange Act Release No. 89014, supra note 8, at 35450.
---------------------------------------------------------------------------

    Third, OCC would mitigate the risk that a third-party could 
interfere with the buyer's ability to return the purchased securities 
on the Repurchase Date through the limitations on the rehypothecation 
right that OCC is proposing based on its negotiations with the bank 
counterparty. Such rehypothecation would be limited to cash investors 
(e.g., large institutional money market funds) who are party to a tri-
party repo agreement with the bank counterparty. These third parties 
would be prohibited from themselves rehypothecating the collateral, 
which would be maintained in the tri-party custodial bank. 
Additionally, a bank counterparty's failure to return the Clearing Fund 
collateral on the Repurchase Date due to the interference of a third-
party or otherwise would itself be a condition under which OCC could 
utilize Clearing Fund collateral or charge the Clearing Fund in order 
to manage OCC's liquidity risk and meet daily settlement 
obligations.\22\
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    \22\ See OCC Rule 1006(a) (providing that the Clearing Fund may 
be used for borrowings, or to make good losses or expenses suffered 
by OCC resulting from borrowings, as a result of, among other 
things, the failure of any bank to perform its obligations to OCC); 
Rule 1006(f)(1)(C) (authorizing OCC to initiate a borrowing using 
Clearing Fund collateral when OCC reasonably believes it necessary 
to borrow to meet its liquidity needs for daily settlement as a 
result of, among other things, the failure of any bank to perform 
any obligation to OCC when due).
---------------------------------------------------------------------------

    Finally, OCC's rights under the agreement would not be impaired by 
the bankruptcy or receivership of the bank counterparty. A repo falls 
within the safe harbors from an automatic stay under the Bankruptcy 
Code.\23\ A repo is also a qualified financial contract (``QFC'') under 
the Federal Deposit Insurance Act (``FDIA'') \24\ and Title II of Dodd-
Frank.\25\ Accordingly, OCC's rights under the repo agreement to 
terminate, liquidate or accelerate would not be subject to the 90-day 
stay in receivership.\26\
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    \23\ 11 U.S.C. 559.
    \24\ 12 U.S.C. 1821(e)(8)(D)(ii)(I). The FDIA is applicable to 
insured national banks and state-charted banks when an institution 
becomes insolvent and the Federal Deposit Insurance Corporation 
(``FDIC'') is appointed as a receiver.
    \25\ 12 U.S.C. 5390(c)(8)(D)(i). Title II of Dodd-Frank is 
applicable to FDIC-insured banks that are designated as systemically 
important financial institutions (``SIFIs'').
    \26\ See, e.g., 12 U.S.C. 5390(c)(8)(A) (``no person shall be 
stayed or prohibited from exercising . . . (i) any right that such 
person has to cause the termination, liquidation, or acceleration of 
any [QFC] with a covered financial company which arises upon the 
date of appointment of the [FDIC] as receiver for such covered 
financial company or at any time after such appointment'').
---------------------------------------------------------------------------

Consistency With the Payment, Clearing and Settlement Supervision Act
    The stated purpose of the Clearing Supervision Act is to mitigate 
systemic risk in the financial system and promote financial stability 
by, among other things, promoting uniform risk management standards for 
systemically important financial market utilities and strengthening the 
liquidity of systemically important financial market utilities.\27\ 
Section 805(a)(2) of the Clearing Supervision Act \28\ also authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like OCC, for which the Commission is the supervisory agency. Section 
805(b) of the Clearing Supervision Act \29\ states that the objectives 
and principles for risk management standards prescribed under Section 
805(a) shall be to:
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 5461(b).
    \28\ 12 U.S.C. 5464(a)(2).
    \29\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and the Exchange Act in 
furtherance of these objectives and principles.\30\ Rule 17Ad-22 
requires registered clearing agencies, like OCC, to establish, 
implement, maintain, and enforce written policies and procedures that 
are reasonably designed to meet certain minimum requirements for their 
operations and risk management practices on an ongoing basis.\31\ 
Therefore, the Commission has stated \32\ that it believes it is 
appropriate to review changes proposed in advance notices against Rule 
17Ad-22 and the objectives and principles of these risk management 
standards as described in Section 805(b) of the Clearing Supervision 
Act.\33\
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    \30\ 17 CFR 240.17ad-22. See Exchange Act Release Nos. 68080 
(Oct. 22, 2012), 77 FR 66220 (Nov. 2, 2012) (S7-08-11) (``Clearing 
Agency Standards''); 78961 (Sept. 28, 2016), 81 FR 70786 (Oct. 13, 
2016) (S7-03-14) (``Standards for Covered Clearing Agencies'').
    \31\ 17 CFR 240.17ad-22.
    \32\ See, e.g., Exchange Act Release No. 86182 (June 24, 2019), 
84 FR 31128, 31129 (June 28, 2019) (SR-OCC-2019-803).
    \33\ 12 U.S.C. 5464(b).
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    OCC believes that the proposed changes are consistent with Section

[[Page 10737]]

805(b)(1) of the Clearing Supervision Act \34\ because the proposed 
modified terms of the MRA under the Bank Repo Facility would provide 
OCC with access to an additional source of committed liquidity and 
provide a new funding option within its risk management toolbox to 
manage financial obligations more efficiently and effectively. The Bank 
Repo Facility, as described above, is structured to mitigate the risks 
that arise in connection with this committed liquidity facility by 
allowing OCC to move forward with the Bank Repo Facility while managing 
the related risks by granting the buyer a limited rehypothecation 
right. In this way, the proposed changes are designed to promote robust 
risk management; promote safety and soundness; reduce systemic risks; 
and support the stability of the broader financial system.
---------------------------------------------------------------------------

    \34\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(i) under the Exchange Act requires that OCC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to maintain sufficient liquid resources 
at the minimum in all relevant currencies to effect same-day and, where 
appropriate, intraday and multiday settlement of payment obligations 
with a high degree of confidence under a wide range of foreseeable 
stress scenarios that includes, but is not limited to, the default of 
the participant family that would generate the largest aggregate 
payment obligation for the covered clearing agency in extreme but 
plausible market conditions.\35\ As described above, the proposed 
change would allow OCC to implement the Bank Repo Facility, which would 
in turn help provide OCC with a readily available liquidity resource 
that would enable it to continue to meet its obligations in a timely 
manner and address OCC's liquidity demands under stressed or volatile 
market conditions. Accordingly, OCC believes that the proposal is 
consistent with Rule 17Ad-22(e)(7)(i).\36\
---------------------------------------------------------------------------

    \35\ 17 CFR 240.17ad-22(e)(7)(i).
    \36\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires OCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to hold qualifying liquid resources 
sufficient to satisfy the minimum liquidity resource requirement under 
Rule 17Ad-22(e)(7)(i) in the currency for which OCC has payment 
obligations owed to Clearing Members.\37\ Rule 17Ad-22(a)(14) of the 
Act defines ``qualifying liquid resources'' to include, among other 
things, lines of credit without material adverse change provisions, 
which are readily available and convertible into cash.\38\ As described 
above the proposed change to the Bank Repo Facility would provide OCC 
with an additional committed liquidity resource, which would help 
ensure OCC has sufficient, readily available qualifying liquid 
resources to meet settlement obligations and its minimum liquidity 
resource requirements. Accordingly, OCC believes that the proposal is 
consistent with Rule 17Ad-22(e)(7)(ii).\39\
---------------------------------------------------------------------------

    \37\ 17 CFR 240.17ad-22(e)(7)(ii).
    \38\ 17 CFR 240.17ad-22(a) ``Qualifying liquid resources''.
    \39\ 17 CFR 240.17ad-22(e)(7)(ii).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(21) under the Exchange Act requires OCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to be efficient and effective in meeting 
the requirements of its participants and the markets it serves and 
regularly review the efficiency and effectiveness of, among other 
things, its operating structure, including risk management policies, 
procedures and systems.\40\ OCC has, through its regular review of its 
liquidity funding arrangements and negotiations with the bank 
counterparty, identified an impediment to the implementation of an 
additional liquidity source that would further diversify OCC's 
liquidity funding resources. The current prohibition on rehypothecation 
has prevented execution of the facility on commercially acceptable 
terms. Removing this impediment would allow OCC to implement the 
facility for a greater amount and for a lower cost. Because OCC 
operates under a financial market utility model and principally funds 
its operations through the collection of clearing fees, such costs are 
ultimately borne by Clearing Members and, in turn, market participants. 
Establishing access to a facility as part of OCC's overall liquidity 
plan and diverse set of liquidity sources that is comparable or lower 
in cost to OCC's other liquidity facilities would help OCC manage its 
operations in an efficient and effective manner. Accordingly, OCC 
believes that the changes to the Bank Repo Facility are reasonably 
designed to manage OCC's liquidity risk in an efficient and effective 
manner, consistent with Rule 17Ad-22(e)(21)(ii).\41\
---------------------------------------------------------------------------

    \40\ 17 CFR 17ad-22(e)(21)(ii).
    \41\ Id.
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    For the foregoing reasons, OCC believes that the proposed changes 
are consistent with Section 805(b)(1) of the Clearing Supervision Act 
\42\ and Rules 17Ad-22(e)(7) and (e)(21) under the Exchange Act.\43\
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    \42\ 12 U.S.C. 5464(b)(1).
    \43\ 17 CFR 240.17ad-22(e)(7), (21).
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III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The clearing agency shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission or the Board of Governors of the Federal Reserve System 
providing the clearing agency with prompt written notice of the 
extension. A proposed change may be implemented in less than 60 days 
from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission. The clearing agency shall post notice on its website 
of proposed changes that are implemented.
    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 advance 
notice is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2025-801 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission,

[[Page 10738]]

100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2025-801. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the advance notice that are filed with the 
Commission, and all written communications relating to the advance 
notice 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 10:00 a.m. and 
3:00 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-2025-801 and should 
be submitted on or before March 19, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03071 Filed 2-25-25; 8:45 am]
BILLING CODE 8011-01-P
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