Federal Register / Vol. 83, No. 245 / Friday, December 21, 2018 / Notices 65775 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Exchange Act Release No. 34–84521 (Nov. 1, 

2018), 83 FR 55768 (Nov. 7, 2018) (‘‘Notice’’). 

4All terms with initial capitalization that are not 

otherwise defined herein have the same meaning as 

set forth in the OCC By-Laws and Rules. OCC’s ByLaws and Rules can be found on OCC’s public 

website: http://optionsclearing.com/about/ 

publications/bylaws.jsp. 

5OCC By-Laws, Article III, Sections 1, 2, 6, 6A, 

and 7 (addressing the number of directors and 

required qualifications of Member Directors, 

Exchange Directors, Public Directors, and the 

Management Director); see also Board Charter at 4 

(Size of Board; Composition). 6 15 U.S.C. 78q–1(b)(3)(C). 

7See 15 U.S.C. 78c(a)(24) (defining the term 

‘‘participant’’ when used with respect to a clearing 

agency); 15 U.S.C. 78c(a)(9) (defining the term 

‘‘person’’). 8OCC By-Laws, Article I, Section 1.R.(6) and 

Article III, Section 2. 

9OCC By-Laws, Article III, Section 5. In advance 

of the election, OCC shares the list of nominees 

with Clearing Members who are provided an 

opportunity to submit additional nominees. Id. 

10OCC By-Laws, Article III, Section 5. 

11The Fitness Standards are available on OCC’s 

public website: https://www.theocc.com/about/ 

corporate-information/board-charter.jsp. 

12See OCC’s Fitness Standards at 1–2; see also 

OCC Governance and Nominating Committee 

Charter (‘‘GNC Charter’’) at 3 (providing that the 

GNC shall identify, screen, and review individuals 

qualified to be elected or appointed to serve as 

Member Directors consistent with the Fitness 

Standards), available on OCC’s public website at 

https://www.theocc.com/about/corporateinformation/board-committee-charters.jsp; OCC ByLaws Article III, Section 2, Interpretation and Policy 

.01 (providing that the GNC shall use the Fitness 

Standards for Directors, Clearing Members, and 

Others in considering Member Director nominees). 

13Additional criteria for Member Directors 

include: (i) Balanced representation among all 

Clearing Members; (ii) balanced representation of 

all business activities of Clearing Members; (iii) 

nature of the firm with which each prospective 

director is associated; (iv) industry affiliations; (v) 

assure that not all Member Directors are 

representatives of the largest Clearing Member 

Organizations based on the prior year’s volume; and 

(vi) develop a mix of Member Directors that 

includes representatives of Clearing Member 

Organizations that are primarily engaged in agency 

trading on behalf of retail customers or individual 

investors. Fitness Standards at 2. 

14 GNC Charter at 3–4. 

15OCC By-Laws, Article III, Section 2(a). For 

example, a Member Director who is appointed in 

2018 to fill a vacancy and then is elected to serve 

a three-year term beginning in 2020 would 

Continued 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84836; File No. SR–OCC– 

2018–013] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Approving Proposed Rule Change To 

Extend Term Limits for Member 

Directors Serving on The Options 

Clearing Corporation’s Board of 

Directors 

December 17, 2018. 

I. Introduction 

On October 26, 2018, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2018– 

013 (‘‘Proposed Rule Change’’) pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2 to 

extend the term limits for Member 

Directors serving on OCC’s Board of 

Directors (‘‘Board’’) from two 

consecutive three-year terms to three 

consecutive three-year terms. The 

Proposed Rule Change was published 

for comment in the Federal Register on 

November 7, 2018,3 and the 

Commission has received no comments 

in response. 

II. Background 4

OCC proposes a change to Article III, 

Section 2 of its By-Laws and to the 

Board of Directors Charter and 

Corporate Governance Principles 

(‘‘Board Charter’’) that would extend the 

term limits for Member Directors from 

two consecutive three-year terms to 

three consecutive three-year terms. 

According to OCC, the purpose of the 

change is to address issues associated 

with frequent Member Director turnover 

by providing the potential for longer 

consecutive service by Member 

Directors who, among other 

considerations, may have developed 

considerable knowledge about OCC’s 

business and the interests of Clearing 

Members. 

Board Composition and Member 

Director Considerations 

OCC’s Certificate of Incorporation and 

By-Laws establish the Board’s 

composition and the procedures for 

director selection. Pursuant to these 

documents, when at full capacity, the 

Board consists of twenty directors: (i) 

Nine directors representing OCC 

Clearing Members (‘‘Member 

Directors’’); (ii) five directors designated 

by and representing each of OCC’s five 

Equity Exchanges (‘‘Exchange 

Directors’’); (iii) five directors who are 

not affiliated with any national 

securities exchange, national securities 

association, or with any broker or dealer 

in securities (‘‘Public Directors’’); and 

(iv) one management director, who 

serves as the Executive Chairman 

(‘‘Management Director’’).5

According to OCC, Member Directors 

serve on the Board to comply with 

Section 17A(b)(3)(C) of the Exchange 

Act, which requires, among other 

things, that the rules of a clearing 

agency assure fair representation of its 

participants in the selection of its 

directors and administration of its 

affairs.6 The term ‘‘participant’’ when 

used with respect to a clearing agency 

under the Exchange Act means any 

person, such as a Clearing Member, who 

directly uses the clearing agency to clear 

or settle securities transactions.7

Accordingly, OCC’s By-Laws set forth 

the qualifications for Member Directors, 

providing that a Member Director must 

be either a Clearing Member or 

representative (e.g., a director, senior 

officer, principal, or general partner) of 

a Clearing Member Organization or an 

affiliate of such organization.8

At its annual meeting of stockholders, 

OCC’s stockholders elect Member 

Directors from a list of nominees 

prepared by the Board’s Governance and 

Nominating Committee (‘‘GNC’’) and 

approved by the Board.9 In furtherance 

of the Exchange Act’s fair representation 

requirement described above, Article III, 

Section 5 of OCC’s By-Laws requires the 

GNC in selecting Member Director 

nominees to ‘‘endeavor to achieve 

balanced representation among Clearing 

Members on the Board of Directors to 

assure that (i) not all Member Directors 

are representatives of the largest 

Clearing Member Organizations based 

on the prior year’s volume, and (ii) the 

mix of Member Directors includes 

representatives of Clearing Member 

Organizations that are primarily 

engaged in agency trading on behalf of 

retail customers or individual 

investors.’’ 10 All director nominees, 

including Member Director nominees, 

must also be considered under the 

standards for directors in OCC’s Fitness 

Standards for Directors, Clearing 

Members, and Others (‘‘Fitness 

Standards’’) 11 regarding their skills, 

experience, expertise, attributes, and 

professional backgrounds.12 The Fitness 

Standards include criteria that apply 

specifically to Member Directors.13 In 

addition, at least every three years, the 

GNC is required to review the 

composition of the Board as a whole for 

consistency with public interest and 

regulatory requirements, including 

whether the Board reflects the 

appropriate balance across the 

categories of directors such as Member 

Directors.14

Member Director Term Limits 

Member Directors are the only type of 

OCC directors currently subject to term 

limits. Specifically, Member Directors 

are limited to serving two consecutive 

three-year terms for a total of six 

consecutive years of Board service 

(excluding any time that may be served 

filling a vacancy).15 All other 


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65776 Federal Register / Vol. 83, No. 245 / Friday, December 21, 2018 / Notices 

currently be eligible to serve out two consecutive 

three-year terms ending in 2026. 

16The Commission previously approved the 

removal of term limits for Public Directors in 2016. 

Exchange Act Release No. 34–78862 (Sept. 16, 

2016), 81 FR 65415, 65427 (Sept. 22, 2016) (SR– 

OCC–2016–002). 

17 15 U.S.C. 78s(b)(2)(C). 

18 15 U.S.C. 78q–1(b)(3)(C). 

19 17 CFR 240.17Ad–22(e)(i), (iii), and (iv). 

20 15 U.S.C. 78q–1(b)(3)(C). 

21See supra note 7. 

22Exchange Act Release No. 34–20221 (Sept. 23, 

1983), 48 FR 45167, 45172 (Oct. 3, 1983) 

(Depository Trust Co., et al.; Order). 

23See supra notes 10–13. 

24 15 U.S.C. 78q–1(b)(3)(C). 

25 17 CFR 240.17Ad–22(e)(i), (iii), and (iv). 

26 17 CFR 240.17Ad–22(e)(i). 

27 15 U.S.C. 78q–1(b)(3)(C). 

28 17 CFR 240.17Ad–22(e)(iii). 

29 17 CFR 240.17Ad–22(e)(iv). 

30 In approving this Proposed Rule Change, the 

Commission has considered the proposed rules’ 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

31 15 U.S.C. 78s(b)(2). 

directors—Exchange Directors, Public 

Directors, and the Management 

Director—are not subject to any term 

limits.16

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Exchange 

Act directs the Commission to approve 

a proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Exchange 

Act and the rules and regulations 

thereunder applicable to such 

organization.17 After carefully 

considering the Proposed Rule Change, 

the Commission finds the proposal is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to 

OCC. More specifically, the Commission 

finds that the proposal is consistent 

with Section 17A(b)(3)(C) of the 

Exchange Act 18 and Rules 17Ad– 

22(e)(2)(i), (e)(2)(iii), and (e)(2)(iv) 

thereunder.19

A. Consistency With Section 

17A(b)(3)(C) of the Exchange Act 

Section 17A(b)(3)(C) of the Exchange 

Act 20 requires, among other things, that 

the rules of a clearing agency assure a 

fair representation of its participants in 

the selection of its directors and 

administration of its affairs.21 The 

Exchange Act does not define fair 

representation or set up particular 

standards of representation. The 

Commission has stated that, ‘‘at a 

minimum, fair representation requires 

that the entity responsible for 

nominating individuals for membership 

on the board of directors should be 

obligated by by-law or rule to make 

nominations with a view toward 

assuring fair representation of the 

interests of shareholders and a crosssection of the community of 

participants.’’ 22 The Commission 

believes that the Proposed Rule Change 

is consistent with the fair representation 

requirement. 

First, the Commission agrees that 

increasing the number of three-year 

terms that Member Directors may serve 

from two to three could provide OCC 

with the ability to retain the experience 

of Member Directors who, among other 

considerations, may have developed 

considerable knowledge about OCC’s 

business and the interests of Clearing 

Members and therefore could bring 

significant value to OCC’s governance 

process. Moreover, the mechanisms 

described above in the applicable ByLaws and board committee charters 

would continue to require the GNC to 

endeavor to achieve balanced 

representation among Clearing Members 

on the Board when nominating Member 

Directors and in conducting reviews of 

the Board’s composition.23 The 

Commission believes that these 

mechanisms should be sufficient to 

continue to promote the fair 

representation of Clearing Members, 

while still permitting OCC to potentially 

retain the services of experienced 

Member Directors. Further, the 

Commission notes that the Proposed 

Rule Change would not guarantee the 

nomination or election of a Member 

Director to a third consecutive term. For 

these reasons, the Commission believes 

that the Proposed Rule Change is 

consistent with Section 17A(b)(3)(C) of 

the Exchange Act.24

B. Consistency With Rules 17Ad– 

22(e)(2)(i), (e)(2)(iii), and (e)(2)(iv) 

Under the Exchange Act 

Rules 17Ad–22(e)(2)(i), (e)(2)(iii), and 

(e)(2)(iv) under the Exchange Act 

require that a covered clearing agency, 

such as OCC, establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

provide for governance arrangements 

that, among other things: Are clear and 

transparent; support the public interest 

requirements in Section 17A of the 

Exchange Act applicable to clearing 

agencies, and the objectives of owners 

and participants; and establish that the 

board of directors and senior 

management have appropriate 

experience and skills to discharge their 

duties and responsibilities.25 The 

Commission believes that the Proposed 

Rule Change is consistent with these 

provisions of Rule 17Ad–22(e)(2) for the 

following reasons. 

First, the revised term limits for 

Member Directors would be set forth 

explicitly in OCC’s By-Laws and Board 

Charter, both of which are available on 

the OCC website. We believe that, by 

making these documents publicly 

available and easily accessible, OCC 

would be providing clear and 

transparent governance arrangements 

consistent with the requirements of Rule 

17Ad–22(e)(2)(i).26

Second, for the same reasons we 

believe the Proposed Rule Change is 

consistent with the fair representation 

requirements under Section 

17A(b)(3)(C) of the Exchange Act,27 as 

discussed above in Section III.A, the 

Commission believes that the Proposed 

Rule Change is consistent with Rule 

17Ad–22(e)(2)(iii)’s 28 requirement that 

OCC establish, implement, maintain, 

and enforce written policies and 

procedures reasonably designed to 

provide for governance arrangements 

that support the public interest 

requirements in Section 17A of the 

Exchange Act applicable to clearing 

agencies and the objectives of owners 

and participants. 

Finally, by providing OCC with the 

potential ability to retain the experience 

of Member Directors who, among other 

considerations, may have developed 

considerable knowledge about OCC’s 

business and the interests of Clearing 

Members that may be difficult to replace 

and that could bring significant value to 

OCC’s governance process, we believe 

that the Proposed Rule Change would 

promote a Board composition in which 

OCC’s directors have appropriate 

experience and skills to discharge their 

duties and responsibilities. Accordingly, 

the Commission believes that ensuring 

that OCC has the flexibility to have 

Member Directors serve a third 

consecutive three-year term should help 

to ensure that OCC’s Board has the 

appropriate experience and skills to 

discharge their responsibilities, 

consistent with the requirements of Rule 

17Ad–22(e)(iv).29

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

requirements of the Exchange Act, and 

in particular, the requirements of 

Section 17A of the Exchange Act 30 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,31

that the Proposed Rule Change (SR– 

OCC–2018–013) be, and hereby is, 

approved. 


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Federal Register / Vol. 83, No. 245 / Friday, December 21, 2018 / Notices 65777 

32 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See EDGX Rule 11.21(a)(1). A ‘‘Retail Order’’ is 

an agency or riskless principal order that meets the 

criteria of FINRA Rule 5320.03 that originates from 

a natural person and is submitted to the Exchange 

by a Retail Member Organization, provided that no 

change is made to the terms of the order with 

respect to price or side of market and the order does 

not originate from a trading algorithm or any other 

computerized methodology. See EDGX Rule 

11.21(a)(2). 

4 ‘‘ZA’’ is associated with Retail Orders that add 

liquidity. 

5ADAV means average daily added volume 

calculated as the number of shares added per day 

and ADV means average daily volume calculated as 

the number of shares added to, removed from, or 

routed by, the Exchange, or any combination or 

subset thereof, per day. ADAV and ADV is 

calculated on a monthly basis. 

The Exchange excludes from its calculation of 

ADAV and ADV shares added, removed, or routed 

on any day that the Exchange’s system experiences 

a disruption that lasts for more than 60 minutes 

during Regular Trading Hours (‘‘Exchange System 

Disruption’’), on any day with a scheduled early 

market close, and on the last Friday in June (the 

‘‘Russell Reconstitution Day’’). 

With prior notice to the Exchange, a Member may 

aggregate ADAV and ADV with other Members that 

control, are controlled by, or are under common 

control with such Member (as evidenced on such 

Member’s Form BD). 

6TCV means total consolidated volume 

calculated as the volume reported by all exchanges 

and trade reporting facilities to a consolidated 

transaction reporting plan for the month for which 

the fees apply. 

The Exchange excludes from its calculation of 

TCV volume on any day that the Exchange 

experiences an Exchange System Disruption, on any 

day with a scheduled early market close, and the 

Russell Reconstitution Day. 

7 ‘‘B’’ is associated with displayed orders that add 

liquidity on EDGX for Tape B. 

8 ‘‘V’’ is associated with displayed orders that add 

liquidity on EDGX for Tape A. 

9 ‘‘Y’’ is associated with displayed orders that add 

liquidity on EDGX for Tape C. 

10 ‘‘3’’ is associated with displayed orders that 

add liquidity on EDGX for Tape A or C during the 

post-market or pre-market trading sessions. 

11 ‘‘4’’ is associated with displayed orders that 

add liquidity on EDGX for Tape B during the postmarket or pre-market trading sessions. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2018–27612 Filed 12–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84832; File No. SR– 

CboeEDGX–2018–059] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Relating To 

Amend the Exchange’s Fee Schedule 

Applicable to Its Equities Trading 

Platform 

December 17, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

3, 2018, Cboe EDGX Exchange, Inc. 

(‘‘Exchange’’ or ‘‘EDGX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe EDGX Exchange, Inc. (‘‘EDGX’’ 

or the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposed rule 

change to amend the Exchange’s fee 

schedule applicable to its equities 

trading platform (‘‘EDGX Equities’’) to 

introduce: (1) A ‘‘Retail Volume Tier’’ 

for firms that execute a significant 

volume of liquidity providing retail 

order flow on EDGX, and (2) a ‘‘Step-Up 

Tier’’ based on growth in the member’s 

liquidity provided on EDGX. 

The text of the proposed changes to 

the fee schedule are attached as Exhibit 

5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://www.cboe.com/ 

AboutCBOE/CBOELegalRegulatory 

Home.aspx), at the Exchange’s Office of 

the Secretary, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to amend the EDGX Equities 

fee schedule to introduce: (1) A ‘‘Retail 

Volume Tier’’ for firms that execute a 

significant volume of liquidity 

providing retail order flow on EDGX, 

and (2) a ‘‘Step-Up Tier’’ based on 

growth in the member’s liquidity 

provided on EDGX. The Exchange 

believes that both of the proposed 

changes would encourage more 

liquidity and opportunities for investors 

to trade on the Exchange. 

I. Retail Volume Tier 

A ‘‘Retail Member Organization’’ or 

‘‘RMO’’ is a member (or a division 

thereof) that has been approved by the 

Exchange to submit Retail Orders.3 Due 

to the intense competition for retail 

order flow, the Exchange provides 

special pricing for Retail Orders as an 

incentive for members to bring such 

orders to EDGX instead of another 

exchange or off-exchange venue. 

Specifically, Retail Orders that add 

liquidity and yield fee code ZA 4

currently benefit from an enhanced 

rebate of $0.0032 per share. The 

Exchange is interested in attracting 

additional retail order flow, and 

therefore proposes to introduce a Retail 

Volume Tier that is designed to 

encourage more retail participation. The 

Retail Volume Tier would provide 

further enhanced rebates to liquidity 

providing Retail Orders, provided that 

the member executes a specified average 

daily volume (‘‘ADV’’) 5 in such orders 

on EDGX. As proposed, a Retail Order 

that adds liquidity under fee code ZA 

would be eligible for a rebate of $0.0037 

per share if the member’s ADV in Retail 

Orders that add liquidity (i.e., yielding 

fee code ZA) is greater than or equal to 

0.35% of Total Consolidated Volume 

(‘‘TCV’’).6

II. Step-Up Tier 

Currently, the EDGX Equities fee 

schedule contains six Add Volume Tiers 

that provide enhanced rebates, ranging 

from of $0.0025 to $0.0032 per share, for 

displayed orders that add liquidity in 

Tapes A, B, and C and yield fee codes 

B,7 V,8 Y,9 3 10 and 4.11 To encourage 

market participants to provide more 

liquidity on EDGX, the Exchange 

proposes to introduce a seventh Add 

Volume Tier that is based on the growth 

in liquidity providing orders that the 

member executes on EDGX—i.e., the 

‘‘Step-Up Tier.’’ As proposed, the 

Exchange would provide rebate of 

$0.0033 per share for displayed orders 

that add liquidity to members that 

execute a Step-Up Add TCV from 

October 2018 that is equal to or greater 


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