Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 12057 

26 15 U.S.C. 78s(b)(2)(B). 27 17 CFR 200.30–3(a)(12). 

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. 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) 26 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

NYSEAMER–2021–11 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–NYSEAMER–2021–11. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File No. 

SR–NYSEAMER–2021–11, and should 

be submitted on or before March 22, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04177 Filed 2–26–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meetings 

TIME AND DATE: 2:00 p.m. on Thursday, 

March 4, 2021. 

PLACE: The meeting will be held via 

remote means and/or at the 

Commission’s headquarters, 100 F 

Street NE, Washington, DC 20549. 

STATUS: This meeting will be closed to 

the public. 

MATTERS TO BE CONSIDERED: 

Commissioners, Counsel to the 

Commissioners, the Secretary to the 

Commission, and recording secretaries 

will attend the closed meeting. Certain 

staff members who have an interest in 

the matters also may be present. 

In the event that the time, date, or 

location of this meeting changes, an 

announcement of the change, along with 

the new time, date, and/or place of the 

meeting will be posted on the 

Commission’s website at https://

www.sec.gov. 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) 

and (10) and 17 CFR 200.402(a)(3), 

(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and 

(a)(10), permit consideration of the 

scheduled matters at the closed meeting. 

The subject matter of the closed 

meeting will consist of the following 

topics: 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings; 

Resolution of litigation claims; and 

Other matters relating to examinations 

and enforcement proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting agenda items that 

may consist of adjudicatory, 

examination, litigation, or regulatory 

matters. 

CONTACT PERSON FOR MORE INFORMATION: 

For further information; please contact 

Vanessa A. Countryman from the Office 

of the Secretary at (202) 551–5400. 

Dated: February 25, 2021. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2021–04273 Filed 2–25–21; 4:15 pm] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91184; File No. SR–OCC– 

2021–801] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Advance Notice Relating to 

OCC’s Establishment of Persistent 

Minimum Skin-In-The-Game 

February 23, 2021. 

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 under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’),3 notice is hereby given that on 

February 10, 2021, the Options Clearing 

Corporation (‘‘OCC’’ or ‘‘Corporation’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

an advance notice as described in Items 

I, II and III below, which Items have 

been prepared by OCC. The Commission 

is publishing this notice to solicit 

comments on the advance notice from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice is submitted in 

connection with proposed changes that 

would amend OCC’s Rules, Capital 

Management Policy, and certain other 

OCC policies to establish a persistent 

minimum level of OCC’s own prefunded financial resources (commonly 

referred to as ‘‘skin-in-the-game’’) that 

OCC would contribute to cover default 

losses or liquidity shortfalls. 

Amendments to OCC’s Rules are 

included in Exhibit 5a of filing SR– 

OCC–2021–801. Amendments to OCC’s 

Capital Management Policy are included 

in confidential Exhibit 5b of filing SR– 

12058 Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 

4OCC’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. 

5 International standards and the Commission’s 

Rules established minimum LNAFBE requirements 

for financial market infrastructures and covered 

clearing agencies, respectively. See CPSS–IOSCO, 

Principles for financial market infrastructures, at 

Principle 15 (Apr. 16, 2012), available at http://

www.bis.org/publ/cpss101a.pdf; 17 CFR 240.17Ad– 

22(e)(15). The Capital Management Policy defines 

‘‘LNAFBE’’ as the level of cash and cash 

equivalents, no greater than Equity, less any 

approved adjustments (i.e., agency-related liabilities 

such as Section 31 fees held by OCC). 

6The Capital Management Policy defines 

‘‘Equity’’ as shareholders’ equity as shown on 

OCC’s Statement of Financial Condition. 

7See Exchange Act Release No. 88029 (Jan. 24, 

2020), 85 FR 5500 (Jan. 30, 2020) (File No. SR– 

OCC–2019–007) (hereinafter, ‘‘Order Approving 

Capital Management Policy’’). 

8 Id. at 5502. 

9Use of excess capital to cover losses arising from 

the default of a bank or other clearing agency that 

is not otherwise associated with a Clearing Member 

default remains at the Board’s discretion. See Rule 

1006(e)(ii). 

10As defined in OCC’s Rules, the EDCP Unvested 

Balance consists of funds (x) deposited on or after 

January 1, 2020 in respect of its EDCP and (y) in 

excess of amounts necessary to pay for benefits 

accrued and vested under the EDCP at such time. 

11Order Approving Capital Management Policy, 

85 FR at 5507 (quoting comments submitted by 

FIA). 

OCC–2021–801. OCC would also make 

conforming changes to the Default 

Management Policy, Clearing Fund 

Methodology Policy, and Recovery and 

Orderly Wind-Down Plan (‘‘RWD 

Plan’’), which can be found in 

confidential Exhibits 5c, 5d, and 5e of 

filing SR–OCC–2021–801, respectively, 

to reflect the amended default waterfall 

(i.e., the financial resources OCC would 

use to address default losses and 

liquidity shortfalls, listed in the order 

OCC would utilize them). Material 

proposed to be added is marked by 

underlining, and material proposed to 

be deleted is marked with strikethrough 

text. All terms with initial capitalization 

that are not otherwise defined herein 

have the same meaning as set forth in 

the OCC By-Laws and Rules.4

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 advance notice and none have 

been received. OCC will notify the 

Commission of any written comments 

received by OCC. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing, 

and Settlement Supervision Act 

Description of the Proposed Change 

OCC is proposing to amend OCC’s 

Rules, Capital Management Policy, and 

certain other policies to establish a 

persistent minimum level of skin-in-thegame that OCC would contribute to 

cover default losses or liquidity 

shortfalls, which would consist of a 

minimum amount of OCC’s own prefunded resources that OCC would 

charge prior to charging a loss to the 

Clearing Fund (as defined below, the 

‘‘Minimum Corporate Contribution’’) 

and, as OCC’s Rules currently provide, 

applicable funds held in trust in respect 

to OCC’s Executive Deferred 

Compensation Plan (‘‘EDCP’’) (such 

funds, as defined in OCC’s Rules, being 

the ‘‘EDCP Unvested Balance’’) that 

would be charged pari passu with the 

Clearing Fund deposits of nondefaulting Clearing Members. The 

persistent minimum level of skin-in-thegame would establish a floor for the prefunded resources OCC would contribute 

to cover default losses and liquidity 

shortfalls. In addition to this minimum, 

OCC would continue to commit its 

liquid net assets funded by equity 

(‘‘LNAFBE’’) 5 greater than 110% of its 

Target Capital Requirement prior to 

charging a loss to the Clearing Fund. 

Background 

In January 2020, OCC implemented its 

Capital Management Policy, by which 

OCC (a) determines the amount of 

Equity 6 sufficient for OCC to meet its 

regulatory obligations and to serve 

market participants and the public 

interest (as defined in OCC’s Rules, the 

‘‘Target Capital Requirement’’), (b) 

monitors Equity and LNAFBE levels to 

help ensure adequate financial 

resources are available to meet general 

business obligations; and (c) manages 

Equity levels, including by (i) adjusting 

OCC’s fee schedule (as appropriate) and 

(ii) establishing a plan for accessing 

additional capital should OCC’s Equity 

fall below certain thresholds (the 

‘‘Replenishment Plan’’).7 In addition, 

OCC’s Rules, the Capital Management 

Policy, and associated policies provide 

for the use of OCC’s current and 

retained earnings in excess of 110% of 

the Target Capital Requirement (i.e., the 

‘‘Early Warning’’ threshold under OCC’s 

Replenishment Plan) to cover losses 

arising from a Clearing Member’s 

default.8 While OCC’s Rules previously 

provided for OCC to contribute its own 

capital to cover default losses at the 

Board’s discretion, the Capital 

Management Policy changes made the 

contribution of such excess capital 

obligatory.9

In the event of a Clearing Member 

default, OCC would contribute excess 

capital to cover losses remaining after 

applying the margin assets and Clearing 

Fund contribution of the defaulting 

Clearing Member and before charging 

the Clearing Fund contributions of nondefaulting Clearing Members. Should 

OCC’s excess capital be insufficient to 

cover the loss, OCC also has another 

tranche of OCC resources in addition to 

the Clearing Fund; namely, the EDCP 

Unvested Balance.10 In the event of a 

default loss, the EDCP Unvested Balance 

is contributed pari passu with the 

Clearing Fund contributions of nondefaulting Clearing Members. 

The implementation of OCC’s Capital 

Management Policy marked the first 

time OCC committed OCC’s own prefunded financial resources into OCC’s 

approach to capital management and 

resiliency. In particular, OCC believes 

that the inclusion of the EDCP Unvested 

Balance is a powerful alignment of 

interest between management and 

Clearing Members. OCC takes seriously 

the interest of the industry and 

international regulators in seeing more 

significant skin-in-the-game 

commitments at central counterparties. 

To that end, OCC has reviewed 

feedback received in connection with 

the initial filing of the Capital 

Management Plan, relevant papers from 

industry participants and stakeholders 

concerning skin-in-the-game, and 

regulatory regimes in jurisdictions 

outside the United States. For one, a 

comment submitted in connection with 

the Capital Management Policy’s filing 

urged OCC to implement a ‘‘minimum 

amount of skin-in-the-game that ‘scales 

with risk and is defined and funded 

upfront’ and . . . ‘to define a level of 

[skin-in-the-game] ex ante that would 

always be readily available in case of a 

default loss.’ ’’ 11 OCC has also reviewed 

the paper, ‘‘A Path Forward for CCP 

Resilience, Recover, and Resolution,’’ 

originally released in October 2019 with 

nine signatories and re-released in 

March of 2020 with ten additional 

signatories, representing major buy-side 

and sell-side firms in the markets OCC 

Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 12059 

12See ABN AMRO Clearing Bank N.V., et al., A 

Path Forward for CCP Resilience, Recovery, and 

Resolution (March 10, 2020), available at https://

www.jpmorgan.com/solutions/cib/markets/a-pathforward-for-ccp-resilience-recovery-and-resolution. 

13While OCC agrees with the paper’s authors that 

central counterparties should have meaningful skinin-the-game, OCC does not agree with the level of 

skin-in-the-game recommended in the paper. See 

Optimizing Incentives, Resilience and Stability in 

Central Counterparty Clearing: Perspectives on CCP 

Issues from a Utility Model Clearinghouse 

(September 22, 2020), available at https://

www.theocc.com/Newsroom/Insights/2020/09-22- 

Optimizing-Incentives,-Resilience-and-Stabil. 

14Though OCC, as a non-EU central counterparty, 

would not be subject directly to the EMIR standards 

or the supervision of the European Securities and 

Markets Authority (‘‘ESMA’’), OCC has considered 

the EMIR standards as part of its bid to seek thirdcountry recognition in Europe and the United 

Kingdom. OCC is seeking recognition to address 

European bank capital requirements set to go into 

effect next year that would require European banks 

to set aside additional capital for exposure to 

central counterparties that are not ‘‘qualified CCPs’’ 

in Europe. In order to become a qualified CCP, 

ESMA and the regulatory authority in a non-EU 

jurisdiction must reach an agreement that their 

regulatory regimes for central counterparties are 

equivalent. As of the date of this filing, the 

Commodity Futures Trading Commission (‘‘CFTC’’) 

has reached an agreement with ESMA on the 

equivalence of their regulatory regimes. 

15OCC announced these decisions in a press 

release and letter to Clearing Members. See Press 

Release, OCC To Lower Costs for Users of U.S. 

Equity Derivatives Markets (Aug. 3, 2020), available 

at https://www.theocc.com/Newsroom/PressReleases/2020/08-03-OCC-To-Lower-Costs-forUsers-of-US-Equity-De; ‘‘Letter to Clearing Member 

Firms—OCC to Lower Costs for Users of U.S. Equity 

Derivative Markets’’ (Aug. 3, 2020), available at 

https://www.theocc.com/Newsroom/Views/2020/08- 

03-Letter-to-Clearing-Member-Firms. 

16See Exchange Act Release No. 89534 (Aug. 12, 

2020), 85 FR 50858 (Aug. 18, 2020) (File No. SR– 

OCC–2020–009). 

17See Exhibit 3g to File No. SR–OCC–2019–007. 18See OCC By-Laws Art. IX, Sec. 1. 

serves.12 One of the paper’s significant 

recommendations is that central 

counterparties should have skin-in-thegame in a more defined manner.13 In 

contrast, OCC’s current variable 

approach to skin-in-the-game does not 

guarantee a defined amount would be 

available as skin-in-the-game. 

Additionally, as OCC seeks recognition 

in the European Union and the United 

Kingdom, OCC is cognizant of the 

European Market Infrastructure 

Regulation’s (‘‘EMIR’’) expectation that 

skin-in-the-game be a minimum of 25% 

of the central counterparty’s regulatory 

capital requirement.14 Under the current 

Capital Management Policy, excess 

capital is not dedicated solely as skinin-the-game and it is possible that OCC’s 

capital in excess of 110% of its Target 

Capital Requirement would be less than 

25% of OCC’s Target Capital 

Requirement. 

To address the concerns raised by 

these market participants, further 

strengthen OCC’s pre-funded financial 

resources, further align the interests of 

OCC’s management and Clearing 

Members, and align OCC’s skin-in-thegame with international standards, OCC 

is filing an advance notice, which 

would establish a persistent minimum 

amount of skin-in-the-game that would 

be used to cover default losses and 

liquidity shortfalls. This skin-in-thegame proposal is part of a broader set of 

decisions announced by OCC to lower 

the cost of clearing for its members,15

including a fee decrease effective 

September 1, 2020.16 OCC also 

discussed these changes on calls with 

OCC’s Non-Equity Exchanges, Clearing 

Members, and other market participants, 

including discussions with the SIFMA 

Options Committee and FIA and open 

calls with OCC Clearing Members. 

Members expressed that the proposed 

addition of a minimum level of skin-inthe-game would be a welcome 

enhancement by OCC. One market 

participant expressed its appreciation 

for OCC’s commitment to resiliency, but 

renewed concerns it had raised in 

connection with OCC’s Capital 

Management Policy about increases in 

OCC’s capital and, if OCC were sold, a 

more commercial orientation monetized 

with higher fees. As OCC stated with 

respect to the establishment of the 

Capital Management Policy,17 OCC 

believes that this view is well outside 

the scope of the Capital Management 

Policy and this advance notice, but will 

continue to engage with Clearing 

Members and other market participants 

to address any concerns. While 

questions were raised in these 

conversations, no specific suggestions 

were made. 

Proposed Changes 

In order to establish a persistent 

minimum amount of skin-in-the-game, 

OCC is proposing to: (a) Amend OCC’s 

Rules to define the Minimum Corporate 

Contribution, insert the Minimum 

Corporate Contribution in OCC’s default 

waterfall as provided in Rule 1006, 

provide for how OCC would calculate 

any LNAFBE greater than 110% of its 

Target Capital Requirement OCC would 

contribute in addition to the Minimum 

Corporate Contribution, and provide a 

time by which OCC would reestablish 

the Minimum Corporate Contribution if 

and when OCC uses it to cover default 

losses; (b) amend the Capital 

Management Policy to exclude the 

Minimum Corporate Contribution from 

OCC’s measurement of its LNAFBE 

against its Target Capital Requirement 

and from OCC’s calculation of the Early 

Warning and Trigger Event, to ensure 

that OCC may maintain the Minimum 

Corporate Contribution exclusively for 

default losses while retaining access to 

replenishment capital in the event OCC 

suffers an operational loss that reduces 

its Equity below those thresholds; and 

(c) apply conforming changes to the 

Default Management Policy, Clearing 

Fund Methodology Policy, and the RWD 

Plan to reflect that in the event of a 

default loss or liquidity shortfall, the 

Minimum Corporate Contribution 

would be charged after contributing the 

margin and Clearing Fund deposit of a 

default member and before the 

contribution of OCC’s LNAFBE in 

excess of 110% of OCC’s Target Capital 

Requirement, both before OCC charges 

the Clearing Fund deposits of nondefault Clearing Members and the EDCP 

Unvested Balance on a pro rata basis. 

(a) Amendments to OCC’s Rules 

To establish and maintain a persistent 

minimum level of skin-in-the-game, 

OCC proposes to amend its Rules to (1) 

define the Minimum Corporate 

Contribution; (2) revise OCC’s default 

waterfall to more clearing define the 

skin-in-the-game resources OCC would 

contribute to a default loss; (3) provide 

for how OCC would calculate any 

LNAFBE greater than 110% of the 

Target Capital Requirement it would 

contribute after exhausting the 

Minimum Corporate Contribution; and 

(4) provide for how OCC would 

replenish the Minimum Corporate 

Contribution after each chargeable 

default loss. 

(1) Defining the Minimum Corporate 

Contribution 

OCC would establish a persistent 

minimum level of skin-in-the-game by 

first amending OCC’s Rules to define the 

Minimum Corporate Contribution in 

Chapter I of the Rules to mean the 

minimum level of OCC’s own funds 

maintained exclusively to cover credit 

losses or liquidity shortfalls, the level of 

which OCC’s Board shall determine 

from time to time. As OCC’s own funds, 

OCC would hold the Minimum 

Corporate Contribution in accordance 

with OCC’s By-Laws governing the 

investment of OCC’s funds 18 and OCC’s 

policies and procedures governing cash 

and investment management. 

Specifically, OCC maintains uninvested 

OCC cash in demand deposits and any 

investments of funds maintained to 

satisfy the Minimum Corporate 

Contribution would be limited to 

overnight reverse repurchase 

agreements involving U.S. Government 

Treasury Securities, consistent with 

12060 Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 

19OCC first established discretionary use of 

OCC’s current or retained earnings to cover default 

losses in Article VIII (Clearing Fund) of OCC’s ByLaws. See Exchange Act Release No. 15493 (Jan. 4, 

1979), 44 FR 3802 (Jan. 18, 1979) (File No. SR– 

OCC–79–01). When OCC moved the provisions 

governing the Clearing Fund from OCC’s By-Laws 

to the Rules in 2018, the provisions governing the 

usage of the Clearing Fund became Rule 1006(e). 

See Exchange Act Release No. 83735 (July 27, 

2018), 83 FR 37855 (Aug. 2, 2018) (File No. SR– 

OCC–2018–008). 

20 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

21Under OCC’s current rules, LNAFBE greater 

than 110% of the Target Capital Requirement and 

the EDCP Unvested Balance are committed to cover 

both operational losses and default losses. In the 

event OCC experiences operational losses and 

default losses in short succession, OCC would 

contribute these resources in the manner specified 

by OCC’s Rules to the event that occurred first. 

22See Order Approving Capital Management 

Policy, 85 FR at 5510–11. OCC has included this 

analysis as part of confidential Exhibit 3 to File No. 

SR–OCC–2021–801. 

OCC’s same-day liquidity needs for such 

funds. 

While the proposed definition would 

give OCC’s Board discretion in setting 

the Minimum Corporate Contribution, 

the Board has approved an initial 

Minimum Corporate Contribution that 

sets OCC’s total persistent skin-in-thegame (i.e., the sum of the Minimum 

Corporate Contribution and OCC’s 

current EDCP Unvested Balance) at 25% 

of OCC’s Target Capital Requirement. In 

setting the initial Minimum Corporate 

Contribution, OCC’s Board considered 

factors including, but not limited to, the 

regulatory requirements in each 

jurisdiction in which OCC is registered 

or in which OCC is actively seeking 

recognition, the amount similarly 

situated central counterparties commit 

of their own resources to address 

participant defaults, the EDCP Unvested 

Balance, OCC’s LNAFBE greater than 

110% of its Target Capital Requirement, 

projected revenue and expenses, and 

other projected capital needs. 

(2) Revising OCC’s Default Waterfall 

OCC would also amend OCC Rule 

1006 to insert the Minimum Corporate 

Contribution in OCC’s default waterfall 

after contributing a defaulting Clearing 

Member’s margin and Clearing Fund 

deposit, and before contributing OCC’s 

LNAFBE greater than 110% of OCC’s 

Target Capital Requirement, both of 

which OCC would exhaust before 

charging a loss to the Clearing Fund and 

the EDCP Unvested Balance, pari passu 

with the Clearing Fund deposits of nondefaulting Clearing Members. So placed, 

OCC believes that the Minimum 

Corporate Contribution would 

demonstrate OCC’s institutional 

commitment to its ongoing financial 

surveillance of clearing members and 

the establishment and maintenance of a 

prudent and effective margin 

methodology. A draw against the 

Minimum Corporate Contribution and 

the associated requirement to replenish, 

as discussed below, would provide 

fewer resources to meet other corporate 

commitments. Accordingly, the 

proposal would further align OCC’s and 

its management’s interests with those of 

non-defaulting Clearing Members. 

OCC would also remove references to 

‘‘retained earnings’’ or ‘‘current or 

retained earnings’’ in OCC Rule 1006(b), 

Rule 1006(e)(i), Rule 1006(e)(ii), and the 

second sentence of Rule 1006(e)(iii), and 

replace them with references to the 

contribution of the ‘‘Minimum 

Corporate Contribution’’ and ‘‘the 

Corporation’s liquid net assets funded 

by equity that are greater than 110% of 

its Target Capital Requirement.’’ The 

refences to ‘‘retained earnings’’ or 

‘‘current or retained earnings’’ are 

legacy terms used prior to OCC’s 

implementation of the Capital 

Management Policy.19 OCC is proposing 

to replace these references in OCC’s 

Rules to better identify the funds OCC’s 

would contribute in terms that align 

with OCC’s Capital Management Policy. 

(3) Calculating LNAFBE Available as 

Skin-In-The-Game 

Because OCC proposes to replace 

references to ‘‘current or retained 

earnings,’’ OCC would also delete the 

first sentence of Rule 1006(e)(iii), which 

currently provides for how OCC 

determines its ‘‘current earnings’’ for 

purposes of the amount available to 

cover losses under Rule 1006(e)(i) and 

Rule 1006(e)(ii). In its place, the first 

sentence of Rule 1006(e)(iii) would set 

out how OCC would determine its 

LNAFBE for purposes of contributing 

LNAFBE greater than 110% of the 

Target Capital Requirement to cover 

default losses and liquidity shortfalls. 

Specifically, similar to how the Rules 

currently provide for the calculation of 

‘‘current earnings,’’ OCC would 

determine its LNAFBE based on OCC’s 

unaudited financial statements at the 

close of the calendar month 

immediately preceding the occurrence 

of the loss or deficiency under 

paragraphs (e)(i) or (e)(ii), less an 

amount equal to the aggregate of all 

refunds made or authorized to be made 

or deemed to have been made during 

the fiscal year in which such loss or 

deficiency occurs if the refund is not 

reflected on such unaudited financial 

statements. Accordingly, OCC would 

retain the priority given to the payment 

of refunds that OCC has declared, but 

not yet issued, as currently provided by 

OCC Rule 1106(e)(iii), when calculating 

the amount of LNAFBE available to 

cover a default loss after contributing 

the Minimum Corporate Contribution. 

OCC would further amend Rule 

1006(e)(iii) to provide that in no event 

shall OCC be required to contribute an 

amount that would cause OCC’s 

LNAFBE to fall below 110% of the 

Target Capital Requirement at the time 

changed. The Capital Management 

Policy, in accordance with SEC Rule 

17Ad–22(e)(15)(ii)(A),20 currently 

requires that the funds OCC maintains 

to satisfy its Target Capital Requirement 

be separate from OCC’s resources to 

cover participant defaults and liquidity 

shortfalls. Accordingly, should a default 

occur in a month during which OCC 

suffers an operational loss that 

decreases the value of its excess capital 

available as skin-in-the-game below 

what is reflected on the unaudited 

financial statement at the close of the 

previous month,21 OCC would be able to 

take into account the decrease in its 

excess capital when calculating its 

available LNAFBE above 110% of the 

Target Capital Requirement. In addition, 

OCC would renumber as Rule 

1006(e)(iv) the last sentence of Rule 

1006(e)(iii). That sentence, which 

concerns a defaulting Clearing 

Member’s continuing obligation for 

losses OCC charges to OCC’s own 

capital, is conceptually distinct from the 

rest of Rule 1006(e)(iii) and, 

accordingly, deserves to be addressed 

separately. 

(4) Replenishing the Minimum 

Corporate Contribution 

Finally, OCC would add a new 

paragraph to Rule 1006(e)—Rule 

1006(e)(v)—to provide for a 270 

calendar-day period during which the 

Minimum Corporate Contribution, once 

charged, would be reduced to the 

remaining unused portion. OCC believes 

that 270 calendar days, or 

approximately nine months, is sufficient 

time for OCC to accumulate the funds 

necessary to reestablish the Minimum 

Corporate Contribution. In making this 

determination, OCC used the same 

analysis employed to set the Early 

Warning and Trigger Event under its 

Replenishment Plan, both of which are 

based on the time OCC estimates it 

would take to accumulate 10% of its 

Target Capital Requirement.22

Specifically, OCC took into account its 

typical monthly earnings and the 

amount of earnings that would be 

needed to replenish the Minimum 

Corporate Contribution on an after-tax 

basis. Proposed Rule 1006(e)(v) would 

also provide that OCC shall notify 

Clearing Members of any such reduction 

Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 12061 

23As described below, OCC is proposing to 

amend the Capital Management Policy to exclude 

the Minimum Corporate Contribution from the 

definition of LNAFBE. As a result, a second default 

loss covered exclusively by the Minimum Corporate 

Contribution would not impact OCC’s level of 

LNAFBE. 24See 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

to the Minimum Corporate 

Contribution. 

Each chargeable loss would trigger a 

new 270-day period. As such, proposed 

Rule 1006(e)(v) is designed to allow 

OCC to manage multiple defaults within 

a 270-day period by eliminating the risk 

that a successive default would exhaust 

the resources needed to reestablish the 

Minimum Corporate Contribution by the 

end of the initial 270-day period. And 

while a successive default loss that does 

not impact excess LNAFBE 23 available 

to replenish the Minimum Corporation 

Contribution would nevertheless trigger 

another 270-day period during which 

the Minimum Corporate Contribution 

would be reduced to the remaining 

unused portion after the first two 

defaults, any LNAFBE greater than 

110% of the Target Capital Requirement 

would continue to be available to cover 

successive default losses. In the very 

unlikely event that OCC experiences an 

operational loss or a drop in revenue 

from clearing fees that threatens its 

ability to reestablish the Minimum 

Corporate Contribution at the end of the 

270-day period, OCC would likely file a 

rule change to extend the period rather 

than act to lower the Minimum 

Corporate Contribution, dependent on 

the Board’s consideration of the same 

non-exclusive list of factors that the 

Board would consider when 

determining whether to adjust the 

Minimum Corporate Contribution, 

discussed below. 

(b) Amendments to the Capital 

Management Policy 

Consistent with the proposed changes 

to OCC’s Rules, OCC would amend the 

portions of the Capital Management 

Policy that concern OCC’s usage of 

excess capital to cover default losses to 

more specifically identify the resources 

OCC would contribute to default losses; 

namely, the Minimum Corporate 

Contribution and LNAFBE above 110% 

of the Target Capital Requirement. OCC 

would clarify that after exhausting the 

Minimum Corporate Contribution, OCC 

would continue to offset default losses 

with LNAFBE, rather than ‘‘Equity,’’ 

above 110% of the Target Capital 

requirement. This change is not 

intended to change OCC’s current 

obligations. Rather, OCC intends to 

conform the Capital Management Policy 

so that the terms are consistent with 

those used in the proposed Rules, other 

requirements in the Capital 

Management Policy, and OCC’s 

regulatory obligations. Specifically, the 

Capital Management Policy provides 

that the resources held to meet the 

Target Capital Requirement must be 

liquid assets separate from OCC’s 

resources to cover participant defaults 

and liquidity shortfalls, consistent with 

SEC Rule 17Ad–22(e)(15)(ii)(A).24

Because Equity typically exceeds 

LNAFBE and because any funds OCC 

would contribute to cover a default loss 

would need to be liquid assets, 

contributing liquid assets in excess of 

LNAFBE greater than 110% of the 

Target Capital Requirement would be 

inconsistent with the Capital 

Management Policy. 

In addition, OCC would amend the 

Capital Management Policy’s list of 

capital management actions with a 

material impact on current or future 

levels of Equity, replacing ‘‘use of 

current and retained earnings greater 

than 100% of the Target Capital 

Requirement’’ with ‘‘use of excess 

capital,’’ to align with the title of the 

Capital Management Policy’s ‘‘Excess 

Capital Usage’’ section. That section 

would also be updated to include a 

discussion of the factors that the Board 

would consider in establishing and 

adjusting the Minimum Corporate 

Contribution. Factors the Board would 

consider include, but are not limited to, 

the regulatory requirements in each 

jurisdiction in which OCC is registered 

or in which OCC is actively seeking 

recognition, the amount similarly 

situated central counterparties commit 

of their own resources to address 

participant defaults, the current and 

projected level of the EDCP Unvested 

Balance, OCC’s LNAFBE greater than 

110% of its Target Capital Requirement, 

projected revenue and expenses, and 

other projected capital needs. While the 

Capital Management Policy would 

provide that the Board would review 

Minimum Corporate Contribution 

annually, the Board would retain 

authority to change the Minimum 

Corporate at its discretion. In addition, 

the Capital Management Policy would 

be updated to include the substance of 

and references to proposed Rule 

1006(e)(v), which, as discussed above, 

provides for a 270-day period following 

a chargeable loss during which the 

Minimum Corporate Contribution is 

reduced to its remaining unused 

portion. 

OCC would also amend the definition 

of LNAFBE in the Capital Management 

Policy to specifically exclude the 

Minimum Corporate Contribution, 

which would be dedicated to cover 

default losses. The Capital Management 

Policy defines LNAFBE as the level of 

cash and cash equivalents, no greater 

than Equity, less any approved 

adjustments. The definition currently 

specifies the exclusion of ‘‘agencyrelated liabilities, such as Section 31 

fees’’ as the only approved adjustment. 

OCC would amend the definition to add 

the Minimum Corporate Contribution as 

another example of an approved 

exemption to the calculation of 

LNAFBE. As discussed in more detail in 

the discussion of the statutory basis for 

these proposed changes below, this 

proposed amendment to the definition 

of LNAFBE is intended to ensure that 

OCC does not double count resources 

committed to cover default losses as 

resources available to satisfy regulatory 

requirements concerning the amount of 

LNAFBE or other financial resources 

OCC must maintain to cover operational 

costs and potential business losses. For 

similar reasons, OCC would amend the 

Capital Management Policy’s discussion 

of OCC’s Replenishment Plan to add 

that in the event of an operational loss, 

OCC shall first use Equity, ‘‘less the 

Minimum Corporate Contribution,’’ 

above 110% of Target Capital. This 

amendment reflects that the funds 

maintained for the Minimum Corporate 

Contribution are not funds available to 

cover operational losses. 

With respect to OCC’s Replenishment 

Plan, OCC would also amend the 

definitions of the Early Warning and 

Trigger Event to exclude the Minimum 

Corporate Contribution from the 

calculation of those thresholds so that 

OCC maintains access to replenishment 

capital in the event operational losses 

materialize while still maintaining the 

Minimum Corporate Contribution 

exclusively to cover default losses. As 

described above, the Early Warning and 

Trigger Event are the thresholds for 

actions under OCC’s Replenishment 

Plan. Currently, the Early Warning and 

Trigger Event thresholds are defined 

with respect to OCC’s Equity falling 

below certain thresholds. OCC is 

proposing to amend those definitions so 

that the Early Warning and Trigger 

Event occur when Equity ‘‘less the 

Minimum Corporate Contribution’’ falls 

below those same thresholds. These 

changes would ensure that OCC may 

maintain the Minimum Corporate 

Contribution exclusively to address 

default losses—the effect of which 

would be to increase Equity relative to 

LNAFBE—while still maintaining 

access to its Replenishment Plan should 

OCC’s Equity, less the Minimum 

12062 Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 

25 12 U.S.C. 5461(b). 

26 12 U.S.C. 5464(a)(2). 

27 12 U.S.C. 5464(b). 

28 17 CFR 240.17Ad–22. See Exchange Act 

Release Nos. 68080 (October 22, 2012), 77 FR 66220 

(November 2, 2012) (S7–08–11) (‘‘Clearing Agency 

Standards’’); 78961 (September 28, 2016), 81 FR 

70786 (October 13, 2016) (S7–03–14) (‘‘Standards 

for Covered Clearing Agencies’’). 29 17 CFR 240.17Ad–22. 30See, e.g., Exchange Act Release No. 86182 (June 

24, 2019), 84 FR 31128, 31129 (June 28, 2019) (SR– 

OCC–2019–803). 31 12 U.S.C. 5464(b). 32 Id. 

Corporate Contribution, fall close to or 

below the Target Capital Requirement. 

(c) Amendments to the Default 

Management Policy, Clearing Fund 

Methodology Policy, and RWD Plan 

To accommodate the proposed 

establishment of the Minimum 

Corporate Contribution, OCC proposes 

conforming changes to other rule-filed 

policies that describe OCC’s default 

waterfall, as set forth in OCC Rule 1006. 

In the Default Management Policy, OCC 

would delete the passage concerning 

‘‘Current and Retained Earnings’’ in the 

current discussion of OCC’s default 

waterfall and replace it with the 

Minimum Corporate Contribution and 

LNAFBE greater than 110% of the 

Target Capital Requirement, as provided 

in the proposed amendments to Rule 

1006 above. OCC would also amend the 

Default Management Policy’s definition 

of ‘‘financial resources’’ to include the 

Minimum Corporate Contribution as 

among those available to address 

Clearing Member defaults and 

suspensions. In the Clearing Fund 

Methodology Policy, OCC would 

similarly revise the discussion of the 

default waterfall in that policy’s section 

covering Clearing Fund charges and 

assessments to incorporate the 

Minimum Corporate Contribution, 

consistent with the proposed 

amendments to Rule 1006 above. OCC 

would also amend the Clearing Fund 

Methodology Policy’s definitions of 

OCC’s ‘‘Pre-Funded Financial 

Resources’’ for the purposes of sizing or 

measuring the sufficiency of the 

Clearing Fund to include the Minimum 

Corporate Contribution. Finally, OCC 

would amend the RWD Plan to replace 

all references to ‘‘current or retained 

earnings’’ with the Minimum Corporate 

Contribution and LNAFBE greater than 

110% of the Target Capital 

Requirement, or ‘‘skin-in-the-game’’ for 

short, modify certain example scenarios 

concerning use of OCC’s Enhanced Risk 

Management and Recovery Tools to 

account for the proposed Minimum 

Corporate Contribution, and make 

certain other conforming changes 

concerning use of skin-in-the-game to 

address liquidity shortfalls and, in the 

case of LNAFBE greater than 110% of 

the Target Capital Requirement, OCC’s 

authority to use skin-in-the-game to 

address losses resulting from bank or 

securities or commodities clearing 

organization failures, including custody 

or investment losses. 

Anticipated Effect on and Management 

of Risk 

OCC believes that the proposed 

changes would reduce the nature and 

level of risk presented by OCC because 

they would enhance the overall 

resilience of OCC’s capital management 

and default management processes. 

Establishing a Minimum Corporate 

Contribution, which OCC would apply 

after a defaulting Clearing Member’s 

margin and Clearing Fund deposits, 

would ensure a minimum level of OCC’s 

own pre-funded financial resources 

available to cover credit losses. By 

applying the Minimum Corporate 

Contribution before charging the 

Clearing Fund, the proposed change 

helps protect non-defaulting Clearing 

Members from default losses of another 

Clearing Member, which in turn helps 

reduce OCC’s overall level of risk and 

ensure the prompt and accurate 

clearance and settlement of its cleared 

products. In addition, the proposed 

changes to OCC’s Rules, Capital 

Management Policy and other rule-filed 

policies intended to account for the use 

of OCC’s Minimum Corporate 

Contribution and LNAFBE greater than 

110% of the Target Capital Requirement 

would help ensure that OCC continues 

to hold LNAFBE sufficient to meet its 

regulatory obligations and maintain 

access to its Replenishment Plan in the 

event that an operational loss causes 

Equity, less the Minimum Corporate 

Contribution reserved for default losses, 

to fall close to or below regulatory 

requirements. Together these features of 

the Capital Management Policy help 

ensure that OCC maintains levels of 

capital sufficient to allow it to absorb 

substantial business losses and meet its 

responsibilities as a systemically 

important financial market utility, 

which in turn helps reduce OCC’s 

overall level of risk. 

Consistency With the Clearing 

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.25 Section 805(a)(2) of the 

Clearing Supervision Act 26 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 27 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.28

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.29

Therefore, the Commission has stated 30

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.31

OCC believes the proposed changes 

are consistent with the objectives and 

principles of Section 805(b) of the 

Clearing Supervision Act.32 The 

proposed changes are generally 

designed to enhance OCC’s resiliency by 

establishing a Minimum Corporate 

Contribution that would be used to 

absorb losses or liquidity shortfalls 

arising from the default of a Clearing 

Member. While OCC’s current rules 

commit OCC to contribute a contingent 

amount of capital to address default 

losses or liquidity shortfalls, the 

proposed changes would commit to a 

minimum amount, subject to a 

replenishment period if OCC charges a 

loss to the Minimum Corporate 

Contribution. Ensuring a minimum 

amount of skin-in-the-game would 

reduce the amount OCC may need to 

charge the Clearing Fund deposits of 

non-defaulting Clearing Member. In this 

way, OCC believes that the proposed 

establishment of the Minimum 

Corporate Contribution and attendant 

changes would improve OCC’s 

resilience as a systemically important 

market utility by promoting robust risk 

management, promoting safety and 

Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 12063 

33 12 U.S.C. 5464(a)(2). 

34 17 CFR 240.17Ad–22(e)(4). 

35 17 CFR 240.17Ad–22(e)(15)(ii). 

36 17 CFR 240.17Ad–22(e)(15)(iii). 

37 17 CFR 240.17Ad–22(e)(2)(i). 

38 17 CFR 240.17Ad–22(e)(23). 

39 17 CFR 240.17Ad–22(e)(4)(i). 

40 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

41Rule 17Ad–22(e)(15)(ii), in turn, requires that 

OCC hold LNAFBE to the greater of (x) six months 

of OCC’s current operating expenses, or (y) the 

amount determined by the Board to be sufficient to 

ensure a recovery or orderly wind-down of critical 

operations and services. 17 CFR 240.17Ad– 

22(e)(15)(ii). OCC’s Capital Management Policy is 

reasonably designed to meet this requirement, and 

Rule 17Ad–22(e)(15) more broadly, by providing 

that OCC sets its Target Capital Requirement at a 

level sufficient to maintain LNAFBE at least equal 

to the greater of: (x) Six months of OCC’s current 

operating expenses, (y) the amount determined by 

the Board to be sufficient to ensure a recovery or 

orderly winddown of critical operations and 

services, and (z) the amount determined by the 

Board to be sufficient for OCC to continue 

operations and services as a going concern if 

general business losses materialize. See Order 

Approving Capital Management Policy, 85 FR at 

5501–02. In addition, in setting the Target Capital 

Requirement, OCC’s Board considers OCC’s 

projected rolling twelve-months’ operating 

expenses to ensure that OCC maintains Equity and 

other financial resources approved by the CFTC, as 

required by CFTC Rule 39.11(a)(2). See id. at 5501 

n.19 (citing 17 CFR 39.11(a)(2)). 

42 Id. Similarly, CFTC Rule 39.11(b)(3) provides 

that a derivatives clearing organization (‘‘DCO’’) 

may allocate financial resources to satisfy 

requirements that the DCO possess financial 

resources (i) to enable the DCO to meet obligations 

notwithstanding a default by the clearing member 

creating the largest financial exposure for the DCO 

in extreme but plausible market conditions, and (ii) 

to enable the DCO to cover its operational costs, but 

not both. See 17 CFR 39.11(b)(3). 

43 17 CFR 240.17Ad–22(e)(15)(iii). 

44 Id. As discussed in note 41, supra, OCC’s 

Target Capital Requirement is reasonably designed 

to meet or exceed the minimum LNAFBE required 

to satisfy Rule 17Ad–22(e)(15)(ii). 

45 17 CFR 240.17Ad–22(e)(2)(i). 

soundness, reducing systemic risks, and 

supporting the stability of the broader 

financial system. 

OCC also believes that the proposed 

changes are consistent with the risk 

management standards adopted by the 

Commission under Section 805(a)(2) of 

the Clearing Supervision Act; 33

specifically, Rules 17Ad–22(e)(4), 34

17Ad–22(e)(15)(ii)(A),35 17Ad– 

22(e)(15)(iii),36 Rules 17Ad–22(e)(2)(i),37

and 17Ad–22(e)(23) 38 thereunder for 

the reasons described below. 

Rule 17Ad–22(e)(4) under the 

Exchange Act provides, in part, that 

OCC establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to effectively 

identify, measure, monitor and manage 

its credit exposures to participants and 

those arising from its payment, clearing 

and settlement processes, including by 

maintaining sufficient financial 

resources to cover its credit exposure to 

each participant fully with a high degree 

of confidence.39 By providing that OCC 

shall maintain a minimum level of skinin-the-game—in addition to OCC’s 

LNAFBE greater than 110% of its Target 

Capital Requirement, contributed prior 

to charging the Clearing Fund, as OCC’s 

Rules currently provide—OCC is 

providing for a minimum level of prefunded financial resources available to 

cover losses in the event of a Clearing 

Member default, and reducing the 

amount OCC would charge the Clearing 

Fund contributions of non-defaulting 

Clearing Members. Therefore, OCC 

believes the amendments to its Rules, 

the Capital Management Policy, and 

other related policies to establish the 

Minimum Corporate Contribution are 

consistent with Rule 17Ad–22(e)(4). 

OCC also believes that the proposed 

changes to the definition of LNAFBE in 

OCC’s Capital Management Policy, 

which exclude the Minimum Corporate 

Contribution from the calculation of 

LNAFBE, are consistent with Rule 

17Ad–22(e)(15)(ii)(A) under the 

Exchange Act.40 Rule 17Ad– 

22(e)(15)(ii)(A) requires that the 

LNAFBE held by OCC to satisfy the 

minimum LNAFBE required by Rule 

17Ad–22(e)(15)(ii) 41 shall be in 

addition to resources held to cover 

participant defaults or other credit or 

liquidity risks.42 The proposed revision 

to OCC’s definition of LNAFBE is 

designed to satisfy Rule 17Ad– 

22(e)(15)(ii)(A) by providing that the 

proposed Minimum Corporate 

Contribution, which would be held 

exclusively to cover participant defaults 

and liquidity shortfalls, would be in 

addition to the LNAFBE that OCC holds 

to meet or exceed its regulatory capital 

requirements under Rule 17Ad– 

22(e)(15)(ii)—i.e., LNAFBE in an 

amount equal to 110% of OCC’s Target 

Capital Requirement. In addition, the 

proposed revisions to OCC Rule 

1006(e)(iii) and the Capital Management 

Policy—which would specify that 

OCC’s committed skin-in-the-game shall 

include the Minimum Corporate 

Contribution and LNAFBE greater than 

110% of the Target Capital 

Requirements—are reasonably designed 

to ensure that OCC would not be 

obligated to contribute an amount of 

skin-in-the-game that would cause its 

LNAFBE to fall below the Early Warning 

threshold intended to ensure OCC 

maintains sufficient LNAFBE to meet its 

regulatory obligations. As a result, OCC 

believes the proposed amendments to 

the Capital Management Policy are 

designed to comply with Rule 17Ad– 

22(e)(15)(ii)(A). 

In addition, OCC believes that the 

proposed amendments to OCC’s 

definition of the Early Warning and 

Trigger Event thresholds under OCC’s 

Replenishment Plan are consistent with 

Rule 17Ad–22(e)(15)(iii) 43 because 

excluding the Minimum Corporate 

Contribution from those thresholds 

would ensure that OCC may continue to 

access replenishment capital in the 

unlikely event that OCC experiences an 

operational loss while continuing to 

maintain the Minimum Corporate 

Contribution exclusively to cover 

default losses. Rule 17Ad–22(e)(15)(iii) 

requires, in part, that OCC establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify, 

monitor, and manage OCC’s general 

business risk, including by maintaining 

a viable plan for raising additional 

Equity should its Equity fall close to or 

below the amount required under Rule 

17Ad–22(e)(15)(ii).44 By setting the 

threshold triggers by reference to the 

Target Capital Requirement, OCC’s 

Replenishment Plan is designed to 

require OCC to act to raise capital 

should its Equity fall close to or below 

the amounts required under Rule 17Ad– 

22(e)(15)(ii). However, the effect of 

holding the Minimum Corporate 

Contribution would be to increase 

OCC’s Equity relative to LNAFBE 

available to cover potential operational 

losses. To help ensure that OCC holds 

LNAFBE above its Target Capital 

Requirement and maintains access to 

replenishment capital, the proposed 

change would exclude the Minimum 

Corporate Contribution when measuring 

OCC’s Equity against the Early Warning 

and Trigger Event thresholds under its 

Replenishment Plan. Accordingly, OCC 

believes that the proposed amendments 

to the definitions of the Early Warning 

and Trigger Event thresholds are 

consistent with Rule 17Ad– 

22(e)(15)(iii). 

OCC also believe that the proposed 

changes are consistent with Rule 17Ad– 

22(e)(2)(i), which requires that covered 

clearing agencies maintain written 

policies and procedures reasonably 

designed to provide for governance 

arrangements that are clear and 

transparent.45 The proposed changes 

would align the terminology used in 

OCC’s Rules and other rule-filed 

policies with the terminology of the 

Capital Management Policy, providing 

better clarity and consistency between 

OCC’s governing documents. 

Specifically, OCC would amend its 

Rules, Capital Management Policy, 

Default Management Policy, Clearing 

Fund Methodology Policy and RWD 

Plan to identify OCC’s sources of skinVerDate Sep<11>2014 18:48 Feb 26, 2021 Jkt 253001 PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 E:\FR\FM\01MRN1.SGM 01MRN1
12064 Federal Register / Vol. 86, No. 38 / Monday, March 1, 2021 / Notices 

46 17 CFR 240.17Ad–22(e)(23). 

47 12 U.S.C. 5464(b). 

48 17 CFR 240.17Ad–22(e)(4). 

49 17 CFR 240.17Ad–22(e)(15)(ii). 

50 17 CFR 240.17Ad–22(e)(15)(iii). 

51 17 CFR 240.17Ad–22(e)(2)(i). 

52 17 CFR 240.17Ad–22(e)(23). 53 17 CFR 200.30–3(a)(91). 

in-the-game (the Minimum Corporation 

Contribution, LNAFBE greater than 

110% of the Target Capital 

Requirement, and the EDCP Unvested 

Balance) and their places within OCC’s 

default waterfall. The proposed 

amendments to the Capital Management 

Policy would also identify factors the 

Board would consider in setting and 

adjusting the Minimum Corporate 

Contribution. Accordingly, OCC 

believes conforming the terms in these 

governance arrangements and 

identifying factors OCC would consider 

in adjusting the Minimum Corporate 

Contribution is consistent with Rule 

17Ad–22(e)(2)(i). 

Finally, OCC believe that the 

proposed changes are consistent with 

Rule 17Ad–22(e)(23), which requires 

covered clearing agencies to maintain 

written policies and procedures 

reasonably designed to, among other 

things, provide for publicly disclosing 

all relevant rules and material 

procedures, including key aspects of its 

default rules and procedures.46 The 

proposed changes would amend OCC’s 

Rules to remove the pre-Capital 

Management Policy references to use of 

‘‘retained earnings’’ or ‘‘current and 

retained earnings’’ with respect to the 

sources of OCC’s skin-in-the-game, and 

instead identify the Minimum Corporate 

Contribution and LNAFBE greater than 

110% of the Target Capital 

Requirement. The proposed changes 

would also provide greater clarity about 

how OCC calculates the amount of 

LNAFBE greater than 110% of the 

Target Capital Requirement based upon 

the unaudited financial statements from 

the close of the prior month; provided, 

however, that OCC would not be 

required to contribute an amount that 

would cause its LNAFBE to fall below 

110% of the Target Capital Requirement 

at the time charged. The proposed 

changes to OCC Rules would, in turn, be 

made available on OCC’s website. 

Therefore, OCC believes the proposed 

changes would disclose relevant default 

rules and procedures to the public and 

to Clearing Members. 

For the foregoing reasons, OCC 

believes that the proposed changes are 

consistent with Section 805(b) of the 

Clearing Supervision Act 47 and Rules 

17Ad–22(e)(4), 48 17Ad–22(e)(15) 

(ii)(A),49 17Ad–22(e)(15)(iii),50 Rules 

17Ad–22(e)(2)(i),51 and 17Ad– 

22(e)(23) 52 under the Exchange Act. 

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 

the proposed change was filed with the 

Commission or (ii) the date any 

additional information requested by the 

Commission is received. OCC shall not 

implement the proposed change if the 

Commission has any objection to the 

proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission 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. 

OCC 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 Clearing 

Supervision Act. Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

OCC–2021–801 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–OCC–2021–801. 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 (http://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 the 

filing also will be available for 

inspection and copying at the principal 

office of the self-regulatory organization. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. 

All submissions should refer to File 

Number SR–OCC–2021–801 and should 

be submitted on or before March 16, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04087 Filed 2–26–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91192] 

Order Granting Application by MIAX 

PEARL, LLC for an Exemption 

Pursuant to Section 36(a) of the 

Exchange Act From the Rule Filing 

Requirements of Section 19(b) of the 

Exchange Act With Respect to Certain 

Rules Incorporated by Reference 

February 23, 2021. 

MIAX PEARL, LLC (‘‘MIAX PEARL’’ 

or ‘‘Exchange’’) has filed with the 

Securities and Exchange Commission