Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12237 

19As noted, ICE Clear Europe satisfied the fiveday pre-filing requirement. For purposes only of 

waiving the 30-day operative delay, the 

Commission has considered the proposed rule 

change’s impact on efficiency, competition, and 

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

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

The Commission believes that the 

proposed rule change would only affect 

transfers between different bank 

accounts of ICE Clear Europe (including 

TARGET2 PM Accounts), not transfers 

involving payments to or from Clearing 

Members. As a result, the Commission 

does not believe the proposed rule 

change would have any effect on the 

safeguarding of funds or securities in 

the custody or control of ICE Clear 

Europe or any other rights or obligations 

of ICE Clear Europe, Clearing Members, 

Sponsored Principals or other persons 

using the clearing service. Accordingly, 

the Commission believes the proposed 

rule change would not significantly 

affect the protection of investors or the 

public interest. 

Moreover, the Commission believes 

the proposed rule change would not 

impose any new obligations on Clearing 

Members, affect significantly the rights 

of Clearing Members, or affect the cost 

of clearing or access to clearing for 

market participants. Accordingly, the 

Commission believes the proposed rule 

change would not impose any 

significant burden on competition. 

Because the Commission believes the 

proposed rule change would not (i) 

significantly affect the protection of 

investors or the public interest and (ii) 

impose any significant burden on 

competition, the Commission believes 

that waiver of the 30-day operative 

delay would not itself significantly 

affect the protection of investors or the 

public interest and impose any 

significant burden on competition. 

Moreover, the Commission believes that 

the delay of the operation of the 

proposed rule change through the 30- 

day operative delay could impede ICE 

Clear Europe’s compliance with its 

requirements under EMIR. As ICE Clear 

Europe notes, the proposed rule change 

would allow ICE Clear Europe to 

establish a TARGET2–ECB account, 

which is necessary in order to further 

compliance by ICE Clear Europe with 

the policy underlying Article 25(2b) of 

EMIR applicable to a tier 2 TC–CCP in 

light of the United Kingdom’s exit from 

the European Union. ICE Clear Europe 

seeks to establish such an account to 

replace its existing TARGET2–NL 

account by the end of March 2021. Any 

delay in implementing the amendments, 

and establishing the TARGET2–ECB 

account, could affect ICE Clear Europe’s 

ability to comply with applicable EU 

requirements and maintain recognition. 

Thus, the Commission believes that 

waiving the 30-day operative delay 

would allow ICE Clear Europe to 

comply with applicable EU 

requirements and maintain recognition, 

thus providing certainty to ICE Clear 

Europe and its Clearing Members, while 

not significantly affecting the protection 

of investors or the public interest and 

imposing any significant burden on 

competition. Therefore, the Commission 

designates the proposed rule change as 

operative upon filing.19

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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 Number SR– 

ICEEU–2021–004 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ICEEU–2021–004. 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, 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 filings will also be 

available for inspection and copying at 

the principal office of ICE Clear Europe 

and on ICE Clear Europe’s website at 

https://www.theice.com/clear-europe/ 

regulation. 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–ICEEU– 

2021–004 and should be submitted on 

or before March 23, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04221 Filed 3–1–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91199; File No. SR–OCC– 

2021–003] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change To 

Establish OCC’s Persistent Minimum 

Skin-in-the-Game 

February 24, 2021. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on February 10, 2021, the 

Options Clearing Corporation (‘‘OCC’’ or 

‘‘Corporation’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by OCC. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change 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 


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12238 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 

3OCC’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. 

4 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). 

5The Capital Management Policy defines 

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

OCC’s Statement of Financial Condition. 

6See 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’’). 

7 Id. at 5502. 

8Use 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). 

9As 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. 

10Order Approving Capital Management Policy, 

85 FR at 5507 (quoting comments submitted by 

FIA). 

11See ABN AMRO Clearing Bank N.V., et al., A 

Path Forward for CCP Resilience, Recovery, and 

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

losses or liquidity shortfalls. 

Amendments to OCC’s Rules are 

included in Exhibit 5a of filing SR– 

OCC–2021–003. Amendments to OCC’s 

Capital Management Policy are included 

in confidential Exhibit 5b of filing SR– 

OCC–2021–003. 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–2021–003, 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.3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(1) Purpose 

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’’) 4 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 5 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’’).6 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.7 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.8

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.9 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.’ ’’ 10 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 

serves.11 One of the paper’s significant 


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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12239 

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

12While 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. 

13Though 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. 

14OCC 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. 

15See Exchange Act Release No. 89534 (Aug. 12, 

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

OCC–2020–009). 

16See Exhibit 3g to File No. SR–OCC–2019–007. 17See OCC By-Laws Art. IX, Sec. 1. 

recommendations is that central 

counterparties should have skin-in-thegame in a more defined manner.12 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.13 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 this proposed rule change, 

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-the-game proposal is part of a 

broader set of decisions announced by 

OCC to lower the cost of clearing for its 

members,14 including a fee decrease 

effective September 1, 2020.15 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,16 OCC 

believes that this view is well outside 

the scope of the Capital Management 

Policy and this proposed rule change, 

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 17 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 

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, 


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18OCC 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). 

19 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

20Under 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. 

21See 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–2021–003. 

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.18 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),19 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,20 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.21

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 

to the Minimum Corporate 

Contribution. 

Each chargeable loss would trigger a 

new 270-day period. As such, proposed 


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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12241 

22As 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. 23See 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

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 22 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).23

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 

Corporate Contribution, fall close to or 

below the Target Capital Requirement. 


jbell on DSKJLSW7X2PROD with NOTICES
12242 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 

24 15 U.S.C. 78q–1(b)(3)(F). 

25 17 CFR 240.17Ad–22(e)(2)(i). 

26 17 CFR 240.17Ad–22(e)(4). 

27 17 CFR 240.17Ad–22(e)(15)(ii). 

28 17 CFR 240.17Ad–22(e)(15)(iii). 

29 17 CFR 240.17Ad–22(e)(23). 

30 15 U.S.C. 78q–1(b)(3)(F). 

31 17 CFR 240.17Ad–22(e)(4)(i). 

32 17 CFR 240.17Ad–22(e)(15)(ii)(A). 

33Rule 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)). 

(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. 

(2) Statutory Basis 

OCC believes the proposed rule 

changes are consistent with Section 17A 

of the Securities Exchange Act of 1934 

(‘‘Exchange Act’’) and the rules and 

regulations thereunder. In particular, 

OCC believes that the proposed 

establishment of the Minimum 

Corporate Contribution and other 

proposed changes are consistent with 

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

Act 24 and Rules 17Ad–22(e)(2)(i),25

17Ad–22(e)(4), 26 17Ad– 

22(e)(15)(ii)(A),27 17Ad–22(e)(15)(iii),28

and Rule 17Ad–22(e)(23) 29 thereunder 

for the reasons described below. 

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

Act requires, in part, that the rules of 

OCC be designed to promote the prompt 

and accurate clearance and settlement of 

securities transactions and, in general, 

to protect investors and the public 

interest. The proposed revisions to the 

Capital Management Policy’s definitions 

of LNAFBE, Early Warning and Trigger 

Event are designed to ensure that OCC 

may establish the Minimum Corporate 

Contribution exclusively to cover 

default losses while continuing to 

maintain sufficient LNAFBE for 

operational expenses such that it could 

continue to promptly and accurately 

clear and settle securities transactions 

even if it suffered significant operational 

losses, including by continuing to 

maintain access to its Replenishment 

Plan should an operational loss cause 

OCC’s Equity, less the Minimum 

Corporate Contribution, to fall close to 

or below OCC’s Target Capital 

Requirement. In other words, 

conforming these definitions to account 

for the establishment of the Minimum 

Corporate Contribution, which will not 

be available to cover operational losses, 

ensures that OCC will continue to hold 

sufficient LNAFBE separate from the 

Minimum Corporate Contribution and 

maintain access to its Replenishment 

Plan to absorb operational losses and 

avoid a disruption that could negatively 

impact OCC’s prompt and accurate 

clearing and settlement of transactions. 

Therefore, OCC believes that the 

proposed amendments to the definitions 

of LNAFBE, Early Warning and Trigger 

Event under its Capital Management 

Policy, which are reasonably designed 

to ensure that OCC has sufficient 

LNAFBE to continue operations in the 

event of an operational loss, are 

consistent with the requirements of 

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

Act by protecting investors and the 

public interest.30

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.31 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.32 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) 33 shall be in 

addition to resources held to cover 

participant defaults or other credit or 


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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12243 

34 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). 

35 17 CFR 240.17Ad–22(e)(15)(iii). 

36 Id. As discussed in note 33, 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). 

37 17 CFR 240.17Ad–22(e)(2)(i). 

38 17 CFR 240.17Ad–22(e)(23). 

39 15 U.S.C. 78q–1(b)(3)(I). 

liquidity risks.34 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) 35 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).36 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.37 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 skinin-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.38 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. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

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

Act 39 requires that the rules of a 

clearing agency not impose any burden 

on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. OCC does not 

believe that the establishment of a 

Minimum Corporate Contribution and 

the other attendant changes discussed 

above have any impact, or impose any 

burden, on competition. As discussed 

above, OCC would charge the Minimum 

Corporate Contribution to cover a 

default loss or liquidity shortfall after 

charging the margin and Clearing Fund 

deposit of a default Clearing Member, 

and before charging OCC’s LNAFBE 

above 110% of the Target Capital 

Requirement, both of which would be 

exhausted before OCC charged a default 

loss to the Clearing Fund deposits of 

non-defaulting members and the EDCP 

Unvested Balance on a pro rata basis. 

Accordingly, all Clearing Members 

would benefit by the establishment of 

the Minimum Corporate Contribution, 


jbell on DSKJLSW7X2PROD with NOTICES
12244 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 

40 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 90853 

(January 5, 2021), 86 FR 2006. 

4 15 U.S.C. 78s(b)(2). 

5 Id. 

6 17 CFR 200.30–3(a)(31). 

which would provide a persistent 

minimum level of skin-in-the-game to 

absorb default losses or liquidity 

shortfalls prior to charging such losses 

to non-defaulting Clearing Members. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments on the proposed 

rule change were not and are not 

intended to be solicited with respect to 

the proposed rule change and none have 

been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self- regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be 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 Number SR– 

OCC–2021–003 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–OCC–2021–003. 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 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. 

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–2021–003 and should 

be submitted on or before March 23, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.40

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04217 Filed 3–1–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91194; File No. SR–CBOE– 

2020–117] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Designation 

of a Longer Period for Commission 

Action on a Proposed Rule Change To 

Amend Certain Rules To 

Accommodate the Listing and Trading 

of Index Options With an Index 

Multiplier of One 

February 24, 2021. 

On December 23, 2020, Cboe 

Exchange, Inc. (‘‘Exchange’’ or ‘‘Cboe’’) 

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 amend certain rules to 

accommodate the listing and trading of 

index options with an index multiplier 

of one. The proposed rule change was 

published for comment in the Federal 

Register on January 11, 2021.3 The 

Commission has received no comments 

on the proposal. 

Section 19(b)(2) of the Act 4 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 25, 

2021. 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,5

designates April 11, 2021, 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–CBOE–2020–117). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04216 Filed 3–1–21; 8:45 am] 

BILLING CODE 8011–01–P 


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