Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 51087 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Commission has modified the text of the 

summaries prepared by OCC. 

4Securities Exchange Act Release 34–62371 (June 

24, 2010), 75 FR 37864 (June 30, 2010) (SR–OCC– 

2010–04). OCC withdrew its proposed rule change 

regarding clearing fund sizing in order to submit 

this proposed rule change which: Incorporates the 

amendments that were proposed to the previous 

proposed rule change; discusses the adaptation of 

the methodology underlying the formula change 

made to incorporate the effects of implementing the 

rule changes described in Securities Exchange Act 

Release No. 34–58158 (July 15, 2008), 73 FR 42646 

(July 22, 2008) (SR–OCC–2007–20) (‘‘Collateral in 

Margins Filing’’); provides updated comparative 

data about the impact of the proposed clearing fund 

sizing formula; and makes additional changes to 

improve the overall readability of certain proposed 

rule text. 

5 If the calculation does not result in a clearing 

fund of $1 billion or more, the percentage that 

results in a fund level of at least $1 billion is 

applied provided that in no event will the 

percentage exceed 7%. 

6 ‘‘Clearing member group’’ will be defined in 

Article I (‘‘Definitions’’) of OCC’s By-Laws to mean 

‘‘a Clearing Member and any Member Affiliates of 

such Clearing Member.’’ 

7Proposed Interpretation and Policy .02 to OCC 

Rule 1001. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–EDGA–2011–26. This file 

number should be included on the 

subject line if e-mail 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 Web site (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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of EDGA. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make publicly available. All 

submissions should refer to File 

Number SR–EDGA–2011–26 and should 

be submitted on or before September 7, 

2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20911 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65119; File No. SR–OCC– 

2011–10] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change To 

Revise Its By-Laws and Rules To 

Establish a Clearing Fund Amount 

Intended To Support Losses Under a 

Defined Set of Default Scenarios 

August 12, 2011. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 3, 

2011, The Options Clearing Corporation 

(‘‘OCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared primarily by OCC. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The proposed rule change would 

change the method by which the size of 

OCC’s clearing fund is determined. 

II. Self-Regulatory Organization’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.3

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

This proposed rule change would 

revise OCC’s By-Laws and Rules to 

establish the size of OCC’s clearing fund 

as the amount that is required within a 

confidence level selected by OCC to 

sustain possible loss under a defined set 

of scenarios as determined by OCC. The 

proposed rule change replaces a 

previously proposed rule change which 

was withdrawn by OCC.4 Currently the 

size of the clearing fund is calculated 

each month and is equal to a fixed 

percentage of the average total daily 

margin requirement for the preceding 

month provided that this calculation 

results in a clearing fund of $1 billion 

or more.5

Under the proposed formula for 

determining the size of the clearing 

fund, the amount of the fund would be 

equal to the larger of the amount of the 

charge to the fund that would result 

from (i) A default by the single ‘‘clearing 

member group’’ whose default would be 

likely to result in the largest draw 

against the clearing fund or (ii) an event 

involving the near-simultaneous default 

of two randomly-selected ‘‘clearing 

member groups,’’ in each case as 

calculated by OCC with a specified 

confidence level. Initially, the 

confidence levels employed by OCC in 

calculating the charge likely to result 

from a default by OCC’s largest 

‘‘clearing member group’’ and the 

default of two randomly-selected 

‘‘clearing member groups’’ would be 

99% and 99.9%, respectively.6

However, OCC would have the 

discretion to employ different 

confidence levels in these calculations 

in the future provided that OCC would 

not employ confidence levels of less 

than 99% without filing a rule change 

with the Commission.7 The size of the 

clearing fund would continue to be 

recalculated monthly based on a 

monthly averaging of daily calculations 

for the previous month and subject to a 


Emcdonald on DSK2BSOYB1PROD with NOTICES
51088 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 

8Proposed Interpretation and Policy .01 to OCC 

Rule 1001. 

9See Bank for International Settlements and 

International Organization of Securities 

Commissions, Recommendations for Central 

Counterparties (November 2004), available at 

http://www.iosco.org/library/pubdocs/pdf/ 

IOSCOPD176.pdf (the‘‘2004 Recommendations’’). 

OCC notes that in December 2009 the Committee on 

Payment and Settlement Systems of the Bank for 

International Settlements (‘‘CPSS’’) and the 

Technical Committee of the International 

Organization of Securities Commissions (‘‘IOSCO’’) 

began a comprehensive review of the 2004 

Recommendations in order to strengthen and clarify 

such recommendations based on experience and 

lessons learned from the recent financial crisis. In 

March 2011, the CPSS and IOSCO published for 

comment the results of such review with comments 

requested by July 29, 2011. See Bank for 

International Settlements and International 

Organization of Securities Commissions, Principles 

for financial market infrastructures (March 2011), 

available at http://www.iosco.org/library/pubdocs/ 

pdf/IOSCOPD350.pdf. 

10Note the comparative data described in this 

paragraph was obtained using confidence levels set 

at 99% and above. OCC estimates that using only 

a 99% confidence level for the months referenced 

would have lowered by an average of approximately 

1⁄2% the total size of the clearing fund as 

determined by the proposed methodology. 

11Securities Exchange Act Release No. 34–58158 

(July 15, 2008), 73 FR 42646 (July 22, 2008) (SR– 

OCC–2007–20). See supra note 4. 12 15 U.S.C. 78q–1. 

requirement that the total clearing fund 

be not less than $1 billion.8

The new formula is designed to more 

directly take into account anticipated 

losses resulting from the clearing 

member default scenarios described 

above and thereby establish the clearing 

fund at a size that is sufficient to cover 

such losses without relying on any 

rights of OCC to require clearing 

members to replenish the clearing fund. 

The formula is generally consistent with 

the current ‘‘Recommendations for 

Central Counterparties’’ published by 

the Bank for International Settlements 

and the International Organization of 

Securities Commissioners. Among the 

recommendations in the publication are 

that a clearing organization ‘‘maintain 

sufficient financial resources to 

withstand, at a minimum, a default by 

the clearing member to which it has the 

largest exposure in extreme but 

plausible market conditions.’’ The 

publication further advises clearing 

organizations to plan for the possibility 

of a default by two or more clearing 

members in a short time frame.9

In considering whether to revise the 

formula for determining the size of the 

clearing fund, OCC compared the size of 

the clearing fund that would have 

resulted from application of the revised 

formula to the actual size of the clearing 

fund for each month from February 

2008 through September 2009. This 

analysis revealed that for this time 

period the size of the clearing fund 

under the revised formula would have 

been on average 10% larger than under 

the current formula. In September and 

October 2008, which were two months 

of extreme volatility in the U.S. 

securities markets, the revised formula 

would have resulted in a clearing fund 

size of approximately 31% and 27% 

greater than under the current formula. 

The average monthly change in the size 

of the clearing fund and the standard 

deviation of clearing fund size from 

month to month for this time period 

under the two formulas were broadly 

similar.10

Since deciding in September 2009 

that it wished to adopt the revised 

formula, OCC has continued to compare 

the size of the clearing fund under the 

revised formula with the size under the 

current formula. During 2010 the 

methodology underlying the revised 

formula was adapted to incorporate the 

effects of the implementation of the rule 

changes described in the Collateral in 

Margins Filing.11 Under those changes, 

certain types of securities accepted as 

collateral are analyzed for margin 

purposes together with positions in 

cleared products as a single portfolio, 

affording a more accurate measurement 

of risk. During the period February 2008 

through January 2010 (i.e., prior to the 

implementation of the Collateral in 

Margins Filing) for which comparative 

data is available, the size of the clearing 

fund under the revised formula would 

have been on average 3% larger than 

under the current formula. Including 

also the further months of July, 2010 

through June, 2011 (i.e., since the 

implementation of the Collateral in 

Margins Filing) for which comparative 

data is available, the corresponding 

percentage increase is 2%. 

The existing formula for determining 

the size of the clearing fund was 

intended to establish the fund at a level 

reasonably designed to cover losses 

resulting from one or more clearing 

member defaults, and OCC believes that 

it has served that purpose adequately. 

Nevertheless, OCC believes that the 

proposed amended formula is a better 

predictor of the actual losses that would 

be likely to result from such defaults. 

The existing formula takes potential 

losses into account only indirectly by 

setting the size of the clearing fund as 

a percentage of average margin 

requirements. The revised formula 

would directly take into account various 

types of default scenarios and therefore 

in OCC’s view would be more likely to 

result in a level for the clearing fund 

that is adequate in the event such 

scenarios occur. The new formula 

would therefore more closely align the 

size of the clearing fund with its 

intended purpose of absorbing losses 

resulting from clearing member defaults 

and would thereby avoid a disruption of 

the clearance process even during 

extreme market conditions. 

Article VIII, Section 6 of OCC’s ByLaws, which obligates clearing members 

to make good deficiencies in their 

clearing fund deposits resulting from 

pro rata charges or otherwise (subject to 

a cap equal to 100% of a clearing 

member’s then required deposit if it 

promptly withdraws from membership 

and closes out or transfers its open 

positions) would remain unchanged. 

The specific amendments proposed to 

OCC’s By-Laws and Rules to facilitate 

the proposed changes to its clearing 

fund calculation can be found at 

http://www.theocc.com/components/ 

docs/legal/rules_and_bylaws/ 

sr_occ_11_10.pdf. 

If approved by the Commission, OCC 

would implement the revised formula 

for determining the size of its clearing 

fund sixty days after notice to its 

clearing members. 

2. Statutory Basis 

OCC believes the proposed rule 

changes are consistent with the 

requirements of Section 17A of the 

Act 12 and the rules and regulations 

thereunder because the proposed rule 

changes would facilitate prompt and 

accurate clearance and settlement of 

securities transactions by creating a 

more direct correlation between the 

clearing fund size and estimated losses 

from a defined set of default scenarios. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. OCC will notify 

the Commission of any written 

comments received by OCC. 

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 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 51089 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3For purposes of this filing, the term 

‘‘Exchanges’’ refers collectively to BATS Exchange, 

Inc., BATS Y–Exchange, Inc., NASDAQ OMX BX, 

Inc., Chicago Board Options Exchange, Inc., 

Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., International Securities 

Exchange LLC, The NASDAQ Stock Market LLC, 

New York Stock Exchange LLC, NYSE Amex LLC, 

NYSE Arca, Inc., National Stock Exchange, Inc., and 

NASDAX [sic] OMX PHLX LLC. 

4See Rule 11.18(d) and Interpretation and Policy 

.05 to Rule 11.18. 

5Securities Exchange Act Release Nos. 62252 

(June 10, 2010), 75 FR 34186 (June 16, 2010) (File 

Nos. SR–BATS–2010–014; SR–EDGA–2010–01; SR– 

EDGX–2010–01; SR–BX–2010–037; SR–ISE– 2010– 

48; SR–NYSE–2010–39; SR–NYSEAmex– 2010–46; 

SR–NYSEArca–2010–41; SR–NASDAQ– 2010–061; 

SR–CHX–2010–10; SR–NSX–2010–05; and SR– 

CBOE–2010–047); 62251 (June 10, 2010), 75 FR 

34183 (June 16, 2010) (SR–FINRA–2010– 025). 

6See e.g., Securities Exchange Act Release Nos. 

62884 (September 10, 2010), 75 FR 56618 

(September 16, 2010) (File Nos. SR–BATS–2010– 

018; SR–BX–2010–044; SR–CBOE–2010–065; SR– 

CHX–2010–14; SR–EDGA–2010–05; SR–EDGX– 

2010–05; SR–ISE–2010–66; SR–NASDAQ–2010– 

079; SR–NYSE–2010–49; SR–NYSEAmex–2010–63; 

SR–NYSEArca–2010–61; and SR–NSX–2010–08); 

and Securities Exchange Act Release No. 62883 

(September 10, 2010), 75 FR 56608 (September 16, 

2010) (SR–FINRA–2010–033). 

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 e-mail to 

rule-comments@sec.gov. Please include 

File Number SR–OCC–2011–10 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–OCC–2011–10. This file 

number should be included on the 

subject line if e-mail 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 Web site (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 Web site viewing and 

printing in the Commission’s Public 

Reference Section, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filings 

will also be available for inspection and 

copying at the principal office of OCC 

and on OCC’s Web site at http:// 

www.optionsclearing.com/components/ 

docs/legal/rules_and_bylaws/ 

sr_occ_11_03.pdf. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–OCC– 

2011–10 and should be submitted on or 

before September 7, 2011. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Elizabeth M. Murphy, 

Secretary . 

[FR Doc. 2011–20955 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65113; File No. SR–BATS– 

2011–028] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing of 

Proposed Rule Change To Amend 

BATS Rule 11.17, Entitled ‘‘Clearly 

Erroneous Executions’’ 

August 11, 2011. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on August 8, 

2011, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is proposing to amend 

BATS Rule 11.17, entitled ‘‘Clearly 

Erroneous Executions,’’ so that the rule 

will continue to operate in the same 

manner after changes to the single stock 

trading pause process are effective. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchanges 3 and FINRA, in 

consultation with the Commission, have 

made changes to their respective rules 

in a concerted effort to strengthen the 

markets after the severe market 

disruption that occurred on May 6, 

2010. One such effort by the Exchanges 

and FINRA was to adopt a uniform 

trading pause process during periods of 

extraordinary market volatility as a pilot 

in S&P 500® Index stocks (‘‘Pause 

Pilot’’) 4, approved by the Commission 

on June 10, 2010.5 On September 10, 

2010, the Commission approved the 

Exchanges’ and FINRA’s proposals to 

add the securities included in the 

Russell 1000® Index and specified 

Exchange Traded Products (‘‘ETPs’’) to 

the Pause Pilot.6 On September 10, 

2010, the Commission also approved 

changes proposed by the Exchanges to 

amend certain of their respective rules 

to set forth clearer standards and curtail 

their discretion with respect to breaking 


Emcdonald on DSK2BSOYB1PROD with NOTICES