5062 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 

27 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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. 

4See Standards for Covered Clearing Agencies, 

Exchange Act Release No. 78961 (Sept. 28, 2016), 

81 FR 70786, 70816 n.318 (S7–03–14) (‘‘In this 

context, procyclicality typically refers to changes in 

risk-management practices that are positively 

correlated with market, business, or credit cycle 

fluctuations that may cause or exacerbate financial 

[in]stability.’’). 

5A mutualized, pre-funded guaranty fund 

comprised of deposits from each member, such as 

OCC’s Clearing Fund, is another financial safeguard 

commonly employed by central counterparties to 

address credit risk as the guarantor of the products 

it clears. 

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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–PEARL–2024–03 and should be 

submitted on or before February 15, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01387 Filed 1–24–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99393; File No. SR–OCC– 

2024–001] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change by 

The Options Clearing Corporation 

Concerning Its Process for Adjusting 

Certain Parameters in Its Proprietary 

System for Calculating Margin 

Requirements During Periods When 

the Products It Clears and the Markets 

It Serves Experience High Volatility 

January 19, 2024. 

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 January 10, 2024, The 

Options Clearing Corporation (‘‘OCC’’) 

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 primarily 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 

This proposed rule change would 

codify OCC’s process for adjusting 

certain parameters in its proprietary 

system for calculating margin 

requirements during periods when the 

products OCC clears and the markets it 

serves experience high volatility. 

Proposed changes to OCC’s Margin 

Policy are submitted in Exhibit 5 to File 

No. SR–OCC–2024–001. 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 

OCC is the sole clearing agency for 

standardized equity options listed on 

national securities exchanges registered 

with the Commission. OCC also clears 

certain stock loan and futures 

transactions. In its role as a clearing 

agency, OCC guarantees the 

performance of its Clearing Members for 

all transactions cleared by OCC by 

becoming the buyer to every seller and 

the seller to every buyer (or the lender 

to every borrower and the borrower to 

every lender, in the case of stock loan 

transactions). These clearing activities 

could expose OCC to financial risks if a 

Clearing Member fails to fulfil its 

obligations to OCC. In its role as 

guarantor for all transactions cleared 

through OCC, one of the more material 

risks related to a Clearing Member’s 

failure to perform is credit risk arising 

from the activity of the Clearing 

Members whose performance OCC 

guarantees. OCC manages these 

financial risks through financial 

safeguards, including the collection of 

margin collateral from Clearing 

Members designed to, among other 

things, address the market risk 

associated with a Clearing Member’s 

positions during the period of time OCC 

has determined it would take to 

liquidate those positions. 

OCC has established a proprietary 

system, the System for Theoretical 

Analysis and Numerical Simulation 

(‘‘STANS’’), that runs various models 

used to calculate each Clearing 

Member’s margin requirements. One of 

OCC’s margin models generates variance 

forecasts for the returns on individual 

equity securities, the result of which 

OCC then includes as one of the inputs 

to the margin calculation. As discussed 

in more detail below, OCC has observed 

that this particular model may produce 

results that are ‘‘procyclical,’’ which 

means that changes in margin 

requirements produced by the model 

may be positively correlated with the 

overall state of the market and, if not 

appropriately addressed, could threaten 

the stability of its members during 

periods of heightened volatility.4 For 

example, procyclicality may be 

evidenced by increasing margin in times 

of stressed market conditions and low 

margin when markets are calm. A 

sudden, extreme increase in margin 

requirements could stress a Clearing 

Member’s ability to obtain liquidity to 

meet its obligations to OCC, particularly 

in periods of high volatility. If that 

Clearing Member subsequently 

defaulted, the resulting suspension and 

liquidation of the defaulting Clearing 

Member’s positions could result in 

losses chargeable to the mutualized 

Clearing Fund.5 Charging a loss to the 

Clearing Fund may result in unexpected 

costs for non-defaulting Clearing 

Members, stressing their ability to 

obtain liquidity to meet their own 

financial obligations in stressed market 

conditions. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 5063 

6 In general, a margin model parameter is a value 

estimated from market or portfolio data used by 

OCC’s margin models for the purpose of calculating 

Clearing Member margin requirements. The value of 

the parameter is associated with a specific point in 

time and may change based on updates to the data 

used in its estimation. 

7See 17 CFR 240.17Ad–22(e)(6)(vi)(C), (D). 

8Compare Standards for Covered Clearing 

Agencies, Exchange Act Release No. 78961, 81 FR 

70819 (‘‘[A] covered clearing agency generally 

should consider in establish and maintaining 

policies and procedures for margin . . . whether 

the model . . . to the extent practicable and 

prudent, limits the need for destabilizing, 

procyclical changes.’’), and Central Counterparty 

(CCP) Risk and Governance Subcommittee, Market 

Risk Advisory Committee of the U.S. Commodity 

Futures Trading Commission (‘‘CFTC’’), 

Recommendations Regarding CCP Margin 

Methodologies, at 1 (Feb. 12, 2021), available at 

https://www.cftc.gov/media/5776/GMAC_

031121WFE/download (describing the CFTC’s 

‘‘principle-based approach to addressing 

procyclical risk’’ under CFTC Regulation 39.13), 

with Article 41, Regulation (EU) No 648/2012 of 4 

July 2012 of the European Parliament and Council 

on OTC derivatives, central counterparties and 

trade repositories (requiring CCPs to ‘‘regularly 

monitor and, if necessary, revise the level of its 

margins to reflect current market conditions taking 

into account any potentially procyclical effects of 

such revisions’’), and Article 28, Regulatory 

technical standards on CCPs i.e. Commission 

Delegated Regulation (EU) No 153/2013 of 19 

December 2012 supplementing Regulation (EU) No 

648/2012 of the European Parliament and of the 

Council with regard to regulatory technical 

standards on requirements for CCPs (requiring CCPs 

to adopt one of three anti-procyclicality margin 

measures). 

9Standards for Covered Clearing Agencies, 

Exchange Act Release No. 78961, 81 FR 70819. 

10See infra notes 25–28 (describing the 

parameters to which the bounds are applied). 

11See infra notes 33–34 and accompanying text 

(detailing examples in which high volatility control 

settings were implemented). 

12See infra notes 29–30 and accompanying text. 

13See Exchange Act Release Nos. 99169 (Dec. 14, 

2023), 88 FR 88163 (Dec. 20, 2023) (SR–OCC–2023– 

008); 98101 (Aug. 10, 2023), 88 FR 55775 (Aug. 16, 

2023) (SR–OCC–2022–012); 96566 (Dec. 22, 2022), 

87 FR 80207 (Dec. 29, 2022) (SR–OCC–2022–010); 

91079 (Feb. 8, 2021), 86 FR 9410 (Feb. 12, 2021) 

(SR–OCC–2020–016); 90797 (Dec. 23, 2020), 85 FR 

86592 (Dec. 30, 2020) (SR–OCC–2020–014); 87718 

(Dec. 11, 2019), 84 FR 68992 (Dec. 17, 2019) (SR– 

OCC–2019–010); 86436 (July 23, 2019), 84 FR 36632 

(July 29, 2019) (SR–OCC–2019–006); 86119 (June 

17, 2019), 84 FR 29267 (June 21, 2019) (SR–OCC– 

2019–004); 83799 (Aug. 8, 2018), 83 FR 40379 (Aug. 

14, 2018) (SR–OCC–2018–011); 82658 (Feb. 7, 

2018), 83 FR 6646 (Feb. 14, 2018) (SR–OCC–2017– 

007). 

14An overview of the STANS methodology is on 

OCC’s public website: https://www.theocc.com/ 

Risk-Management/Margin-Methodology. 

15See OCC Rule 601. 

16The expected shortfall component is 

established as the estimated average of potential 

losses higher than the 99% value at risk threshold. 

The term ‘‘value at risk’’ or ‘‘VaR’’ refers to a 

statistical technique that is used in risk 

management to measure the potential risk of loss for 

a given set of assets over a particular time horizon. 

17Pursuant to OCC Rule 601(e)(1), OCC also 

calculates initial margin requirements for 

segregated futures accounts on a gross basis using 

the Standard Portfolio Analysis of Risk Margin 

Calculation System (‘‘SPAN’’). CFTC Regulation 

39.13(g)(8), requires, in relevant part, that a 

derivatives clearing organization (‘‘DCO’’) collect 

initial margin for customer segregated futures 

accounts on a gross basis. While OCC uses SPAN 

to calculate initial margin requirements for 

segregated futures accounts on a gross basis, OCC 

believes that margin requirements calculated on a 

net basis (i.e., permitting offsets between different 

customers’ positions held by a Clearing Member in 

a segregated futures account using STANS) affords 

OCC additional protections at the clearinghouse 

level against risks associated with liquidating a 

Clearing Member’s segregated futures account. As a 

result, OCC calculates margin requirements for 

segregated futures accounts using both SPAN on a 

gross basis and STANS on a net basis, and if at any 

time OCC staff observes a segregated futures 

account where initial margin calculated pursuant to 

STANS on a net basis exceeds the initial margin 

Continued 

Regulations applicable to OCC require 

it to take certain measures with respect 

to its margin models during periods of 

time when the products cleared or 

markets served display high volatility. 

For example, the SEC’s Standards for 

Covered Clearing Agencies require OCC 

to establish policies and procedures 

related to the review of OCC’s model 

parameters 6 during periods of time 

when the products cleared or markets 

served display high volatility, report the 

results to appropriate decisionmakers, 

and use the results to evaluate the 

adequacy of and adjust its model 

parameters.7 OCC understands that, in 

implementing standards for central 

counterparties, U.S. regulators chose not 

to adopt the types of prescriptive 

procyclicality controls codified by 

financial regulators in other 

jurisdictions.8 Accordingly, regulatory 

guidance applicable to OCC provides 

that a clearing agency should consider 

whether its margin model, ‘‘to the extent 

practicable and prudent, limits the need 

for destabilizing, procyclical changes.’’ 9

To mitigate procyclical margin 

requirements during periods when 

OCC’s cleared products or the markets 

its serves experience high volatility, 

OCC has established regular and high 

volatility control settings under its 

margin methodology. OCC’s price return 

model employs bounds (i.e., the 

‘‘control sets’’ implemented under 

regular or high volatility settings) for 

certain parameters that are calculated 

daily based on current market data.10

When OCC implements high volatility 

control settings, those parameters are 

bounded differently than under regular 

control settings. In general, these control 

settings help to prevent significant 

overestimation of Clearing Member 

margin requirements.11

To determine when implementation 

of high volatility control settings may be 

appropriate, OCC monitors the volatility 

of the products it clears and the markets 

it serves. Based on the results of this 

monitoring, OCC may determine to 

implement high volatility control 

settings for those model parameters. 

Under OCC’s margin methodology, 

these high volatility control settings 

may be applied to individual securities, 

which are among several ‘‘risk factors’’ 

under OCC’s margin methodology, or 

globally across a class of risk factors 

(e.g., equities, indexes, volatility-based 

products, etc.). 

OCC previously described its use of 

high volatility control settings within 

STANS in its filing to establish its 

STANS Methodology Description.12 The 

STANS Methodology Description, 

however, does not provide specific 

details around the process for setting or 

applying high volatility control settings. 

To ensure that OCC’s rules include a 

sufficient level of detail about material 

aspects of OCC’s margin system, OCC 

proposes to amend its Margin Policy, 

which is filed as a rule with the 

Commission,13 to define material 

aspects of the high volatility control 

setting process. This proposed rule 

change would amend the Margin Policy 

to describe the process, including: (1) 

how OCC sets and reviews the regular 

and high volatility control sets; (2) how 

OCC monitors for market volatility and 

idiosyncratic price moves and 

establishes thresholds to escalate the 

results of such monitoring for 

consideration of whether high volatility 

control settings are warranted; and (3) 

OCC’s internal governance for 

implementing and terminating high 

volatility control settings. OCC does not 

believe that proposed revisions to its 

Margin Policy would have any practical 

effect on Clearing Members or other 

market participants because OCC is not 

proposing to change its current practices 

for setting member margin 

requirements. 

(1) Purpose 

Background 

STANS is OCC’s proprietary risk 

management system for calculating 

Clearing Member margin 

requirements.14 The STANS 

methodology utilizes large-scale Monte 

Carlo simulations to forecast price and 

volatility movements in determining a 

Clearing Member’s margin 

requirement.15 STANS margin 

requirements are calculated at the 

portfolio level of each Clearing Member 

account with positions in marginable 

securities and is comprised of an 

estimate of a 99% expected shortfall 16

over a two-day time horizon, among 

other components. OCC uses the STANS 

methodology to measure the exposure of 

portfolios of products cleared by OCC 

and cash instruments in margin 

collateral.17


khammond on DSKJM1Z7X2PROD with NOTICES
5064 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 

calculated pursuant to SPAN on a gross basis, OCC 

collateralizes this risk exposure by applying an 

additional margin charge in the amount of such 

difference to the account. See Exchange Act Release 

No. 72331 (June 5, 2014), 79 FR 33607 (June 11, 

2014) (SR–OCC–2014–13). 

18The acronym ‘‘GARCH’’ refers to an 

econometric model that can be used to estimate 

volatility based on historical data. 

19See Exchange Act Release No. 84879 (Dec. 20, 

2018), 83 FR 67392, 67393 (Dec. 29, 2018) (SR– 

OCC–2018–014). 

20 In general, the implied volatility of an option 

is a measure of the expected future volatility of the 

option’s underlying security at expiration, which is 

reflected in the current option premium in the 

market. 

21See Exchange Act Release No. 84879, 83 FR 

67394. 

22See id. at 67393. 

23See Exchange Act Release No. 95319 (July 19, 

2022), 87 FR 44167 (July 25, 2022) (SR–OCC–2022– 

001). 

24See supra note 11 and accompanying text. 

25Alpha is the weight attached to the 

contribution to the forecast variance from the price 

risk factor. Together with gamma, it controls the 

model’s reaction to recent market moves. 

26Beta is the weight attached to the contribution 

to the forecast variance from the previous day’s 

forecast. As such, it concerns the persistence of 

volatility. 

27 Gamma is the additional weight attached to the 

contribution to the forecast variance from a negative 

return in the price risk factor. Together with alpha, 

it controls the model’s reaction to recent market 

moves. 

28See Exchange Act Release No. 83326 (May 18, 

2018), 83 FR 25081 (May 31, 2018) (SR–OCC–2017– 

022); Exchange Act Release No. 83305 (May 23, 

2018), 83 FR 24536 (May 29, 2018) (SR–OCC–2017– 

811). 

29The STANS Methodology Description is 

intended to provide a comprehensive description of 

the material aspects of OCC’s risk-based margin 

system. See Exchange Act Release No. 91079, 86 FR 

at 9410 (SR–OCC–2020–016). 

30See Exchange Act Release No. 85788 (Dec. 21, 

2020), 85 FR 85788, 85793 (Dec. 29, 2020) (SR– 

OCC–2020–016) (‘‘The STANS Methodology 

Description would also describe the controls that 

may be placed on the GJR–GARCH parameters after 

their initial calibration. GARCH volatility 

forecasting models can be very reactive in certain 

market environments. As a result, OCC may 

implement parameter controls for risk factors and 

classes of risk factors, which are subject to periodic 

review and approval by the MRWG.’’). 

31 In this context, the coverage rate for a security 

is the change in risk of the security express as a 

percentage of the price of the security when the 

market closes. 

32OCC has included as confidential Exhibit 3A to 

File No SR–OCC–2024–001 responses to questions 

from OSC concerning drafts of this proposed rule 

change, including data concerning the coverage 

rates under control sets reviewed by the MRWG on 

March 9, 2020. 

33OCC has also included as confidential Exhibit 

3B to SR–OCC–2024–001 an internal OCC 

memorandum concerning high volatility control 

settings describing, among other things, how when 

Forecasted returns on individual risk 

factors are an input to OCC’s calculation 

of margin requirements. A ‘‘risk factor’’ 

within STANS is a product or attribute 

whose historical data is used to estimate 

and simulate the risk for an associated 

product. Risk factors include the returns 

on individual equity securities, returns 

on equity indexes, and returns on 

implied volatility risk factors, among 

others. 

OCC uses a GARCH 18 model to 

generate variance forecasts for price risk 

factors for all products and implied 

volatility with respect to certain 

products. Following February 5, 2018, 

when the market experienced extreme 

levels of volatility that caused a 

significant spike in margin 

requirements, OCC’s analysis 

demonstrated that GARCH is extremely 

sensitive to sudden spikes in volatility, 

which can result in margin 

requirements that OCC believes are 

unreasonable and procyclical.19 For 

example, OCC observed that its GARCH 

model for forecasting implied 

volatility 20 produced forecasts for 

particular S&P 500 Index (‘‘SPX’’) 

options that were four-fold larger than 

the comparable market index. This led 

to margin requirements increasing by 

80% overnight, with some margin 

requirements increasing ten-fold. In 

reviewing OCC’s analysis, the 

Commission acknowledged that the size 

of such margin requirement increases 

was not necessarily commensurate with 

the risk of those Clearing Member’s 

portfolios, and that imposing such a 

large, unexpected increase could impose 

a large, unexpected stress on a Clearing 

Member during a period of high 

volatility.21 Since then, OCC has taken 

several measures to mitigate such 

procyclicality, including changes to its 

GARCH-based implied volatility 

model,22 and a new model to replace 

GARCH for simulating implied volatility 

for SPX-based options and volatility 

index futures.23 Even with such 

revisions, however, the GARCH model 

may produce procyclical margin results 

that are not commensurate with the risk 

of the products, portfolios, or markets 

that OCC seeks to manage.24

To mitigate such procyclicality, OCC 

also applies numerical constraints to 

certain statistical parameters that inform 

the model’s reaction to market volatility. 

Specifically, the GARCH model uses 

statistical alpha (a),25 beta (b),26 and 

gamma (g) 27 parameters as part of its 

econometric model for updating risk 

factors to reflect the most recent market 

data. Those statistical parameters are 

calculated daily based on updated price 

data.28 As described in OCC’s STANS 

Methodology Description,29 OCC 

applies numerical constraints (i.e., 

‘‘control settings’’) to these GARCH 

parameters after their initial calibration 

to mitigate the reactivity of the model 

volatility forecast, which is a primary 

driver of margin requirements for any 

equity or index.30 These constraints 

apply to the calculation of margin for 

each Clearing Member. 

OCC refers to the constraints 

applicable under normal market 

conditions as ‘‘regular’’ control settings. 

The STANS Methodology Description 

further provides that OCC maintains 

projections of various market conditions 

in which pre-determined constraints 

(i.e., a control set) are appropriate and 

that specification of those conditions 

and the control sets are based on 

continual quantitative research and may 

be specific to risk factor types (e.g., 

equities or volatility indexes). The 

STANS Methodology Description 

further provides that the assumptions 

and individual application of the 

parameter controls for risk factors and 

classes of risk factors are subject to 

periodic review and approval by OCC’s 

Model Risk Working Group (‘‘MRWG’’), 

a cross-functional group responsible for 

assisting OCC’s management in 

overseeing OCC’s model-related risk 

comprised of representatives from 

relevant OCC business units, including 

Quantitative Risk Management, Model 

Risk Management, and Corporate Risk 

Management. OCC refers to 

implementation of high volatility 

control settings to an individual risk 

factor as ‘‘idiosyncratic’’ control settings 

and implementation across all or a class 

of risk factors as ‘‘global’’ control 

settings. 

OCC has implemented global settings 

on only a few occasions. For example, 

OCC implemented global control 

settings for equities, indexes, volatilitybased products and short ETF products 

from March 9, 2020 until April 9, 2020 

in connection with the market volatility 

associated with the onset of the COVID– 

19 pandemic and on January 27, 2021 

for volatility-based products in 

connection with market volatility 

caused by the so-called ‘‘meme stock’’ 

episode. On March 9, 2020, for example, 

when the SPX experienced a return of 

approximately –7.5%, coverage for SPX 

options under regular control settings 

would have increased from long 

coverage 31 of ¥11.77% and short 

coverage of 11.69% to –18.54% and 

19.44%, respectively.32 MRWG 

approved implementing global control 

settings based on a 50% weighting 

between regular and high volatility 

control settings, resulting in long and 

short coverage of –13.60% and 14.42%. 

These coverages were selected based on 

their alignment with the two-day short 

and long coverage determined from SPX 

implied volatility; ¥13% and 14%, 

respectively.33 Aggregate margin 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 5065 

implementing global control settings on March 9, 

2020, the MRWG compared resulting coverages 

from different weightings against the coverage rates 

that could be derived through implied option 

volatility to evaluate of coverage rates under 

alternative parameters sets. 

34OCC has included as confidential Exhibit 3C to 

SR–OCC–2024–001 responses to questions from 

Staff of the Commission’s Office of Clearance and 

Settlement (‘‘OSC’’) dated November 20, 2020 

concerning OCC’s March 9, 2020 implementation of 

global control settings, including, among other 

things, as assessment of the impact on margin. 

35From December 2019 to August 2023, for 

example, OCC implemented high volatility control 

settings lasting various durations (ranging from a 

single day to 190 days, with a median period of 10 

days) for more than 200 individual risk factors. See 

Exhibit 3A, supra note 32 (providing a list of 

instances in which OCC implemented global and 

idiosyncratic control settings). 

36While no options were listed on the security, 

certain Clearing Members maintained cleared stock 

loan positions and collateral deposits in that 

security. 

37See Exhibit 3A, supra note 32 (providing 

responses concerning an April 28, 2023 

implementation of idiosyncratic control settings). 

38See Exhibit 3A, supra note 32 (providing 

responses to requests for backtesting data and 

analysis). 

39 Id. 

40This new section would be added to the 

‘‘Margin Methodology’’ section of the Margin Policy 

and the subsections would be renumbered to reflect 

the addition. 

41The high volatility control value sets are 

sometimes referend to as idiosyncratic control 

settings because, in practice, the high volatility 

control set is what OCC applies when implementing 

idiosyncratic control settings. As discussed above, 

when implementing global control settings, MRWG 

evaluates and selects a control setting with different 

weightings between the regular control set and high 

volatility control set based on an assessment of 

which blended approach generates a coverage level 

that converges with the implied volatility of the 

SPX. See supra note 33 and accompanying text. 

42The return shocks are maintained in and 

updated in accordance with model whitepapers that 

support the STANS Methodology Description. The 

current return shocks for index and volatility 

products are based on the largest observed 

downward and updated price moves, respectively. 

The current return shock for equities is a ¥15% 

return based on large observed negative returns for 

a sample of individual equites. OCC has included 

the model whitepaper as confidential Exhibit 3D to 

File No. SR–OCC–2024–001. The whitepaper is 

redlined with anticipated updates based on the 

most recent annual review of the high volatility 

control setting process and edits intended to 

capture feedback from OSC staff in connection with 

its review of a draft of this proposal. 

43OCC has included the periodic reviews 

presented to MRWG since 2020 in confidential 

Exhibit 3E to File No. SR–OCC–2024–001. OCC 

believes that such changes to the control sets would 

be reasonably and fairly implied by the Margin 

Policy, as proposed to be amended. 

requirements calculated using the global 

control settings were $84.2 billion, 

compared to $103.2 billion had OCC 

used regular control settings.34

OCC has implemented idiosyncratic 

control settings for individual risk 

factors more frequently.35 For example, 

on April 28, 2023, FRM implemented 

idiosyncratic control settings with 

respect to a risk factor for a security that 

experienced multi-day jumps in stock 

price,36 including from $6.72 to $20 on 

April 27, 2023 and from $20 to $108.20 

on April 28, 2023, which resulted in 

corresponding short coverage levels 

under regular control settings increasing 

from 98% to 5695%.37 After 

implementing idiosyncratic control 

settings for that risk factor, aggregate 

margin requirements decreased $2.6 

billion. OCC did not observe any daily 

backtesting exceedances associated with 

implementing idiosyncratic control 

settings for this risk factor. 

In general, OCC has not observed 

backtesting exceedances attributable to 

the implementation of global or 

idiosyncratic volatility control settings. 

Currently, OCC monitors margin 

sufficiency at the Clearing Member 

account level to identify backtesting 

exceedances. Account exceedances are 

investigated to determine the cause of 

the exceedance, including whether the 

exceedance can be attributed to the 

implementation of high volatility 

control settings. No account level 

exceedance has been attributed to the 

implementation of high volatility 

control settings. OCC also performs 

model backtesting on all risk factors 

with listed derivatives or stock loan 

positions, or securities pledged as 

collateral within Clearing Member 

accounts, including for risk factors 

subject to high volatility control 

settings. Model backtesting has not 

identified an issue with the adequacy of 

margin coverage associated with the 

implementation of idiosyncratic control 

settings. OCC also conducted 

instrument-level backtesting over a twoyear time horizon on securities for 

which idiosyncratic control settings 

were implemented. Of the 14 out of 244 

securities for which 2-day expected 

shortfall coverages was less than 99%, 

OCC found that the coverages with 

regular control settings would not have 

been significantly different.38 Only one 

risk factor had 2-day expected shortfall 

short coverage under 99% while on 

idiosyncratic control settings that would 

have been above 99% on regular control 

settings, driven by one additional 2-day 

expected shortfall short exceedance.39

However, this single occurrence did not 

contribute to any Clearing Member 

account-level exceedance. Based on this 

study, OCC believes that application of 

high volatility control settings does not 

have a significant negative effect on the 

sufficiency of OCC’s margin coverage. 

Proposed Changes 

OCC proposes to amend its Margin 

Policy to add a new section 40

addressing control settings so that 

OCC’s rules would include a sufficient 

level of detail about the high volatility 

control setting process currently 

maintained in other internal OCC 

procedures, including (1) how OCC sets 

and reviews the regular and high 

volatility control sets; (2) how OCC 

monitors for market volatility and 

idiosyncratic price moves and 

establishes thresholds to escalate the 

results of such monitoring for 

consideration of whether high volatility 

control settings are warranted; and (3) 

OCC’s internal governance for 

implementing and terminating high 

volatility control settings. 

(1) How OCC Sets and Reviews Regular 

and High Volatility Control Sets 

First, OCC proposes to amend the 

Margin Policy to add a subsection under 

the new control settings section that 

would address how OCC reviews and 

sets the regular and high volatility 

control sets (i.e., the bounds applied to 

the GARCH parameters under regular 

and idiosyncratic control settings).41

The Margin Policy would require that 

FRM conduct a review of the control 

sets on an at-least annual basis, and any 

recommended changes would require 

MRWG approval. With respect to the 

regular control set, the Margin Policy 

would further provide that such review 

would assess whether the GARCH 

parameter bounds are appropriately 

risk-based, including, but not limited to, 

assessing whether they align with the 

95th percentile of the parameter 

calibrations over the prior review 

period. The Margin Policy would 

further provide that the review of the 

high volatility control set would assess 

whether the control settings effectively 

mitigate procyclicality while remaining 

appropriately risk-based, including, but 

not limited to, whether the bounds keep 

the day-over-day change in 2-day 

expected shortfall coverage within a 

factor of approximately 1.5 assuming 

price shocks based on observed returns 

for top risk factors.42 These additions to 

the Margin Policy are intended to 

describe OCC’s current process and 

internal procedures for setting the 

regular and idiosyncratic control sets.43

(2) How OCC Monitors for and Escalates 

High Volatility to Appropriate 

Decisionmakers 

OCC currently conducts daily 

monitoring for high market volatility 

and idiosyncratic price moves for 

individual securities against thresholds 

that, if breached, would require 

escalation to appropriate 


khammond on DSKJM1Z7X2PROD with NOTICES
5066 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 

44See Exchange Act Release No. 83406 (June 11, 

2018), 83 FR 83406 (June 15, 2018) (SR–OCC–2018– 

008) (describing how the Clearing Fund 

Methodology Policy ‘‘would require that OCC 

maintain procedures for determining whether, and 

in which circumstances’’ stress testing review must 

be completed more frequently than monthly ‘‘when 

the products cleared or markets served display high 

volatility,’’ among other possible triggers). 

45See 17 CFR 17Ad–22(e)(4)(iv)(C) (with respect 

to stress testing); 17Ad–22(e)(6)(vi)(C) (with respect 

the risk-based margin system); 17Ad–22(e)(7)(vi)(C) 

(with respect to liquidity resource sufficiency). 

46The subsections in the ‘‘Margin Monitoring’’ 

section would be renumbered accordingly to reflect 

this addition. 

47With respect to the high market volatility 

thresholds relevant to this filing, OCC’s current 

thresholds are based on a statistical 1-in-18 month 

return calculated daily from the previous 10 years 

of market data for the S&P 500 and VIX indexes. 

As of August 3, 2023, the thresholds translated to 

a 38.12% return for VIX and a ¥4.52% return for 

the SPX. Developmental evidence supporting the 

CCA Monitoring Threshold for high volatility has 

been provided in the model whitepaper. See Exhibit 

3D, supra note 42. However, as discussed above, the 

CCA Monitoring Thresholds and the method for 

reviewing and updating them would be maintained 

in the procedures supporting the Clearing Fund 

Methodology Policy. As such, OCC believes the 

CCA Monitoring Thresholds for high volatility and 

updates thereto consistent with the Margin Policy 

would be reasonably and fairly implied by the 

Margin Policy. 

48OCC has included a copy of these procedures 

as Exhibit 3F to File No. SR–OCC 2024–001, which 

are redlined with anticipated changes arising from 

feedback received from OSC staff in connection 

with a review of a draft of this proposed rule 

change. 

49See id. Currently, FRM Staff reviews a daily 

report of projected coverages for selected risk 

factors (excluding securities that do not have listed 

options and are not eligible as either collateral or 

as part of OCC’s Stock Loan Programs) with an 

absolute value of simple return greater than 20% or, 

for securities under $1 or are missing a current or 

prior days’ closing price, with an absolute value of 

log return greater than 100%. Securities meeting 

these thresholds are then filtered to identify those 

with more than $100 million in prior day risk 

exposure and a greater-than 3 times day-over-day 

increase in coverage. In addition, the thresholds 

filter for those securities for which regular 

parameter short coverages is greater than 350%. 

With respect to securities without listed options, 

the short coverage threshold also requires that the 

prior day risk exposure be greater than $10 million. 

As discussed below, the Idiosyncratic Thresholds 

would be maintained in procedures supporting the 

Margin Policy, reviewed at-least annually, and 

updated with MRWG approval. As such, OCC 

believes the Idiosyncratic Thresholds and updates 

thereto consistent with the Margin Policy would be 

reasonably and fairly implied by the Margin Policy. 

50Officers are identified in OCC’s By-Laws. See 

OCC By-Law Art IV. In this context, an FRM officer 

would include any member of FRM appointed by 

the Chief Executive Officer or Chief Operating 

Officer, including a Managing Director, Executive 

Director or Executive Principal. See id. § 9. 

decisionmakers to evaluate the 

adequacy of and make adjustments to 

OCC’s model parameters. Specifically, 

Pursuant to the Clearing Fund 

Methodology Policy and the procedures 

thereunder, OCC has established 

thresholds related to high market 

volatility, low market liquidity, and 

significant increases in position size or 

concentration that would trigger an 

intra-month meeting of the MRWG to 

review stress test results.44 The 

underlying procedure refers to such 

thresholds as ‘‘CCA Monitoring 

Thresholds’’ because they are associated 

with SEC requirements for when a 

covered clearing agency must perform 

certain required monthly reviews on a 

more frequent basis.45

While these thresholds are set in 

accordance with the Clearing Fund 

Methodology Policy with respect to its 

stress testing procedures, OCC uses the 

same thresholds as triggers for review of 

its risk-based margin system, including 

(1) more frequent sensitivity analysis of 

its margin model and a review of OCC’s 

parameters and assumptions for 

backtesting, and (2) with respect to the 

high volatility threshold, escalation to 

the MRWG for consideration of whether 

to implement global control settings. 

However, unlike the Clearing Fund 

Methodology Policy, the Margin Policy 

does not currently reference how the 

thresholds are set. As proposed to be 

amended, the ‘‘Margin Monitoring’’ 

section of the Margin Policy would be 

amended to add a discussion of the CCA 

Monitoring Thresholds.46 That section 

would refer to the CCA Monitoring 

Thresholds established under the 

Clearing Fund Methodology Policy and 

its underlying procedure. The Margin 

Policy would further provide that the 

CCA Monitoring Thresholds are 

reviewed annually by the MRWG and 

the Stress Testing Working Group 

(‘‘STWG’’) to ensure they remain 

adequate to identify periods of high 

market volatility,47 low market 

liquidity, and significant increases in 

position size/concentration. The MRWG 

and STWG would be required to 

approve any changes to the thresholds. 

To monitor for volatility experienced 

by individual risk factors that may merit 

implementing idiosyncratic control 

settings, the Margin Policy would 

require FRM to monitor securities 

against thresholds for idiosyncratic 

price moves that would be established 

in its procedures (‘‘Idiosyncratic 

Thresholds’’).48 The Idiosyncratic 

Thresholds may employ a tiered 

structure that takes into account the 

type and magnitude of OCC’s risk 

exposure to the security (e.g., whether it 

is an optionable security with open 

interest, accepted as collateral, and/or 

an Eligible Security under OCC’s Stock 

Loan Programs), the value of the 

security, the magnitude of the price 

move, and the coverage rates.49 The 

Margin Policy would further reflect that 

on an at-least annual basis, FRM 

reviews whether the Idiosyncratic 

Thresholds, and the related instances 

when idiosyncratic control settings were 

applied during the review period, 

appropriately capture products 

experiencing high volatility. Any 

change to the Idiosyncratic Thresholds 

would require MRWG review and 

approval. 

(3) How OCC Implements and 

Terminates High Volatility Control 

Settings 

When the monitoring thresholds 

discussed above are breached, 

appropriate decisionmakers at OCC 

determine whether to implement 

idiosyncratic or global control settings. 

Specifically, for breaches of the CCA 

Monitoring Threshold for high 

volatility, the Margin Policy would 

require that FRM escalate the matter to 

the MRWG and make a recommendation 

as to whether global control settings 

should be applied to all risk factors or 

a class of risk factors. The Margin Policy 

would require MRWG approval to 

implement global control settings. In 

making that determination, the Margin 

Policy would describe how MRWG 

would review coverage rates under 

potential control settings generated by 

taking a weighting of the bounds for 

regular and high volatility control sets. 

The Margin Policy would further 

require that MRWG make this 

determination considering factors 

including, but not limited to, which 

blended control value sets generate 

coverage levels that converge with the 

implied volatility of the SPX. 

The Margin Policy would also provide 

for how OCC would revert back to 

regular control settings after having 

implemented global control settings. 

Such reversion would also require 

MRWG approval. The Margin Policy 

would further provide that when 

making a determination that market 

volatility has decreased to a level where 

global control settings are no longer 

required, the MRWG would consider 

factors including, but not limited to, 

whether SPX coverage rates produced 

under regular control settings have 

converged with the initial coverage rates 

when global control settings were first 

implemented. 

With respect to breaches of the 

Idiosyncratic Thresholds, the Margin 

Policy would provide that FRM 

maintains authority to implement 

idiosyncratic control settings for an 

individual risk factor. Implementation 

of such idiosyncratic high volatility 

control settings would require approval 

of an FRM Officer.50 In practice, FRM 

applies the high volatility control set to 

a risk factor each time the Idiosyncratic 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 5067 

51For example, an FRM Officer may use this 

authority to implement hypothetical scenarios for 

securities in cases where the securities fell just 

short of one element in the Idiosyncratic 

Thresholds’ tiered structure, but where breaches of 

other elements weighed in favor of applying 

idiosyncratic control settings in the FRM Officer’s 

judgment. See Exhibit 3A, supra note 32 (detailing 

an example in which an FRM Officer used this 

authority when a security was just below the $100 

million threshold for prior day risk exposure, but 

an FRM Officer approved implementing 

idiosyncratic control settings based on the 

significant day-over-day increase to short coverage 

combined with the size of the exposure). 

52For example, under the current Idiosyncratic 

Control Settings, discussed above in note 49, an 

FRM Officer would approve reverting to regular 

control settings when the short coverage declines to 

350% or below. 

53See 15 U.S.C. 78q–1. 

54 15 U.S.C. 78q–1(b)(3)(F). 

55See supra notes 19–23, 34–35, and 

accompanying text. 

56 Id. 

57See 17 CFR 240.17Ad–22(e)(6)(i). 

58Standards for Covered Clearing Agencies, 

Exchange Act Release No. 78961, 81 FR 70819. 

59See supra notes 19–21 and accompanying text. 

60See supra notes 38–39 and accompanying text. 

61 17 CFR 240.17Ad–22(e)(6)(i). 

62 17 CFR 240.17Ad–22(e)(6)(vi). 

Thresholds are breached. However, the 

FRM Officer would retain authority 

under the Margin Policy to maintain 

regular control settings in the case of 

exceptional circumstances, including, 

for example, due to implementation of 

global control settings, operational 

issues such as production processing 

problems, or edge cases for which the 

FRM Officer determines that further 

refinement of the Idiosyncratic 

Thresholds is warranted. If the FRM 

Officer determines not to implement 

idiosyncratic control settings in edge 

cases, the Margin Policy would require 

that the FRM Officer present proposed 

changes to the Idiosyncratic Thresholds 

that reflect the exception within 30 days 

to the MRWG for review and, subject to 

MRWG discretion, approval. The 

Margin Policy would also provide for an 

FRM Officer’s authority to approve 

idiosyncratic control settings based on 

additional considerations such as 

market moves, expected shortfall risk 

contribution, and changes in Clearing 

Member positions.51

Finally, the Margin Policy would 

provide for reversion from idiosyncratic 

control settings to regular control 

settings. Specifically, the Margin Policy 

would provide that generally, an FRM 

Officer will approve such reversion 

when the coverage rates under the 

regular control set converges with the 

initial coverage rate when idiosyncratic 

control settings were first implemented 

or when the coverage rates decline to or 

below the coverage rate under the 

Idiosyncratic Thresholds that triggered 

the idiosyncratic control settings.52

However, to account for possible 

unforeseen and unanticipated 

situations, the Margin Policy would 

provide that idiosyncratic control 

settings may be applied for a longer or 

shorter period at the discretion of the 

FRM Officer. 

(2) Statutory Basis 

OCC believes that the proposed rule 

change is consistent with Section 17A of 

the Exchange Act 53 and the rules and 

regulations thereunder applicable to 

OCC. Section 17A(b)(3)(F) of the Act 54

requires, in part, that the rules of a 

clearing agency 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 

changes are intended to codify OCC’s 

process for adjusting parameters in 

STANS in response to broad market 

volatility or idiosyncratic price moves 

for individual securities. As discussed 

above, the GARCH model has been 

observed to overreact to changes in 

volatility.55 Such sudden increases in 

margin requirements may stress certain 

Clearing Members’ ability to obtain 

liquidity to meet those requirements, 

particularly in periods of high volatility, 

and could result in a Clearing Member 

being delayed in meeting, or ultimately 

failing to meet, its daily settlement 

obligations to OCC. A resulting 

suspension of a defaulting Clearing 

Member may result in losses chargeable 

to the mutualized Clearing Fund 

deposits of non-defaulting Clearing 

Members, which could result in 

unexpected costs for those Clearing 

Members. The proposed changes are 

intended to support the high volatility 

control settings process designed to 

mitigate the procyclicality of its GARCH 

model that may cause or exacerbate 

such financial instability. For these 

reasons, OCC believes the proposed 

changes to OCC’s rules would support 

processes reasonably designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, and in general, to protect 

investors and the public interest, in 

accordance with Section 17A(b)(3)(F) of 

the Act.56

OCC believes that the proposed 

changes are also consistent with SEC 

Rule 17Ad–22(e)(6), which requires, in 

part, that a covered clearing agency 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.57 Commission guidance with 

respect to SEC Rule 17Ad–22(e)(6) 

further provides that a covered clearing 

agency should consider whether its 

margin model, ‘‘to the extent practicable 

and prudent, limits the need for 

destabilizing, procyclical changes.’’ 58

As noted above, OCC’s GARCH model 

demonstrates sensitivity to sudden 

spikes in volatility, which can at times 

result in overreactive margin 

requirements that OCC believes are 

unreasonable and procyclical.59 Based 

on its analysis,60 OCC believes that the 

high volatility control settings reduce 

the oversensitivity of the variance 

forecasts for price risk factors while 

continuing to produce margin levels 

commensurate with the risks presented 

during periods of sudden, extreme 

volatility, consistent with Rule 17Ad– 

22(e)(6)(i).61

SEC Rule 17Ad–22(e)(6) further 

requires that a covered clearing agency’s 

policies and procedures be reasonably 

designed to monitoring its risk-based 

margin system on an ongoing basis, 

including by conducting a review of its 

parameters during periods of time when 

the products cleared or markets served 

display high volatility, report the results 

to appropriate decisionmakers, and use 

the results to evaluate the adequacy of 

and adjust its model parameters.62 The 

proposed changes to the Margin Policy 

would require that (i) FRM monitor for 

periods when the products cleared or 

markets served display high volatility; 

(ii) FRM escalate the results of its 

monitoring to appropriate 

decisionmakers; and (iii) FRM or 

MRWG may implement high volatility 

control settings to adjust the GARCH 

model parameters based on specified 

criteria. OCC believes that FRM and 

MRWG are the appropriate 

decisionmakers for making 

determinations about these margin 

parameter adjustments because they are 

composed of the subject matter experts 

most familiar with the performance of 

and risks associated with OCC’s margin 

models. In addition, OCC believes it 

appropriate that implementation of 

global control settings require MRWG 

approval. MRWG is comprised of both 

first- and second-line personnel, 

including personnel in OCC’s Model 

Risk Management business unit, who, 

under OCC’s Risk Management 

Framework, are responsible for 

evaluating model parameters and 

assumptions and providing effective 

and independent challenge through 


khammond on DSKJM1Z7X2PROD with NOTICES
5068 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 

63See Exchange Act Release No. 95842, 87 FR at 

58413 (File No. SR–OCC–2022–010) (filing to 

establish OCC’s Risk Management Framework). 

OCC Risk Management Framework is available on 

OCC’s public website: https://www.theocc.com/riskmanagement/risk-management-framework. 

64 17 CFR 240.17Ad–22(e)(6)(vi). 

65 15 U.S.C. 78s(b). 

66 17 CFR 240.19b–4. 

67 17 CFR 240.19b–4(a)(6)(i). 

68 17 CFR 240.19b–4(c)(1). 

69See supra notes 29–30 and accompanying text. 

70See supra notes 43, 47, and 49. 

71 15 U.S.C. 78s(b). 

72 15 U.S.C. 78q–1. 

73 15 U.S.C. 78q–1(b)(3)(I). 

74See 17 CFR 240.17Ad–22(e)(6)(vi)(C)–(D). 

75 17 CFR 240.17Ad–22(e)(6)(i). 

OCC’s model lifecycle.63 Accordingly, 

OCC believes that this crossdepartmental group is the appropriate 

governing body for reviewing and 

approving such adjustments to OCC’s 

model parameters during periods of 

high market volatility, consistent with 

Rules 17Ad–22(e)(6)(vi).64

In addition, OCC believes that 

proposed changes to promote aspects of 

the high volatility control setting 

process to OCC’s rule-filed Margin 

Policy are consistent with Section 19(b) 

of the Exchange Act 65 and SEC Rule 

19b–4 66 thereunder, which require a 

self-regulatory organization to file 

proposed rule changes with the 

Commission. In particular, SEC Rule 

19b–4 provides that proposed rule 

changes subject to this filing 

requirement include stated policies, 

practices and interpretations of the selfregulatory organization, which the 

Commission defines to include, among 

other things, ‘‘any material aspect of the 

operation of the facilities of the selfregulatory organization,’’ 67 regardless of 

whether the stated policy, practice or 

interpretation is made generally 

available. SEC Rule 19b–4 provides 

certain exceptions to the filing 

requirement, including if the stated 

policy, practice or interpretation is 

‘‘reasonably and fairly implied by an 

existing rule of the self-regulatory 

organization.’’ 68 OCC’s use of high 

volatility control settings is currently 

addressed in OCC’s STANS 

Methodology Description, a rule of 

OCC.69 This proposed rule change 

would describe other aspects of the high 

volatility control setting process, 

including (1) how OCC establishes and 

maintains regular and high volatility 

control sets; (2) how OCC monitors for 

and escalates high market volatility and 

idiosyncratic price moves to appropriate 

decisionmakers for consideration of 

whether high volatility control settings 

are warranted; and (3) OCC’s internal 

governance for implementing and 

terminating high volatility control 

settings. OCC believes that promoting 

these aspects of the high volatility 

control setting process to the Margin 

Policy would ensure that its rules 

contain sufficient detail about material 

aspects of its margin system. 

OCC further believes that other 

internal procedures and technical 

documents concerning the execution of 

the high volatility control settings 

would be reasonably and fairly implied 

by its rules, as amended—including the 

regular and high volatility control sets, 

the thresholds used to escalate price 

movements and market volatility to 

appropriate decisionmakers to consider 

implementing high volatility control 

settings, and the method for reviewing 

and updating those control sets and 

thresholds based on the latest market 

data.70 Continuing to maintain these 

details in OCC internal procedures that 

are reasonably and fairly implied by 

OCC’s rules would allow OCC to adjust 

the high volatility control settings 

process in response to novel situations, 

changing market conditions and 

additional quantitative research as 

OCC’s processes mature. Accordingly, 

OCC believes that the proposed rule 

change is consistent with Section 19(b) 

of the Exchange Act 71 and the 

regulations thereunder. 

For the above reasons, OCC believes 

that the proposed rule change is 

consistent with Section 17A of the 

Exchange Act 72 and the rules and 

regulations thereunder applicable to 

OCC. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

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

Act 73 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. The proposed 

changes merely codify requirements 

related to the administration of OCC’s 

high volatility control settings, which, 

when implemented, apply to all 

Clearing Members that hold cleared 

positions within the scope of the high 

volatility control settings. Accordingly, 

OCC does not believe that the proposed 

rule change would unfairly inhibit 

access to OCC’s services. 

While high volatility control settings 

implemented under the proposed 

changes may impact different accounts 

to a greater or lesser degree depending 

on the composition of positions in each 

account, OCC does not believe that such 

impacts would impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. As 

discussed above, OCC is obligated under 

the Exchange Act and the regulations 

thereunder to review its model 

parameters during periods of time when 

the products cleared or markets served 

display high volatility, report the results 

to appropriate decisionmakers, and use 

the results to evaluate the adequacy of 

and adjust its model parameters.74 As 

discussed above, OCC believes the 

proposed changes to its rules support a 

high volatility control setting process 

that is reasonably designed to monitor 

volatility in the products and markets 

served by OCC and escalate the results 

of that monitoring to appropriate OCC 

decisionmakers, who would evaluate 

whether adjustments to OCC’s model 

parameters through use of control 

settings is warranted. In addition, the 

changes would support a process 

designed to mitigate procyclicality 

observed with the GARCH model, 

which OCC believes would help ensure 

that its margin requirements remain 

commensurate with the risks presented 

by its Clearing Members’ activity, 

consistent with SEC Rule 17Ad– 

22(e)(6)(i).75 Accordingly, OCC believes 

that the proposed rule change would not 

impose any burden or impact on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed change and none have 

been received. 

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 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 5069 

76 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Clearing Member documents consist of 

contracts and forms, that in conjunction with OCC’s 

By-Laws and Rules, establish and govern the 

relationship between OCC and each Clearing 

Member. See Exchange Act Release No. 73577 (Nov. 

12, 2014), 79 FR 68733 (Nov. 18, 2014) (File No. 

SR–OCC–2014–20). 

4 17 CFR 240.15c6–1(a). 

5 Id. 

6OCC’s By-Laws and Rules can be found on 

OCC’s public website, available https://

www.theocc.com/Company-Information/ 

Documents-and-Archives/By-Laws-and-Rules. 

7Exchange Act Release No. 96930 (Feb. 15, 2023), 

88 FR 13872 (Mar. 6, 2023) (‘‘T+1 Adopting 

Release’’). 

8 Id. 

9Exchange Act Release No. 33023 (Oct. 6, 1993), 

58 FR 52891 (Oct. 13, 1993) (final rule adopting 

Rule 15c6–1); Exchange Act Release No. 34952 

(Nov. 9, 1994), 59 FR 59137 (changing the effective 

date of the final rule from June 1, 1995 to June 7, 

1995). 

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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

OCC–2024–001 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to file 

number SR–OCC–2024–001. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the 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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of OCC 

and on OCC’s website at https://

www.theocc.com/CompanyInformation/Documents-and-Archives/ 

By-Laws-and-Rules. 

Do not include personal identifiable 

information in submissions; you should 

submit only information that you wish 

to make available publicly. We may 

redact in part or withhold entirely from 

publication submitted material that is 

obscene or subject to copyright 

protection. 

All submissions should refer to file 

number SR–OCC–2024–001 and should 

be submitted on or before February 15, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01386 Filed 1–24–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99392; File No. SR–OCC– 

2024–002] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Concerning Amendments to The 

Options Clearing Corporation’s Rules, 

By-Laws, and Certain Clearing Member 

Documents 

January 19, 2024. 

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 January 10, 2024, 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 primarily 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 

This proposed rule change would 

amend the OCC Rules, By-Laws, certain 

Clearing Member documents 3 in 

connection with the recent amendments 

adopted by the Commission to Rule 

15c6–1(a) 4 under the Exchange Act. The 

amendments to Rule 15c6–1(a) 5 shorten 

the standard settlement cycle for most 

broker-dealer securities transactions 

from two business days after the trade 

date to one business day after the trade 

date. 

The proposed changes are included in 

Exhibits 5A through 5F to File No. SR– 

OCC–2024–002. Material proposed to be 

added as currently in effect is 

underlined and material proposed to be 

deleted is marked in strikethrough text. 

All capitalized terms not defined herein 

have the same meaning as set forth in 

the OCC By-Laws and Rules.6

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 

The proposed rule change consists of 

modifications to OCC Rules, By-Laws, 

and certain Clearing Member documents 

in connection with the recently adopted 

amendments to Commission Rule 15c6– 

1(a) to shorten the standard settlement 

cycle for most broker-dealer securities 

transactions from two business days 

after the trade date (‘‘T+2’’) to one 

business day after the trade date 

(‘‘T+1’’).7 Specifically, OCC proposes to 

(i) revise provisions connected to late 

exercise that are impacted by a 

shortened settlement cycle, (ii) change 

timeframes related to the standard 

settlement cycle to reflect T+1, and (iii) 

make certain other conforming and 

clarifying changes. The compliance date 

regarding the amendments to Rule 

15c6–1(a) is May 28, 2024.8

Background 

Rule 15c6–1 establishes a standard 

settlement cycle for most purchases or 

sales of securities by broker-dealers. The 

Commission adopted Rule 15c6–1(a) in 

1993 to establish T+3 as the standard 

trade settlement cycle (instead of five 

business days after the trade date), and 

it became effective in June 1995.9 In 


khammond on DSKJM1Z7X2PROD with NOTICES