Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 5953 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3 15 U.S.C. 78a et seq. 

4The Existing Accord was previously approved 

by the Commission. See Securities Exchange Act 

Release Nos. 81266, 81260 (July 31, 2017) (File Nos. 

SR–NSCC–2017–007; SR–OCC–2017–013), 82 FR 

36484 (Aug. 4, 2017). 

5OCC By-Laws are available at https://

www.theocc.com/getmedia/3309eceb-56cf-48fcb3b3-498669a24572/occ_bylaws.pdf and OCC Rules 

are available at https://www.theocc.com/getmedia/ 

9d3854cd-b782-450f-bcf7-33169b0576ce/occ_

rules.pdf. 

6OCC initially filed an advance notice concerning 

the proposed Phase 1 changes on August 10, 2023. 

See Securities Exchange Act Release No. 98214 

(Aug. 24, 2023), 88 FR 59988 (Aug. 30, 2023) (File 

No. SR–OCC–2023–801) (‘‘Initial Filing’’). OCC 

subsequently submitted a partial amendment 

(‘‘Amendment No. 1’’) to clarify the proposed 

implementation plan for the Initial Filing available 

at https://www.theocc.com/getmedia/fb30a875- 

2438-4b2d-bb79-3ff364b6796b/SR-OCC-2023-801- 

Partial-Amendment-No-1.pdf. NSCC also has filed a 

proposed rule change with the Commission in 

connection with this proposal. See Securities 

Exchange Act Release No. 98213 (Aug. 24, 2023), 

88 FR 59968 (Aug. 30, 2023) (File No. SR–NSCC– 

2023–007); Securities Exchange Act Release No. 

98930 (Nov. 14, 2023), 88 FR 80790 (Nov. 20, 2023) 

(Partial Amendment No. 1 to File No. SR–NSCC– 

2023–007). 

5 under the Act, hearing requests should 

state the nature of the writer’s interest, 

any facts bearing upon the desirability 

of a hearing on the matter, the reason for 

the request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

emailing the Commission’s Secretary at 

Secretarys-Office@sec.gov. 

ADDRESSES: The Commission: 

Secretarys-Office@sec.gov. Applicants: 

David B. Golub, legal@

golubcapital.com, and Steven B. Boehm, 

stevenboehm@evershedssutherland.com. 

FOR FURTHER INFORMATION CONTACT: 

Shayna Gilmore, Senior Counsel, or 

Kyle R. Ahlgren, Branch Chief, at (202) 

551–6825 (Division of Investment 

Management, Chief Counsel’s Office). 

SUPPLEMENTARY INFORMATION: For 

Applicants’ representations, legal 

analysis, and conditions, please refer to 

Applicants’ amended and restated 

application, dated July 26, 2023, which 

may be obtained via the Commission’s 

website by searching for the file number 

at the top of this document, or for an 

Applicant using the Company name 

search field, on the SEC’s EDGAR 

system. The SEC’s EDGAR system may 

be searched at, https://www.sec.gov/ 

edgar/searchedgar/legacy/ 

companysearch.html. You may also call 

the SEC’s Public Reference Room at 

(202) 551–8090. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01818 Filed 1–29–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99427; File No. SR–OCC– 

2023–801] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Amendment No. 2 to 

Advance Notice Relating to The 

Options Clearing Corporation’s 

Concerning Modifications to the 

Amended and Restated Stock Options 

and Futures Settlement Agreement 

Between The Options Clearing 

Corporation and the National 

Securities Clearing Corporation 

January 24, 2024. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled Payment, Clearing and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) 2 of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’ 

or ‘‘Act’’),3 notice is hereby given that 

on January 23, 2024, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

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

this amendment (‘‘Amendment No. 2’’) 

to an advance notice 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 

advance notice from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This Amendment No. 2 to the 

advance notice SR–OCC–2023–801 is 

submitted by OCC to: (1) modify the 

Amended and Restated Stock Options 

and Futures Settlement Agreement 

dated August 5, 2017 between OCC and 

National Securities Clearing Corporation 

(‘‘NSCC,’’ and together with OCC, the 

‘‘Clearing Agencies’’) (‘‘Existing 

Accord’’) 4 to permit OCC to elect to 

make a cash payment to NSCC following 

the default of a common clearing 

participant that would cause NSCC’s 

central counterparty trade guaranty to 

attach to certain obligations of that 

participant and to make certain related 

revisions to OCC By-Laws, OCC Rules,5

OCC’s Comprehensive Stress Testing & 

Clearing Fund Methodology, and 

Liquidity Risk Management Description 

and OCC’s Liquidity Risk Management 

Framework (‘‘Phase 1’’) and (2) to 

improve information sharing between 

the Clearing Agencies to facilitate the 

upcoming transition to a T+1 standard 

securities settlement cycle and allow 

OCC, after the compliance date under 

amended Exchange Act Rule 15c6–1(a), 

to provide certain assurances to NSCC 

prior to the default of a common 

clearing participant that would enable 

NSCC to begin processing E&A/Delivery 

Transactions (defined below) before the 

central counterparty trade guaranty 

attaches to certain obligations of that 

participant (‘‘Phase 2’’).6 This 

Amendment No. 2 would amend and 

replace the Initial Filing and 

Amendment No. 1 in their entirety. 

The proposed changes are included in 

Exhibits 5A and 5B and confidential 

Exhibits 5C, 5D, and 5E of Amendment 

No. 2 to File No. SR–OCC–2023–801. 

Material proposed to be added is 

underlined and material proposed to be 

deleted is marked in strikethrough text. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the advance 

notice and discussed any comments it 

received on the advance notice. The text 

of these statements may be examined at 

the places specified in Item IV below. 

OCC has prepared summaries, set forth 

in sections (A) and (B) below, of the 

most significant aspects of these 

statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants or 

Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed changes, and none have 

been received. 

(B) Advance Notice Filed Pursuant to 

Section 806(e) of the Payment, Clearing, 

and Settlement Supervision Act 

Description of Proposed Change 

Background 

OCC is filing this advance notice to 

(1) modify the Existing Accord between 

OCC and NSCC to permit OCC to elect 

to make a cash payment to NSCC 

following the default of a common 

clearing participant that would cause 

NSCC’s central counterparty trade 

guaranty to attach to certain obligations 

of that participant and to make certain 

related revisions to OCC By-Laws, OCC 

Rules, OCC’s Comprehensive Stress 


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7The term ‘‘physically-settled’’ as used 

throughout the OCC Rules refers to cleared 

contracts that settle into their underlying interest 

(i.e., options or futures contracts that are not cashsettled). When a contract settles into its underlying 

interest, shares of stock are sent, i.e., delivered, to 

contract holders who have the right to receive the 

shares from contract holders who are obligated to 

deliver the shares at the time of exercise/assignment 

in the case of an option and maturity in the case 

of a future. 

8Under the Existing Accord, such options and 

futures are defined as ‘‘E&A/Delivery 

Transactions,’’ which refers to ‘‘Exercise & 

Assignment Delivery Transactions.’’ 

9See Rule 11 (CNS System) and Procedure VII 

(CNS Accounting Operation) of the NSCC Rules. 

See NSCC’s Rules, available at https://

www.dtcc.com/-/media/Files/Downloads/legal/ 

rules/nscc_rules.pdf. 

10A firm that is both an OCC Clearing Member 

and an NSCC Member or is an OCC Clearing 

Member that has designated an NSCC Member to 

act on its behalf is referred to herein as a ‘‘Common 

Member.’’ The term ‘‘Clearing Member’’ as used 

herein has the meaning provided in OCC’s By-Laws. 

See OCC’s By-Laws, supra, note 5. The term 

‘‘Member’’ as used herein has the meaning provided 

in NSCC’s Rules. See NSCC’s Rules, supra note 9. 

Testing & Clearing Fund Methodology, 

and Liquidity Risk Management 

Description and OCC’s Liquidity Risk 

Management Framework for Phase 1 

and (2) improve information sharing 

between the Clearing Agencies to 

facilitate the upcoming transition to a 

T+1 standard securities settlement cycle 

and allow OCC, after the compliance 

date under amended Exchange Act Rule 

15c6–1(a), to provide certain assurances 

to NSCC prior to the default of a 

common clearing participant that would 

enable NSCC to begin processing E&A/ 

Delivery Transactions before the central 

counterparty trade guaranty attaches to 

certain obligations of that participant for 

Phase 2. 

i. Executive Summary 

NSCC is a clearing agency that 

provides clearing, settlement, risk 

management, and central counterparty 

services for trades involving equity 

securities. OCC is the sole clearing 

agency for standardized equity options 

listed on national securities exchanges 

registered with the Commission, 

including options that contemplate the 

physical delivery of equities cleared by 

NSCC in exchange for cash (‘‘physically 

settled’’ options).7 OCC also clears 

certain futures contracts that, at 

maturity, require the delivery of equity 

securities cleared by NSCC in exchange 

for cash. As a result, the exercise/ 

assignment of certain options or 

maturation of certain futures cleared by 

OCC effectively results in stock 

settlement obligations. NSCC and OCC 

maintain a legal agreement, generally 

referred to by the parties as the 

‘‘Accord’’ agreement, that governs the 

processing of such physically settled 

options and futures cleared by OCC that 

result in settlement obligations in 

underlying equity securities to be 

cleared by NSCC (i.e., the Existing 

Accord). The Existing Accord 

establishes terms under which NSCC 

accepts for clearing certain securities 

transactions that result from the exercise 

and assignment of relevant options 

contracts and the maturity of futures 

contracts that are cleared and settled by 

OCC.8 It also establishes the time when 

OCC’s settlement guaranty in respect of 

those transactions ends and NSCC’s 

settlement guaranty begins. 

The Existing Accord allows for a 

scenario in which NSCC could choose 

not to guarantee the settlement of such 

securities arising out of E&A/Delivery 

Transactions. Specifically, NSCC is not 

obligated to guarantee settlement until 

its member has met its collateral 

requirements at NSCC. If NSCC chooses 

not to guarantee settlement, OCC would 

engage in an alternate method of 

settlement outside of NSCC. This 

scenario presents two primary 

problems. First, the cash required for 

OCC and its Clearing Members in 

certain market conditions to facilitate 

settlement outside of NSCC could be 

significantly more than the amount 

required if NSCC were to guarantee the 

relevant transactions. This is because 

settlement of the transactions in the 

underlying equity securities outside of 

NSCC would mean that they would no 

longer receive the benefit of netting 

through the facilities of NSCC. In such 

a scenario, the additional collateral 

required from Clearing Members to 

support OCC’s continuing settlement 

guarantee would also have to be 

sufficiently liquid to properly manage 

the risks associated with those 

transactions being due on the second 

business day following the option 

exercise or the relevant futures contract 

maturity date. 

Based on an analysis of scenarios 

using historical data where it was 

assumed that OCC could not settle 

transactions through the facilities of 

NSCC, the worst-case outcome resulted 

in extreme liquidity demands of over 

$300 billion for OCC to effect settlement 

via an alternative method, e.g., by way 

of gross broker-to-broker settlement, as 

discussed in more detail below. OCC 

Clearing Members, by way of their 

contributions to the OCC Clearing Fund, 

would bear the brunt of this demand. 

Furthermore, there is no guarantee that 

OCC Clearing Members could fund the 

entire amount of any similar real-life 

scenarios. By contrast, projected 

Guaranty Substitution Payments, 

defined below, identified during the 

study ranged from approximately $419 

million to over $6 billion, also as 

discussed in more detail below. 

The second primary problem relates 

to the significant operational 

complexities if settlement occurs 

outside of NSCC. More specifically, 

netting through NSCC reduces the 

volume and value of settlement 

obligations. For example, in 2022 it is 

estimated that netting through NSCC’s 

continuous net settlement (‘‘CNS’’) 

accounting system 9 reduced the value 

of CNS settlement obligations by 

approximately 98% or $510 trillion 

from $519 trillion to $9 trillion. If 

settlement occurred outside of NSCC, on 

a broker-to-broker basis between OCC 

Clearing Members, for example, shares 

would not be netted and Clearing 

Members would have to coordinate 

directly with each other to settle the 

relevant transactions. The operational 

complexities and uncertainty associated 

with alternate means of settlement 

would impact every market participant 

involved in a settlement of OCC-related 

transactions. 

To address these problems, the 

Clearing Agencies are proposing certain 

changes as part of Phase 1 to amend and 

restate the Existing Accord and make 

related changes to their respective rules 

that would allow OCC to elect to make 

a cash payment (the ‘‘Guaranty 

Substitution Payment’’ or ‘‘GSP’’) to 

NSCC following the default of a 

Common Member 10 that would cause 

NSCC to guarantee settlement of that 

Common Member’s transactions and, 

therefore, cause those transactions to be 

settled through processing by NSCC. In 

connection with this proposal, OCC also 

would enhance its daily liquidity stress 

testing processes and procedures to 

account for the possibility of OCC 

making such a payment to NSCC in the 

event of a Common Member default. By 

making these enhancements to its stress 

testing, OCC could include the liquid 

resources necessary to make the 

payment in its resource planning. The 

Clearing Agencies believe that by NSCC 

accepting such a payment from OCC, 

the operational efficiencies and reduced 

costs related to the settlement of 

transactions through NSCC would limit 

market disruption following a Common 

Member default because settlement 

through NSCC following such a default 

would be less operationally complex 

and would be expected to require less 

liquidity and other collateral from 

market participants than the processes 

available to OCC for closing out 

positions. Additionally, proposed 

enhancements by OCC to its liquidity 

stress testing would add assurances that 


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11OCC provided its analysis of the financial 

impact of alternate means of settlement as 

confidential Exhibit 3A to this filing. 

12See Rule 11 (CNS System) and Procedure VII 

(CNS Accounting Operation) of the NSCC Rules, 

supra note 9. 

13See Rule 8 (Balance Order and Foreign Security 

Systems) and Procedure V (Balance Order 

Accounting Operation) of the NSCC Rules, supra 

note 9. 

14See Chapter IX of OCC’s Rules (Delivery of 

Underlying Securities and Payment), supra note 5. 

15See OCC Rule 901, supra note 5. 

16See Addendum K and Procedure III of the 

NSCC Rules, supra note 9. 

17A Common Member that has been suspended 

by OCC or for which NSCC has ceased to act is 

referred to as a ‘‘Mutually Suspended Member.’’ 

18For example, OCC evaluated certain Clearing 

Member default scenarios in which OCC assumed 

that NSCC would not accept the settlement 

obligations under the Existing Accord, including 

the default of a large Clearing Member coinciding 

with a monthly options expiration. OCC has 

estimated that in such a Clearing Member default 

scenario, the aggregate liquidity burden on OCC in 

connection with obligations having to be settled on 

a gross broker-to-broker basis could reach a 

significantly high level. For example, in January 

2022, the largest gross broker-to-broker settlement 

amount in the case of a larger Clearing Member 

default would have resulted in liquidity needs of 

approximately $384,635,833,942. OCC provided the 

data and analysis as confidential Exhibit 3A to this 

filing. 

19 In broker-to-broker settlement, Clearing 

Member parties are responsible for coordinating 

settlement—delivery and payment—among 

themselves on a transaction-by-transaction basis. 

Once transactions settle, the parties also have an 

obligation to affirmatively notify OCC so that OCC 

can close out the transactions. If either one of or 

both of the parties do not notify OCC, the 

transaction would remain open on OCC’s books 

indefinitely until the time both parties have 

provided notice of settlement to OCC. 

OCC could make such a payment in the 

event of a Common Member default. 

The Clearing Agencies believe that their 

respective clearing members and all 

other participants in the markets for 

which OCC provides clearance and 

settlement would benefit from OCC’s 

ability to choose to make a cash 

payment to effect settlement through the 

facilities of NSCC. This change would 

provide more certainty around certain 

default scenarios and would blunt the 

financial and operational burdens 

market participants could experience in 

the case of most clearing member 

defaults.11

Finally, the Clearing Agencies are also 

proposing certain changes as part of 

Phase 2 that, if approved, would not be 

implemented until after the Commission 

shortens the standardized settlement 

cycle under Exchange Act Rule 15c6– 

1(a) from two days after the traded date 

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

(‘‘T+1’’), which currently is set for May 

28, 2024. The Phase 2 changes would 

address the operational realities 

concerning the Accord that will result 

from the Commission’s adoption and 

implementation of a new standard 

settlement cycle of T+1 pursuant to Rule 

15c6–1(a) under the Act. The Phase 2 

changes generally are designed to allow 

OCC to provide certain assurances with 

respect to OCC’s ability to make a GSP 

in the event of a Common Member 

default to NSCC that would permit 

NSCC to begin processing Common 

Members’ E&A/Delivery Transactions in 

a shortened settlement cycle prior to 

Guaranty Substitution occurring by 

introducing new or amended terms and 

setting out the processes associated 

therewith. 

ii. Background 

OCC acts as a central counterparty 

clearing agency for U.S.-listed options 

and futures on a number of underlying 

financial assets including common 

stocks, currencies and stock indices. In 

connection with these services, OCC 

provides the OCC Guaranty pursuant to 

its By-Laws and Rules. NSCC acts as a 

central counterparty clearing agency for 

certain equity securities, corporate and 

municipal debt, exchange traded funds 

and unit investment trusts that are 

eligible for its services. Eligible trading 

activity may be processed through 

NSCC’s CNS system 12 or through its 

Balance Order Accounting system,13

where all eligible compared and 

recorded transactions for a particular 

settlement date are netted by issue into 

one net long (buy), net short (sell) or flat 

position. As a result, for each day with 

activity, each Member has a single 

deliver or receive obligation for each 

issue in which it has activity at NSCC. 

In connection with these services, NSCC 

also provides the NSCC Guaranty 

pursuant to Addendum K of the NSCC 

Rules. 

OCC’s Rules provide that delivery of, 

and payment for, securities underlying 

certain exercised stock options and 

matured single stock futures that are 

physically settled are generally effected 

through the facilities of NSCC and are 

not settled through OCC’s facilities.14

OCC and NSCC executed the Existing 

Accord to facilitate, via NSCC’s systems, 

the physical settlement of securities 

arising out of options and futures 

cleared by OCC. OCC Clearing Members 

that clear and settle physically settled 

options and futures transactions through 

OCC also are required under OCC’s 

Rules 15 to be Members of NSCC or to 

have appointed or nominated a Member 

of NSCC to act on its behalf. As noted 

above, these firms are referred to as 

‘‘Common Members’’ in the Existing 

Accord. 

iii. Summary of the Existing Accord 

The Existing Accord governs the 

transfer between OCC and NSCC of 

responsibility for settlement obligations 

that involve a delivery and receipt of 

stock in the settlement of physically 

settled options and futures that are 

cleared and settled by OCC and for 

which the underlying securities are 

eligible for clearing through the 

facilities of NSCC (‘‘E&A/Delivery 

Transactions’’). It also establishes the 

time when OCC’s settlement guarantee 

(the ‘‘OCC Guaranty’’) ends and NSCC’s 

settlement guarantee (the ‘‘NSCC 

Guaranty’’) 16 begins with respect to 

E&A/Delivery Transactions. However, in 

the case of a Common Member default 17

NSCC can reject these settlement 

obligations, in which case the 

settlement guaranty would not transfer 

from OCC to NSCC and OCC would not 

have a right to settle the transactions 

through the facilities of NSCC. Instead, 

OCC would have to engage in 

alternative methods of settlement that 

have the potential to create significant 

liquidity and collateral requirements for 

both OCC and its non-defaulting 

Clearing Members.18 More specifically, 

this could involve broker-to-broker 

settlement between OCC Clearing 

Members.19 This settlement method is 

operationally complex because it 

requires bilateral coordination directly 

between numerous Clearing Members 

rather than relying on NSCC to facilitate 

multilateral netting to settle the relevant 

settlement obligations. As described 

above, it also potentially could result in 

significant liquidity and collateral 

requirements for both OCC and its nondefaulting Clearing Members because 

the transactions would not be netted 

through the facilities of NSCC. 

Alternatively, where NSCC accepts the 

E&A/Delivery Transactions from OCC, 

the OCC Guaranty ends and the NSCC 

Guaranty takes effect. The transactions 

are then netted through NSCC’s systems, 

which allows settlement obligations for 

the same settlement date to be netted 

into a single deliver or receive 

obligation. This netting reduces the 

costs associated with securities transfers 

by reducing the number of securities 

movements required for settlement and 

further reduces operational and market 

risk. The benefits of such netting by 

NSCC may be significant with respect to 

the large volumes of E&A/Delivery 

Transactions processed during monthly 

options expiry periods. 

Pursuant to the Existing Accord, on 

each trading day NSCC delivers to OCC 

a file that identifies the securities, 

including stocks, exchange-traded funds 

and exchange-traded notes, that are 


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20Each day that both OCC and NSCC are open for 

accepting trades for clearing is referred to as an 

‘‘Activity Date’’ in the Existing Accord. Securities 

eligible for settlement at NSCC are referred to 

collectively as ‘‘Eligible Securities’’ in the Existing 

Accord. Eligible securities are settled at NSCC 

through NSCC’s CNS Accounting Operation or 

NSCC’s Balance Order Accounting Operation. 

21The term ‘‘NSCC Clearing Fund’’ as used herein 

has the same meaning as the term ‘‘Clearing Fund’’ 

as provided in the NSCC Rules. Procedure XV of 

the NSCC Rules provides that all NSCC Clearing 

Fund requirements and other deposits must be 

made within one hour of demand, unless NSCC 

determines otherwise, supra note 9. 

22This is referred to in the Existing Accord as the 

‘‘Guaranty Substitution Time,’’ and the process of 

the substitution of the NSCC Guaranty for the OCC 

Guaranty with respect to E&A/Delivery 

Transactions is referred to as ‘‘Guaranty 

Substitution.’’ 

23 Guaranty Substitution by NSCC (discussed 

further below) does not occur with respect to an 

E&A/Delivery Transaction that is not submitted to 

NSCC in the proper format or that involves a 

security that is not identified as an Eligible Security 

on the then-current NSCC Eligibility Master File. 

24Under NSCC’s Rules, a default would generally 

be referred to as a ‘‘cease to act’’ and could 

encompass a number of circumstances, such as an 

NSCC Member’s failure to make a Required Fund 

Deposit in a timely fashion. See NSCC Rule 46 

(Restrictions on Access to Services), supra note 9. 

An NSCC Member for which it has ceased to act is 

referred to in the Existing Accord as a ‘‘Defaulting 

NSCC Member.’’ Transactions associated with a 

Defaulting NSCC Member are referred to as 

‘‘Defaulted NSCC Member Transactions’’ in the 

Existing Accord. 

25Acceptance of such transactions by NSCC 

would be subject to NSCC’s standard validation 

criteria for incoming trades. See NSCC Rule 7, 

supra note 9. 

26The term ‘‘OCC Clearing Fund’’ as used herein 

has the same meaning as the term ‘‘Clearing Fund’’ 

in OCC’s By-Laws, supra note 5. 

27The term ‘‘Margin Assets’’ as used herein has 

the same meaning as provided in OCC’s By-Laws, 

supra note 5. 

28The Required Fund Deposit is calculated 

pursuant to Rule 4 (Clearing Fund) and Procedure 

XV (Clearing Fund Formula and Other Matters) of 

the NSCC Rules, see supra note 9. 

29Under the NSCC Rules, NSCC collects 

additional cash deposits from those Members who 

would generate the largest settlement debits in 

stressed market conditions, referred to as 

‘‘Supplemental Liquidity Deposits’’ or ‘‘SLD.’’ See 

Rule 4A of the NSCC Rules, supra note 9. 

eligible (1) to settle through NSCC and 

(2) to be delivered in settlement of (i) 

exercises and assignments of stock 

options cleared and settled by OCC or 

(ii) delivery obligations from maturing 

stock futures cleared and settled by 

OCC. OCC, in turn, delivers to NSCC a 

file identifying securities to be 

delivered, or received, for physical 

settlement in connection with OCC 

transactions.20

After NSCC receives the list of eligible 

transactions from OCC, and NSCC has 

received all required deposits to the 

NSCC Clearing Fund from all Common 

Members taking into consideration 

amounts required to physically settle 

the OCC transactions, the OCC Guaranty 

would end and the NSCC Guaranty 

would begin with respect to physical 

settlement of the eligible OCC-related 

transactions.21 At this point, NSCC is 

solely responsible for settling the 

transactions.22

Each day, NSCC is required to 

promptly notify OCC at the time the 

NSCC Guaranty takes effect. If NSCC 

rejects OCC’s transactions due to an 

improper submission 23 or if NSCC 

‘‘ceases to act’’ for a Common 

Member,24 NSCC’s Guaranty would not 

take effect for the affected transactions 

pursuant to the NSCC Rules. 

NSCC is required to promptly notify 

OCC if it ceases to act for a Common 

Member. Upon receiving such a notice, 

OCC would not continue to submit to 

NSCC any further unsettled transactions 

that involve such Common Member, 

unless authorized representatives of 

both OCC and NSCC otherwise consent. 

OCC would, however, deliver to NSCC 

a reversal file containing a list of all 

transactions that OCC already submitted 

to NSCC and that involve such Common 

Member. The NSCC Guaranty ordinarily 

would not take effect with respect to 

transactions for a Common Member for 

which NSCC has ceased to act, unless 

both Clearing Agencies agree otherwise. 

As such, NSCC does not have any 

existing contractual obligation to 

guarantee such Common Member’s 

transactions. To the extent the NSCC 

Guaranty does not take effect, OCC’s 

Guaranty would continue to apply, and, 

as described above, OCC would remain 

responsible for effecting the settlement 

of such Common Member’s transactions 

pursuant to OCC’s By-Laws and Rules. 

As noted above, the Existing Accord 

does provide that the Clearing Agencies 

may agree to permit additional 

transactions for a Common Member 

default (‘‘Defaulted NSCC Member 

Transactions’’) to be processed by NSCC 

while subject to the NSCC Guaranty. 

This optional feature, however, creates 

uncertainty for the Clearing Agencies 

and market participants about how 

Defaulted NSCC Member Transactions 

may be processed following a Common 

Member default and also does not 

provide NSCC with the ability to collect 

collateral from OCC that it may need to 

close out these additional transactions. 

While the optional feature would 

remain in the agreement as part of this 

proposal, the proposed changes to the 

Existing Accord, as described below, 

could significantly reduce the 

likelihood that it would be utilized. 

Proposed Phase 1 Changes 

i. Proposed Changes to the Existing 

Accord 

The proposed changes to the Existing 

Accord would permit OCC to make a 

cash payment, referred to as the 

‘‘Guaranty Substitution Payment’’ or 

‘‘GSP,’’ to NSCC. This cash payment 

could occur on either or both of the day 

that the Common Member becomes a 

Mutually Suspended Member and on 

the next business day. Upon NSCC’s 

receipt of the Guaranty Substitution 

Payment from OCC, the NSCC Guaranty 

would take effect for the Common 

Member’s transactions, and they would 

be accepted by NSCC for clearance and 

settlement.25 OCC could use all Clearing 

Member contributions to the OCC 

Clearing Fund 26 and certain Margin 

Assets 27 of a defaulted Clearing 

Member to pay the GSP, as described in 

more detail below. 

NSCC would calculate the Guaranty 

Substitution Payment as the sum of the 

Mutually Suspended Member’s unpaid 

required deposit to the NSCC Clearing 

Fund (‘‘Required Fund Deposit’’) 28 and 

the unpaid Supplemental Liquidity 

Deposit 29 obligation that is attributable 

to E&A/Delivery Transactions. The 

proposed changes to the Existing 

Accord define how NSCC would 

calculate the Guaranty Substitution 

Payment. 

More specifically, NSCC would first 

determine how much of the member’s 

unpaid Clearing Fund requirement 

would be included in the GSP. NSCC 

would look at the day-over-day change 

in gross market value of the Mutually 

Suspended Member’s positions as well 

as day-over-day change in the member’s 

NSCC Clearing Fund requirements. 

Based on such changes, NSCC would 

identify how much of the change in the 

Clearing Fund requirement was 

attributable to E&A/Delivery 

Transactions coming from OCC. If 100 

percent of the day-over-day change in 

the NSCC Clearing Fund requirement is 

attributable to activity coming from 

OCC, then the GSP would include 100 

percent of the member’s NSCC Clearing 

Fund requirement. If less than 100 

percent of the change is attributable to 

activity coming from OCC, then the GSP 

would include that percent of the 

member’s unpaid NSCC Clearing Fund 

requirement attributable to activity 

coming from OCC. NSCC would then 

determine the portion of the member’s 

unpaid SLD obligation that is 

attributable to E&A/Delivery 

Transactions. As noted above, the GSP 

would be the sum of these two amounts. 

A member’s NSCC Clearing Fund 

requirement and SLD obligation at 

NSCC are designed to address the credit 

and liquidity risks that a member poses 

to NSCC. The GSP calculation is 


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30OCC provided a draft of the revised SLA to the 

Commission as confidential Exhibit 3C to this 

filing. 

31The impact study was conducted at the 

Commission’s request to cover a three-day period 

and reviewed the ten Common Members with the 

largest Required Fund Deposits attributable to the 

Mutually Suspended Member’s E&A/Delivery 

Transactions. Over the 30 instances in the study, 

approximately 15 instances resulted in an 

underestimate of the Required Fund Deposit by an 

average of approximately $112,900,926, four 

instances where the proxy calculation was the same 

as the Required Fund Deposit, and eleven instances 

of an overestimate of the Required Fund Deposit by 

an average of approximately $59,654,583. See 

confidential Exhibit 3D to this filing for additional 

detail related to the referenced study. 

32OCC and NSCC agreed that performing the 

necessary technology build during Phase 1 would 

delay the implementation of Phase 1 of this 

proposal. NSCC will incorporate those technology 

updates in connection with Phase 2 of this 

proposal. 

33See confidential Exhibit 3A to this filing for 

additional detail related to the referenced study. 

34As of September 30, 2023, OCC held 

approximately $12.37 billion in qualifying liquid 

resources. See OCC Quantitative Disclosure, July– 

September 2023, available at https://

www.theocc.com/risk-management/pfmidisclosures. 

35CNS reduces the value of obligations that 

require financial settlement by approximately 98%, 

where, for example $519 trillion in trades could be 

netted down to approximately $9 trillion in net 

settlements. 

intended to assess how much of a 

member’s obligations arise out of 

activity coming from OCC so that the 

amount paid by OCC is commensurate 

with the risk to NSCC of guarantying 

such activity. 

To permit OCC to anticipate the 

potential resources it would need to pay 

the GSP for a Mutually Suspended 

Member, each business day, NSCC 

would provide OCC with (1) Required 

Fund Deposit and Supplemental 

Liquidity Deposit obligations, as 

calculated pursuant to the NSCC Rules, 

and (2) the gross market value of the 

E&A/Delivery Transactions and the 

gross market value of total Net Unsettled 

Positions (as such term is defined in the 

NSCC Rules). On options expiry days 

that fall on a Friday, NSCC would also 

provide OCC with information regarding 

liquidity needs and resources, and any 

intraday SLD requirements of Common 

Members. Such information would be 

delivered pursuant to the ongoing 

information sharing obligations under 

the Existing Accord (as proposed to be 

amended) and the Service Level 

Agreement (‘‘SLA’’) to which both 

NSCC and OCC are a party pursuant to 

Section 2 of the Existing Accord.30 The 

SLA addresses specifics regarding the 

time, form, and manner of various 

required notifications and actions 

described in the Accord and also 

includes information applicable under 

the Accord. 

NSCC and OCC believe the proposed 

calculation of the Required Fund 

Deposit portion of the GSP is 

appropriate because it is designed to 

provide a reasonable proxy for the 

impact of the Mutually Suspended 

Member’s E&A/Delivery Transactions 

on its Required Fund Deposit. While 

impact study data did show that the 

proposed calculation could result in a 

GSP that overestimates or 

underestimates the Required Fund 

Deposit attributable to the Mutually 

Suspended Member’s E&A/Delivery 

Transactions,31 current technology 

constraints prohibit NSCC from 

performing a precise calculation of the 

GSP on a daily basis for every Common 

Member.32

Implementing the ability for OCC to 

make the GSP and cause the E&A/ 

Delivery Transactions to be cleared and 

settled through NSCC would promote 

the ability of OCC and NSCC to be 

efficient and effective in meeting the 

requirements of the markets they serve. 

This is because data demonstrates that 

the expected size of the GSP would be 

smaller than the amount of cash that 

would otherwise be needed by OCC and 

its Clearing Members to facilitate 

settlement outside of NSCC. More 

specifically, based on a historical study 

of alternate means of settlement 

available to OCC from September 2021 

through September 2022, in the event 

that NSCC did not accept E&A/Delivery 

Transactions, the worst-case scenario 

peak liquidity need OCC identified was 

$384,635,833,942 for settlement to occur 

on a gross broker-to-broker basis. OCC 

estimates that the corresponding GSP in 

this scenario would have been 

$863,619,056. OCC also analyzed 

several other large liquidity demand 

amounts that were identified during the 

study if OCC effected settlement on a 

gross broker-to-broker basis.33 These 

liquidity demand amounts and the 

largest liquidity demand amount OCC 

observed of $384,635,833,942 

substantially exceed the amount of 

liquid resources currently available to 

OCC.34 By contrast, projected GSPs 

identified during the study ranged from 

$419,297,734 to $6,281,228,428. For 

each of these projected GSP amounts, 

OCC observed that the Margin Assets 

and OCC Clearing Fund contributions 

that would have been required of 

Clearing Members in these scenarios 

would have been sufficient to satisfy the 

amount of the projected GSPs. 

To help address the current 

technology constraint that prohibits 

NSCC from performing a precise 

calculation of the GSP on a daily basis 

for every Common Member, proposed 

Section 6(b)(i) of the Existing Accord 

and related Section 7(d) of the SLA 

would provide that with respect to a 

Mutually Suspended Member, either 

NSCC or OCC may require that the 

Required Fund Deposit portion of the 

GSP be re-calculated by calculating the 

Required Fund Deposit for the Mutually 

Suspended Member both before and 

after the delivery of the E&A/Delivery 

Transactions and utilize the precise 

amount that is attributable to that 

activity in the final GSP. If such a 

recalculation is required, the result 

would replace the Required Fund 

Deposit component of the GSP that was 

initially calculated. The SLD component 

of the GSP would be unchanged by such 

recalculation. 

As the above demonstrates, the GSP is 

intended to address the significant 

collateral and liquidity requirements 

that could be required of OCC Clearing 

Members in the event of a Common 

Member default. 

Allowing OCC to make a GSP 

payment also is intended to allow for 

settlement processing to take place 

through the facilities of NSCC to retain 

operational efficiencies associated with 

the settlement process. Alternative 

settlement means such as broker-tobroker settlement add operational 

burdens, because transactions would 

need to be settled individually on oneoff bases. In contrast, NSCC’s netting 

reduces the volume and value of 

settlement obligations that would need 

to be closed out in the market.35

Because the clearance and settlement of 

obligations through NSCC’s facilities 

following a Common Member default, 

including netting of E&A/Delivery 

Transactions with a Common Member’s 

positions at NSCC, would avoid these 

potentially significant operational 

burdens for OCC and its Clearing 

Members, OCC and NSCC believe that 

the proposed changes would limit 

market disruption relating to a Common 

Member default. NSCC netting 

significantly reduces the total number of 

obligations that require the exchange of 

money for settlement. Allowing more 

activity to be processed through NSCC’s 

netting systems would minimize risk 

associated with the close out of those 

transactions following the default of a 

Common Member. 

Amending the Existing Accord to 

define the terms and conditions under 

which Guaranty Substitution may occur, 

at OCC’s election, with respect to 

Defaulted NSCC Member Transactions 

after a Common Member becomes a 

Mutually Suspended Member would 

also provide more certainty to both the 

Clearing Agencies and market 


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36OCC provided data regarding such events in 

confidential Exhibit 3B to this filing. The 

information contained therein includes the 

assumptions and timelines leading up to the 

declaration of a default for a Common Member and 

the anticipated timing of OCC’s payment of the 

GSP. 

37The term ‘‘Stock Options’’ is defined in the 

Existing Accord within the definition of ‘‘Eligible 

Securities,’’ and refers to options issued by OCC. 

38The term ‘‘Stock Futures’’ is defined in the 

Existing Accord within the definition of ‘‘Eligible 

Securities,’’ and refers to stock futures contracts 

cleared by OCC. 

39 11 U.S.C. 101 et seq., including sections 

362(b)(6), (7), (17), (25) and (27) (exceptions to the 

automatic stay), sections 546(e)–(g) and (j) 

(limitations on avoiding powers), and sections 555– 

556 and 559–562 (contractual right to liquidate, 

terminate or accelerate certain contracts). 

40 15 U.S.C. 78aaa–lll, including section 

78eee(b)(2)(C) (exceptions to the stay). 

41The term ‘‘OCC Participating Member’’ is 

defined in the Existing Accord to mean ‘‘(i) a 

Common Member; (ii) an OCC Clearing Member 

that is an ‘Appointing Clearing Member’ (as defined 

in Article I of OCC’s By-Laws) and has appointed 

an Appointed Clearing Member that is an NSCC 

Member to effect settlement of E&A/Delivery 

Transactions through NSCC on the Appointing 

Clearing Member’s behalf; (iii) an OCC Clearing 

Member that is an Appointed Clearing Member; or 

(iv) a Canadian Clearing Member.’’ No changes are 

proposed to this definition. 

42The term ‘‘NSCC Participating Member’’ is 

defined in the Existing Accord to mean ‘‘(i) a 

Common Member; (ii) an NSCC Member that is an 

‘Appointed Clearing Member’ (as defined in Article 

I of OCC’s By-Laws); or (iii) [Canadian Depository 

for Securities Limited or ‘‘CDS’’]. For the avoidance 

of doubt, the Clearing Agencies agree that CDS is 

an NSCC Member for purposes of this Agreement.’’ 

No changes are proposed to this definition. 

participants generally about how a 

Mutually Suspended Member’s 

Defaulted NSCC Member Transactions 

may be processed. 

NSCC and OCC have agreed it is 

appropriate to limit the availability of 

the proposed provision to the day of the 

Common Member default and the next 

business day because, based on 

historical simulations of cease to act 

events involving Common Members, 

most activity of a Mutually Suspended 

Member is closed out on those days.36

Furthermore, the benefits of netting 

through NSCC’s systems would be 

reduced for any activity submitted to 

NSCC after that time. 

To implement the proposed Phase 1 

changes to the Existing Accord, OCC 

and NSCC propose to make the 

following changes. 

Section 1—Definitions 

First, new definitions would be 

added, and existing definitions would 

be amended in Section 1, which is the 

Definitions section. 

The new defined terms would be as 

follows. 

• The term ‘‘Close Out Transaction’’ 

would be defined to mean ‘‘the 

liquidation, termination or acceleration 

of one or more exercised or matured 

Stock Options 37 or Stock Futures 38

contracts, securities contracts, 

commodity contracts, forward contracts, 

repurchase agreements, swap 

agreements, master netting agreements 

or similar agreements of a Mutually 

Suspended Member pursuant to OCC 

Rules 901, 1006 and 1101 through 1111 

(including but not limited to Rules 1104 

and 1107) and/or NSCC Rule 18.’’ This 

proposed definition would make it clear 

that the payment of the Guaranty 

Substitution Payment and NSCC’s 

subsequent acceptance of Defaulted 

NSCC Member Transactions for 

clearance and settlement are intended to 

fall within the ‘‘safe harbors’’ provided 

in the Bankruptcy Code,39 the Securities 

Investor Protection Act,40 and other 

similar laws. 

• The term ‘‘Guaranty Substitution 

Payment’’ would be defined to mean 

‘‘an amount calculated by NSCC in 

accordance with the calculations set 

forth in Appendix A [to the Existing 

Accord (as proposed to be amended)], to 

include two components: (i) a portion of 

the Mutually Suspended Member’s 

Required Fund Deposit deficit to NSCC 

at the time of the cease to act; and (ii) 

a portion of the Mutually Suspended 

Member’s unpaid Supplemental 

Liquidity Deposit obligation at the time 

of the cease to act.’’ 

• The term ‘‘Mutually Suspended 

Member’’ would mean ‘‘any OCC 

Participating Member 41 that has been 

suspended by OCC that is also an NSCC 

Participating Member 42 for which 

NSCC has ceased to act.’’ 

• The term ‘‘Required Fund Deposit’’ 

would have the meaning ‘‘provided in 

Rule 4 of NSCC’s Rules and Procedures 

(or any replacement or substitute rule), 

the version of which, with respect to 

any transaction or obligation incurred 

that is the subject of this Agreement, is 

in effect at the time of such transaction 

or incurrence of obligation.’’ 

• The term ‘‘Supplemental Liquidity 

Deposit’’ would have the meaning 

‘‘provided in Rule 4A of NSCC’s Rules 

and Procedures (or any replacement or 

substitute rule), the version of which, 

with respect to any transaction or 

obligation incurred that is the subject of 

this Agreement, is in effect at the time 

of such transaction or incurrence of 

obligation.’’ 

The defined terms that would be 

amended in Section 1 of the Existing 

Accord are as follows. 

• The definition for the term ‘‘E&A/ 

Delivery Transaction’’ generally 

contemplates a transaction that involves 

a delivery and receipt of stock in the 

settlement of physically settled options 

and futures that are cleared and settled 

by OCC and for which the underlying 

securities are eligible for clearing 

through the facilities of NSCC. The 

definition would be amended to make 

clear that it would apply in respect of 

a ‘‘Close Out Transaction’’ of a 

‘‘Mutually Suspended Member’’ as 

those terms are proposed to be defined 

(described above). 

• The definition for the term ‘‘Eligible 

Securities’’ generally contemplates the 

securities that are eligible to be used for 

physical settlement under the Existing 

Accord. The term would be modified to 

clarify that this may include, for 

example, equities, exchange-traded 

funds and exchange-traded notes that 

are underlying securities for options 

issued by OCC. 

Section 6—Default by an NSCC 

Participating Member or OCC 

Participating Member 

Section 6 of the Existing Accord 

provides that NSCC is required to 

provide certain notice to OCC in 

circumstances in which NSCC has 

ceased to act for a Common Member. 

Currently, Section 6(a)(ii) of the Existing 

Accord also requires NSCC to notify 

OCC if a Common Member has failed to 

satisfy its Clearing Fund obligations to 

NSCC, but for which NSCC has not yet 

ceased to act. In practice, this provision 

would trigger a number of obligations 

(described below) when a Common 

Member fails to satisfy its NSCC 

Clearing Fund obligations for any 

reason, including those due to an 

operational delay. Therefore, OCC and 

NSCC are proposing to remove the 

notification requirement under Section 

6(a)(ii) from the Existing Accord. Under 

Section 7(d) of the Existing Accord, 

NSCC and OCC are required to provide 

each other with general surveillance 

information regarding Common 

Members, which includes information 

regarding any Common Member that is 

considered by the other party to be in 

distress. Therefore, if a Common 

Member has failed to satisfy its NSCC 

Clearing Fund obligations and NSCC 

believes this failure is due to, for 

example, financial distress and not, for 

example, due to a known operational 

delay, and NSCC has not yet ceased to 

act for that Common Member, such 

notification to OCC would still occur 

but would be done pursuant to Section 

7(d) of the Existing Accord (as proposed 

to be amended), and not Section 6(a)(ii). 

Notifications under Section 6 of the 

Existing Accord (as proposed to be 

amended) would be limited to instances 

when NSCC has actually ceased to act 


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43See Rule 46 (Restrictions on Access to Services) 

of the NSCC Rules, supra note 9. 

44The section of the Existing Accord that 

addresses circumstances in which NSCC ceases to 

act and/or an NSCC Member defaults is currently 

part of Section 6(a). It would be re-designated as 

Section 6(b) for organizational purposes. 

45The Required Fund Deposit is calculated 

pursuant to Rule 4 (Clearing Fund) and Procedure 

XV (Clearing Fund Formula and Other Matters) of 

the NSCC Rules, see supra note 9. 

46The Supplemental Liquidity Deposit is 

calculated pursuant to Rule 4A (Supplemental 

Liquidity Deposits) of the NSCC Rules, see supra 

note 9. 

47The time by which OCC would be required to 

notify NSCC of its intent would be defined in the 

Service Level Agreement. As of the time of this 

filing, the parties intend to set that time as one hour 

after OCC’s receipt of the calculated Guaranty 

Substitution Payment from NSCC. 

48Under the current and proposed terms of the 

Existing Accord, NSCC would be permitted to 

voluntarily guaranty and settle the Defaulted NSCC 

Member Transactions. 

49Such amounts would be returned to OCC as 

appropriate and in accordance with a Netting 

Contract and Limited Cross-Guaranty, by and 

among The Depository Trust Company, Fixed 

Income Clearing Corporation, NSCC and OCC, 

dated as of January 1, 2003, as amended. 

50See supra note 41 defining OCC Participating 

Member. 

51See supra note 42 defining NSCC Participating 

Member. 

for a Common Member pursuant to the 

NSCC Rules.43

Following notice by NSCC that it has 

ceased to act for a Common Member, 

OCC is obligated in turn to deliver to 

NSCC a list of all E&A/Delivery 

Transactions (excluding certain 

transactions for which Guaranty 

Substitution does not occur) involving 

the Common Member.44 This provision 

would be amended to clarify that it 

applies in respect of such E&A/Delivery 

Transactions for the Common Member 

for which the NSCC Guaranty has not 

yet attached—meaning that Guaranty 

Substitution has not yet occurred. 

As described above in the summary of 

the Existing Accord, where NSCC has 

ceased to act for a Common Member, the 

Existing Accord refers to the Common 

Member as the Defaulting NSCC 

Member and also refers to the relevant 

E&A/Delivery Transactions in 

connection with that Defaulting NSCC 

Member for which a Guaranty 

Substitution has not yet occurred as 

Defaulted NSCC Member Transactions. 

If the Defaulting NSCC Member is also 

suspended by OCC, it would be covered 

by the proposed definition that is 

described above for a Mutually 

Suspended Member. For such a 

Mutually Suspended Member, the 

proposed changes in Section 6(b) would 

provide that NSCC, by a time agreed 

upon by the parties, would provide OCC 

with the amount of the Guaranty 

Substitution Payment as calculated by 

NSCC and related documentation 

regarding the calculation. The Guaranty 

Substitution Payment would be 

calculated pursuant to NSCC’s Rules as 

that portion of the unmet Required 

Fund Deposit 45 and Supplemental 

Liquidity Deposit 46 obligations of the 

Mutually Suspended Member 

attributable to the Defaulted NSCC 

Member Transactions. By a time agreed 

upon by the parties,47 OCC would then 

be required to either notify NSCC of its 

intent to make the full amount of the 

Guaranty Substitution Payment to NSCC 

or notify NSCC that it will not make the 

Guaranty Substitution Payment. If OCC 

makes the full amount of the Guaranty 

Substitution Payment, NSCC’s guaranty 

would take effect at the time of NSCC’s 

receipt of that payment and the OCC 

Guaranty would end. 

The proposed changes would further 

provide that if OCC does not suspend 

the Common Member (such that the 

Common Member would therefore not 

meet the proposed definition of a 

Mutually Suspended Member) or if OCC 

elects to not make the full amount of the 

Guaranty Substitution Payment to 

NSCC, then all of the Defaulted NSCC 

Member Transactions would be exited 

from NSCC’s CNS Accounting 

Operation and/or NSCC’s Balance Order 

Accounting Operation, as applicable, 

and Guaranty Substitution would not 

occur in respect thereof. Therefore, 

NSCC would continue to have no 

obligation to guarantee or settle the 

Defaulted NSCC Member Transactions, 

and the OCC Guaranty would continue 

to apply to them pursuant to OCC’s ByLaws and Rules.48

Proposed changes to the Existing 

Accord would also address the 

application of any Guaranty 

Substitution Payment by NSCC. 

Specifically, new Section 6(d) would 

provide that any Guaranty Substitution 

Payment made by OCC may be used by 

NSCC to satisfy any liability or 

obligation of the Mutually Suspended 

Clearing Member to NSCC on account of 

transactions involving the Mutually 

Suspended Clearing Member for which 

the NSCC Guaranty applies and to the 

extent that any amount of assets 

otherwise held by NSCC for the account 

of the Mutually Suspended Member 

(including any Required Fund Deposit 

or Supplemental Liquidity Deposit) are 

insufficient to satisfy its obligations 

related to transactions for which the 

NSCC Guaranty applies. Proposed 

changes to Section 6(d) would further 

provide for the return to OCC of any 

unused portion of the GSP. With regard 

to the portion of the Guaranty 

Substitution Payment that corresponds 

to a member’s Supplemental Liquidity 

Deposit obligation, NSCC must return 

any unused amount to OCC within 

fourteen (14) days following the 

conclusion of NSCC’s settlement, closeout and/or liquidation. With regard to 

the portion of the Guaranty Substitution 

Payment that corresponds to a Required 

Fund Deposit, NSCC must return any 

unused amount to OCC under terms 

agreed to by the parties.49

Other Proposed Changes as Part of 

Phase 1 

Certain other technical changes are 

also proposed to the Existing Accord to 

conform it to the proposed changes 

described above. For example, the 

preamble and the ‘‘whereas’’ clauses in 

the Preliminary Statement would be 

amended to clarify that the agreement is 

an amended and restated agreement and 

to summarize that the agreement would 

be modified to contemplate the 

Guaranty Substitution Payment 

structure. Section 1(c), which addresses 

the terms in the Existing Accord that are 

defined by reference to NSCC’s Rules 

and Procedures and OCC’s By-Laws and 

Rules would be modified to state that 

such terms would have the meaning 

then in effect at the time of any 

transaction or obligation that is covered 

by the agreement rather than stating that 

such terms have the meaning given to 

them as of the effective date of the 

agreement. This change is proposed to 

help ensure that the meaning of such 

terms in the agreement will not become 

inconsistent with the meaning in the 

NSCC Rules and/or OCC By-Laws and 

Rules, as they may be modified through 

proposed rule changes with the 

Commission. 

Technical changes would be made to 

Sections 3(d) and (e) of the Existing 

Accord to provide that those provisions 

would not apply in the event new 

Section 6(b) described above, is 

triggered. Section 3(d) generally 

provides that OCC will no longer submit 

E&A/Delivery Transactions to NSCC 

involving a suspended OCC 

Participating Member.50 Similarly, 

Section 3(e) generally provides that OCC 

will no longer submit E&A/Delivery 

Transactions to NSCC involving an 

NSCC Participating Member 51 for 

which NSCC has ceased to act. A 

proposed change would also be made to 

Section 5 of the Existing Accord to 

modify a reference to Section 5 of 

Article VI of OCC’s By-Laws to instead 

provide that the updated cross-reference 

should be to Chapter IV of OCC’s Rules. 

Section 5 would also be amended to 

clarify that Guaranty Substitution 


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52OCC would be permitted to borrow from the 

Clearing Fund and margin of a suspended Clearing 

Member, over which OCC has a general lien, where 

that Clearing Member is a Mutually Suspended 

Member. The change would merely expand the 

circumstances under which OCC’s current By-Laws 

and Rules permit OCC to borrow Clearing Fund and 

margin. The change would not affect the treatment 

of such borrowing under OCC’s default waterfall 

that determines how OCC allocates losses against 

available financial resources. The Mutually 

Suspended Member’s margin and Clearing Fund 

collateral would remain first in line to absorb 

losses. 

53The term ‘‘CCC-Eligible’’ as used herein has the 

meaning provided in OCC’s By-Laws, supra note 5. 

54For purposes of the proposed rule change 

process under Exchange Act Section 19(b), the 

agreement is treated as a rule of a clearing agency 

under Exchange Act Section 3(a)(27) and therefore 

any proposed changes to it by OCC are subject to 

the related rule change process and public notice 

and comment. OCC therefore believes that 

addressing the terms in the agreement and crossreferencing the agreement in OCC Rule 901 would 

not deprive the Commission or the public of notice 

regarding any future proposed changes. 

occurs when NSCC has received both 

the Required Fund Deposit and 

Supplemental Liquidity Deposit, as 

calculated by NSCC in its sole 

discretion, from Common Members. The 

addition of the collection of the 

Supplemental Liquidity Deposit to the 

definition of the Guaranty Substitution 

Time in this Section 5 would reflect 

OCC and NSCC’s agreement that both 

amounts are components of the 

Guaranty Substitution Payment (as 

described above) and would make this 

definition consistent with that 

agreement. 

In Section 7 of the Existing Accord, 

proposed changes would be made to 

provide that NSCC would provide to 

OCC information regarding a Common 

Member’s Required Fund Deposit and 

Supplemental Liquidity Deposit 

obligations, to include the 

Supplemental Liquidity Deposit 

obligation in this notice requirement, 

and additionally that NSCC would 

provide OCC with information regarding 

the potential Guaranty Substitution 

Payment for the Common Member. On 

an options expiration date that is a 

Friday, NSCC would, by close of 

business on that day, also provide to 

OCC information regarding the intra-day 

liquidity requirement, intra-day 

liquidity resources and intra-day calls 

for a Common Member that is subject to 

a Supplemental Liquidity Deposit at 

NSCC. 

Finally, Section 14 of the Existing 

Accord would be modernized to provide 

that notices between the parties would 

be provided by email rather than by 

hand, overnight delivery service or firstclass mail. 

ii. Proposed Changes to OCC By-Laws 

and Rules as Part of Phase 1 

General Description 

OCC is also proposing certain changes 

to its By-Laws and Rules that are 

designed to complement the proposed 

changes described above regarding the 

Existing Accord. These proposed 

changes to the By-Laws and Rules are 

described below, and they generally 

cover the following four areas. First, the 

proposed changes would define 

Guaranty Substitution Payment. Second, 

the proposed changes would describe 

the circumstances under which OCC 

could make a Guaranty Substitution 

Payment to NSCC. Third, the proposed 

changes would specify what financial 

resources could be used by OCC to make 

the Guaranty Substitution Payment.52

Fourth, the proposed changes to OCC’s 

Comprehensive Stress Testing and 

Clearing Fund Methodology, and 

Liquidity Risk Management Description 

would outline enhanced stress testing 

incorporating the GSP and OCC’s ability 

to call for additional resources from 

Clearing Members. OCC also is 

proposing changes to OCC’s Liquidity 

Risk Management Framework to 

account for OCC’s ability to make the 

GSP. 

Article I—Definitions 

OCC proposes to add ‘‘Guaranty 

Substitution Payment’’ as a new defined 

term under Article I of OCC’s By-Laws, 

which is the Definitions section. The 

term ‘‘Guaranty Substitution Payment’’ 

would be defined to mean: ‘‘a payment 

that may be made by [OCC] to [NSCC] 

under the terms of an agreement 

between them, as described in Rule 901, 

so that [NSCC] will not reject settlement 

obligations for CCC-eligible 53 securities 

that are directed by [OCC] for settlement 

through the facilities of [NSCC] on 

account of a Clearing Member that has 

been suspended, as described in Rule 

1102, and for which [NSCC] has ceased 

to act.’’ 

Chapter IX—Delivery of Underlying 

Securities and Payment 

Certain changes are also proposed to 

Chapter IX of OCC’s Rules. OCC 

proposes to add parenthetical language 

to the Introduction section of Chapter IX 

of OCC’s Rules. It would specify that a 

Guaranty Substitution Payment could be 

made by OCC to NSCC in connection 

with OCC’s general policy that to the 

extent a security to be delivered and 

received is CCC-eligible, OCC will direct 

the delivery and payment obligations to 

be settled through the facilities of NSCC 

where the obligations are physicallysettled and arise out of the exercise of 

stock option contracts or the maturity of 

stock futures contracts. 

Next, OCC proposes to delete certain 

provisions from Rule 901(b) regarding 

when a Guaranty Substitution occurs. 

Specifically, Rule 901(b) currently 

provides that unless otherwise agreed 

between OCC and NSCC, a Guaranty 

Substitution with respect to settlement 

obligations for CCC-eligible securities 

that settle ‘‘regular way’’ under NSCC’s 

Rules and Procedures will occur if: (i) 

the applicable settlement obligations are 

reported to and are not rejected by 

NSCC; (ii) NSCC has not notified OCC 

that it has ceased to act for the relevant 

Clearing Member or Appointed Clearing 

Member; and (iii) the NSCC Clearing 

Fund requirements of the relevant 

Clearing Member or Appointed Clearing 

Member owing to NSCC, as determined 

in accordance with NSCC’s Rules and 

Procedures, are received by NSCC. 

These considerations regarding when a 

Guaranty Substitution occurs are 

addressed under the terms of the 

Existing Accord, and they would 

continue to be relevant considerations 

regarding when a Guaranty Substitution 

occurs under the changes that OCC and 

NSCC are proposing to the Existing 

Accord. However, because additional 

considerations would be added to the 

Guaranty Substitution process in 

connection with the proposed ability for 

OCC in certain circumstances to make a 

Guaranty Substitution Payment to NSCC 

and also to eliminate the potential for a 

description of the Guaranty Substitution 

process in OCC’s Rules to become 

inconsistent with the process that OCC 

and NSCC have agreed to in the Existing 

Accord, as it would be amended, OCC 

is proposing to delete the discussion of 

these considerations in Rule 901(b) in 

favor of instead simply cross referencing 

the terms of the agreement.54

In addition, OCC proposes to add a 

new paragraph to the end of Rule 901(b) 

to provide that pursuant to the proposed 

changes to the Existing Accord, OCC 

would be permitted to make a Guaranty 

Substitution Payment to NSCC. The 

proposed changes would also describe 

the circumstances in which OCC may 

make a Guaranty Substitution Payment 

in connection with settlement 

obligations of a suspended Clearing 

Member, and that the amount of the 

Guaranty Substitution Payment under 

the terms of the Existing Accord, as 

amended, would be the amount 

required by NSCC to satisfy its deficit(s) 

regarding such Clearing Member’s 

‘‘Required Fund Deposit’’ and 

‘‘Supplemental Liquidity Deposit’’ as 

those terms are defined in NSCC’s Rules 


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55See NSCC Rules 4 (defining ‘‘Required Fund 

Deposit’’) and 4A (defining ‘‘Supplemental 

Liquidity Deposit’’), supra note 9. 

56The terms ‘‘Clearing Member’’ and ‘‘Appointed 

Clearing Member’’ as used herein have the 

meanings provided in OCC’s By-Laws, supra note 

5. 

57 In connection with these amendments, the 

reference in Rule 1006(b) to ‘‘clauses (i) through (vi) 

of paragraph (a)’’ would be changed to ‘‘clauses (i) 

through (vii) of paragraph (a).’’ 

58 If the defaulting OCC Clearing Member’s 

Margin Assets and OCC Clearing Fund contribution 

were insufficient to cover the associated losses, 

OCC would next look to certain OCC financial 

resources that are available for that purpose (e.g., 

OCC’s corporate contribution and Clearing Fund 

contributions of non-defaulting OCC Clearing 

Members). 

59Article I, Section 1.G.(1) of OCC’s By-Laws 

states that the ‘‘term ‘general lien’ means a security 

interest of [OCC] in all or specified assets in a 

Clearing Member account as security for all of the 

Clearing Member’s obligations to [OCC] regardless 

of the source or nature of such obligations.’’ See 

OCC By-Laws, supra note 5. 

60The Clearing Member accounts referenced 

herein are described in subparagraphs (a), (b), (c) 

and (h) of Article VI, Section 3 of OCC’s By-Laws. 

See OCC’s By-Laws, supra note 5. 

and Procedures.55 The changes would 

provide that any amount of a Guaranty 

Substitution Payment that NSCC does 

not use pursuant to its Rules and 

Procedures would subsequently be 

returned to OCC under such terms and 

within such times as are agreed by OCC 

and NSCC. OCC believes that it is useful 

to include this description of the 

proposed process for the Guaranty 

Substitution Payment and the 

circumstances in which it may be made 

so that a user of OCC’s publicly 

available By-Laws and Rules would 

have sufficient information to 

understand the existence of the 

Guaranty Substitution Payment 

mechanism, the general circumstances 

in which it may be made and the role 

that a Guaranty Substitution Payment 

would play in causing NSCC to accept 

obligations for CCC-eligible securities 

for clearance and settlement. 

Chapters X and XI—Clearing Fund 

Contributions and Suspension of a 

Clearing Member 

As generally described above, the 

proposed changes would also provide 

that OCC would be permitted to borrow 

from the OCC Clearing Fund, and also 

against certain Margin Assets, of a 

Clearing Member that has been 

suspended by OCC where that Clearing 

Member is a Mutually Suspended 

Member. To implement these changes, 

OCC is proposing the following 

amendments to OCC Rule 1006 and 

Rule 1104. 

OCC Rule 1006 addresses the purpose 

and permitted uses of the OCC Clearing 

Fund. OCC proposes to make 

amendments to paragraphs (a) and (f) to 

permit OCC to utilize assets in the 

Clearing Fund as a liquidity resource in 

connection with making a Guaranty 

Substitution Payment. Currently, OCC 

Rule 1006(a) states the conditions for 

use of the OCC Clearing Fund. These 

provide that the OCC Clearing Fund 

may be used for borrowings pursuant to 

OCC Rule 1006(f) or to make good losses 

or expenses suffered by OCC including: 

(i) as a result of the failure of any 

Clearing Member to discharge duly any 

obligation on or arising from any 

confirmed trade accepted by OCC, (ii) as 

a result of the failure of any Clearing 

Member (including any Appointed 

Clearing Member) or of CDS (Canada’s 

national securities depository) to 

perform its obligations under any 

contract or obligation issued, 

undertaken, or guaranteed by OCC or in 

respect of which OCC is otherwise 

liable, (iii) as a result of the failure of 

any Clearing Member to perform any of 

its obligations to OCC in respect of the 

stock loan and borrow positions of such 

Clearing Member, (iv) in connection 

with any liquidation of a Clearing 

Member’s open positions, (v) in 

connection with protective transactions 

effected for the account of OCC 

pursuant to Chapter XI of OCC’s Rules 

(delivery of underlying securities and 

payment), (vi) as a result of the failure 

of any Clearing Member to make any 

other required payment or render any 

other required performance or (vii) as a 

result of the failure of any bank, 

securities or commodities clearing 

organization, or investment 

counterparty, to perform its obligations 

to OCC for certain specified reasons.56

OCC proposes to renumber clauses 

(iii) through (vii) in paragraph (a) as (iv) 

through (viii), and to insert as new 

clause (iii) a provision that the OCC 

Clearing Fund may be used ‘‘regarding 

any Guaranty Substitution Payment that 

[OCC] may make to [NSCC] under an 

agreement between them, as described 

in [OCC] Rule 901, so that [NSCC] will 

not reject settlement obligations for 

CCC-eligible securities involving a 

Clearing Member for which [NSCC] has 

ceased to act and that [OCC] directs to 

[NSCC] for settlement through its 

facilities.’’ 57 OCC also proposes to add 

parenthetical language to paragraphs 

(f)(1)(A) and (f)(2)(A)(ii) to further 

clarify that contributions to the OCC 

Clearing Fund may be borrowed by OCC 

for use in connection with making a 

Guaranty Substitution Payment to 

NSCC. Any borrowing from the OCC 

Clearing Fund by OCC to make a 

Guaranty Substitution Payment to NSCC 

would be subject to the existing terms 

of OCC Rule 1006(f)(3) that provide that 

irrespective of how any such borrowings 

from the OCC Clearing Fund are applied 

by OCC, the borrowing for a period not 

to exceed thirty (30) days will not be 

deemed to result in charges against the 

OCC Clearing Fund under OCC’s default 

waterfall for allocating actual losses. For 

purposes of determining whether a loss 

resulting from a Guaranty Substitution 

Payment has occurred, OCC Rule 

1006(f)(3) would be amended to provide 

that the Guaranty Substitution Payment 

is deemed to be repaid by OCC at such 

time as under the Accord that it is 

NSCC’s obligation to return any portion 

of the Guaranty Substitution Payment 

that NSCC does not use pursuant to its 

rules. If, subsequent to the borrowing, 

OCC determines that the borrowing 

represents an actual loss or all or any 

part of the borrowing remains 

outstanding after thirty (30) days (or on 

the first Business Day thereafter if the 

thirtieth calendar day is not a Business 

Day) then the amount of OCC Clearing 

Fund assets used in the outstanding 

borrowing would be an actual loss that 

OCC would be required to immediately 

allocate under its By-Laws and Rules.58

As noted above, losses resulting from 

the borrowing of Clearing Fund or 

Margin Assets as a liquidity resource to 

facilitate OCC making a Guaranty 

Substitution Payment would be 

allocated in the same sequence as any 

other losses charged to the default 

waterfall. 

Consistent with these changes to 

permit OCC to use the OCC Clearing 

Fund as a borrowing resource to make 

a Guaranty Substitution Payment to 

NSCC, OCC is also proposing similar 

changes to OCC Rule 1104 that would 

permit OCC to borrow certain Margin 

Assets of a Clearing Member that has 

been suspended by OCC where that 

Clearing Member is a Mutually 

Suspended Member and OCC has a 

general lien 59 over the Margin Assets. 

Specifically, OCC proposes to add a 

new paragraph (g) to OCC Rule 1104 

that would provide that OCC may use 

specified Margin Assets of a suspended 

Clearing Member as a borrowing in 

order to use such borrowed Margin 

Assets to make a Guaranty Substitution 

Payment to NSCC. OCC would be 

permitted to use Margin Assets from the 

following accounts of a suspended 

Common Member: firm lien account and 

firm non-lien account; separate MarketMaker’s account; combined MarketMaker’s account; and JBO Participants’ 

account.60 OCC is not proposing at this 

time to have authority to borrow Margin 

Assets from other types of accounts over 


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61Article I, Section 1.R.(8) of OCC’s By-Laws 

states that the ‘‘term ‘restricted lien’ means a 

security interest of [OCC] in specified assets 

(including any proceeds thereof) in an account of 

a Clearing Member with [OCC] as security for the 

Clearing Member’s obligations to [OCC] arising from 

such account or, to the extent so provided in the 

By-Laws or Rules, a specified group of accounts that 

includes such account including, without 

limitation, obligations in respect of all confirmed 

trades effected through such account or group of 

accounts, and exercise notices assigned to such 

account or group of accounts.’’ See OCC’s By-Laws, 

supra note 5. 

62For example, under the broker-dealer customer 

reserve account formula to SEC Rule 15c3–3 the 

broker-dealer takes a debit in the formula under 

Item 13 for margin that is ‘‘required and on deposit 

with OCC for all option contracts written or 

purchased in customer accounts.’’ This means that 

such margin in turn can be used by the brokerdealer Clearing Member as Margin Assets to support 

the securities customers’ account at OCC. 

which OCC has a restricted lien 61 and 

for which the Margin Assets are security 

for the particular restricted lien 

accounts because of additional 

complexity that OCC believes would be 

associated with tracking NSCC’s use of 

Margin Assets associated with those 

accounts and also due to certain 

regulatory requirements under 

Commission Rule 15c3–3 that apply to 

broker-dealer Clearing Members and 

prohibit the use of customer property of 

the broker-dealer to support noncustomer activities.62

As with the terms that currently apply 

to any borrowing from the OCC Clearing 

Fund pursuant to OCC Rule 1006(f), 

new paragraph (g) in OCC Rule 1104 

would further provide that Margin 

Assets borrowed by OCC to make a 

Guaranty Substitution Payment to NSCC 

would not be deemed to be charges 

against the margin assets for the relevant 

account(s) for up to thirty (30) days; 

however, if all or a part of such 

borrowing were to be determined by 

OCC, in its discretion, to represent an 

actual loss, or if all or a part of the 

borrowing were to remain outstanding 

after such thirty (30)-day period, OCC 

would consider the amount of margin 

assets used to support OCC’s obligations 

under the outstanding borrowing or 

transaction as an actual loss and 

immediately allocate the loss in 

accordance with OCC’s By-Laws and 

Rules. 

OCC anticipates that in a scenario in 

which it would be permitted make a 

Guaranty Substitution Payment to NSCC 

under the proposed changes to the 

Existing Accord and OCC’s By-Laws and 

Rules, OCC would generally expect to 

borrow from the Clearing Fund as a 

primary liquidity resource. OCC could 

also borrow Margin Assets of the 

suspended Clearing Member that is a 

Common Member under the proposed 

terms described above. OCC is not 

proposing changes that would require a 

specific borrowing sequence because 

OCC believes that it is more appropriate 

to preserve flexibility to borrow from 

the available OCC Clearing Fund or 

Margin Assets as OCC determines 

appropriate under the circumstances. 

In addition, OCC proposes to specify 

in OCC Rule 1107(a)(1) that exercised 

option contracts and matured, 

physically-settled stock futures to which 

the suspended Clearing Member is a 

party may be settled in accordance with 

the terms of any agreement between 

OCC and NSCC governing the 

settlement of exercised option contracts 

and matured, physically-settled stock 

futures of a suspended Clearing 

Member. In such an event, settlement 

will be governed by and subject to the 

agreement between OCC and NSCC and 

the rules of NSCC. 

The purpose of the proposed changes 

to create the Guaranty Substitution 

Payment mechanism is to provide OCC 

and NSCC with an additional default 

management tool to help manage 

liquidity and settlement risks that OCC 

believes would be presented to each 

covered clearing agency in connection 

with a Mutually Suspended Member. 

OCC believes that having the ability to 

make a Guaranty Substitution Payment 

to NSCC in regard to any unmet 

Required Fund Deposit or Supplemental 

Liquidity Deposit obligations of a 

Mutually Suspended Member would 

promote prompt and accurate clearance 

and settlement in the national system 

for the settlement of securities 

transactions by causing NSCC to 

guarantee certain securities settlement 

obligations that result from exercised 

options and matured futures contracts 

that are cleared and settled by OCC. In 

the following ways, OCC believes that 

this would be beneficial to and 

protective of OCC, NSCC, their 

participants, and the markets they serve. 

First, OCC’s ability to make the 

Guaranty Substitution Payment would 

ensure that the relevant securities 

settlement obligations would be 

accepted by NSCC for clearance and 

settlement and therefore the size of the 

related settlement obligations could be 

decreased from netting through NSCC’s 

CNS Accounting Operation and/or 

NSCC’s Balance Order Accounting 

Operation. Second, this outcome would 

avoid a scenario in which OCC’s 

Guaranty would continue to apply and 

the settlement obligations would be 

settled on a broker-to-broker basis 

between OCC Clearing Members 

pursuant to the applicable provisions in 

Chapter IX of OCC’s Rules. As noted 

above, OCC believes that such a brokerto-broker settlement scenario could 

result in substantial collateral and 

liquidity requirements for OCC Clearing 

Members. OCC believes that these 

potential collateral and liquidity 

consequences would be due to the lost 

benefit of netting of the settlement 

obligations through NSCC’s facilities 

and also due to the short time (i.e., the 

T+2 standard settlement cycle) between 

a rejection by NSCC of the settlement 

obligations for clearing and the 

associated settlement date on which 

settlement would be otherwise required 

to be made bilaterally by OCC Clearing 

Members. This scenario also raises the 

potential for procyclical liquidity 

demands on OCC Clearing Members and 

participants during stressed market 

conditions. Third, OCC will plan to size 

its liquidity resource requirements to 

reasonable expectations with a high 

probability of making a Guaranty 

Substitution Payment in order to 

facilitate the settlement of a Mutually 

Suspended Member’s obligations 

through NSCC. Accounting for net 

liquidity demands from a Mutually 

Suspended Member’s settlement 

obligations at the central counterpartylevel enhances liquidity in the financial 

system and promotes the efficient use of 

capital by reducing the demand for 

liquidity associated with gross 

settlement of obligations and enabling 

the application of resources at both 

clearing agencies to satisfy the 

Member’s obligation. Fourth, OCC 

believes that the potential for the size of 

the settlement obligations to be 

comparatively larger than the Guaranty 

Substitution Payment coupled with the 

short time remaining to settlement 

could also increase the risk of default by 

the affected OCC Clearing Members at a 

time when a Common Member has 

already been suspended. Therefore, 

OCC believes that the proposed changes 

to implement the ability for OCC to 

make a Guaranty Substitution Payment 

to NSCC would allow OCC to avoid 

these risks by causing NSCC to accept 

the relevant obligations arising from 

exercised options and matured futures 

cleared and settled by OCC, as it 

ordinarily would, and guarantee their 

settlement, upon OCC making a 

Guaranty Substitution Payment to NSCC 

in accordance with the revised Accord. 


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63A Clearing Member Group is composed of a set 

of affiliated OCC Clearing Members. 

64The Bank Holiday category recognizes that for 

Veterans Day and Columbus Day, the equity and 

equity derivative markets are open for trading, but 

the banking system is closed for the day. Since the 

banking system is closed while the aforementioned 

markets are open, settlement at NSCC encompasses 

two days of equity trading and equity derivative 

E&A activity. As OCC is using NSCC deficit 

numbers without regard for allocation, there is a 

possibility of a significant outlying GSP 

requirement due to the settlement of two days of 

activity simultaneously. Prudence dictates retaining 

the capability to risk manage a day with such 

disparate characteristics differently. Additional 

supporting data in support of the creation of the 

Bank Holiday Expiration category is included as 

confidential Exhibit 3E to this filing. 

65OCC provided its analysis of notional activity 

sent to NSCC by OCC in support of the creation of 

the five categories as confidential Exhibit 3E to this 

filing. This Exhibit 3E sets forth data related to 

OCC’s liquidity stress testing, including Available 

Liquidity Resources, Minimum Cash Requirement 

thresholds, and/or liquidity breaches, for 

Sufficiency and Adequacy scenarios with and 

without the inclusion of the GSP. 

66For example, the average notional transfer for 

Remaining Expiration Days is approximately 10% 

the size of Standard Expiration. 

67As an example, if the applicable GSP is $100 

and the (current) stressed liquidity demand is $150 

for a Clearing Member Group, the result after the 

application of the GSP for that Clearing Member 

Group would be a combined liquidity requirement 

of $250 versus $150 currently. 

iii. Proposed Changes to Comprehensive 

Stress Testing & Clearing Fund 

Methodology, and Liquidity Risk 

Management Description and Liquidity 

Risk Management Framework as Part of 

Phase 1 

Comprehensive Stress Testing & 

Clearing Fund Methodology, and 

Liquidity Risk Management Description 

OCC proposes to revise the OCC 

Comprehensive Stress Testing & 

Clearing Fund Methodology, and 

Liquidity Risk Management Description 

to include the GSP in its liquidity risk 

management practices. Overall, the 

proposed changes would reflect that the 

GSP functions as an additional liquidity 

demand type at the Clearing Member 

Organization (‘‘CMO’’) Group level.63

OCC would include additional 

specifics to address the potential 

increased demand that the inclusion of 

the GSP may cause in its liquidity risk 

management practices in the Liquidity 

Risk Management section of the 

Comprehensive Stress Testing & 

Clearing Fund Methodology, and 

Liquidity Risk Management Description. 

Specifically, OCC proposes to amend 

the Liquidity Demand for Positions 

Rejected by NSCC subsection, which 

describes the Existing Accord, including 

the scenario in which NSCC could 

choose not to guaranty certain securities 

settlement obligations arising out of 

transactions cleared by OCC. This 

subsection would be retitled as the 

Liquidity Demand Associated with 

NSCC Performance of Physical 

Settlement Activities subsection to more 

clearly describe its content and 

incorporate the GSP, as further detailed 

below. Consistent with the changes to 

the Existing Accord described above, 

OCC proposes to clarify that the Accord 

allows NSCC to reject such obligations 

if OCC elects to not make a GSP. 

OCC proposes a new subsection, titled 

the Liquidity Demand GSP, to describe 

the GSP, which NSCC would calculate 

as defined in the proposed amendments 

to the Existing Accord. OCC would 

describe a GSP as a firm specific 

liquidity demand (i.e., the amount of 

cash OCC needs to pay NSCC on behalf 

of the defaulting Common Member). 

OCC would describe the components of 

the GSP under the Accord. OCC would 

explain how it accounts for the liquidity 

demand associated with a potential 

GSP. Specifically, OCC would apply an 

amount to account for a potential GSP 

obligation for every day on which 

option expirations occur. This amount 

would be based on peak GSP amounts 

from the prior 12 months in a given 

expiration category for the specific CMO 

Group for each forecasted liquidity 

demand calculation. OCC will use a 

one-year lookback time period to 

determine the appropriate GSP amount 

to apply. The one-year lookback allows 

for the best like-to-like application of a 

historical GSP as there is a cyclical 

nature to option standard expirations 

with quarterly (i.e., March, June, 

September, and December) and January 

generally being more impactful than 

non-quarterly expirations. The one-year 

lookback also allows behavior changes 

of a Clearing Member to be recognized 

within an annual cycle. OCC proposes 

to utilize a historical GSP based on 

current system capabilities and data that 

will be supplied by NSCC. 

OCC would use the total amount of 

Clearing Fund and SLD deficits at NSCC 

in its calculation to account for its 

obligation. However, in the event of a 

default, OCC would be responsible for a 

proportionate share of both NSCC 

Clearing Fund deficits (which are 

analogous to OCC margin deficits) and 

SLDs that are attributable to OCC E&A 

activity transmitted to NSCC for 

settlement, whereas NSCC will be 

responsible for the portion of the 

Clearing Fund and SLD deficits 

associated with activity that NSCC 

clears that is not transmitted by OCC. 

The amount of notional activity sent 

by OCC to NSCC informs the likelihood 

of a GSP. Namely, the potential amount 

of NSCC Clearing Fund and SLD deficits 

that are allocable to OCC increases as 

the amount of activity OCC sends to 

NSCC increases. Since not all types of 

expirations are the same with respect to 

the notional amount of activity sent by 

OCC to NSCC, OCC proposes to use five 

separate categories of expirations with 

potentially different GSP amounts to 

apply. Each day on which expirations 

occur would fall into one of five 

categories as follows: 

• Standard Monthly Expiration: 

typically the third Friday of each month 

from the previous twelve months; 

• Non-Standard Monthly Expiration 

Fridays (‘‘End of Week Expirations’’): 

the last business day of every week, 

typically a Friday, excluding the third 

Friday of each month from the previous 

twelve months; 

• End of Month Expirations: the last 

trading day of every month from the 

previous twelve months; 

• Expirations falling on Bank 

Holidays where Markets Are Open 

(‘‘Bank Holiday Expirations’’): days 

where banks are closed but the markets 

are open from the previous twelve 

months; 64

• Remaining Expiration Days (‘‘Daily 

Expirations’’): All other days with an 

expiration from the previous twelve 

months that do not fall into any of the 

categories above (typically most 

Mondays through Thursdays) from the 

previous twelve months. 

OCC believes these five categories are 

appropriate after an analysis of notional 

activity sent to NSCC by OCC.65 More 

specifically, the standard Friday 

monthly expiration far exceeds the 

needs associated with any other 

category.66 The remaining categories are 

intended to capture like time periods 

that will appropriately account for the 

GSP. 

OCC would apply the peak GSP 

amounts from the prior twelve months 

in a given expiration category for the 

specific CMO Group for each forecasted 

liquidity demand calculation by adding 

the GSP amounts to the CMO Group’s 

other forecasted liquidity demands for 

the relevant expiration day.67 If a 

Clearing Member defaults, OCC may 

have to pay a GSP to NSCC on two 

successive days to facilitate the closeout of the defaulted Clearing Member’s 

positions. To account for this possibility 

in its liquidity risk management 

process, OCC contemplates the payment 

of a GSP on expirations that result in 

settlements on the first and second days 

of the default management process. As 

described above, this GSP amount may 


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68OCC provided its analysis of the impact of the 

GSP, including with respect to calls for collateral 

and liquidity demands as confidential Exhibit 3E to 

this filing. 

69This clarification would maintain OCC’s 

current process for settling transactions not 

processed through NSCC and does not represent the 

adoption of a new process or settlement method. 

70 17 CFR 240.15c6–1. 

71Securities Exchange Act Release No. 96930 

(Feb. 15, 2023), 88 FR 13872, 13873 (Mar. 6, 2023). 

72 Id. at 13881. 

73 Id. at 13917. 

74 Given the reduction in the settlement cycle and 

existing processes that must be completed for 

settlement, it is OCC’s understanding that the NSCC 

would not be able to safely compress its processing 

times further to allow processing to occur after the 

guaranty transfers from OCC to NSCC. OCC 

provided proposed processing timelines in 

confidential Exhibit 3G to this filing. 

serve to only increase liquidity 

demands.68

Furthermore, as stated in the new 

Liquidity Demand GSP subsection, OCC 

would apply a floor to certain 

expirations. At a minimum, the GSPs 

applied to the End of Week, End of 

Month, and Bank Holiday Expirations 

will be no lower than the peak of the 

Daily Expirations category. If a GSP 

pertaining to the End of Week, End of 

Month, and Bank Holiday Expiration 

category is higher than the peak of the 

Daily Expirations category, then OCC 

will apply that higher GSP. Standard 

Monthly Expirations will be floored by 

End of Week, End of Month, and Daily 

Expirations. If a GSP pertaining to any 

of these categories is higher than the 

Standard Monthly Expiration category, 

then OCC will apply that higher GSP. 

OCC would set out formulas 

representing the floors for the Standard 

Monthly, End of Week, End of Month, 

and Bank Holiday Expirations. Finally, 

OCC also proposes a minor change to 

clarify that it would attempt to effect 

alternative settlement if OCC elected not 

to make a GSP.69

Liquidity Risk Management Framework 

OCC proposes changes to the 

Liquidity Risk Management Framework 

to incorporate the GSP. In the Liquidity 

Risk Identification section, OCC would 

specify that, in the situation where a 

member defaults immediately 

preceding, or during the expiration, of 

physically-settled E&A activity, OCC 

may elect to make a GSP to NSCC to 

compel NSCC to accept and process the 

E&A activity. If OCC elects to not make 

a GSP, OCC would complete settlement 

of the defaulted Clearing Member’s E&A 

transactions through its current process. 

Relatedly, OCC would include a minor 

clarification to a footnote in this section 

to note that NSCC is not acting on behalf 

of a defaulting Clearing Member ‘‘in this 

situation.’’ 

Proposed Phase 2 Changes 

On February 15, 2023, the 

Commission adopted amendments to 

Rule 15c6–1(a) under the Act 70 to 

shorten the standard settlement cycle 

for most broker-dealer transactions in 

securities from T+2 to T+1. In doing so, 

the Commission stated that a shorter 

settlement cycle ‘‘can promote investor 

protection, reduce risk, and increase 

operational and capital efficiency.’’ 71

Moreover, the Commission stated that 

delaying the move to a shorter 

settlement cycle would ‘‘allow undue 

risk to continue to exist in the U.S. 

clearance and settlement system’’ 72 and 

that it ‘‘believes that the May 28, 2024, 

compliance date will help ensure that 

market participants have sufficient time 

to implement the changes necessary to 

reduce risk, such as risks associated 

with the potential for increases in 

settlement fails.’’ 73 The Phase 2 changes 

proposed herein serve those risk 

reduction objectives related to securities 

settlements by endeavoring to limit 

market disruption following a Common 

Member default. The proposed changes 

would allow OCC to provide certain 

assurances with respect to its ability to 

make a GSP in the event of a Common 

Member default to NSCC in a shortened 

settlement cycle, which would permit 

NSCC to begin processing E&A/Delivery 

Transactions prior to Guaranty 

Substitution occurring. This, in turn, 

would promote settlement through 

NSCC that is less operationally complex 

and would be expected to require less 

collateral and liquidity from market 

participants than if OCC engaged in the 

alternative settlement processes 

discussed above. 

To address the operational realities 

concerning the Accord that will result 

from the Commission’s adoption and 

implementation of a new standard 

settlement cycle of T+1 pursuant to Rule 

15c6–1(a) under the Act, OCC and 

NSCC are proposing Phase 2 changes to 

further modify the Accord after the T+1 

settlement cycle becomes effective. As 

described in greater detail below, the 

Phase 2 changes would allow the GSP 

and other changes that are part of the 

Phase 1 changes to continue to function 

appropriately and efficiently in the new 

T+1 settlement environment. Because of 

the phased approach, a separate markup is provided in confidential Exhibit 

5C to this filing of the Phase 2 changes 

against the Accord as modified through 

the Phase 1 changes. 

As described in more detail below, 

shortening the settlement cycle to T+1 

will require NSCC to process stock 

settlement obligations arising from E&A 

Delivery Transactions one day earlier, 

i.e., on the day after the trade date, than 

is currently the case. Moving processing 

times ahead by a full day will require 

processing to occur before the guaranty 

transfers from OCC to NSCC.74 In this 

new T+1 processing environment, the 

Phase 2 changes would limit market 

disruption following a Common 

Member default because the Phase 2 

changes would allow OCC to provide 

certain assurances with respect to its 

ability to make a GSP in the event of a 

Common Member default to NSCC that 

would permit NSCC to begin processing 

the defaulting Common Member’s E&A/ 

Delivery Transactions prior to Guaranty 

Substitution occurring. This, in turn, 

will promote settlement through NSCC 

that is less operationally complex and 

would be expected to require less 

collateral and liquidity from market 

participants than if OCC engaged in 

alternative settlement processes. The 

specific changes included in Phase 2 are 

described below. The changes would 

facilitate the continued ability of the 

GSP to function in an environment with 

a shorter settlement cycle. These 

changes are generally designed to allow 

OCC to provide certain assurances with 

respect to its ability to make a GSP in 

the event of a Common Member default 

to NSCC that would permit NSCC to 

begin processing E&A/Delivery 

Transactions prior to Guaranty 

Substitution occurring by introducing 

new or amended terms and setting out 

the processes associated therewith. All 

of the descriptions below explain the 

changes to the Accord as they would be 

made after the Accord has already been 

modified through prior implementation 

of the proposed Phase 1 changes. 

Section 1—Definitions 

First, new definitions would be 

added, and existing definitions would 

be amended or removed in Section 1. 

The new defined terms would be as 

follows. 

• The term ‘‘GSP Monitoring Data’’ 

would be defined to mean a set of 

margin and liquidity-related data points 

provided by NSCC on each Activity 

Date prior to the submission of E&A/ 

Delivery Transactions by OCC to be 

used for informational purposes at OCC 

and NSCC. 

• The term ‘‘Final Guaranty 

Substitution Payment’’ would be 

defined to mean an amount calculated 

by NSCC for each Settlement Date in 

accordance with Appendix A to the 

Accord, to include two components: (i) 

a portion of the NSCC Participating 


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75See supra note 42. 

76See supra note 37. 

77See supra note 38. 

78The Required Fund Deposit is the portion of 

the defaulted Common Member’s Required Fund 

Deposit deficit to NSCC, calculated as a difference 

between the Required Fund Deposit deficit 

calculated on the entire portfolio and the Required 

Fund Deposit deficit calculated on the Common 

Member’s portfolio prior to the submission of E&A/ 

Delivery Transactions. The Phase 2 changes would 

refine the existing calculation methodology for the 

Required Fund Deposit in order to provide for a 

more accurate amount. 

79 If NSCC calculates a liquidity shortfall with 

respect to a defaulted Common Member, the 

Supplemental Liquidity Deposit is the portion of 

that shortfall that is attributable to the additional 

activity to be guaranteed. 

Member’s 75 Required Fund Deposit 

deficit to NSCC calculated as a 

difference between the Required Fund 

Deposit deficit calculated on the NSCC 

Participating Member’s entire portfolio 

and the Required Fund Deposit deficit 

calculated on the NSCC Participating 

Member’s portfolio prior to submission 

of the E&A/Delivery Transactions; and 

(ii) the portion of the NSCC 

Participating Member’s unpaid 

Supplemental Liquidity Deposit 

obligation attributable to the additional 

activity to be guaranteed. 

• The term ‘‘Historical Peak Guaranty 

Substitution Payment’’ would be 

defined to mean the largest Final 

Guaranty Substitution Payment for an 

NSCC Participating Member and its 

affiliates that are also NSCC 

Participating Members over the 12 

months immediately preceding the 

Activity Date, to include two 

components: (i) the Required Fund 

Deposit deficits associated with E&A/ 

Delivery Transactions based on peak 

historical observations of the largest 

NSCC Participating Member and its 

affiliates that are also NSCC 

Participating Members; and (ii) the 

Supplemental Liquidity Deposit 

obligations associated with E&A/ 

Delivery Transactions based on peak 

historical observations as calculated in 

accordance with applicable NSCC or 

OCC Rules and procedures. 

• The term ‘‘Qualifying Liquid 

Resources’’ would be defined to have 

the meaning provided by Rule 17Ad22(a)(14) of the Exchange Act, 17 CFR 

240.17Ad–22(a)(14), or any successor 

Rule under the Exchange Act. 

• The term ‘‘Settlement Date’’ would 

be defined to mean the date on which 

an E&A/Delivery Transaction is 

designated to be settled through 

payment for, and delivery of, the 

Eligible Securities underlying the 

exercised Stock Option 76 or matured 

Stock Future,77 as the case may be. 

• The term ‘‘Weekday Expiration’’ 

would be defined to mean any 

expiration for which the options 

expiration date occurs on a date other 

than a Friday or for which the 

Settlement Date is any date other than 

the first business date following a 

weekend. 

• The term ‘‘Weekend Expiration’’ 

would be defined to mean any 

expiration for which the options 

expiration date occurs on a Friday or for 

which the Settlement Date is the first 

business date following a weekend. 

The defined term that would be 

removed in Section 1 is as follows. 

• ‘‘Guaranty Substitution Payment,’’ 

which would be replaced by the new 

defined terms ‘‘Final Guaranty 

Substitution Payment’’ and ‘‘Historical 

Peak Guaranty Substitution Payment.’’ 

The defined terms that would be 

amended in Section 1 are as follows. 

• The definition for the term ‘‘Eligible 

Securities’’ generally contemplates the 

securities that are eligible to be used for 

physical settlement under the Existing 

Accord. In Phase 2, the term will be 

modified to exclude any transactions 

settled through NSCC’s Balance Order 

System and any security undergoing a 

voluntary corporate action that is being 

supported by NSCC’s CNS system. This 

is because the processing of E&A/ 

Delivery Transactions and potential 

reversals of such transactions under the 

Phase 2 changes would not be feasible 

under the anticipated operation of 

NSCC’s CNS and Balance Order 

Accounting Operations under the 

shortened T+1 settlement cycle. 

Section 3—Historical Peak Guaranty 

Substitution Payment 

A new Section 3 would be added to 

describe the process by which OCC 

would send to NSCC evidence of 

sufficient funds to cover the Historical 

Peak Guaranty Substitution Payment. In 

particular, Section 3(a) would provide 

that on each Activity Date, at or before 

a time agreed upon by the Clearing 

Agencies (which may be modified on 

any given Activity Date with the 

consent of an authorized representative 

of OCC), NSCC will communicate to 

OCC the amount of the Historical Peak 

Guaranty Substitution Payment amount 

and the GSP Monitoring Data, which are 

to be used for informational purposes at 

OCC. The Historical Peak Guaranty 

Substitution Payment would reflect the 

largest GSP of the NSCC Participating 

Member and its affiliates over the prior 

twelve months and would be calculated 

based on the sum of the Required Fund 

Deposit deficits and Supplemental 

Liquidity Deposit associated with E&A/ 

Delivery Transactions. Section 3(b) 

would provide that OCC would then 

submit to NSCC an acknowledgement of 

the Historical Peak Guaranty 

Substitution Payment amount and 

evidence that OCC has sufficient cash 

resources in the OCC Clearing Fund to 

cover the Historical Peak Guaranty 

Substitution Payment. 

Section 3(c) would provide that if 

OCC does not provide NSCC with 

evidence within the designated time 

period that it has sufficient cash 

resources in the OCC Clearing Fund to 

cover the Historical Peak Guaranty 

Substitution Payment on the Activity 

Date, OCC will immediately contact 

NSCC to escalate discussions to discuss 

potential exposures and determine, 

among other things, whether OCC has 

other qualifying liquidity resources 

available to satisfy such amount. 

As described above, the Historical 

Peak Guaranty Substitution Payment is 

designed to serve as a reasonable proxy 

for the largest potential Final Guaranty 

Substitution Payment. Its purpose is to 

allow OCC to provide evidence that it 

likely will be able to satisfy the Final 

Guaranty Substitution Payment in the 

event of a Common Member default, 

which will provide NSCC with 

reasonable assurances such that NSCC 

can begin processing E&A/Delivery 

Transactions upon receipt and prior to 

the Guaranty Substitution occurring, 

which will minimize the probability of 

reversals in a default event in light of 

the shortened settlement cycle. The 

Historical Peak Guaranty Substitution 

Payment amount also will provide OCC 

with information that will allow OCC to 

include the amount of a potential GSP 

in its liquidity resource planning. 

Section 6—Final Guaranty Substitution 

Payment; OCC’s Commitment 

A new Section 6 would be added to 

provide the process by which NSCC 

would communicate the amount of, and 

OCC would commit to pay, the Final 

Guaranty Substitution Payment. In 

particular, Section 6(a) would provide 

that on each Settlement Date (or each 

Saturday for Weekend Expirations), by 

no later than the time(s) agreed upon by 

NSCC and OCC, NSCC will 

communicate to OCC the Final Guaranty 

Substitution Payment for each Common 

Member calculated by NSCC. NSCC 

would make such calculation according 

to a calculation methodology described 

in a new Appendix A to the Accord. 

This calculation would represent the 

sum of the Required Fund Deposit 78

and the Supplemental Liquidity 

Deposit 79 for the Common Member. As 

with the Phase 1 Accord, payment of the 

Final Guaranty Substitution Payment 

would be contingent on the mutual 


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80 If OCC does not have sufficient cash to pay the 

Final GSP, then it must confirm for NSCC the 

availability of other qualifying liquid resources and 

the expected timeline for converting such resources 

to cash. 

81Such terms and conditions may include, but 

would not be limited to, OCC’s agreement to (i) pay 

NSCC available cash resources in partial 

satisfaction of the Final Guaranty Substitution 

Payment; (ii) collect or otherwise source additional 

resources that would constitute NSCC Qualifying 

Liquid Resources to pay the full Final Guaranty 

Substitution Payment amount; and/or (iii) 

reimburse NSCC for any losses associated with 

closing out such E&A/Delivery Transactions. 

suspension of the Common Member and 

payment of the Final Guaranty 

Substitution Payment would continue to 

be the means by which Guaranty 

Substitution may occur. 

Section 6(b) would provide that, 

following NSCC’s communication of the 

Final Guaranty Substitution Payment for 

each Common Member to OCC, and by 

no later than the agreed upon time, OCC 

must either (i) commit to NSCC that it 

will pay the Final Guaranty Substitution 

Payment in the event of a mutual 

suspension of a Common Member,80 or 

(ii) notify NSCC that it will not have 

sufficient cash resources to pay the 

largest Final Guaranty Substitution 

Payment calculated for every Common 

Member. Section 6(b)(i) would further 

provide that for Weekday Expirations, 

OCC’s submission of E&A/Delivery 

Transactions to NSCC would constitute 

OCC’s commitment to pay the Final 

Guaranty Substitution Payment on the 

Settlement Date in the event of a mutual 

suspension of a Common Member. 

Section 6(c) would provide that if 

OCC notifies NSCC that it will not have 

sufficient cash resources to pay the 

Final Guaranty Substitution Payment, 

NSCC may, in its sole discretion (i) 

reject or reverse all E&A/Delivery 

Transactions, or (ii) voluntarily accept 

E&A/Delivery Transactions subject to 

certain terms and conditions mutually 

agreed upon by NSCC and OCC.81

Section 6(c) would also provide that any 

necessary reversals of E&A/Delivery 

Transactions shall be delivered by 

NSCC to OCC at such time and in such 

form as the Clearing Agencies agree. 

Section 6(d) would provide that if, at 

any time after OCC has acknowledged 

the Historical Peak Guaranty 

Substitution Payment in accordance 

with proposed Section 3(b) of the 

Accord or committed to pay the Final 

Guaranty Substitution Payment in 

accordance with proposed Section 6(b) 

of the Accord, OCC has a reasonable 

basis to believe it will be unable to pay 

the Final Guaranty Substitution 

Payment, OCC will immediately notify 

NSCC. 

Section 8—Default by an NSCC 

Participating Member or OCC 

Participating Member 

Section 6(b)(i), which would be 

renumbered as Section 8(b)(i), would be 

amended to reflect the modified use of 

the Final Guaranty Substitution 

Payment in the event of a mutual 

suspension of a Common Member. 

Section 8(b)(i) would also be revised to 

remove the ability for OCC or NSCC to 

require that the Guaranty Substitution 

Payment be re-calculated in accordance 

with an alternative methodology. This 

will not be necessary under the 

calculation methodology used in the 

Phase 2 changes because the proposed 

methodology would result in a more 

accurate calculation. Section 8(b)(i) 

would further amend the Accord by 

providing NSCC with discretion to 

voluntarily accept Defaulted NSCC 

Member Transactions and assume the 

guaranty for such transactions, subject 

to certain terms and conditions 

mutually agreed upon by NSCC and 

OCC. The only remaining change to the 

Guaranty Substitution process from its 

operation under the Accord would be 

the shortened time duration under 

which OCC would elect (by way of its 

commitment) to make the Final 

Guaranty Substitution Payment and the 

timing under which the Guaranty 

Substitution will be processed in order 

to function in a T+1 environment. 

In particular, Section 8(b)(i) would 

provide that, with respect to a Mutually 

Suspended Member, if OCC has 

committed to make the Final Guaranty 

Substitution Payment, it will make such 

cash payment in full by no later than the 

agreed upon time(s). Upon NSCC’s 

receipt of the full amount of the Final 

Guaranty Substitution Payment, NSCC’s 

Guaranty would attach (and OCC’s 

Guaranty will no longer apply) to the 

Defaulted NSCC Member Transactions. 

NSCC would have no obligation to 

accept a Final Guaranty Substitution 

Payment and attach the NSCC Guaranty 

to any Defaulted NSCC Member 

Transactions for more than the Activity 

Date on which it has ceased to act for 

that Mutually Suspended Member and 

one subsequent Activity Date. If NSCC 

does not receive the full amount of the 

Final Guaranty Substitution Payment in 

cash by the agreed upon time, the 

Guaranty Substitution Time would not 

occur with respect to the Defaulted 

NSCC Member Transactions and Section 

8(b)(ii), described below, would apply. 

NSCC would, however, have discretion 

to voluntarily accept Defaulted NSCC 

Member Transactions and assume the 

guaranty for such transactions, subject 

to certain terms and conditions 

mutually agreed upon by NSCC and 

OCC. 

Section 6(b)(ii), which would be 

renumbered as Section 8(b)(ii), would 

also be amended to reflect the modified 

use of the Final Guaranty Substitution 

Payment in the event OCC continues to 

perform or does not make the Final 

Guaranty Substitution Payment. In 

particular, Section 8(b)(ii) would add an 

additional criterion of OCC not 

satisfying any alternative agreed upon 

terms for Guaranty Substitution to 

reflect this as an additional option 

under the Phase 2 changes. As 

amended, Section 8(b)(ii) would provide 

that if OCC does not suspend an OCC 

Participating Member for which NSCC 

has ceased to act, OCC does not commit 

to make the Final Guaranty Substitution 

Payment, NSCC does not receive the full 

amount of the Final Guaranty 

Substitution Payment in cash by the 

agreed upon time, or OCC does not 

satisfy any alternative agreed upon 

terms for Guaranty Substitution, 

Guaranty Substitution with respect to 

all Defaulted NSCC Member 

Transactions for that Activity Date will 

not occur, all Defaulted NSCC Member 

Transactions for that Activity Date will 

be reversed and exited from NSCC’s 

CNS accounting system, and NSCC will 

have no obligation to guaranty or settle 

such Defaulted NSCC Member 

Transactions. NSCC may, however, 

exercise its discretion to voluntarily 

accept the Defaulted NSCC Member 

Transactions, and assume the guaranty 

for such transactions, subject to certain 

agreed upon terms and conditions. 

Section 8(b) would also be modified 

to provide for escalated discussion 

between the Clearing Agencies in the 

event of an intraday NSCC Cease to Act 

and/or NSCC Participating Member 

Default, particularly to confirm that 

OCC has sufficient qualifying liquid 

resources to pay the projected Final 

Guaranty Substitution Payment for the 

Defaulting NSCC Member’s projected 

E&A/Delivery Transactions based on 

information provided in GSP 

Monitoring Data for such Defaulting 

NSCC Member. 

Conforming changes would also be 

made to Section 8(d) to reflect the use 

of the new defined term ‘‘Final 

Guaranty Substitution Payment.’’ 

Other Proposed Changes as Part of 

Phase 2 

Certain other technical changes are 

also proposed as part of the Phase 2 

changes, including to conform the 

Accord to the proposed changes 

described above. For example, Section 

9(c) would be revised regarding 

information sharing to reflect the 


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82OCC provided a draft of the SLA illustrating 

such changes to the Commission as confidential 

Exhibit 3F to this filing. 

83 If OCC does not have sufficient cash resources 

to pay the Final GSP and the Clearing Agencies are 

unable to reach an agreement on additional terms 

for NSCC to accept E&A/Delivery Transactions, 

OCC must submit a reversal file by 12:30 a.m. on 

Monday so that NSCC can remove the E&A/Delivery 

Transactions from CNS prior to the start of NSCC’s 

overnight processing. See confidential Exhibit 3H to 

this filing for additional details on action deadlines 

and processing times. 

introduction of the Historical Peak and 

Final Guaranty Substitution Payments 

and the GSP Monitoring Data; Section 

4(c)(ix) would be conformed to reflect 

the addition of ‘‘Settlement Date’’ as a 

defined term in Section 1; various 

sections would be renumbered and 

internal cross-references would be 

adjusted to reflect the addition of new 

sections proposed herein; correct 

current references throughout the 

Accord to ‘‘NSCC Rules and 

Procedures’’ would be changed to 

simply read ‘‘the NSCC Rules;’’ and 

various non-substantive textual changes 

would be made to increase clarity. 

Section 4(a) would also be modified 

to reflect that the Eligibility Master Files 

referenced in that paragraph, which 

identify Eligible Securities to OCC, are 

described in the SLA between OCC and 

NSCC. Section 9(b) would be modified 

to include OCC’s available liquidity 

resources, including Clearing Fund cash 

balances in the information OCC 

provides to NSCC, and to specify that 

information will be provided on each 

Activity Date at an agreed upon time 

and in an agreed upon form by the 

Clearing Agencies. Finally, Section 

16(b) would be modified to provide the 

correct current delivery address 

information for NSCC. 

The Phase 2 changes would also 

include an Appendix A that would 

describe in detail the calculation 

methodology for the Guaranty 

Substitution Payment. This would 

provide the detailed technical 

calculation to determine each of the 

Mutually Suspended Member’s 

Required Fund Deposit deficit and 

liquidity shortfall to NSCC. The full text 

of Appendix A is filed confidentially 

with the Commission as Exhibit 5 to this 

filing. 

Phase 2 Guaranty Substitution Process 

Changes 

As described above, the Phase 2 

changes would modify the Guaranty 

Substitution process to reflect the 

shortened time duration under which 

the Guaranty Substitution will be 

processed in order to function in a T+1 

environment. Below is a description of 

how that process would operate. The 

actual process would be implemented 

pursuant to a modified SLA between the 

Clearing Agencies.82 All times provided 

below are in Eastern Time and represent 

the latest time by which the specified 

action must occur, unless otherwise 

agreed by the Clearing Agencies. 

Weekend Expirations: On Friday (the 

Activity Date), NSCC would provide 

OCC with the Historical Peak GSP 

amount by 8:00 a.m. By 5:00 p.m. on 

Friday, OCC must acknowledge the 

Historical Peak GSP and provide 

evidence of OCC’s Clearing Fund cash 

resources sufficient to cover that 

amount, following which NSCC would 

provide the Eligibility Master File by 

5:45 p.m. By 1:00 a.m. on Saturday, 

OCC would then provide NSCC with the 

E&A/Delivery Transactions file and by 

8:00 a.m. NSCC would provide OCC 

with the Final GSP, which OCC must 

commit to pay by 9:00 a.m. in the event 

of a mutual suspension of a Common 

Member.83 By 8:00 a.m. Monday (the 

Settlement Date), if a cease to act is 

declared over the weekend (or the later 

of 10:00 a.m. or one hour after the cease 

to act is declared if declared on 

Monday), OCC must pay the Final GSP 

if there has been a mutual suspension of 

a Common Member. Finally, by 1:00 

p.m. on Monday, OCC must provide 

reversals for the defaulted member’s 

E&A/Delivery Transactions if OCC has 

not satisfied (or will not satisfy) the 

Final GSP. 

Weekday Expirations: On the Activity 

Date, NSCC would provide OCC with 

the Historical Peak GSP amount by 8:00 

a.m. By 5:00 p.m. on the Activity Date, 

OCC must acknowledge the Historical 

Peak GSP and provide evidence of its 

cash resources in the OCC Clearing 

Fund sufficient to cover that amount, 

following which NSCC would provide 

the Eligibility Master File by 5:45 p.m. 

By 1:00 a.m. on the Settlement Date (the 

day after the Activity Date in the T+1 

environment), OCC would then provide 

NSCC with the E&A/Delivery 

Transactions file, which also constitutes 

OCC’s commitment to pay the Final 

GSP. By 8:00 a.m. NSCC would provide 

OCC with the Final GSP. By the later of 

10:00 a.m. on the Settlement Date or one 

hour after a cease to act is declared, 

OCC must pay the Final GSP if there has 

been a mutual suspension of a Common 

Member. Finally, by 1:00 p.m. on the 

Settlement Date, OCC must provide 

reversals for the defaulted member’s 

E&A/Delivery Transactions if OCC has 

not satisfied (or will not satisfy) the 

Final GSP. 

For both Weekend Expirations and 

Weekday Expirations, Guaranty 

Substitution will take place only after 

the Common Members meet their start 

of day margin funding requirements at 

NSCC, if any. In a Common Member 

default event, the Guaranty Substitution 

will take place when OCC pays the 

Final GSP to NSCC. 

The Clearing Agencies note that the 

Phase 2 changes described above are 

designed to change the process by 

which the GSP is implemented such 

that the use of the GSP as a mechanism 

to facilitate the acceptance of settlement 

obligations by NSCC can continue to 

operate within the condensed timing for 

clearance and settlement in a T+1 

environment. However, the ultimate use 

of the GSP, its purpose, and its 

substantive import would remain 

consistent with the Phase 1 changes. 

Proposed Liquidity Risk Management 

Framework Changes 

OCC proposes changes to the 

Liquidity Risk Management Framework 

to incorporate the Phase 2 changes into 

its liquidity risk management practices. 

In the Contingency Funding Plan 

section, OCC would specify that it 

endeavors to maintain sufficient cash 

resources to cover its projected 

settlement demands. Projected 

settlement demands may include 

settlements associated with option 

exercise & assignment activity that 

create obligations for OCC under the 

Accord (e.g., Final GSP, Historical Peak 

GSP). Final and Historical Peak GSP 

would be defined in the Definitions 

section. OCC proposes a footnote 

referencing the proposed Phase 1 

changes to the Comprehensive Stress 

Testing & Clearing Fund Methodology, 

and Liquidity Risk Management 

Description with respect to the Final 

GSP. Namely, to account for the 

liquidity demand associated with the 

potential payment of a Final GSP, OCC 

would include the peak amount of the 

entire actual NSCC Required Fund 

Deposit deficits and SLD start-of-day 

obligations, without regard to allocation 

between NSCC and OCC, specific to 

each CMO Group for the relevant type 

of expiration on a rolling twelve-month 

lookback. Moreover, OCC may require 

the deposit of cash by a Clearing 

Member pursuant to its current Rules if 

projected settlement demands exceed 

OCC liquidity resources available to 

make settlement in the event of a 

Clearing Member default. 

OCC also proposes related and 

clarifying changes in the document. For 

example, OCC would include a minor 

clarifying change to the Liquidity Risk 

Identification section to define GSP as a 

firm-specific liquidity demand. OCC 

would also amend the Stress Testing 


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84 If, due to the timing of regulatory approval, the 

implementation dates for Phase 1 and Phase 2 

overlap, OCC would implement only the Phase 2 

changes and Phase 1 changes that carry over to 

Phase 2. 

85 12 U.S.C. 5461(b). 

86 12 U.S.C. 5464(a)(2). 

87 12 U.S.C. 5464(b). 

and Liquidity Resource Sizing section to 

incorporate information pertaining to 

GSP obligations into the annual analysis 

presented to the Board on projected 

liquidity demands that OCC may face 

under a variety of scenarios. 

Proposed By-Law Changes 

OCC proposes to update its By-Laws 

to conform with the revised Accord. 

OCC proposes to remove a reference to 

Balance Order Accounting Operation to 

align with the exclusion of transactions 

settled through NSCC’s Balance Order 

System under the amended definition of 

Eligible Securities in the Phase 2 

Accord. 

Implementation Framework 

The proposed Phase 1 and Phase 2 

changes will be implemented as follows: 

• Phase 1: Within 120 days after the 

date OCC and NSCC receive all 

necessary regulatory approvals for these 

proposed changes to the Accord, OCC 

will implement all Phase 1 changes. 

OCC would announce the 

implementation date by an Information 

Memorandum posted to its public 

website at least seven days prior to 

implementation. 

• Phase 2: On the compliance date 

with respect to the final T+1 

amendments to Exchange Act Rule 

15c6–1(a) established by the SEC, OCC 

will implement all Phase 2 changes, 

keep in place any applicable Phase 1 

changes that carry over to Phase 2, and 

decommission all Phase 1 changes that 

do not apply to Phase 2.84

Anticipated Effect on and Management 

of Risk 

OCC believes that the proposed 

changes would reduce the nature and 

level of risk presented by OCC because 

the purpose of the proposed changes to 

enhance its stress testing processes and 

create the Guaranty Substitution 

Payment mechanism is to provide OCC 

and NSCC with additional default 

management tools to help manage 

liquidity and settlement risks that OCC 

believes would be presented to each 

covered clearing agency in connection 

with a Mutually Suspended Member. As 

described above in the Phase 1 changes, 

OCC believes that having the ability to 

make a Guaranty Substitution Payment 

to NSCC in regard to any unmet 

Required Fund Deposit or Supplemental 

Liquidity Deposit obligations of a 

Mutually Suspended Member would 

promote prompt and accurate clearance 

and settlement in the national system 

for the settlement of securities 

transactions by causing NSCC to 

guarantee certain securities settlement 

obligations that result from exercised 

options and matured futures contracts 

that are cleared and settled by OCC. 

OCC further believes that enhancing its 

stress testing processes will help to 

ensure that it maintains the resources to 

make such a payment. The Phase 2 

changes would also promote prompt 

and accurate clearance and settlement 

in the national system for the settlement 

of securities transactions because, as 

described above, they would facilitate 

implementation of the new settlement 

cycle and support the Commission’s 

stated goal of implementing necessary 

risk reducing changes in connection 

with the move to T+1 settlement, 

currently set for May 28, 2024. The 

Phase 2 changes would further enable 

OCC to provide certain assurances that 

would permit NSCC to begin processing 

E&A/Delivery Transactions prior to 

guaranty substitution occurring— 

thereby promoting the continued 

effectiveness of the guaranty 

substitution process in an environment 

with a shorter settlement cycle. In the 

following ways, OCC believes that this 

proposal would be beneficial to and 

protective of OCC, NSCC, their 

participants, and the markets they serve. 

First, OCC’s ability to make the 

Guaranty Substitution Payment would 

ensure that the relevant securities 

settlement obligations would be 

accepted by NSCC for clearance and 

settlement and therefore the size of the 

related settlement obligations could be 

decreased from netting through NSCC’s 

CNS Accounting Operation and/or 

NSCC’s Balance Order Accounting 

Operation. Second, this outcome would 

avoid a scenario in which OCC’s 

Guaranty would continue to apply and 

the settlement obligations would be 

settled on a broker-to-broker basis 

between OCC Clearing Members 

pursuant to the applicable provisions in 

Chapter IX of OCC’s Rules. As noted 

above, OCC believes that such a brokerto-broker settlement scenario could 

result in substantial collateral and 

liquidity requirements for OCC Clearing 

Members. OCC believes that these 

potential collateral and liquidity 

consequences would be due to the lost 

benefit of netting of the settlement 

obligations through NSCC’s facilities 

and also due to the short time between 

a rejection by NSCC of the settlement 

obligations for clearing and the 

associated settlement date on which 

settlement would be otherwise required 

to be made bilaterally by OCC Clearing 

Members. This scenario also raises the 

potential for procyclical liquidity 

demands on OCC Clearing Members and 

participants during stressed market 

conditions. Third, OCC will plan to size 

its liquidity resource requirements to 

reasonable expectations with a high 

probability of making a Guaranty 

Substitution Payment in order to 

facilitate the settlement of a Mutually 

Suspended Member’s obligations 

through NSCC. Accounting for net 

liquidity demands from a Mutually 

Suspended Member’s settlement 

obligations at the central counterpartylevel enhances liquidity in the financial 

system and promotes the efficient use of 

capital by reducing the demand for 

liquidity associated with gross 

settlement of obligations and enabling 

the application of resources at both 

clearing agencies to satisfy the 

Member’s obligation. Fourth, OCC 

believes that the potential for the size of 

the settlement obligations to be 

comparatively larger than the Guaranty 

Substitution Payment coupled with the 

short time remaining to settlement 

could also increase the risk of default by 

the affected OCC Clearing Members at a 

time when a Common Member has 

already been suspended. Therefore, 

OCC believes that the proposed changes 

to implement the ability for OCC to 

make a Guaranty Substitution Payment 

to NSCC would allow OCC to avoid 

these risks by causing NSCC to accept 

the relevant obligations arising from 

exercised options and matured futures 

cleared and settled by OCC, as it 

ordinarily would, and guarantee their 

settlement, upon OCC making a 

Guaranty Substitution Payment to NSCC 

in accordance with the revised Accord. 

Consistency With the Payment, Clearing 

and Settlement Supervision Act 

The stated purpose of the Clearing 

Supervision Act is to mitigate systemic 

risk in the financial system and promote 

financial stability by, among other 

things, promoting uniform risk 

management standards for systemically 

important financial market utilities and 

strengthening the liquidity of 

systemically important financial market 

utilities.85 Section 805(a)(2) of the 

Clearing Supervision Act 86 also 

authorizes the Commission to prescribe 

risk management standards for the 

payment, clearing and settlement 

activities of designated clearing entities, 

like OCC, for which the Commission is 

the supervisory agency. Section 805(b) 

of the Clearing Supervision Act 87 states 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 5969 

88 17 CFR 240.17Ad–22. See Securities Exchange 

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

66220 (November 2, 2012) (S7–08–11) (‘‘Clearing 

Agency Standards’’); 78961 (September 28, 2016), 

81 FR 70786 (October 13, 2016) (S7 17 CFR 

240.17Ad–22. See Securities Exchange Act Release 

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

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

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

70786 (October 13, 2016). 

89 17 CFR 240.17Ad–22. 

90See, e.g., Exchange Act Release No. 89039, 85 

FR at 36446. 

91 12 U.S.C. 5464(b). 

92 12 U.S.C. 5464(b)(1). 

93 17 CFR 240.17Ad–22(a)(5). 94 17 CFR 240.17Ad–22(e)(20). 

95See The Options Clearing Corporation 

Disclosure Framework for Financial Market 

Infrastructures, pg. 105, (2023), available at https:// 

www.theocc.com/risk-management/pfmidisclosures. 

96 17 CFR 240.17Ad–22(e)(3), (7). 

97 17 CFR 240.17Ad–22(e)(3). 

98 17 CFR 240.17Ad–22(e)(7). 

that the objectives and principles for 

risk management standards prescribed 

under Section 805(a) shall be to: 

• promote robust risk management; 

• promote safety and soundness; 

• reduce systemic risks; and 

• support the stability of the broader 

financial system. 

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act and the Exchange Act in furtherance 

of these objectives and principles.88

Rule 17Ad–22 requires registered 

clearing agencies, like OCC, to establish, 

implement, maintain, and enforce 

written policies and procedures that are 

reasonably designed to meet certain 

minimum requirements for their 

operations and risk management 

practices on an ongoing basis.89

Therefore, the Commission has stated 90

that it believes it is appropriate to 

review changes proposed in advance 

notices against Rule 17Ad–22 and the 

objectives and principles of these risk 

management standards as described in 

Section 805(b) of the Clearing 

Supervision Act.91

OCC believes the proposed changes 

are consistent with Section 805(b)(1) of 

the Clearing Supervision Act 92 because 

they would promote the reduction of 

risks to OCC, its Clearing Members and 

the markets OCC serves. As described 

above in the Phase 1 changes, OCC 

believes that the proposed 

enhancements to its stress testing 

processes and having the ability to make 

a Guaranty Substitution Payment to 

NSCC with respect to any unmet 

obligations of a Mutually Suspended 

Member would promote the reduction 

of risk because it would ensure that 

OCC maintains sufficient liquidity 

resources and that the relevant 

securities settlement obligations would 

be accepted by NSCC for clearance and 

settlement and therefore the size of the 

related settlement obligations for both 

the Mutually Suspended Member and 

its assigned delivery counterparties 

could be decreased from netting through 

NSCC’s CNS Accounting Operation and/ 

or NSCC’s Balance Order Accounting 

Operation. This would also avoid a 

scenario in which OCC’s Guaranty 

would continue to apply and the 

settlement obligations would be settled 

on a broker-to-broker basis between 

OCC Clearing Members, which OCC 

believes could result in substantial 

collateral and liquidity requirements for 

OCC Clearing Members and that, in 

turn, could also increase a risk of 

default by the affected OCC Clearing 

Members at a time when a Common 

Member has already been suspended. 

Additionally, the Phase 2 changes 

would facilitate implementation of the 

new settlement cycle and support the 

Commission’s stated goal of 

implementing necessary risk reducing 

changes in connection with the move to 

T+1 settlement. The Phase 2 changes 

would further enable OCC to provide 

certain assurances that would permit 

NSCC to begin processing E&A/Delivery 

Transactions prior to guaranty 

substitution occurring—thereby 

promoting the continued effectiveness 

of the guaranty substitution process in 

an environment with a shorter 

settlement cycle. For these reasons, OCC 

believes that the proposed changes: (i) 

are designed to promote robust risk 

management; (ii) are consistent with 

promoting safety and soundness; and 

(iii) are consistent with reducing 

systemic risks and promoting the 

stability of the broader financial system. 

OCC believes that the proposed 

changes are also consistent with the SEC 

rules that apply to OCC as a covered 

clearing agency.93 In particular, SEC 

Rule 17Ad–22(e)(20) requires OCC to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to identify, monitor 

and manage risks related to any link that 

OCC establishes with one or more other 

clearing agencies, financial market 

utilities, or trading markets.94 As 

described in OCC’s publicly available 

disclosure framework for financial 

market infrastructures,95 the Existing 

Accord between OCC and NSCC is one 

such link. As described above, OCC 

believes (i) the proposed modifications 

to OCC’s stress testing procedures that 

are designed to enhance its ability to 

call for additional liquidity resources, 

and (ii) the implementation of the 

ability for OCC to make a Guaranty 

Substitution Payment to NSCC in the 

relevant circumstances involving a 

Mutually Suspended Member would 

help manage the risks presented to OCC 

and its Clearing Members by the 

settlement link with NSCC because the 

Guaranty Substitution Payment would 

ensure that the relevant securities 

settlement obligations would be 

accepted by NSCC for clearance and 

settlement and therefore the size of the 

related settlement obligations could be 

decreased from netting through NSCC’s 

CNS Accounting Operation and/or 

NSCC’s Balance Order Accounting 

Operation. 

For this same reason, OCC also 

believes that the proposed changes are 

consistent with the requirements of SEC 

Rules 17Ad–22(e)(3) and (7).96 SEC Rule 

17Ad–22(e)(3) requires OCC to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to maintain a 

sound risk management framework for 

comprehensively managing, among 

other things, liquidity, credit and other 

risks that arise in or are borne by OCC.97

SEC Rule 17Ad–22(e)(7) requires OCC, 

in relevant part, to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

effectively measure, monitor and 

manage the liquidity risk that arises in 

or is borne by OCC and to, among other 

things, address foreseeable liquidity 

shortfalls that would not be covered by 

OCC’s liquid resources.98 As noted, 

OCC believes the proposed stress testing 

enhancements and the ability to make a 

Guaranty Substitution Payment to NSCC 

would allow OCC to better manage 

liquidity and credit risks related to the 

settlement link with NSCC by ensuring 

that the relevant securities settlement 

obligations would be accepted by NSCC 

for clearance and settlement. It would 

avoid a scenario in which OCC’s 

Guaranty would continue to apply and 

the settlement obligations would be 

settled on a broker-to-broker basis 

between OCC Clearing Members, which 

OCC believes could result in substantial 

collateral and liquidity requirements for 

OCC Clearing Members that, in turn, 

could also increase a risk of default by 

the affected OCC Clearing Members, 

particularly in circumstances where the 

prior suspension of a Mutually 

Suspended Member relates to broader 

stress in the financial system. Moreover, 

the incorporation of the Guaranty 

Substitution Payment into OCC’s 

liquidity risk management practices 

would enhance OCC’s ability to 

maintain additional liquidity resources 

to effect the settlement of exercise and 

assignment activity in the event of a 


khammond on DSKJM1Z7X2PROD with NOTICES
5970 Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 

99 17 CFR 200.30–3(a)(91). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 99081 

(Dec. 5, 2023), 88 FR 85945. 

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

5 15 U.S.C. 78s(b)(2). 

Common Member default, and therefore, 

potentially increase the promotion of 

market stability. Regarding the Phase 2 

changes, OCC believes that the 

continued ability in a T+1 environment 

to make a Guaranty Substitution 

Payment to NSCC would allow OCC to 

better manage liquidity and credit risks 

related to the settlement link with NSCC 

by ensuring that the relevant securities 

settlement obligations would be 

accepted by NSCC for clearance and 

settlement. 

III. Date of Effectiveness of the Advance 

Notice and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received. The clearing 

agency shall not implement the 

proposed change if the Commission has 

any objection to the proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission or the Board of Governors 

of the Federal Reserve System providing 

the clearing agency with prompt written 

notice of the extension. A proposed 

change may be implemented in less 

than 60 days from the date the advance 

notice is filed, or the date further 

information requested by the 

Commission is received, if the 

Commission notifies the clearing agency 

in writing that it does not object to the 

proposed change and authorizes the 

clearing agency to implement the 

proposed change on an earlier date, 

subject to any conditions imposed by 

the Commission. The clearing agency 

shall post notice on its website of 

proposed changes that are implemented. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the advance notice is 

consistent with the Clearing 

Supervision Act. Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

OCC–2023–801 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to file 

number SR–OCC–2023–801. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the advance notice that 

are filed with the Commission, and all 

written communications relating to the 

advance notice between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

self-regulatory organization. 

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–2023–801 and 

should be submitted on or before 

February 14, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.99

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01748 Filed 1–29–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99419; File No. SR– 

NASDAQ–2023–045] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Designation of a Longer Period for 

Commission Action on a Proposed 

Rule Change To List and Trade Shares 

of the iShares Ethereum Trust Under 

Nasdaq Rule 5711(d), CommodityBased Trust Shares 

January 24, 2024. 

On November 21, 2023, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’ or 

‘‘Exchange’’) 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 

list and trade shares of the iShares 

Ethereum Trust under Nasdaq Rule 

5711(d), Commodity-Based Trust 

Shares. The proposed rule change was 

published for comment in the Federal 

Register on December 11, 2023.3 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 January 25, 

2024. 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 

and the issues raised therein. 

Accordingly, the Commission, pursuant 

to Section 19(b)(2) of the Act,5

designates March 10, 2024, as the date 

by which the Commission shall either 

approve or disapprove, or institute 

proceedings to determine whether to 


khammond on DSKJM1Z7X2PROD with NOTICES