81958 Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Notices 

14 17 CFR 200.30–3(a)(12), (59). 

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

2 17 CFR 240.19b–4. 

3 In Partial Amendment No. 1, OCC submitted a 

revised Exhibit 3D to SR–OCC–2024–014 without 

changing the substance of the proposed rule change. 

Partial Amendment No. 1 does not materially alter 

the substance of the proposed rule change or raise 

any novel regulatory issues. 

4OCC’s By-Laws and Rules can be found on 

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

Company-Information/Documents-and-Archives/ 

By-Laws-and-Rules. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBYX–2024–035 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBYX–2024–035. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBYX–2024–035, and should be 

submitted on or before October 30, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–23291 Filed 10–8–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101246; File No. SR–OCC– 

2024–014] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change, as 

Modified by Partial Amendment No. 1, 

by the Options Clearing Corporation 

Concerning Its Process for Adjusting 

Certain Parameters in Its Proprietary 

System for Calculating Margin 

Requirements During Periods When 

the Products It Clears and the Markets 

It Serves Experience High Volatility 

October 3, 2024. 

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

Securities Exchange Act of 1934 

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

19b–4 thereunder,2 notice is hereby 

given that on September 24, 2024, The 

Options Clearing Corporation (‘‘OCC’’) 

filed with the Securities and Exchange 

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

the proposed rule change as described 

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

have been prepared primarily by OCC. 

On October 1, 2024, OCC filed a partial 

amendment (‘‘Partial Amendment No. 

1’’) to the proposed rule change.3 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Partial 

Amendment No. 1 (hereafter the 

‘‘proposed rule change’’) from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

This proposed rule change would 

codify OCC’s process for adjusting 

certain parameters in its proprietary 

system for calculating margin 

requirements during periods when the 

products OCC clears and the markets it 

serves experience high volatility. 

Proposed changes to OCC’s Margin 

Policy are submitted in Exhibit 5 to File 

No. SR–OCC–2024–014. Material 

proposed to be added is marked by 

underlining and material proposed to be 

deleted is marked with strikethrough 

text. All terms with initial capitalization 

that are not otherwise defined herein 

have the same meaning as set forth in 

the OCC By-Laws and Rules.4

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

OCC is the sole clearing agency for 

standardized equity options listed on 

national securities exchanges registered 

with the Commission. OCC also clears 

certain stock loan and futures 

transactions. In its role as a clearing 

agency, OCC guarantees the 

performance of its Clearing Members for 

all transactions cleared by OCC by 

becoming the buyer to every seller and 

the seller to every buyer (or the lender 

to every borrower and the borrower to 

every lender, in the case of stock loan 

transactions). These clearing activities 

could expose OCC to financial risks if a 

Clearing Member fails to fulfil its 

obligations to OCC. In its role as 

guarantor for all transactions cleared 

through OCC, one of the more material 

risks related to a Clearing Member’s 

failure to perform is credit risk arising 

from the activity of the Clearing 

Members whose performance OCC 

guarantees. OCC manages these 

financial risks through financial 

safeguards, including the collection of 

margin collateral from Clearing 

Members designed to, among other 

things, address the market risk 

associated with a Clearing Member’s 

positions during the period of time OCC 

has determined it would take to 

liquidate those positions. 

OCC has established a proprietary 

system, the System for Theoretical 

Analysis and Numerical Simulation 

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

used to calculate each Clearing 


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5See, e.g., OCC Rule 601(c) (‘‘Notwithstanding 

any other provisions of this Rule 601, [OCC] may 

fix the margin requirements for any account or any 

class of cleared contracts at such amount as it 

deems necessary or appropriate under the 

circumstances to protect the respective interests of 

Clearing Members, [OCC], and the public.’’). 

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

7See Standards for Covered Clearing Agencies, 

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

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

context, procyclicality typically refers to changes in 

risk-management practices that are positively 

correlated with market, business, or credit cycle 

fluctuations that may cause or exacerbate financial 

[in]stability.’’). 

8See OCC Rules Ch. XI. 

9A mutualized, pre-funded guaranty fund 

comprised of deposits from each member, such as 

OCC’s Clearing Fund, is another financial safeguard 

commonly employed by central counterparties to 

address credit risk as the guarantor of the products 

it clears. 

10See infra notes 24–27 (describing the 

parameters to which the bounds are applied). 

11See infra notes 41–42 and accompanying text 

(detailing examples in which high volatility control 

settings were implemented). 

12OCC previously described its use of high 

volatility control settings within STANS in its filing 

to establish its STANS Methodology Description. 

The STANS Methodology Description, however, 

does not provide details concerning the governance 

and process for setting or applying high volatility 

control settings. 

13See Exchange Act Release Nos. 100998 (Sept. 

11, 2024), 89 FR 76171 (Sept. 17, 2024) (SR–OCC– 

2024–009); 99169 (Dec. 14, 2023), 88 FR 88163 

(Dec. 20, 2023) (SR–OCC–2023–008); 98101 (Aug. 

10, 2023), 88 FR 55775 (Aug. 16, 2023) (SR–OCC– 

2022–012); 96566 (Dec. 22, 2022), 87 FR 80207 

(Dec. 29, 2022) (SR–OCC–2022–010); 91079 (Feb. 8, 

2021), 86 FR 9410 (Feb. 12, 2021) (SR–OCC–2020– 

016); 90797 (Dec. 23, 2020), 85 FR 86592 (Dec. 30, 

2020) (SR–OCC–2020–014); 87718 (Dec. 11, 2019), 

84 FR 68992 (Dec. 17, 2019) (SR–OCC–2019–010); 

86436 (July 23, 2019), 84 FR 36632 (July 29, 2019) 

(SR–OCC–2019–006); 86119 (June 17, 2019), 84 FR 

29267 (June 21, 2019) (SR–OCC–2019–004); 83799 

(Aug. 8, 2018), 83 FR 40379 (Aug. 14, 2018) (SR– 

OCC–2018–011); 82658 (Feb. 7, 2018), 83 FR 6646 

(Feb. 14, 2018) (SR–OCC–2017–007). 

14An overview of the STANS methodology is on 

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

Risk-Management/Margin-Methodology. 

15See OCC Rule 601. 

16The expected shortfall component is 

established as the estimated average of potential 

losses higher than the 99% value at risk threshold. 

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

statistical technique that is used in risk 

management to measure the potential risk of loss for 

a given set of assets over a particular time horizon. 

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

calculates initial margin requirements for 

segregated futures accounts on a gross basis using 

Continued 

Member’s margin requirements. 

However, OCC maintains broad 

discretion under its rules to set and 

adjust margin requirements to protect 

the respective interests of Clearing 

Members, OCC, and the public.5 This 

discretion is important because all 

models are subject to assumptions and 

limitations. For that reason, regulations 

applicable to OCC require it to establish 

policies and procedures related to the 

review of OCC’s model parameters and 

assumptions during periods of time 

when the products cleared or markets 

served display high volatility, report the 

results of its analysis to appropriate 

decisionmakers, and use the results to 

evaluate the adequacy of and adjust its 

margin methodology, model parameters, 

and other relevant aspects of its credit 

risk management framework.6

One of OCC’s margin models 

generates variance forecasts for the 

returns on individual equity securities, 

the result of which OCC then includes 

as one of the inputs to the margin 

calculation. As discussed in more detail 

below, OCC has observed that this 

particular model may produce results 

that are ‘‘procyclical,’’ which means the 

tendency of margin requirements to 

increase during periods of market stress 

and decrease during calm periods that, 

if not appropriately addressed, could 

threaten the stability of its members 

during periods of heightened volatility.7

A sudden, extreme increase in margin 

requirements could stress a Clearing 

Member’s ability to obtain liquidity to 

meet its obligations to OCC, particularly 

in periods of high volatility. If that 

Clearing Member subsequently 

defaulted, its positions, including the 

positions of its customers, would be 

subject to liquidation as part of OCC’s 

default management processes.8 In 

addition, the resulting suspension and 

liquidation of the defaulting Clearing 

Member’s positions could result in 

losses chargeable to the mutualized 

Clearing Fund.9 Charging a loss to the 

Clearing Fund may result in unexpected 

costs for non-defaulting Clearing 

Members, stressing their ability to 

obtain liquidity to meet their own 

financial obligations in stressed market 

conditions. 

To mitigate procyclical margin 

requirements during periods when 

OCC’s cleared products or the markets 

its serves experience high volatility, 

OCC has established regular and high 

volatility control settings. OCC’s price 

return model employs bounds (i.e., the 

‘‘control sets’’ implemented under 

regular or high volatility settings) for 

certain parameters that are calculated 

daily based on current market data.10

OCC applies bounds to these parameters 

calibrated using historical data to 

mitigate the reactivity of the model 

volatility forecast, which is a primary 

driver of margin requirements. When 

OCC implements high volatility control 

settings, those parameters are bounded 

differently than under regular control 

settings. In general, these control 

settings help to prevent significant 

overestimation of Clearing Member 

margin requirements.11

To determine when implementation 

of high volatility control settings may be 

appropriate, OCC monitors the volatility 

of the products it clears and the markets 

it serves. Based on the results of this 

monitoring, OCC may determine to 

implement high volatility control 

settings for those model parameters. 

Under OCC’s margin methodology, 

these high volatility control settings 

may be applied to individual securities, 

which are among several ‘‘risk factors’’ 

under OCC’s margin methodology, or 

globally across all risk factors or a class 

or sector of risk factors (e.g., equities, 

indexes, volatility-based products, etc.). 

To ensure that OCC’s rules include a 

sufficient level of detail about material 

aspects of OCC’s margin system,12 OCC 

proposes to amend its Margin Policy, 

which is filed as a rule with the 

Commission,13 to define material 

aspects of OCC’s high volatility control 

setting process. This proposed rule 

change would amend the Margin Policy 

to describe the process, including: (1) 

how OCC sets and reviews the regular 

and high volatility control sets; (2) how 

OCC monitors for market volatility and 

idiosyncratic price moves and 

establishes thresholds to escalate the 

results of such monitoring for 

consideration of whether high volatility 

control settings are warranted; and (3) 

OCC’s internal governance for 

implementing and terminating high 

volatility control settings. OCC does not 

believe that proposed revisions to its 

Margin Policy would have any practical 

effect on Clearing Members or other 

market participants because OCC is not 

proposing significant changes to its 

current practices for setting member 

margin requirements. 

(1) Purpose 

Background 

STANS is OCC’s proprietary risk 

management system for calculating 

Clearing Member margin 

requirements.14 The STANS 

methodology utilizes large-scale Monte 

Carlo simulations to forecast price and 

volatility movements in determining a 

Clearing Member’s margin 

requirement.15 STANS margin 

requirements are calculated at the 

portfolio level of each Clearing Member 

account with positions in marginable 

securities and are comprised of an 

estimate of a 99% expected shortfall 16

over a two-day time horizon, among 

other components. OCC uses the STANS 

methodology to measure the exposure of 

portfolios of products cleared by OCC 

and cash instruments in margin 

collateral.17


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the Standard Portfolio Analysis of Risk Margin 

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

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

derivatives clearing organization (‘‘DCO’’) collect 

initial margin for customer segregated futures 

accounts on a gross basis. While OCC uses SPAN 

to calculate initial margin requirements for 

segregated futures accounts on a gross basis, OCC 

believes that margin requirements calculated on a 

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

customers’ positions held by a Clearing Member in 

a segregated futures account using STANS) affords 

OCC additional protections at the clearinghouse 

level against risks associated with liquidating a 

Clearing Member’s segregated futures account. As a 

result, OCC calculates margin requirements for 

segregated futures accounts using both SPAN on a 

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

time OCC staff observes a segregated futures 

account where initial margin calculated pursuant to 

STANS on a net basis exceeds the initial margin 

calculated pursuant to SPAN on a gross basis, OCC 

collateralizes this risk exposure by applying an 

additional margin charge in the amount of such 

difference to the account. See Exchange Act Release 

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

2014) (SR–OCC–2014–13). 

18The acronym ‘‘GARCH’’ refers to an 

econometric model that can be used to estimate 

volatility based on historical data. 

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

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

OCC–2018–014). 

20 In general, the implied volatility of an option 

is a measure of the expected future volatility of the 

option’s underlying security at expiration, which is 

reflected in the current option premium in the 

market. 

21See Exchange Act Release No. 84879, 83 FR at 

67394. 

22See id. at 67393. 

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

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

001). 

24See supra note 10 and accompanying text. 

25Alpha is the weight attached to the 

contribution to the forecast variance from the price 

risk factor. Together with gamma, it controls the 

model’s reaction to recent market moves. 

26Beta is the weight attached to the contribution 

to the forecast variance from the previous day’s 

forecast. As such, it concerns the persistence of 

volatility. 

27 Gamma is the additional weight attached to the 

contribution to the forecast variance from a negative 

return in the price risk factor. Together with alpha, 

it controls the model’s reaction to recent market 

moves. 

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

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

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

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

811). 

29The STANS Methodology Description is 

intended to provide a comprehensive description of 

the material aspects of OCC’s risk-based margin 

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

at 9410 (SR–OCC–2020–016). 

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

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

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

Description would also describe the controls that 

may be placed on the GJR–GARCH parameters after 

their initial calibration. GARCH volatility 

forecasting models can be very reactive in certain 

market environments. As a result, OCC may 

implement parameter controls for risk factors and 

classes of risk factors, which are subject to periodic 

review and approval by the MRWG.’’). 

31 In this context, the coverage rate for a security 

is the change in risk of the security expressed as 

a percentage of the price of the security when the 

market closes. 

Forecasted returns on individual risk 

factors are an input to OCC’s calculation 

of margin requirements. A ‘‘risk factor’’ 

within STANS is a product or attribute 

for which historical data is used to 

estimate and simulate the risk for an 

associated product. Risk factors include 

the returns on individual equity 

securities, returns on equity indexes, 

and returns on implied volatility risk 

factors, among others. 

OCC uses a GARCH 18 model to 

generate variance forecasts for price risk 

factors for all products and implied 

volatility with respect to certain 

products. Following February 5, 2018, 

when the market experienced extreme 

levels of volatility that caused a 

significant spike in margin 

requirements, OCC’s analysis 

demonstrated that GARCH is extremely 

sensitive to sudden spikes in volatility, 

which can result in margin 

requirements that OCC believes are 

unreasonable and procyclical.19 For 

example, OCC observed that its GARCH 

model for forecasting implied 

volatility 20 produced forecasts for 

particular S&P 500 Index (‘‘SPX’’) 

options that were four-fold larger than 

the comparable market index. This led 

to margin requirements increasing by 

80% overnight, with some margin 

requirements increasing ten-fold. In 

reviewing OCC’s analysis, the 

Commission acknowledged that the size 

of such margin requirement increases 

was not necessarily commensurate with 

the risk of those Clearing Member’s 

portfolios, and that imposing such a 

large, unexpected increase could impose 

a large, unexpected stress on a Clearing 

Member during a period of high 

volatility.21 Since then, OCC has taken 

several measures to mitigate such 

procyclicality, including changes to its 

GARCH-based implied volatility 

model,22 and a new model to replace 

GARCH for simulating implied volatility 

for SPX-based options and volatility 

index futures.23 Even with such 

revisions, however, the GARCH model 

may produce procyclical margin results 

that are not commensurate with the risk 

of the products, portfolios, or markets 

that OCC seeks to manage.24

To mitigate such procyclicality, OCC 

also applies numerical bounds to certain 

statistical parameters that inform the 

model’s reaction to market volatility. 

Specifically, the GARCH model uses 

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

gamma (g) 27 parameters as part of its 

econometric model for updating risk 

factors to reflect the most recent market 

data. Those statistical parameters are 

calculated daily based on updated price 

data.28 As described in OCC’s STANS 

Methodology Description,29 OCC 

applies numerical bounds (i.e., ‘‘control 

settings’’) to these GARCH parameters 

after their initial calibration to mitigate 

the reactivity of the model volatility 

forecast, which is a primary driver of 

margin requirements for any equity or 

index.30 These bounds apply to the 

GARCH parameters that are used to 

calculate margin for each Clearing 

Member. 

OCC refers to the bounds for the 

parameters applicable under normal 

market conditions as ‘‘regular’’ control 

settings. Because the regular control 

settings are designed for daily 

application, the bounds cover large 

ranges or parameter values obtained 

from the 95th percentile of historical 

parameter calibrations for representative 

risk factors. However, the large values of 

the parameter’s upper bounds under the 

regular control settings make the 

GARCH-based model susceptible to 

procyclicality. For instance, the largest 

day-to-day margin coverage 31 changes 

tend to happen at the onset of a high 

volatility period, when the existing 

volatility is close to the long-run floor 

level and a large return shock causes 

significant volatility increase. To 

address this phenomenon, the STANS 

Methodology Description provides that 

OCC maintains projections of various 

market conditions in which predetermined bounds (i.e., a control set) 

are appropriate and that specification of 

those conditions and the control sets are 

based on continual quantitative research 

and may be specific to risk factor types 

(e.g., equities or volatility indexes). The 

STANS Methodology Description 

further provides that the assumptions 

and individual application of the 

parameter controls for risk factors and 

classes of risk factors are subject to 

periodic review and approval by OCC’s 

Model Risk Working Group (‘‘MRWG’’), 

a cross-functional group responsible for 

assisting OCC’s management in 

overseeing OCC’s model-related risk 

comprised of representatives from 

relevant OCC business units, including 

Quantitative Risk Management, Model 

Risk Management, and Corporate Risk 

Management. OCC refers to 

implementation of high volatility 

control settings to an individual risk 

factor as ‘‘idiosyncratic’’ control settings 

and implementation across all or a class 

or sector of risk factors as ‘‘global’’ 

control settings. 

The high volatility control settings are 

determined by simulating two-day 

coverage changes by product type (e.g., 

index, equities or volatility products) 

based on price shocks. The current price 


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32See infra notes 59–60 and accompanying text. 

33OCC has included the periodic reviews 

presented to MRWG since 2020 in confidential 

Exhibit 3E to File No. SR–OCC–2024–014, 

including a 2024 review of the conditions for 

turning off idiosyncratic control settings in which 

FRM concluded that the convergence of the regular 

and high volatility control settings works for most 

risk factors for which idiosyncratic control settings 

were implemented during the review period. 

34 Id. 

35 Id. 

36See infra note 64 and accompanying text. 

37See supra note 5 and accompanying text. 

38See infra notes 55–58 and accompanying text. 

39The CCA Monitoring Thresholds establish 

when MRWG must meet. However, the CCA 

Monitoring Thresholds should not be read to limit 

the MRWG from meeting on a more frequent basis 

than monthly during times periods when the 

markets OCC serves or the products OCC clears 

experience high volatility, including to consider 

application of high volatility parameters, based on 

the judgement and experience of the MRWG, even 

if the CCA Monitoring Thresholds then in effect are 

not met. 

40OCC has included as confidential Exhibit 3A to 

File No. SR–OCC–2024–014 responses to questions 

from OSC concerning drafts of this proposed rule 

change, including data concerning the coverage 

rates under control sets reviewed by the MRWG on 

March 9, 2020. 

shocks for index and volatility products 

are based on the largest observed 

downward and upward price moves, 

respectively. The current return shocks 

for equities is a negative 15% return, 

which represents large price shocks for 

risk-factors in corresponding categories. 

Assuming different parameter values, 

OCC calculates corresponding values of 

two-day coverages and selects the 

bounds that keep the day-over-day 

change in 2-day expected shortfall 

coverage within a factor of 

approximately 1.5. 

When OCC implements idiosyncratic 

control settings for a single risk factor, 

it uses the high volatility control 

settings that correspond to that risk 

factor’s product type rather than the 

regular control settings. However, when 

OCC implements global control settings 

for a class or sector of risk factors, it is 

OCC’s practice to blend the high 

volatility and regular control settings 

based on a weighted percentage between 

them. Such a ‘‘blended’’ or ‘‘weighted’’ 

approach allows OCC’s risk managers, 

when appropriate, to select bounds that 

provide more conservative margin 

coverage when applying high volatility 

control settings globally across multiple 

risk factors. The blended approach also 

allows the OCC risk managers to 

decrease the weight attached to the high 

volatility parameter control settings 

(and correspondingly increase the 

weight attached to the regular control 

settings) as they evaluate the 

appropriateness of the application of the 

global control settings in the days 

following their initial application. 

In practice, OCC determines whether 

to implement idiosyncratic control 

settings to a single risk factor based on 

daily automated reports that project 

margin coverage for risk factors that 

have experienced significant day-overday price movements, or for which 

idiosyncratic control settings are already 

in effect, under both regular and high 

volatility control settings, along with the 

actual margin coverage for that risk 

factor from the previous day’s margin 

calculations. Individual risk factors are 

flagged for potential idiosyncratic 

control settings based on certain 

thresholds (as defined and discussed 

below, the ‘‘Idiosyncratic 

Thresholds’’) 32 based on, among other 

things, the returns for that risk factor 

and the day-to-day change in margin 

coverage rates. If those thresholds are 

met, then OCC generally applies the 

high volatility control settings. In 

general, the high volatility control 

settings remain in place for that risk 

factor until the coverage rate under the 

regular control set converges with the 

initial coverage rate when idiosyncratic 

control settings were first implemented 

or when the coverage rates decline to or 

below the coverage rate under the 

Idiosyncratic Thresholds that triggered 

the idiosyncratic control settings. 

The practice of retaining idiosyncratic 

parameters until the coverage rates for 

regular and idiosyncratic control 

settings converge is supported by OCC’s 

empirical observations with respect to 

margin coverage.33 However, with 

respect to low-priced securities (i.e., less 

than $1), which tend to have high 

coverage rates and relatively low risk 

exposure for OCC, OCC has observed 

that the coverage rates may not 

converge.34 As a result, the risk factor 

for such securities may stay on 

idiosyncratic volatility control settings 

for an extended or indefinite period of 

time, which could result in additional 

backtesting exceedances for the lowpriced security when the idiosyncratic 

control setting remains on.35 Consistent 

with the governance surrounding 

turning off the idiosyncratic control 

settings proposed below,36 the MRWG 

has approved conditions for reverting 

back to regular control settings or for 

maintaining regular control settings 

when the current price of the 

underlying is below a threshold 

specified by procedure, which would 

initially be set at 10 cents. 

Consistent with regulations applicable 

to OCC,37 OCC has also established 

thresholds related to high market 

volatility, among other factors (as 

defined and discussed below, the ‘‘CCA 

Monitoring Thresholds’’),38 which, if 

breached, require OCC’s MRWG, 

comprised of risk managers across 

OCC’s first- and second-line business 

units, to meet and consider the 

adequacy of its model parameters. When 

the CCA Monitoring Thresholds related 

to high volatility are met, the MRWG 

meets to consider whether global 

control settings would be appropriate 

for all risk factors or a class or sector of 

risk factors.39 When evaluating whether 

global control settings would be 

appropriate, the MRWG considers 

reports that show the previous day’s 

actual margin coverage for top risk 

factors with their projected margin 

coverage for that day under different 

blends or weights between regular 

control settings and high volatility 

control settings (e.g., 100% high 

volatility control settings; 75% high 

volatility/25% regular control settings; 

50% high volatility/50% regular control 

settings, etc.). In practice, when the 

MRWG determines in its judgment and 

discretion that application of global 

control settings is appropriate, the 

MRWG selects the blended control 

value set that generates coverage levels 

that converge with the implied volatility 

of the SPX. When global control settings 

are implemented, MRWG meets each 

day thereafter to consider whether they 

remain appropriate. As with the 

idiosyncratic control settings, global 

control settings generally remain in 

place until the coverage rates under the 

regular control set converges with the 

initial coverage rate when global control 

settings were first implemented. 

However, with respect to the global 

control settings, MRWG maintains 

discretion to change the weights under 

the blended approach as appropriate 

based on developing market conditions. 

Implementation of global settings is 

infrequent. For example, OCC 

implemented global control settings 

from March 9, 2020 until April 9, 2020 

in connection with the market volatility 

associated with the onset of the COVID– 

19 pandemic and on January 27, 2021 

for volatility-based products in 

connection with market volatility 

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

episode. On March 9, 2020, for example, 

when the SPX experienced a return of 

approximately –7.5%, coverage for SPX 

under regular control settings would 

have increased from long coverage of 

–11.77% and short coverage of 11.69% 

to –18.54% and 19.44%, respectively.40

MRWG approved implementing global 

control settings based on a 50% 

weighting between regular and high 

volatility control settings, resulting in 

long and short coverage of –13.60% and 


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41Following implementation of the global control 

settings on March 9, 2020, MRWG met daily from 

March 9 through April 9, 2020 to review daily 

reports providing historical and forecasted margin 

coverage rates for selected risk factors with 

alternative control settings. Based on its review of 

daily reports providing historical and forecasted 

margin coverage rates for selected risk factors with 

alternative control settings, MRWG approved 

modifications to the weights attached to the regular 

and HVP control settings. For example, MRWG 

increased the weighting for the HVP control setting, 

which was initially 50%, to 75% following March 

16, 2024, when VIX spiked 43% to 86.69 and SPX 

fell 12%. In the days that followed, MRWG 

approved increasing the weight attached to the 

regular control settings until reverting to regular 

control settings for VIX-based products on March 

27, 2020 and Equity risk factors on April 9, 2024. 

42OCC has also included as confidential Exhibit 

3B to SR–OCC–2024–014 an internal OCC 

memorandum concerning high volatility control 

settings describing, among other things, how when 

implementing global control settings on March 9, 

2020, the MRWG compared resulting coverages 

from different weightings against the coverage rates 

that could be derived through implied option 

volatility to evaluate of coverage rates under 

alternative parameters sets. 

43OCC has included as confidential Exhibit 3C to 

SR–OCC–2024–014 responses to questions from 

Staff of the Commission’s Office of Clearance and 

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

concerning OCC’s March 9, 2020 implementation of 

global control settings, including, among other 

things, as assessment of the impact on margin. 

44From December 2019 to August 2023, for 

example, OCC implemented high volatility control 

settings lasting various durations (ranging from a 

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

days) for more than 200 individual risk factors. See 

Exhibit 3A, supra note 39 (providing a list of 

instances in which OCC implemented global and 

idiosyncratic control settings). 

45While no options were listed on the security, 

certain Clearing Members maintained cleared stock 

loan positions and collateral deposits in that 

security. 

46See Exhibit 3A, supra note 39 (providing 

responses concerning an April 28, 2023 

implementation of idiosyncratic control settings). 

47See id. 

48 Id. 

49 Id. 

50See Exhibit 3A, supra note 39 (providing 

responses to requests for backtesting data and 

analysis). 

51 Id. 

52This new section would be added to the 

‘‘Margin Calls and Adjustments’’ section of the 

Margin Policy, before a section on ‘‘Additional 

Margin Adjustments,’’ which would be renumbered 

to reflect the addition. 

53The high volatility control value sets are 

sometimes referend to as idiosyncratic control 

settings because, in practice, the high volatility 

control set is what OCC applies when implementing 

idiosyncratic control settings. As discussed above, 

when implementing global control settings, MRWG 

evaluates and selects a control setting with different 

weightings between the regular control set and high 

volatility control set based on an assessment of 

which blended approach generates a coverage level 

that converges with the implied volatility of the 

SPX. See supra note 41 and accompanying text. 

14.42%.41 These coverages were 

selected based on their alignment with 

the two-day short and long coverage 

determined from SPX implied volatility; 

–13% and 14%, respectively.42

Aggregate margin requirements 

calculated using the global control 

settings were $84.2 billion, compared to 

$103.2 billion had OCC used regular 

control settings.43

OCC has implemented idiosyncratic 

control settings for individual risk 

factors more frequently.44 For example, 

on April 28, 2023, FRM applied 

idiosyncratic control settings to a risk 

factor for a security that experienced 

multi-day jumps in stock price,45

including from $6.72 to $20 on April 27, 

2023 and from $20 to $108.20 on April 

28, 2023, which resulted in 

corresponding short coverage levels 

under regular control settings increasing 

from 98% to 5695%.46 After 

implementing idiosyncratic control 

settings for that risk factor, aggregate 

margin requirements decreased $2.6 

billion. FRM turned off the idiosyncratic 

control settings on May 30, 2023 when 

it observed the coverage rate for regular 

and idiosyncratic control settings 

converge.47 OCC did not observe any 

daily backtesting exceedances 

associated with the idiosyncratic control 

settings for this risk factor. 

As another example, from January 27, 

2021 to March 16, 2021, FRM applied 

idiosyncratic control settings to a risk 

factor for a security that experienced an 

initial large market move corresponding 

to a 138.9% one-day return, which 

caused the two-day short coverage using 

regular control settings to increase to 

300%, compared to the previous 

business day’s two-day short coverage of 

54%. Over the following business days, 

through February 9, 2021, the security 

went through a volatile period with 

additional large one-day price moves.48

Once this volatility period passed, the 

coverages based on regular and high 

volatility control settings gradually 

converged around the same level on 

March 16, 2021, when the MRWG 

approved reverting back to regular 

control settings.49 OCC did not observe 

any additional daily backtesting 

exceedances associated with the 

idiosyncratic control settings for this 

risk factor. 

In general, OCC has not observed 

backtesting exceedances attributable to 

the implementation of global or 

idiosyncratic volatility control settings. 

Currently, OCC monitors margin 

sufficiency at the Clearing Member 

account level to identify backtesting 

exceedances. Account exceedances are 

investigated to determine the cause of 

the exceedance, including whether the 

exceedance can be attributed to the 

implementation of high volatility 

control settings. No account level 

exceedance has been attributed to the 

implementation of high volatility 

control settings. OCC also performs 

model backtesting on all risk factors 

with listed derivatives or stock loan 

positions, or securities pledged as 

collateral within Clearing Member 

accounts, including for risk factors 

subject to high volatility control 

settings. Model backtesting has not 

identified an issue with the adequacy of 

margin coverage associated with the 

implementation of idiosyncratic control 

settings. OCC also conducted 

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

which idiosyncratic control settings 

were implemented. Of the 14 out of 244 

securities for which 2-day expected 

shortfall coverages was less than 99%, 

OCC found that the coverages with 

regular control settings would not have 

been significantly different.50 Only one 

risk factor had 2-day expected shortfall 

short coverage under 99% while on 

idiosyncratic control settings that would 

have been above 99% on regular control 

settings, driven by one additional 2-day 

expected shortfall short exceedance.51

However, this single occurrence did not 

contribute to any Clearing Member 

account-level exceedance. Based on this 

study, OCC believes that application of 

high volatility control settings does not 

have a significant negative effect on the 

sufficiency of OCC’s margin coverage. 

Proposed Changes 

OCC proposes to amend its Margin 

Policy to add a new section 52

addressing control settings so that 

OCC’s rules would include a sufficient 

level of detail about the high volatility 

control setting process currently 

maintained in other internal OCC 

procedures, including (a) how OCC sets 

and reviews the regular and high 

volatility control sets; (b) how OCC 

monitors for market volatility and 

idiosyncratic price moves and 

establishes thresholds to escalate the 

results of such monitoring for 

consideration of whether high volatility 

control settings are warranted; and (c) 

OCC’s internal governance for 

implementing and terminating high 

volatility control settings. 

(a) How OCC Sets and Reviews Regular 

and High Volatility Control Sets 

First, OCC proposes to amend the 

Margin Policy to add a subsection under 

the new control settings section that 

would address how OCC reviews and 

sets the regular and high volatility 

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

the GARCH parameters under regular 

and idiosyncratic control settings).53

The Margin Policy would require that 

FRM conduct a review of the control 


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54The return shocks are maintained in and 

updated in accordance with model whitepapers that 

support the STANS Methodology Description. OCC 

has included the model whitepaper as confidential 

Exhibit 3D to File No. SR–OCC–2024–014. The 

whitepaper is redlined with anticipated updates 

based on the most recent annual review of the high 

volatility control setting process and edits intended 

to capture feedback from Staff in connection with 

its review of a draft of this proposal. 

55OCC has included the periodic reviews 

presented to MRWG since 2020 in confidential 

Exhibit 3E to File No. SR–OCC–2024–014. OCC 

believes that such changes to the control sets would 

be reasonably and fairly implied by the Margin 

Policy, as proposed to be amended. 

56See Exchange Act Release No. 83406 (June 11, 

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

008) (describing how the Clearing Fund 

Methodology Policy ‘‘would require that OCC 

maintain procedures for determining whether, and 

in which circumstances’’ stress testing review must 

be completed more frequently than monthly ‘‘when 

the products cleared or markets served display high 

volatility,’’ among other possible triggers). 

57See 17 CFR 17Ad–22(e)(4)(iv)(C) (with respect 

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

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

(with respect to liquidity resource sufficiency). 

58The subsections in the ‘‘Margin Monitoring’’ 

section would be renumbered accordingly to reflect 

this addition. 

59With respect to the high market volatility 

thresholds relevant to this filing, OCC’s current 

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

return calculated daily from the previous 10 years 

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

As of August 3, 2023, the thresholds translated to 

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

the SPX. Developmental evidence supporting the 

CCA Monitoring Threshold for high volatility has 

been provided in the model whitepaper. See Exhibit 

3D, supra note 53. However, as discussed above, the 

CCA Monitoring Thresholds and the method for 

reviewing and updating them would be maintained 

in the procedures supporting the Clearing Fund 

Methodology Policy. As such, OCC believes the 

CCA Monitoring Thresholds for high volatility and 

updates thereto consistent with the Margin Policy 

would be reasonably and fairly implied by the 

Margin Policy. 

60OCC has included a copy of these procedures 

as confidential Exhibit 3F to File No. SR–OCC– 

2024–014, which are redlined with anticipated 

changes arising from feedback received from Staff 

in connection with a review of a draft of this 

proposed rule change. 

61See id. Currently, FRM staff reviews a daily 

report of projected coverages for selected risk 

factors (excluding securities that do not have listed 

options and are not eligible as either collateral or 

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

absolute value of simple return greater than 20% or, 

for securities under $1 or are missing a current or 

prior days’ closing price, with an absolute value of 

log return greater than 100%. Securities meeting 

these thresholds are then filtered to identify those 

with more than $100 million in prior day risk 

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

increase in coverage. In addition, the thresholds 

filter for those securities for which regular 

parameter short coverages is greater than 350%. 

With respect to securities without listed options, 

the short coverage threshold also requires that the 

prior day risk exposure be greater than $10 million. 

As discussed below, the Idiosyncratic Thresholds 

would be maintained in procedures supporting the 

Margin Policy, reviewed at-least annually, and 

updated with MRWG approval. As such, OCC 

believes the Idiosyncratic Thresholds and updates 

thereto consistent with the Margin Policy would be 

reasonably and fairly implied by the Margin Policy. 

sets on an at-least annual basis, and any 

recommended changes would require 

MRWG approval. With respect to the 

regular control set, the Margin Policy 

would further provide that such review 

would assess whether the GARCH 

parameter bounds are appropriately 

risk-based, including, but not limited to, 

assessing whether they align with the 

95th percentile of the parameter 

calibrations over the prior review 

period. The Margin Policy would 

further provide that the review of the 

high volatility control set would assess 

whether the control settings effectively 

mitigate procyclicality while remaining 

appropriately risk-based, including, but 

not limited to, whether the bounds keep 

the day-over-day change in 2-day 

expected shortfall coverage within a 

factor of approximately 1.5 assuming 

price shocks based on observed returns 

for top risk factors.54 These additions to 

the Margin Policy are intended to 

describe OCC’s current process and 

internal procedures for setting the 

regular and idiosyncratic control sets.55

(b) How OCC Monitors for and Escalates 

High Volatility to Appropriate 

Decisionmakers 

OCC currently conducts daily 

monitoring for high market volatility 

and idiosyncratic price moves for 

individual securities against thresholds 

that, if breached, would require 

escalation to appropriate 

decisionmakers to evaluate the 

adequacy of and make adjustments to 

OCC’s model parameters. Specifically, 

Pursuant to the Clearing Fund 

Methodology Policy and the procedures 

thereunder, OCC has established 

thresholds related to high market 

volatility, low market liquidity, and 

significant increases in position size or 

concentration that would trigger an 

intra-month meeting of the MRWG to 

review stress test results.56 The 

underlying procedure refers to such 

thresholds as ‘‘CCA Monitoring 

Thresholds’’ because they are associated 

with SEC requirements for when a 

covered clearing agency must perform 

certain required monthly reviews on a 

more frequent basis.57

While these thresholds are set in 

accordance with the Clearing Fund 

Methodology Policy with respect to its 

stress testing procedures, OCC uses the 

same thresholds as triggers for review of 

its risk-based margin system, including 

(1) more frequent sensitivity analysis of 

its margin model and a review of OCC’s 

parameters and assumptions for 

backtesting, and (2) with respect to the 

high volatility threshold, escalation to 

the MRWG for consideration of whether 

to implement global control settings. 

However, unlike the Clearing Fund 

Methodology Policy, the Margin Policy 

does not currently reference how the 

thresholds are set. As proposed to be 

amended, the ‘‘Margin Monitoring’’ 

section of the Margin Policy would be 

amended to add a discussion of the CCA 

Monitoring Thresholds.58 That section 

would refer to the CCA Monitoring 

Thresholds established under the 

Clearing Fund Methodology Policy and 

its underlying procedure. The Margin 

Policy would further provide that the 

CCA Monitoring Thresholds are 

reviewed annually by the MRWG and 

the Stress Testing Working Group 

(‘‘STWG’’) to ensure they remain 

adequate to identify periods of high 

market volatility,59 low market 

liquidity, and significant increases in 

position size/concentration. The MRWG 

and STWG would be required to 

approve any changes to the thresholds. 

To monitor for volatility experienced 

by individual risk factors that may merit 

implementing idiosyncratic control 

settings, the Margin Policy would 

require FRM to monitor securities 

against thresholds for idiosyncratic 

price moves that would be established 

in its procedures (‘‘Idiosyncratic 

Thresholds’’).60 The Idiosyncratic 

Thresholds may employ a tiered 

structure that takes into account the 

type and magnitude of OCC’s risk 

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

is an optionable security with open 

interest, accepted as collateral, and/or 

an Eligible Security under OCC’s Stock 

Loan Programs), the value of the 

security, the magnitude of the price 

move, and the coverage rates.61 The 

Margin Policy would further reflect that 

on an at-least annual basis, FRM 

reviews whether the Idiosyncratic 

Thresholds, and the related instances 

when idiosyncratic control settings were 

applied during the review period, 

appropriately capture products 

experiencing high volatility. Any 

change to the Idiosyncratic Thresholds 

would require MRWG review and 

approval. 

(c) How OCC Implements and 

Terminates High Volatility Control 

Settings 

When the monitoring thresholds 

discussed above are breached, 

appropriate decisionmakers at OCC 

determine whether to implement 

idiosyncratic or global control settings. 

Specifically, for breaches of the CCA 

Monitoring Threshold for high 

volatility, the Margin Policy would 

require that FRM escalate the matter to 

the MRWG and make a recommendation 

as to whether global control settings 


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62Officers are identified in OCC’s By-Laws. See 

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

would include any member of FRM appointed by 

the Chief Executive Officer or Chief Operating 

Officer, including a Managing Director, Executive 

Director or Executive Principal. See id. § 9. 

63For example, an FRM Officer may use this 

authority to implement hypothetical scenarios for 

securities in cases where the securities fell just 

short of one element in the Idiosyncratic 

Thresholds’ tiered structure, but where breaches of 

other elements weighed in favor of applying 

idiosyncratic control settings in the FRM Officer’s 

judgment. See Exhibit 3A, supra note 39 (detailing 

an example in which an FRM Officer used this 

authority when a security was just below the $100 

million threshold for prior day risk exposure, but 

an FRM Officer approved implementing 

idiosyncratic control settings based on the 

significant day-over-day increase to short coverage 

combined with the size of the exposure). 

64For example, under the current Idiosyncratic 

Control Settings, discussed above in note 60, an 

FRM Officer would approve reverting to regular 

control settings when the short coverage declines to 

350% or below. 

65See supra notes 33–35 and accompanying text. 

66See 15 U.S.C. 78q–1. 

67 15 U.S.C. 78q–1(b)(3)(F). 

68See supra notes 18–22, 42–43, and 

accompanying text. 

69 Id. 

70See 17 CFR 240.17Ad–22(e)(6)(i). 

71Standards for Covered Clearing Agencies, 

Exchange Act Release No. 78961, 81 FR at 70819. 

should be applied to all risk factors or 

a class or sector of risk factors. The 

Margin Policy would require MRWG 

approval to implement global control 

settings. In making that determination, 

the Margin Policy would describe how 

MRWG would review coverage rates 

under potential control settings 

generated by taking a weighting of the 

bounds for regular and high volatility 

control sets. The Margin Policy would 

further require that MRWG make this 

determination considering factors 

including, but not limited to, which 

blended control value sets generate 

coverage levels that converge with the 

implied volatility of the SPX. 

The Margin Policy would also provide 

for how OCC would revert back to 

regular control settings after having 

implemented global control settings. 

Such reversion would also require 

MRWG approval. The Margin Policy 

would further provide that when 

making a determination that market 

volatility has decreased to a level where 

global control settings are no longer 

required, the MRWG would consider 

factors including, but not limited to, 

whether SPX coverage rates produced 

under regular control settings have 

converged with the initial coverage rates 

when global control settings were first 

implemented. 

With respect to breaches of the 

Idiosyncratic Thresholds, the Margin 

Policy would provide that OCC 

generally would apply idiosyncratic 

control settings if the Idiosyncratic 

Thresholds are breached. 

Implementation of such idiosyncratic 

high volatility control settings would 

require approval of an FRM Officer.62 In 

practice, FRM almost always applies the 

high volatility control set to a risk factor 

when the Idiosyncratic Thresholds are 

breached. However, the FRM Officer 

would retain authority under the Margin 

Policy to maintain regular control 

settings in the case of exceptional 

circumstances, including, for example, 

due to implementation of global control 

settings, operational issues such as 

production processing problems, or 

edge cases for which the FRM Officer 

determines that further refinement of 

the Idiosyncratic Thresholds is 

warranted. If the FRM Officer 

determines not to implement 

idiosyncratic control settings in edge 

cases, the Margin Policy would require 

that the FRM Officer present proposed 

changes to the Idiosyncratic Thresholds 

that reflect the exception within 30 days 

to the MRWG for review and, subject to 

MRWG discretion, approval. The 

Margin Policy would also provide for an 

FRM Officer’s authority to approve 

idiosyncratic control settings or revert 

from idiosyncratic control settings to 

regular control settings based on 

additional considerations such as 

market moves, expected shortfall risk 

contribution, and changes in Clearing 

Member positions.63

Finally, the Margin Policy would 

provide for reversion from idiosyncratic 

control settings to regular control 

settings. Specifically, the Margin Policy 

would provide that generally, OCC will 

revert to regular control settings when 

the coverage rates under the regular 

control set converges with the initial 

coverage rate when idiosyncratic control 

settings were first implemented or when 

the coverage rates decline to or below 

the coverage rate under the 

Idiosyncratic Thresholds that triggered 

the idiosyncratic control settings.64

Reverting to regular control settings 

would require FRM Officer approval. 

However, to account for possible 

unforeseen and unanticipated 

situations, the Margin Policy would 

provide that idiosyncratic control 

settings may be applied for a longer or 

shorter period at the discretion of the 

FRM Officer. The Margin Policy would 

further provide that the MRWG may 

establish other thresholds for reverting 

back to regular control settings, 

including, but not limited to, when a 

low-priced security falls below certain 

thresholds, as discussed above.65

(2) Statutory Basis 

OCC believes that the proposed rule 

change is consistent with Section 17A of 

the Exchange Act 66 and the rules and 

regulations thereunder applicable to 

OCC. Section 17A(b)(3)(F) of the Act 67

requires, in part, that the rules of a 

clearing agency be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions, 

and in general, to protect investors and 

the public interest. The proposed 

changes are intended to codify OCC’s 

process for adjusting parameters in 

STANS in response to broad market 

volatility or idiosyncratic price moves 

for individual securities. As discussed 

above, the GARCH model has been 

observed to overreact to changes in 

volatility.68 Such sudden increases in 

margin requirements may stress certain 

Clearing Members’ ability to obtain 

liquidity to meet those requirements, 

particularly in periods of high volatility, 

and could result in a Clearing Member 

being delayed in meeting, or ultimately 

failing to meet, its daily settlement 

obligations to OCC. A resulting 

suspension of a defaulting Clearing 

Member may result in losses chargeable 

to the mutualized Clearing Fund 

deposits of non-defaulting Clearing 

Members, which could result in 

unexpected costs for those Clearing 

Members. The proposed changes are 

intended to support the high volatility 

control settings process designed to 

mitigate the procyclicality of its GARCH 

model that may cause or exacerbate 

such financial instability. For these 

reasons, OCC believes the proposed 

changes to OCC’s rules would support 

processes reasonably designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, and in general, to protect 

investors and the public interest, in 

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

the Act.69

OCC believes that the proposed 

changes are also consistent with SEC 

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

part, that a covered clearing agency 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.70 Commission guidance with 

respect to SEC Rule 17Ad–22(e)(6) 

further provides that a covered clearing 

agency should consider whether its 

margin model, ‘‘to the extent practicable 

and prudent, limits the need for 

destabilizing, procyclical changes.’’ 71


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72See supra notes 18–20 and accompanying text. 

73See supra notes 49–50 and accompanying text. 

74 17 CFR 240.17Ad–22(e)(6)(i). 

75 17 CFR 240.17Ad–22(e)(6)(vi). 

76See Exchange Act Release No. 95842, 87 FR at 

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

establish OCC’s Risk Management Framework). 

OCC Risk Management Framework is available on 

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

77 17 CFR 240.17Ad–22(e)(6)(vi). 

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

79 17 CFR 240.19b–4. 

80 17 CFR 240.19b–4(a)(6)(i). 

81 17 CFR 240.19b–4(c)(1). 

82See supra notes 28–29 and accompanying text. 

83See supra notes 54, 58, and 60. 

84 15 U.S.C. 78s(b). 

85 15 U.S.C. 78q–1. 

86 15 U.S.C. 78q–1(b)(3)(I). 

As noted above, OCC’s GARCH model 

demonstrates sensitivity to sudden 

spikes in volatility, which can at times 

result in overreactive margin 

requirements that OCC believes are 

unreasonable and procyclical.72 Based 

on its analysis,73 OCC believes that the 

high volatility control settings reduce 

the oversensitivity of the variance 

forecasts for price risk factors while 

continuing to produce margin levels 

commensurate with the risks presented 

during periods of sudden, extreme 

volatility, consistent with Rule 17Ad– 

22(e)(6)(i).74

SEC Rule 17Ad–22(e)(6) further 

requires that a covered clearing agency’s 

policies and procedures be reasonably 

designed to monitor its risk-based 

margin system on an ongoing basis, 

including by conducting a review of its 

parameters during periods of time when 

the products cleared or markets served 

display high volatility, reporting the 

results to appropriate decisionmakers, 

and using the results to evaluate the 

adequacy of and adjust its model 

parameters.75 The proposed changes to 

the Margin Policy would require that (i) 

FRM monitor for periods when the 

products cleared or markets served 

display high volatility; (ii) FRM escalate 

the results of its monitoring to 

appropriate decisionmakers; and (iii) 

FRM or MRWG may implement high 

volatility control settings to adjust the 

GARCH model parameters based on 

specified criteria. OCC believes that 

FRM and MRWG are the appropriate 

decisionmakers for making 

determinations about these margin 

parameter adjustments because they are 

the subject matter experts most familiar 

with the performance of and risks 

associated with OCC’s margin models. 

In addition, OCC believes it appropriate 

that implementation of global control 

settings require MRWG approval. 

MRWG is comprised of both first- and 

second-line personnel, including 

personnel in OCC’s Model Risk 

Management business unit, who, under 

OCC’s Risk Management Framework, 

are responsible for evaluating model 

parameters and assumptions and 

providing effective and independent 

challenge through OCC’s model 

lifecycle.76 Accordingly, OCC believes 

that this cross-departmental group is the 

appropriate governing body for 

reviewing and approving such 

adjustments to OCC’s model parameters 

during periods of high market volatility, 

consistent with Rules 17Ad– 

22(e)(6)(vi).77

In addition, OCC believes that 

proposed changes to promote aspects of 

the high volatility control setting 

process to OCC’s rule-filed Margin 

Policy are consistent with Section 19(b) 

of the Exchange Act 78 and SEC Rule 

19b–4 79 thereunder, which require a 

self-regulatory organization to file 

proposed rule changes with the 

Commission. In particular, SEC Rule 

19b–4 provides that proposed rule 

changes subject to this filing 

requirement include stated policies, 

practices and interpretations of the selfregulatory organization, which the 

Commission defines to include, among 

other things, ‘‘any material aspect of the 

operation of the facilities of the selfregulatory organization,’’ 80 regardless of 

whether the stated policy, practice or 

interpretation is made generally 

available. SEC Rule 19b–4 provides 

certain exceptions to the filing 

requirement, including if the stated 

policy, practice or interpretation is 

‘‘reasonably and fairly implied by an 

existing rule of the self-regulatory 

organization.’’ 81 OCC’s use of high 

volatility control settings is currently 

addressed in OCC’s STANS 

Methodology Description, a rule of 

OCC.82 This proposed rule change 

would describe other aspects of the high 

volatility control setting process, 

including (1) how OCC establishes and 

maintains regular and high volatility 

control sets; (2) how OCC monitors for 

and escalates high market volatility and 

idiosyncratic price moves to appropriate 

decisionmakers for consideration of 

whether high volatility control settings 

are warranted; and (3) OCC’s internal 

governance for implementing and 

terminating high volatility control 

settings. OCC believes that promoting 

these aspects of the high volatility 

control setting process to the Margin 

Policy would ensure that its rules 

contain sufficient detail about material 

aspects of its margin system. 

OCC further believes that other 

internal procedures and technical 

documents concerning the execution of 

the high volatility control settings 

would be reasonably and fairly implied 

by its rules, as amended—including the 

regular and high volatility control sets, 

the thresholds used to escalate price 

movements and market volatility to 

appropriate decisionmakers to consider 

implementing high volatility control 

settings, and the method for reviewing 

and updating those control sets and 

thresholds based on the latest market 

data.83 Continuing to maintain these 

details in OCC internal procedures that 

are reasonably and fairly implied by 

OCC’s rules would allow OCC to adjust 

the high volatility control settings 

process in response to novel situations, 

changing market conditions and 

additional quantitative research as 

OCC’s processes mature. Accordingly, 

OCC believes that the proposed rule 

change is consistent with Section 19(b) 

of the Exchange Act 84 and the 

regulations thereunder. 

For the above reasons, OCC believes 

that the proposed rule change is 

consistent with Section 17A of the 

Exchange Act 85 and the rules and 

regulations thereunder applicable to 

OCC. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

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

Act 86 requires that the rules of a 

clearing agency not impose any burden 

on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. The proposed 

changes merely codify requirements 

related to the administration of OCC’s 

high volatility control settings, which, 

when implemented, apply to all 

Clearing Members that hold cleared 

positions within the scope of the high 

volatility control settings. Accordingly, 

OCC does not believe that the proposed 

rule change would unfairly inhibit 

access to OCC’s services. 

While high volatility control settings 

implemented under the proposed 

changes may impact different accounts 

to a greater or lesser degree depending 

on the composition of positions in each 

account, OCC does not believe that such 

impact would impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. As 

discussed above, OCC is obligated under 

the Exchange Act and the regulations 

thereunder to review its model 

parameters during periods of time when 

the products cleared or markets served 

display high volatility, report the results 

to appropriate decisionmakers, and use 

the results to evaluate the adequacy of 


khammond on DSKJM1Z7X2PROD with NOTICES
81966 Federal Register / Vol. 89, No. 196 / Wednesday, October 9, 2024 / Notices 

87See 17 CFR 240.17Ad–22(e)(6)(vi)(C)–(D). 

88 17 CFR 240.17Ad–22(e)(6)(i). 89 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

and adjust its model parameters.87 As 

discussed above, OCC believes the 

proposed changes to its rules support a 

high volatility control setting process 

that is reasonably designed to monitor 

volatility in the products and markets 

served by OCC and escalate the results 

of that monitoring to appropriate OCC 

decisionmakers, who would evaluate 

whether adjustments to OCC’s model 

parameters through use of control 

settings is warranted. In addition, the 

changes would support a process 

designed to mitigate procyclicality 

observed with the GARCH model, 

which OCC believes would help ensure 

that its margin requirements remain 

commensurate with the risks presented 

by its Clearing Members’ activity, 

consistent with SEC Rule 17Ad– 

22(e)(6)(i).88 Accordingly, OCC believes 

that the proposed rule change would not 

impose any burden or impact on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed change and none have 

been received by OCC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

OCC–2024–014 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to file 

number SR–OCC–2024–014. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

also will be available for inspection and 

copying at the principal office of OCC 

and on OCC’s website at https://

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

By-Laws-and-Rules. 

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 SR– 

OCC–2024–014 and should be 

submitted on or before October 30, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.89

Vanessa Countryman, 

Secretary. 

[FR Doc. 2024–23292 Filed 10–8–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101243; File No. SR– 

CboeBZX–2024–093] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Extend the 

Implementation Date of Functionality 

That Will Provide Members and 

Clearing Members With the Option To 

Utilize Additional Credit Risk Settings 

Under Interpretation and Policy .03 of 

Rule 11.13 (‘‘Aggregate Credit Risk 

Checks’’) 

October 3, 2024. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on 

September 26, 2024, Cboe BZX 

Exchange, Inc. (the ‘‘Exchange’’ or 

‘‘BZX’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) proposes to 

extend the implementation date of 

functionality that will provide Members 

and Clearing Members with the option 

to utilize additional credit risk settings 

under Interpretation and Policy .03 or 

Rule 11.13 (‘‘Aggregate Credit Risk 

Checks’’). 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 


khammond on DSKJM1Z7X2PROD with NOTICES