79978 Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 

6 15 U.S.C. 78s(b)(2)(i). 

7 15 U.S.C. 78 s(b)(2)(ii). 

8 Id. 

9 15 U.S.C. 78s(b)(2). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3OCC’s By-Laws and Rules can be found on 

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

Company-Information/Documents-and-Archives/ 

By-Laws-and-Rules. 

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 file 

number SR–OCC–2024–010 and should 

be submitted on or before October 22, 

2024. 

II. Extension 

Section 19(b)(2)(i) of the Exchange 

Act 6 provides that, within 45 days of 

the publication of notice of the filing of 

a proposed rule change, 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 unless 

the Commission extends the period 

within which it must act as provided in 

Section 19(b)(2)(ii) of the Exchange 

Act.7 Section 19(b)(2)(ii) of the 

Exchange Act allows the Commission to 

designate a longer period for review (up 

to 90 days from the publication of notice 

of the filing of a proposed rule change) 

if the Commission finds such longer 

period to be appropriate and publishes 

its reasons for so finding, or as to which 

the self-regulatory organization 

consents.8

The 45th day after publication of the 

Notice of Filing is September 26, 2024. 

In order to provide the Commission 

with sufficient time to consider the 

Proposed Rule Change, the Commission 

finds that it is appropriate to designate 

a longer period within which to take 

action on the Proposed Rule Change, 

and therefore is extending this 45-day 

time period. 

Accordingly, the Commission, 

pursuant to Section 19(b)(2) of the 

Exchange Act,9 designates November 

10, 2024, as the date by which the 

Commission shall either approve, 

disapprove, or institute proceedings to 

determine whether to disapprove the 

Proposed Rule Change. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–22416 Filed 9–30–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101189; File No. SR–OCC– 

2024–013] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change by 

The Options Clearing Corporation 

Concerning Modifications to its ByLaws and Rules Primarily To 

Discontinue Certain Outmoded or 

Unused Products and Services 

September 25, 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 13, 2024, The 

Options Clearing Corporation (‘‘OCC’’ or 

‘‘Corporation’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared primarily by OCC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

This proposed rule change would 

make modifications to its By-Laws and 

Rules primarily to discontinue certain 

outmoded or unused products and 

services. 

Proposed changes to OCC’s By-Laws 

are contained in Exhibit 5A [sic] that 

OCC provided as part of File No. SR– 

OCC–2024–013. Proposed changes to 

OCC’s Rules are contained in Exhibit 5B 

[sic] that OCC provided as part of File 

No. SR–OCC–2024–013. Material 

proposed to be added is underlined and 

material proposed to be deleted is 

marked in strikethrough text. 

All terms with initial capitalization 

that are not defined herein have the 

same meaning as set forth in the OCC 

By-Laws and Rules.3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

OCC is the sole clearing agency for 

standardized equity options listed on 

national securities exchanges registered 

with the Commission. OCC also clears 

certain stock loan and futures 

transactions. In its role as a clearing 

agency, OCC acts as a central 

counterparty (‘‘CCP’’) guarantying all 

contracts it clears, meaning OCC 

becomes 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). As a CCP, OCC maintains 

a platform called ENCORE consisting of 

OCC’s core clearing, risk management, 

and data management applications 

launched in 2000. Among other 

functions, ENCORE serves as OCC’s 

real-time processing engine, receiving 

trade and post-trade data from a variety 

of sources on a transaction-bytransaction basis to facilitate OCC’s 

clearance and settlement operations. 

OCC intends to retire ENCORE and 

implement a new, updated clearance 

and settlement system, known as 

‘‘Ovation,’’ that will leverage more 

current technology and enhanced 

security features. Ovation is designed to 

provide a more robust solution to meet 

market participants’ needs and OCC’s 

responsibilities, including in OCC’s role 

as a systemically important financial 

market utility. As part of the transition 

to the Ovation system, OCC is 

considering which features of ENCORE 

should be carried over to Ovation and 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 79979 

4OCC is also proposing these changes, with a 

view toward its planned transition to a new core 

clearing system, which OCC calls Ovation. 

5See Securities Exchange Act Release No. 96113 

(Oct. 20, 2022), 87 FR 64824 (Oct. 26, 2022) (File 

No. SR–OCC–2021–802). 

6See Securities Exchange Act Release No. 63120 

(Oct. 15, 2010), 75 FR 65538 (Oct. 25, 2010) (File 

No. SR–OCC–2010–017). 7Rule 407(a)(2) further provides, among other 

things, that Clearing Members making such election 

shall specifically register that aspect of their CMTA 

arrangement with OCC, sets forth the authority 

granted to OCC for Clearing Members making such 

an election, and specifies that any such election 

becomes effective once accepted by OCC’s systems. 

which should be retired, as well as other 

updates to its By-Laws and Rules to 

conform to current capability and 

support future requirements. 

1. Purpose 

This proposed change by OCC would 

modify the By-Laws and Rules to 

address certain outmoded or unused 

functions or products that OCC 

proposes to discontinue. OCC also 

proposes certain miscellaneous changes 

to provide greater clarity to its By-Laws 

and Rules.4

First, OCC proposes to no longer 

facilitate the settlement of commissions 

and fees owed between Clearing 

Members that are party to a Clearing 

Member Trade Assignment (‘‘CMTA’’) 

arrangement. OCC members have not 

used or expressed an interest in having 

OCC facilitate such settlement of 

commissions and fees. Second, OCC 

proposes to delete provisions related to 

OTC option products because these OTC 

option products are not currently 

traded. 

Third, OCC proposes to no longer 

require that Clearing Members maintain 

records of both parties to a trade 

because trade counterparty information 

is not necessary for OCC’s clearing and 

settlement purposes. Accordingly, OCC 

has not developed Ovation to aggregate 

such information and provide it to 

Clearing Members for purposes of 

compliance with this rule. 

Implementing this non-clearing data 

element in Ovation would require 

significant investment of resources to 

develop functionality that could impact 

Ovation’s release timeline. 

Fourth, OCC proposes to amend its 

Rules to provide that when a Clearing 

Member wants to ‘‘give-up’’ one or more 

positions in cleared contracts that are 

futures or futures options to another 

Clearing Member, it need not designate 

the specific account of the Given-Up 

Clearing Member to which such 

positions must be allocated. Rather, the 

Given-Up Clearing Member will be able 

to indicate the account to which it 

wishes the futures or futures options 

positions to be allocated in order to 

provide more flexibility to Clearing 

Members and better facilitate give-up 

allocations to the appropriate account. 

Fifth, OCC proposes to clarify that, 

when an opening or closing indicator is 

not included on a trade for an options 

or a futures contract, OCC will default 

the trade to an opening position for all 

account types, including market makers. 

Defaulting to an open position when 

there is no indicator will help ensure 

that an existing position is not 

inadvertently closed out. 

Sixth, OCC proposes to amend its 

Rules to reflect that when a particular 

class of exercised options is subject to 

broker-to-broker settlement, the 

settlement obligation will not be 

considered discharged until both the 

Delivering and Receiving Clearing 

Member submit matching notices as to 

the number of units of the underlying 

security delivered (received). This 

change will better reflect the manner in 

which OCC currently handles broker-tobroker settlements. 

Seventh, OCC also proposes to delete 

the ‘‘associated Market Maker’’ account 

subtype, which is not currently used by 

Clearing Members. 

Proposed Rule Changes 

As noted, this proposed change by 

OCC is primarily designed to modify the 

By-Laws and Rules to address certain 

outmoded or unused functions or 

products that OCC proposes to 

discontinue, particularly as OCC works 

toward its transition to a new core 

clearing system. ENCORE is OCC’s 

existing clearing system, and it was 

launched in 2000. Since then, it has 

operated as OCC’s real-time processing 

engine to receive trade and post-trade 

data from a variety of sources on a 

transaction-by-transaction basis, 

maintain clearing member positions, 

calculate margin and clearing fund 

requirements, and provide reporting to 

OCC staff, regulators, and Clearing 

Members. As stated in the Commission’s 

notice of no objection to OCC’s advance 

notice filing related to adoption of cloud 

infrastructure for new clearing, risk 

management and data management 

applications,5 OCC’s objective is the 

eventual retirement of ENCORE and its 

replacement with a resilient successor 

clearing system, which OCC calls 

Ovation. In connection with this 

transition by OCC to a successor 

clearing system and the related 

development work to design the 

successor system to support an 

appropriate scope of operations, OCC 

plans to discontinue certain existing 

functions or products that are outmoded 

or unused, as described in more detail 

below. 

The proposed rule change would 

amend the By-Laws and Rules to: (i) 

discontinue OCC’s facilitation of the 

settlement of commissions and fees 

owed between Clearing Members that 

are party to a CMTA arrangement; (ii) 

remove provisions related to OTC 

option products that are inoperative; 

(iii) no longer require that Clearing 

Members must maintain records of both 

parties to a trade; (iv) provide that a 

Giving-Up Clearing Member in 

connection with futures and futures 

options is not required to provide 

instructions that identify the designated 

account of the Given-Up Clearing 

member; (v) clarify and make uniform 

across all account types the default 

treatment of confirmed trades in futures 

and options as opening transactions; (vi) 

clarify its rules about the discharge of 

settlement obligations when OCC 

directs that exercise and assignment 

activity for a specific class of options 

will be subject to broker-to-broker 

settlement; and (vii) delete the 

Associated Market-Maker account type. 

OCC to No Longer Facilitate Settlement 

of Commissions and Fees Between 

CMTA Clearing Members 

OCC’s Rules 407 and 504 currently 

provide for a voluntary service at the 

election of Clearing Members that are 

parties to a CMTA arrangement whereby 

OCC will facilitate the settlement of fees 

and commissions between such Clearing 

Members, subject to certain conditions. 

OCC amended its Rules in 2010 to 

provide for this service.6 The service 

has not been used by Clearing Members 

since 2016, and Clearing Members have 

not expressed an interest in using the 

settlement of commissions and fees 

service provided by OCC in the future. 

As a result of the lack of Clearing 

Member interest in this service, OCC 

proposes to decommission it such that 

it will also not need to be supported in 

OCC’s successor clearing system. All 

other aspects of OCC’s Rules related to 

CMTA arrangements would remain 

unchanged. 

Accordingly, OCC proposes to 

renumber paragraph (a)(1) to (a) and to 

delete paragraph (a)(2) from Rule 407, 

which provides that Clearing Members 

that are parties to a CMTA arrangement 

may elect to authorize OCC to settle fees 

and commissions owed by the Carrying 

Clearing Member to the Executing 

Clearing Member in respect of transfers 

effected pursuant to that arrangement.7

OCC also proposes to delete paragraph 

(e) of Rule 504, which corresponds to 

current Rule 407(a)(2), generally 


khammond on DSKJM1Z7X2PROD with NOTICES
79980 Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 

8Rule 504(e) further provides, among other 

things, that aggregate amounts to be settled are 

calculated based on entries made by the Executing 

Clearing Member, that settlements of the fees/ 

commissions will be effected on the business days 

first succeeding the business day on which the 

Executing Clearing Member entered the information 

into OCC’s systems. 

9See Securities Exchange Act Release No. 68434 

(December 14, 2012), 77 FR 75243 (December 19, 

2012) (SR–OCC–2012–14). 

10OCC notes that it is not proposing in this 

proposed rule change to eliminate the reference to 

OTC options in Rule 805 (Expiration Exercise 

Procedure) because it is proposing to delete such 

reference in another rule filing with the 

Commission. 

11OCC proposes to delete references to OTC 

options and related terms throughout the 

definitions in Article I of the By-Laws, including 

‘‘Backloaded OTC option,’’ ‘‘OTC Index Option 

Clearing Member,’’ ‘‘origination date,’’ ‘‘OTC index 

option,’’ ‘‘OTC option,’’ ‘‘OTC Trade Source,’’ ‘‘OTC 

Trade Source Rules.’’ OCC also proposes to delete 

text from the definitions of the terms ‘‘Class’’, 

‘‘Clearing Member’’, ‘‘Index Multiplier’’, ‘‘Index 

Value Determinant’’, ‘‘Trade Date’’, and ‘‘Variable 

Terms’’ that define what those terms mean with 

respect to OTC options. In addition, OCC proposes 

to delete text from Interpretation and Policies .01 

to Section C of Article I of the By-Laws providing 

that the term ‘‘ ‘Exchange transaction’ was removed 

from the By-Laws and Rules and replaced with the 

term ‘confirmed trade’ to reflect the expansion of 

the Corporation’s clearing activities into OTC 

options’’ because such sentence is no longer 

necessary given the removal of provisions related to 

OTC options. OCC is not proposing to revert back 

to the use of ‘‘Exchange transaction’’ in its By-Laws 

and Rules because OCC believes that Clearing 

Members are familiar with the term ‘‘confirmed 

trade.’’ 

12OCC proposes to delete OTC option related 

provisions in the following definitions in Article 

XVII, Section 1: (i) ‘‘class of options,’’ (ii) ‘‘current 

underlying interest value,’’ (iii) ‘‘expiration date,’’ 

(iv) ‘‘expiration time’’ (deleted entirely), (v) 

‘‘reporting authority,’’ and (vi) ‘‘series of options.’’ 

13OCC proposes to delete Rule 1804(c)(1) in its 

entirety because it relates solely to OTC options. 

OCC proposes to renumber current Rule 1804(c)(2) 

and (3) as (c)(1) and (2). 

14Specifically, OCC proposes that the definition 

of ‘‘confirmed trade’’ would no longer include a 

cleared contract affirmed through the facilities of an 

OTC Trade Source and submitted to the OCC for 

clearance. 

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

16OCC notes that Clearing Members continue to 

debate whether the counterparty information 

should be maintained given past trading precedent 

when this information was required. Today, the 

trade counterparty information is no longer 

required for clearing purposes. However, OCC may 

reconsider providing this information in the future. 

providing that OCC, as agent, is 

authorized to effect non-guaranteed 

settlement of fees and commissions 

owed by a Carrying Clearing Member to 

an Executing Clearing Member for 

transfers effected pursuant to their 

registered CMTA arrangement, provided 

that the CMTA registration authorizes 

OCC to effect such settlements.8 OCC 

proposes to mark paragraph (e) of Rule 

504 as reserved. In addition, OCC 

proposes to delete the final sentence of 

Rule 504(g), which provides that OCC 

shall have no obligation to effect 

settlement of fees and commissions as 

provided in Rule 407 if either the 

Executing Clearing Member or the 

Carrying Clearing Member has been 

suspended by OCC. 

Over-the-Counter (‘‘OTC’’) Options 

Provisions To Be Removed 

OCC’s By-Laws and Rules currently 

permit it to clear and settle certain OTC 

options products, specifically OTC 

index options on the S&P 500 index.9 In 

connection with this service, OCC’s ByLaws and Rules were modified in 

various places to provide for the 

clearance and settlement of such OTC 

index options. Although OCC has only 

ever cleared OTC index options on the 

S&P 500 index, OCC’s By-Laws and 

Rules were designed to support the 

clearance and settlement of additional 

OTC options using the same legal and 

operational framework. However, OCC 

has not cleared and settled an OTC 

option since 2014 and there is no open 

interest in OTC options. Clearing 

Members have also not expressed 

interest in the OTC option clearance 

settlement services. 

As a result, OCC proposes to remove 

all provisions from its By-Laws and 

Rules 10 related to the clearance and 

settlement of OTC options. These 

changes include the deletion of the 

entire definitions and references to the 

terms ‘‘OTC options,’’ ‘‘OTC index 

option,’’ ‘‘OTC Trade Source,’’ ‘‘OTC 

Trade Source Rules’’, ‘‘Backloaded OTC 

option,’’ and ‘‘OTC Option Auction,’’ as 

well as text accompanying these terms 

that describe OCC’s role in the clearance 

and settlement of OTC options in the 

following By-Law and Rule provisions: 

(i) Article I of the By-Laws 

(Definitions); 11 (ii) Article VI of the ByLaws, Section 1, Interpretation and 

Policies .01(a), the entirety of Section 3, 

Interpretations and Policies .09, Section 

10(b) and (g), and Section 27(a) and (b); 

(iii) Article XVII of the By-Laws, 

Introduction, Section 1 (Definitions),12

Section 3(h) and Interpretation and 

Policies .01 (deleted entirely), Section 

4(a)(2), Section 5(a), and the entirety of 

Section 6 (relating to OTC Index 

options); (iv) Rule 201(b)(6) (deleted 

entirely); (v) Rules 401(a), (a)(1)(i), (b), 

(d), (e), (f) and (g); (vi) Rule 405; (vii) 

Rule 406; (viii) Rule 407(l) (deleted 

entirely); (ix) Rule 408(a); (x) Rule 

611(a), (b), and (d) (deleted entirely); 

(xi) Rule 801(b); (xii) Rule 803 

Interpretation and Policy .01; (xiii) Rule 

804; (xiv) Rule 1003 Interpretation and 

Policy .02 (deleted entirely); (xv) Rule 

1104 Interpretation and Policy .03 

(deleted entirely); (xvi) Rule 1105; (xvii) 

Rule 1106(e)(2) (deleted entirely), and 

Interpretation and Policy .01; (xviii) 

Chapter XVIII of the Rules, Introduction; 

(xix) Rule 1804(b), (c),13 and 

Interpretation and Policy .03 (deleted 

entirely). OCC is not proposing changes 

to these provisions (unless otherwise 

described in this proposed rule change) 

other than the removal of provisions 

that relate to OTC options. For example, 

OCC proposes to modify the definition 

of the term ‘‘confirmed trade’’ in the ByLaws only to delete the provision 

relating to OTC options.14

To the extent OCC may plan to 

support the clearance and settlement of 

OTC options again in the future based 

on Clearing Member demand for such 

services, OCC would submit a proposed 

rule change with the Commission 

pursuant to Section 19(b) of the 

Exchange Act to reincorporate changes 

to its By-Laws or Rules as may be 

necessary for that purpose.15

Records of Both Parties to a Transaction 

to No Longer Be Required 

Rule 208 currently requires, among 

other things, that every Clearing 

Member must keep records showing all 

confirmed trade data required pursuant 

to the OCC’s By-Laws and Rules, 

including confirmed trade information 

reported to OCC under Rule 401. Rule 

401(a)(1)(i) requires that confirmed 

trade details include ‘‘the identity of the 

Purchasing Clearing Member and the 

Writing Clearing Member to the 

transaction.’’ As a result, Clearing 

Members are currently required to 

maintain records of the identity of the 

Clearing Members who are parties to a 

confirmed trade. Prior to the adoption of 

electronic trading, these records were 

maintained to facilitate the efficient 

clearing and settlement of confirmed 

trades and reconcile counterparty 

settlement obligations to avoid 

settlement delays and disputes. OCC 

currently provides such information 

through Encore for purposes of 

compliance with this Rule. 

However, with the widespread 

adoption of electronic trading and the 

development of supporting market 

infrastructure, OCC’s clearing processes 

and capabilities have evolved to no 

longer require the identities of the 

counterparty Clearing Members for the 

purposes of clearing and settlement. 

Therefore, OCC would no longer require 

that Clearing Members maintain such 

records in Ovation.16 Implementing this 

non-clearing data element and 

developing this functionality would 

require OCC to invest significant 

resources that could have an impact on 

Ovation’s release timeline. As a result, 

OCC proposes to modify Rule 208 to 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 79981 

17OCC also proposes to make similar changes to 

Rule 408(e) to make clear that the Rule only applies 

to futures and options on futures contracts. This 

would be done by inserting the word ‘‘futures’’ 

before references to the word ‘‘options’’ in Rule 

408(e). 

18The last sentence of Rule 408(b) currently 

provides that If the Giving-Up Clearing Member and 

the Given-Up Clearing Member are not parties to an 

allocation agreement registered with the 

Corporation, then the Corporation shall adjust the 

positions in the respective designated accounts of 

the Giving-Up and Given-Up Clearing Member in 

accordance with the allocation instruction only 

upon receipt of notice from the Given-Up Clearing 

Member of its affirmative acceptance of the 

allocation. 

19The term ‘‘BOUND’’ means a security issued by 

the Corporation pursuant to Article XXIV of the ByLaws and Chapter XXV of the Rules. See OCC ByLaws, Article 1. 

provide, with respect to parties to a 

transaction, that a Clearing Member 

must keep records showing all 

confirmed trade data required pursuant 

to OCC’s By-Laws and Rules, including 

confirmed trade information reported to 

OCC under Rule 401 ‘‘except for the 

identity of the counterparty Clearing 

Member.’’ This change would require 

Clearing Members to only record trade 

information relevant for clearing and 

settlement purposes. OCC notes that 

because all confirmed trades in option 

contracts that are accepted by OCC are 

novated such that OCC becomes the 

buyer to the seller and the seller to the 

buyer, it is not necessary or relevant for 

clearance and settlement purposes to 

require a Clearing Member to record the 

identity of another Clearing Member 

who was originally counterparty to the 

transaction. 

Discontinue the Requirement To 

Identify Designated Accounts of GivenUp Clearing Members 

Rule 408 provides that one or more 

positions in cleared contracts may be 

allocated from the designated account of 

a Giving-Up Clearing Member to the 

designated account of a Given-Up 

Clearing Member. Currently, this system 

for allocation of positions is only 

available in connection with positions 

in futures contracts and options on 

futures contracts that are cleared and 

settled by OCC. These allocations are 

post-trade instructions to OCC that are 

entered by one Clearing Member, called 

the Giving-Up Clearing Member, to 

direct OCC that a position in a cleared 

contract in one of the OCC accounts of 

that Giving-Up Clearing Member should 

be moved to the designated account of 

the Given-Up Clearing Member. 

Currently, the Rules allow the GivingUp Clearing Member to designate the 

account of the Given-Up Clearing 

Member to which the position should be 

allocated. 

OCC proposes to add rule text to the 

header for Rule 408 and elsewhere in 

Rule 408(a) to make clear that this 

allocation of positions functionality is 

only available for futures and options on 

futures. Currently, Rule 408 states that 

the allocation functionality is available 

for ‘‘cleared contracts,’’ which could be 

read to include securities options 

contracts notwithstanding that the 

allocation functionality is currently only 

available for futures and options on 

futures, and OCC plans for the same to 

be true in connection with the successor 

Ovation system.17

OCC also proposes to remove 

reference to the term ‘‘designated 

account’’ within the provisions of Rule 

408 (a) and (b) from certain instances 

that refer to the Given-Up Clearing 

Member to clarify that the Giving-Up 

Clearing Member would no longer be 

required to specify the designated 

account of the Given-Up Clearing 

Member to which the cleared contract 

position should be moved. OCC 

proposes to then add a sentence in Rule 

408(b) that would require the Given-Up 

Clearing Member to designate an 

account to which the allocation will be 

made. OCC will then process allocation 

instructions for Cleared contract 

positions once the Given-Up Clearing 

Member has designated an account in 

which to accept the allocations. 

OCC proposes to also remove the last 

sentence of Rule 408(b) that generally 

describes OCC’s posture in the absence 

of an allocation agreement,18 which 

OCC believes is already addressed as 

part of paragraphs (b), and (d) of the 

Rule, and including the text would be 

duplicative and unnecessary. An 

allocation instruction, whether direct or 

provided through a confirmed trade, is 

a request by the Giving-Up Clearing 

Members to allocate positions to a 

Given-Up Clearing Member. Positions 

would remain in pending status 

awaiting the designation of an allocation 

account by the Given-Up Clearing 

Member to complete processing. 

Positions would move automatically if 

an account was designated, and an 

allocation agreement existed between 

the Giving-Up Clearing Member and the 

Given-Up Clearing Member. In all cases 

Rule 408 would provide that the GivingUp Clearing Member would be required 

to allocate the cleared futures or options 

on futures contract position to a GivenUp Clearing Member. In turn, the GivenUp Clearing Member would be 

responsible for affirmatively confirming 

the account to which the cleared 

contract position should be transferred 

by OCC before the position would be 

moved by OCC from the designated 

account of the Giving-Up Clearing 

Member to the designated account of the 

Given-Up Clearing Member. 

OCC proposes to also remove all 

references to ‘‘allocation agreement’’ in 

the text of Rule 408(b), and (d). OCC 

believes removing this text adds clarity 

to the rule because the text of Rule 

408(c) addresses the registration of 

allocation agreements with OCC and 

declares that an allocation agreement 

would constitute notice of a pre-agreed 

instruction to OCC by the Given-Up and 

the Giving-Up Clearing Members for 

OCC to allocate positions to an account 

of the Given-Up Clearing Member 

without further action. If the Given-Up 

Clearing Member rejects the allocation 

or if it does not provide affirmative 

acceptance by the cut-off time, Rule 408 

would continue to provide, as it 

currently does, that the positions will 

remain in the account of the Giving-Up 

Clearing Member. This proposed 

approach puts each Clearing Member, as 

applicable, in control of the account 

from which or to which the position in 

the cleared futures or futures option 

contract should be moved. OCC believes 

that this would help reduce the risk of 

positions being transferred to an 

account of the Given-Up Clearing 

Member that the Given-Up Clearing 

Member does not want to receive them. 

Clarify the Default Treatment of 

Confirmed Trades in Options as 

Opening Transactions 

Rule 401 addresses information that is 

required to be or that may be reported 

to OCC in connection with new 

confirmed trades in options, futures and 

BOUNDs.19 For confirmed transactions 

in options that are transmitted to OCC 

by an options exchange, OCC does not 

require as a condition to OCC’s 

acceptance and novation an indication 

of whether the transaction is an opening 

or closing transaction. Such information 

may be included in the confirmed trade 

information from the exchange, but if it 

is not included OCC treats the 

confirmed trade as an opening 

transaction—which has the effect of 

increasing the number of option 

contracts in the option series in the 

relevant account of the Clearing 

Member. To clarify this default 

treatment in Rule 401, OCC is proposing 

to amend current Interpretation and 

Policy .01 to Rule 401, which already 

states that this is the default treatment 

for confirmed trades that OCC receives 

in futures for all Clearing Member 

accounts other than market-maker 


khammond on DSKJM1Z7X2PROD with NOTICES
79982 Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 

20OCC Rule 909(d). 

21See, e.g., Information Memo #53517, available 

at https://infomemo.theocc.com/infomemos?

number=53517 (exemplative OCC Info Memo 

directing broker-to-broker settlement). 

22See By-Laws Article VI, Section 19(a)(2)–(3) 

(providing that OCC may suspend the settlement 

obligations of exercised options when Clearing 

Members are unable to deliver the underlying 

security). 

23See id. Section 19(b). 

24See id. Section 19(c). 

25An ‘‘associated Market Maker’’ is currently 

defined in Article I of OCC’s By-Laws as a person 

maintaining an account with a Clearing Member as 

a Market-Maker, specialist, stock market-maker, 

stock specialist or Registered Trader that is a 

Related Person of the Clearing Member and shall 

include any participant, as such, in an account of 

which 10% or more is owned by an associated 

Market-Maker, or an aggregate of 10% or more of 

which is owned by one or more associated MarketMakers. 

accounts. In revising Interpretation and 

Policy .01 to be applicable to confirmed 

trades in both options and futures, OCC 

is also proposing to delete the part of 

the provision that states that it applies 

the opening transaction default 

treatment to all accounts other than 

market-maker accounts. OCC believes 

that this revision is appropriate in 

respect of options and futures in 

Clearing Member market-maker 

accounts in addition to all other types 

of Clearing Member accounts because 

defaulting a trade without an open or 

close indicator to ‘‘open’’ is 

operationally safer and more prudent 

and prevents such trades from 

unintentionally closing an existing 

position. OCC believes that defaulting to 

open when there is no open or close 

indicator should also be consistent 

across all account types, including 

Market Makers. 

Discharge of Settlement Obligations 

Under Broker-to-Broker Settlement 

Consistent with OCC Rule 901, 

settlement of exercise and assignment 

activity in stock options is typically 

made through the facilities of a 

correspondent clearing corporation, 

currently the National Securities 

Clearing Corporation (‘‘NSCC’’). 

However, in certain situations, 

including when a particular underlying 

security becomes ineligible at NSCC, 

OCC directs that settlement will occur 

on a broker-to-broker basis under Rule 

903. Rule 909 then provides for the 

notices that the Delivering Clearing 

Member and Receiving Member must 

submit to advise OCC of the discharge 

of the settlement obligation. 

Currently, Rule 909 provides that if 

one of the Clearing Members submits a 

notice of delivery, payment, or receipt 

of delivery or payment, and the 

contraparty fails to respond to such 

notice within two business days, that 

failure to respond constitutes the 

contraparty’s acknowledgement that the 

obligation has been settled as indicated 

in the submitting Clearing Member’s 

notice, ‘‘provided that the designated 

delivery date has occurred.’’ 20

However, in practice, when OCC directs 

broker-to-broker settlement, it also 

directs that if it is not possible for the 

Delivering Clearing Member to effect 

delivery of the underlying shares on the 

designated settlement date, then the 

settlement obligations of both the 

Delivering and Receiving Clearing 

Member will be delayed until such time 

as OCC designates a new exercise 

settlement date, settlement method or 

settlement value,21 pursuant to OCC’s 

authority under Section 19 of Article VI 

of the By-Laws (Shortage of Underlying 

Securities).22 This directive allows 

Delivering Clearing Members the 

opportunity to effect settlement if they 

have the underlying securities and are 

able to effect delivery, but delays the 

settlement obligation when this is not 

possible. Under Article VI, Section 19 of 

the By-Laws, such settlement obligation 

remains delayed until either (i) OCC 

determines that a sufficient supply of 

the underlying security has become 

available to warrant the termination of 

such action and fixes a new delivery 

date for the contracts effected by the 

suspension,23 or (ii) OCC determines 

that there is no reasonable likelihood 

that a sufficient supply of the 

underlying security will become 

available within the foreseeable future 

to permit the Clearing Members affected 

by such suspension to discharge their 

obligations by delivery or receipt of the 

underlying security. In this situation 

OCC will exercises its authority to fix a 

cash value to settle the obligation for 

exercised option contracts, and/or, in 

the event that the suspended security 

underlies matured, physically-settled 

stock futures, terminates all rights and 

obligations to deliver or receive 

underlying securities and instead 

require payment and receipt of the final 

variation payment to fully discharge the 

rights and obligation for such matured, 

physically-settled stock futures.24

When such settlement obligation is 

delayed, the conditions under Rule 

909(d) for considering a contraparty’s 

failure to respond when the other 

Clearing Member marks an obligation 

settled is not satisfied. Accordingly, 

OCC proposes to amend Rule 909(d) to 

remove the provision directing that a 

contraparty’s failure to respond to the 

other Clearing Member’s settlement 

notice in OCC’s system within two 

business days after such notice was 

made available to such Clearing Member 

may be treated as acknowledgement of 

settlement. In its place, OCC would 

provide that the contraparty’s failure to 

respond would indicate that the 

obligation is unsettled and that OCC 

would maintain that status until such 

time as either (i) both Delivering and 

Receiving Clearing Members mutually 

agree to settle the obligation and notify 

OCC; or (ii) OCC settles the obligation 

on behalf of both Delivering and 

Receiving Clearing Members pursuant to 

OCC’s policies and procedures. As 

amended, Rule 909(d) would clarify and 

better align Rule 909 with OCC’s 

practices with respect to shortages of 

underlying securities under Article VI, 

Section 19 of the By-Laws. 

OCC also proposes to make an 

associated clarifying change by 

removing text from the first paragraph of 

Rule 909 related to the amount received 

or paid for the underlying security. 

Currently when OCC directs broker-tobroker settlement, the Delivering and 

Receiving Clearing Members inform 

OCC of settlement by submitting notices 

that specify the number of units of the 

underlying security delivered or 

received and equivalent cash amounts 

received or paid. In practice, however, 

the cash amounts received or paid are 

systematically determined and not 

specified by either Delivering or 

Receiving Clearing Members. The 

practice of systematically calculating 

the cash amounts received or paid 

allows OCC to reduce operational risk 

and avoid processing any inaccurate 

notices entered by Clearing Members. 

OCC believes that the proposed change 

would clarify and conform Rule 909 

with OCC’s current practices. 

Elimination of Associated Market Maker 

Sub-Account Type 

Article VI, Section 3(c), of OCC’s ByLaws currently allows Clearing 

Members to use a combined market 

makers’ account to carry the positions of 

multiple proprietary Market Makers or 

to carry the positions of multiple 

associated Market Makers,25 so long as 

such accounts are restricted to positions 

of proprietary Market Makers or 

associated Market Makers, respectively. 

Today, the associated Market Maker 

subaccount type is not used by Clearing 

Members. As a result, OCC proposes to 

eliminate the associated Market Maker 

sub-account type. 

Accordingly, OCC proposes to delete 

the definition of an ‘‘associated Market 

Maker’’ from Article I of the By-Laws 

and remove provisions in the By-Laws 

related to associated Market Makers and 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 79983 

26See proposed By-Law Article VI, Section 3(c), 

Interpretation and Policy .06. 

27 15 U.S.C. 78q–1(b)(3)(F). 

28 17 CFR 240.17Ad–22(e)(21). 

29 Id. 

30 Id. 

31 15 U.S.C. 78q–1(b)(3)(F). 

32 Id. 

33This change would also make uniform such 

default treatment (as an opening transaction) across 

all account types (i.e., including market makers), 

which eliminates any potential unfair 

discrimination across different account types, 

consistent with the requirement under Section 

17A(b)(3)(F) of the Exchange Act that OCC’s rules 

not be designed to permit unfair discrimination in 

the use of OCC. 15 U.S.C. 78q–1(b)(3)(F). 

34OCC also notes that all Clearing Members 

would continue to be treated the same under Rule 

909(d) with respect to OCC’s role in settling brokerto-broker transactions, which OCC believes 

promotes consistency with Section 17A(b)(3)(F) of 

the Exchange Act (prohibiting OCC’s rules from 

being designed to permit unfair discrimination in 

the use of OCC). 

35 15 U.S.C. 78q–1(b)(3)(I). 

the ability to establish a combined 

Market Maker account of associated 

Market Makers. Specifically, OCC 

proposes to delete references to an 

associated Market Maker and the ability 

to establish a combined Market Maker 

account from Article VI, Section 3(c) 

and Interpretation and Policies .03 and 

.06, and to revise the reference in the 

first sentence of Interpretations and 

Policies .06 to refer to Section 3(c). As 

amended, OCC’s By-Laws would, in 

effect, provide for two, rather than three, 

combined Market Maker accounts: (i) a 

combined account limited to Market 

Makers that are not proprietary Market 

Makers; and (ii) a combined account 

limited to proprietary Market Makers.26

Implementation Timeframe 

OCC will release and implement the 

proposed change described above into 

production concurrently with the 

release of Ovation and the attendant 

retirement of ENCORE, which is 

planned to launch no earlier than July 

of 2025. OCC will announce the 

implementation date of the proposed 

change by Information Memorandum 

posted to its public website at least four 

weeks prior to implementation. OCC 

plans to launch Ovation and implement 

the proposed change no later than 

December 31, 2025, and OCC will 

announce another intended 

implementation date by Information 

Memorandum posted to its public 

website if the changes will not be 

implemented by that date. 

2. Statutory Basis 

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

Act requires, among other things, that 

the rules of a clearing agency must be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions, safeguard 

securities and funds in its custody or 

control or for which it is responsible, 

remove impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions, 

and, in general, to protect investors and 

the public interest; and are not designed 

to permit unfair discrimination among 

participants using the clearing agency.27

In addition, Rule 17Ad–22(e)(21) 

requires OCC, as a covered clearing 

agency, to establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

be efficient and effective in meeting the 

requirements of its participants and the 

markets it serves, and have its 

management regularly review the 

efficiency and effectiveness of OCC’s 

clearing and settlement arrangements, 

operating structure, and the scope of 

products cleared or settled.28

OCC believes that the proposed rule 

changes are consistent with these 

requirements because the proposed rule 

change is designed to decommission or 

render inoperative services that OCC no 

longer plans to provide based on the 

products and services demands of 

Clearing Members. For example, 

because OCC has not cleared any OTC 

options since 2014 and Clearing 

Members have not expressed an interest 

in using OCC to clear and settle OTC 

options going forward, OCC believes 

that removing all By-Law and Rule 

provisions related to OTC options 

promotes OCC being effective and 

efficient in meeting the requirements of 

Clearing Members with respect to the 

scope of products cleared and settled, 

consistent with Rule 17Ad–22(e)(21).29

Similarly, OCC believes that 

decommissioning OCC’s voluntary 

service for Clearing Members that are 

party to a CMTA to facilitate the 

settlement of commissions and fees, 

which service has not been used by 

Clearing Members since 2016, also 

promotes the efficient and effective 

satisfaction of the requirements of 

Clearing Members consistent with Rule 

17Ad–22(e)(21).30 As a third example, 

no Clearing Members currently use the 

associated Market Maker account 

subtype, so OCC proposes to eliminate 

such account type. By no longer 

supporting products or services that 

have not been used by Clearing 

Members, OCC can free up resources to 

focus on products and services for 

which there is demand from Clearing 

Members, thereby promoting a more 

efficient and effective OCC to meet the 

requirements of Clearing Members. OCC 

also believes that specifying in its ByLaws and Rules which products and 

services are no longer available or that 

are currently inoperative generally 

serves to protect investors and the 

public interest who benefit from clear 

and transparent rulebooks, consistent 

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

Exchange Act.31

Several other proposed changes 

would similarly promote a clear and 

transparent rulebook consistent with 

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

Act.32 For example, the proposed 

change to Rule 408, which would make 

clear that the account allocation 

functionality is only available for 

futures and options on futures would 

eliminate any potential confusion that 

Clearing Members might have regarding 

the scope of this service. OCC’s proposal 

to clarify that the default treatment of 

confirmed trades in futures and options 

as opening transactions in Rule 401 

similarly promotes a clear and 

transparent rulebook and would reduce 

any potential concerns of a Clearing 

Member that a confirmed trade without 

having been marked as an opening 

position might inadvertently result in 

closing a Clearing Member’s position.33

For the same reasons, the proposed 

change to Rule 909(d) would make clear 

OCC’s practices with respect to the 

discharge of broker-to-broker obligations 

by specifying that OCC treats 

transactions as pending and would 

better align that Rule with By-Law 

Article VI, Section 19.34

OCC believes that no longer requiring 

that Clearing Members must maintain 

records of both parties to a trade 

(pursuant to the proposed changes to 

Rule 208) is consistent with Section 

17A(b)(3)(I) because OCC would no 

longer provide the counterparty 

information of trades to Clearing 

Members party to those trades. Such 

information is not required for clearing 

and settlement purposes, and providing 

this information would result in OCC 

developing and supporting functionality 

that would impact OCC’s 

implementation of Ovation. In turn, by 

not providing counterparty information, 

OCC would help ensure that its Rules 

do not inappropriately burden 

competition among its participants by 

forcing Clearing Members to develop 

and support functionality not necessary 

for the clearing and settlement of 

trades.35

OCC believes that the proposed 

changes to clarify that a Giving-Up 

Clearing Member is not required to 

provide instructions that identify the 

designated account of the Given-Up 

Clearing member serves the protection 


khammond on DSKJM1Z7X2PROD with NOTICES
79984 Federal Register / Vol. 89, No. 190 / Tuesday, October 1, 2024 / Notices 

36 15 U.S.C. 78q–1(b)(3)(F). 

37 15 U.S.C. 78q–1(b)(3)(I). 

38 Id. 39 17 CFR 200.30–3(a)(12). 

of investors and the public interest 

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

the Exchange Act by providing more 

control to Clearing Members in 

allocating give-ups. For example, a 

Given-Up Clearing Member will have 

control to designate the account to 

which positions should be allocated and 

a Giving-Up Clearing Member will no 

longer be required to designate the 

specific account when it may or may not 

know the correct account. OCC believes 

that this would protect investors by 

reducing potential operational risk 

arising from a Giving-Up Clearing 

Member selecting the incorrect account 

of the Given-Up Clearing Member. This 

change would also provide a more 

efficient means for Giving-Up Clearing 

Members to ensure positions are 

allocated to the desired account, which 

efficiencies OCC believes helps removes 

impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions.36

(B) Clearing Agency’s Statement on 

Burden on Competition 

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

Act 37 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 Exchange Act. OCC does 

not believe that the proposed rule 

changes related to discontinuing OCC’s 

settlement of fees and commissions for 

Clearing Member CMTA arrangements, 

elimination of the unused associated 

Market Maker account subtype, and 

rendering OTC option services 

inoperative would impact or impose any 

burden on competition. Neither of these 

services have been used by Clearing 

Members for at least six years, and the 

proposed changes would apply equally 

to all Clearing Members. Regarding the 

proposed rule change to no longer 

require a Clearing Member to keep 

records of its counterparties to 

confirmed trades, OCC believes that this 

change will remove any burden on 

competition that could arise from 

Clearing Members developing solutions 

to support functionality not required for 

clearing and settlement purposes. In 

that regard, OCC believes that this 

proposed rule change promotes greater 

consistency with Section 17A(b)(3)(I) of 

the Exchange Act.38

For the foregoing reasons, OCC 

believes that the proposed rule change 

is in the public interest, would be 

consistent with the requirements of the 

Exchange Act applicable to clearing 

agencies, and either would not impact 

or impose a burden on competition or 

would help alleviate potential burdens 

on competition. 

(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 rule change and none 

have been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

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 (https://www.sec.gov/ 

rules-regulations/self-regulatoryorganization-rulemaking); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

OCC–2024–013 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–2024–013. 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-regulations/self-regulatoryorganization-rulemaking). 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 file 

number SR–OCC–2024–013 and should 

be submitted on or before October 22, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.39

Vanessa Countryman, 

Secretary. 

[FR Doc. 2024–22412 Filed 9–30–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–562, OMB Control No. 

3235–0624] 

Submission for OMB Review; 

Comment Request; Extension: 

Regulation R, Rule 701 

Upon Written Request Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736. 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the 

Securities and Exchange Commission 

(‘‘Commission’’) has submitted to the 


khammond on DSKJM1Z7X2PROD with NOTICES