Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices 3287 

38See Letter from Suzanne Hamlet Shatto to the 

Commission, dated August 19, 2014 (SR–EDGX– 

2014–20) (discussing Dodd Frank principles). 

39See Letter from R.T. Leuchtkafer to the 

Commission, dated August 22, 2014 (SR–BATS– 

2014–029) (discussing the Exchange’s market data 

feed practices). See Letter from Eric Scott Hunsader, 

Nanex, LLC, to the Commission, dated August 22, 

2014 (SR–BATS–2014–029) (discussing the 

Exchange’s use of NBBO as a defined term). 

40See Letter from Donald Bollerman, Head of 

Market Operations, IEX ATS, to the Commission, 

dated September 25, 2014 (SR–BATS–2014–029) 

(SR–BYX–2014–012) (discussing the Exchange’s 

calculation of the PBBO). 

41 15 U.S.C. 78s(b)(3)(A). 

42 17 CFR 240.19b–4(f)(6). As required under Rule 

19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its intent to file 

the proposed rule change, along with a brief 

description and the text of the proposed rule 

change, at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. 

43 17 CFR 240.19b–4(f)(6). 

44 17 CFR 240.19b–4(f)(6)(iii). 

45For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

46 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4(n)(1)(i). 

commenting on the Initial Proposal.38

The Commission also received three (3) 

letters commenting on companion 

filings: two (2) letters commented on 

SR–BATS–2014–029,39 and one (1) 

letter commented on SR–BATS–2014– 

029 and SR–BYX–2014–012.40 The 

Exchange believes that the comments 

raised in these letters are either not 

directly related to the Exchange’s 

proposal but instead raise larger market 

structure issues or are adequately 

addressed in this proposal, particularly 

as it relates to the Commission’s request 

to describe the Exchange’s use of data 

feeds for order handling and execution, 

order routing, and regulatory 

compliance. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not (i) significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act41 and Rule 19b–4(f)(6) 

thereunder.42

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act43 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6)(iii)44

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange has asked 

the Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Exchange stated that waiver 

of the operative delay will allow the 

Exchange to immediately adopt rule text 

consistent with the Initial Proposal and 

operate in the same manner as BATS 

with respect to the use of data feeds. In 

addition, the Exchange stated that 

waiver of the operative delay will allow 

it to continue to move towards a 

complete technology integration of the 

BGM Affiliated Exchanges to ensure 

stability of the System. For these 

reasons, the Commission believes that 

waiver of the operative delay is 

consistent with the protection of 

investors and the public interest. 

Therefore, the Commission hereby 

waives the operative delay and 

designates the proposal operative upon 

filing.45

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

EDGX–2015–02 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–EDGX–2015–02. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–EDGX– 

2015–02 and should be submitted on or 

before February 12, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.46

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00969 Filed 1–21–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74073; File No. SR–OCC– 

2014–812] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Advance Notice 

Concerning Extended and Overnight 

Trading Sessions 

January 15, 2015. 

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

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 1

(‘‘Payment, Clearing and Settlement 

Supervision Act’’) and Rule 19b– 

4(n)(1)(i) under the Securities Exchange 

Act of 1934 2 notice is hereby given that 

on December 12, 2014, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 


tkelley on DSK3SPTVN1PROD with NOTICES
3288 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices 

3OCC initially filed a similar advance notice on 

September 17, 2014. Securities Exchange Act 

Release No. 73343 (October 14, 2014), 79 FR 62684 

(October 20, 2014), (SR–OCC–2014–805). OCC 

withdrew that advance notice on October 28, 2104. 

Securities Exchange Act Release No. 73710 

(December 1, 2014), 79 FR 72225 (December 5, 

2014), (SR–OCC–2014–805). 

4ELX Futures LP (‘‘ELX’’) previously submitted 

overnight trading activity to OCC, but currently 

does not submit trades from overnight trading 

sessions to OCC. OCC will re-evaluate ELX’s risk 

controls in the event ELX re-institutes its overnight 

trading sessions. 

5See CFE–2014–010 at http://cfe.cboe.com/

publish/CFErulefilings/SR-CFE-2014-010.pdf. 

6Comparable controls are applied to futures and 

future option trades executed in overnight trading 

sessions currently cleared by OCC, although such 

controls have been implemented by clearing futures 

commission merchants (‘‘clearing FCMs’’) pursuant 

to Commodity Futures Trading Commission 

(‘‘CFTC’’) Regulation 1.73, which also requires such 

clearing FCMs to monitor for adherence to such 

controls during regular and overnight trading 

sessions. OCC believes that it may reasonably rely 

on such regulation to reduce risk presented to OCC 

during futures markets overnight trading sessions. 

See 17 CFR 1.73. OCC also confirmed CFE 

maintains kill switch capabilities. 

7Clearing members will be required to designate 

a firm account to ensure that OCC has a general lien 

on the assets in the account and can use them to 

satisfy any obligation of the clearing member to 

OCC. 

advance notice as described in Items I 

and II below, which Items have been 

prepared by OCC.3 The Commission is 

publishing this notice to solicit 

comments on the advance notice from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice is filed by OCC 

in connection with a proposed change 

to its operations concerning the 

clearance of confirmed trades executed 

in extended and overnight trading 

sessions (hereinafter, ‘‘overnight trading 

sessions’’) offered by exchanges for 

which OCC provides clearance and 

settlement services. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the advance 

notice and discussed any comments it 

received on the advance notice. The text 

of these statements may be examined at 

the places specified in Item IV below. 

OCC has prepared summaries, set forth 

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

most significant aspects of these 

statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants or 

Others 

Written comments on the advance 

notice were not and are not intended to 

be solicited with respect to the advance 

notice and none have been received. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing 

and Settlement Supervision Act 

Description of Change 

This advance notice is being filed in 

connection with a proposed change to 

OCC’s operations concerning the 

clearance of confirmed trades executed 

in overnight trading sessions offered by 

exchanges for which OCC provides 

clearance and settlement services. OCC 

currently clears overnight trading 

activity for CBOE Futures Exchange, 

LLC (‘‘CFE’’).4 The total number of 

trades submitted to OCC from overnight 

trading sessions is nominal, typically 

less than 3,000 contracts per session. 

However, OCC has recently observed an 

industry trend whereby exchanges are 

offering overnight trading sessions 

beyond traditional hours. Exchanges 

offering overnight trading sessions have 

indicated that such sessions benefit 

market participants by providing 

additional price transparency and 

hedging opportunities for products 

traded in such sessions, which, in turn, 

promotes market stability.5 In light of 

this trend, OCC proposes to implement 

a framework for clearing trades executed 

in such sessions that includes: (1) 

Qualification criteria used to approve 

clearing members for overnight trading 

sessions, (2) systemic controls to 

identify trades executed during 

overnight trading sessions by clearing 

members not approved for such 

sessions, (3) enhancements to OCC’s 

overnight monitoring of trades 

submitted by exchanges during 

overnight trading sessions, (4) 

enhancements to OCC’s credit controls 

with respect to monitoring clearing 

members’ credit risk during overnight 

trading sessions, including procedures 

for contacting an exchange offering 

overnight trading sessions in order to 

invoke use of the exchange’s kill switch, 

and (5) taking appropriate disciplinary 

action against clearing members who 

attempt to clear during overnight 

trading session without first obtaining 

requisite approvals. These changes 

(described in greater detail below) are 

designed to reduce and mitigate the 

risks associated with clearing trades 

executed in overnight trading sessions. 

In addition, the only products that will 

be eligible for overnight trading sessions 

are index options and index futures 

products. 

OCC’s standards for determining 

whether to provide clearing services for 

overnight trading sessions offered by an 

exchange and the implementation of a 

framework are designed to work in 

conjunction with the risk controls of the 

exchanges that offer overnight trading 

sessions. OCC would confirm an 

exchange’s risk controls as well as its 

staffing levels as they relate to overnight 

trading sessions to determine if OCC 

may reasonably rely on such risk 

controls to reduce risk presented to OCC 

by the exchange’s overnight trading 

sessions. Such exchange risk controls 

will consist of: (1) Price reasonability 

checks, (2) controls to prevent orders 

from being executed beyond a certain 

percentage (determined by the 

exchange) from the initial execution 

price, (3) activity based protections 

which focus on risk beyond price, such 

as a high number of trades occurring in 

a set period of time, and (4) kill switch 

capabilities, which may be initiated by 

the exchange and can cancel all open 

quotes or all orders of a particular 

participant. OCC believes that 

confirming the existence of applicable 

pre-trade risk controls as well as 

overnight staffing at the relevant 

exchanges is essential to mitigating risks 

presented to OCC from overnight 

trading sessions.6 Providing clearing 

services to exchanges offering such 

sessions is consistent with OCC’s 

mission to provide market participants 

with clearing and risk management 

solutions that respond to changes in the 

marketplace and may result in increased 

cleared contract volume. 

Qualification Criteria 

In order to mitigate risks associated 

with clearing for overnight trading 

sessions, clearing members that 

participate in such trading sessions 

would be required to provide contact 

information to OCC for operational and 

risk personnel available to be contacted 

by OCC during such sessions. In 

addition, OCC would require that 

clearing members participating in an 

overnight trading session to post 

additional margin in a designated 

account in order to mitigate against the 

risk that OCC cannot draft a clearing 

member’s bank account during an 

overnight trading session.7 OCC would 

also adopt a procedure whereby, on a 

quarterly basis, it confirms its record of 

clearing members eligible for overnight 

trading sessions with a similar record 

maintained by exchanges offering such 

overnight trading sessions. 

With respect to providing operational 

and risk contacts, under OCC Rule 201, 

each clearing member is required to 

maintain facilities for conducting 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices 3289 

8Clearing members approved for overnight 

trading sessions who do not meet the Additional 

Margin requirement for a given overnight trading 

session would be treated like a clearing member not 

approved overnight trading sessions, as described 

below. 

9Under OCC Rule 601, OCC has the discretion to 

fix the margin requirement for any account at an 

amount that it deems necessary or appropriate 

under the circumstances to protect the interests of 

clearing members, OCC and the public. 

10OCC’s Member Services staff will also receive 

alerts in order to contact clearing members as may 

be necessary. 

business with OCC, and a representative 

of the clearing member authorized in 

the name of the clearing member to take 

all action necessary for conducting 

business with OCC is required to be 

available at the facility during such 

hours as may be specified from time-totime by OCC. Similarly, OCC Rules 

214(c) and (d) require clearing members 

to ensure that they have the appropriate 

number of qualified personnel and to 

maintain the ability to process 

anticipated volumes and values of 

transactions. OCC would use this 

existing authority to require clearing 

members trading during overnight 

trading sessions to maintain operational 

and risk staff that may be contacted by 

OCC during such sessions. 

OCC would impose upon clearing 

members qualified to participate in 

overnight trading sessions additional 

margin requirement in an amount of the 

lesser of $10 million or 10% of the 

clearing member’s net capital 

(‘‘Additional Margin’’), which would be 

equal to the first monitoring risk 

threshold (described below) and which 

would be collected the morning before 

each overnight trading sessions. 

Clearing members must identify the 

proprietary account that would be 

charged the Additional Margin amount. 

The Additional Margin requirement is 

intended to provide OCC with 

additional margin assets should a 

clearing member’s credit risk increase 

during overnight trading sessions.8 OCC 

proposes to adopt a process whereby 

each morning OCC Financial Risk 

Management staff would assess the 

Additional Margin requirement against 

clearing members eligible to participate 

in overnight trading sessions. Clearing 

members that do not have sufficient 

excess margin on deposit with OCC to 

meet the Additional Margin amount 

would be required to deposit additional 

funds with OCC to satisfy the 

Additional Margin requirement.9 This 

process would be adopted under 

existing rule authority. 

Moreover, OCC also would confirm 

that an exchange offering overnight 

trading sessions has adopted a 

procedure whereby such exchange 

would contact OCC when a trader 

requests trading privileges during 

overnight trading sessions. The purpose 

of this contact is to verify that the 

trader’s clearing firm (i.e., the OCC 

clearing member) is approved for 

overnight trading sessions. If the 

applicable OCC clearing member is not 

approved for overnight trading sessions, 

then the clearing member must receive 

OCC’s approval for overnight trading 

sessions, or the exchange would not 

provide the trader trading privileges 

during overnight trading sessions. 

Moreover, OCC would confirm that an 

exchange offering overnight trading 

sessions has implemented a procedure 

to periodically (i.e., quarterly) validate 

its record of approved clearing firms 

against OCC’s record of clearing 

members approved for overnight trading 

sessions. Any discrepancies between the 

two records would be promptly resolved 

by either the clearing member obtaining 

approval at OCC for overnight trading 

sessions, or by the exchange revoking 

the clearing firm’s trading privileges for 

overnight trading sessions. 

Systemic Controls 

OCC plans to implement system 

changes so that trades submitted to OCC 

during overnight trading sessions that 

have been executed by clearing 

members not approved for such trading 

sessions would be reviewed by OCC 

staff after acceptance but before being 

processed (each such trade a [sic] being 

a ‘‘Reviewed Trade’’). OCC would 

contact the submitting exchange 

regarding each Reviewed Trade in order 

to determine if the trade is a valid trade. 

If the exchange determines that the 

Reviewed Trade was in error such that, 

as provided in Article VI, Section 7(c), 

new or revised trade information is 

required to properly clear the 

transaction, OCC expects the exchange 

would instruct OCC to disregard or 

‘‘bust’’ the trade. If the exchange 

determines that the Reviewed Trade was 

not in error, then OCC would clear the 

Reviewed Trade and take appropriate 

disciplinary action against the nonapproved clearing member, as described 

below. OCC believes that clearing the 

Reviewed Trade is appropriate in order 

to avoid potentially harming the 

clearing member approved for overnight 

trading sessions that is on the opposite 

side of the transaction. 

Overnight Monitoring 

OCC plans to implement additional 

overnight monitoring in order to better 

monitor clearing members’ credit risk 

during overnight trading sessions. Such 

monitoring of credit risk is similar to 

existing OCC practices concerning 

futures cleared during overnight trading 

hours and includes automated processes 

within ENCORE to measure, by clearing 

member: (i) The aggregate mark-tomarket amounts of a clearing member’s 

positions, including positions created 

during overnight trading, based on 

current prices using OCC’s Portfolio 

Revaluation system, (ii) the aggregate 

incremental margin produced by all 

positions resulting from transactions 

executed during overnight trading, and 

(iii) with respect to options cleared 

during overnight trading hours, the 

aggregate net trade premium positions 

resulting from trades executed during 

overnight trading (each of these 

measures being a ‘‘Credit Risk 

Number’’). Hourly credit reports would 

be generated by ENCORE containing the 

Credit Risk Numbers expressed in terms 

of both dollars and, except for the markto-market position values, as a 

percentage of net capital for each 

clearing member trading during 

overnight trading sessions. The Credit 

Risk Numbers are the same information 

used by OCC staff to evaluate clearing 

member exposure during regular trading 

hours and, in addition to OCC’s 

knowledge of its clearing members’ 

businesses, are effective measures of the 

risk presented to OCC by each clearing 

member. OCC’s Operations staff would 

review such reports as they are 

generated and, in the event that any of 

the Credit Risk Numbers for positions 

established by a clearing member during 

an overnight trading session exceeds 

established thresholds, staff would alert 

OCC’s Market Risk staff 10 of the 

exceedance in accordance with 

established procedures, as described 

below. Market Risk staff would follow a 

standardized process concerning such 

exceedances, including escalation to 

OCC’s management, if required by such 

process. Given the nominal volume of 

trades executed in overnight trading 

sessions that are presently submitted for 

clearance, no changes in current staffing 

levels that support overnight clearing 

activities is contemplated at this time, 

however, such staffing levels will be 

periodically assessed and adjusted, as 

appropriate. As part of the overnight 

clearing activities, OCC has, however, 

designated an on-call Market Risk duty 

officer who would be responsible for 

reviewing issues that arise when 

clearing for overnight trading session 

and determining what measures to be 

taken as well as additional escalation, if 

necessary. 

With respect to OCC’s escalation 

thresholds, if any Credit Risk Number of 

a clearing member approved for 

overnight trading sessions is $10 million 


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11Total risk charge is a number derived from 

STANS outputs and is the sum of expected 

shortfall, stress test charges and any add-on charges 

computed by STANS. STANS is OCC’s proprietary 

margin methodology. 

12 In addition, OCC Rule 601 provides OCC with 

the authority to fix the margin requirement 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. 

13Clearing members frequently deposit margin at 

OCC in excess of requirements. 

14Clearing members would be able to substitute 

the locked-up collateral during normal time frames 

(i.e., 6 a.m. to 5 p.m. (Central Time) for equity 

securities). 

or more, or any Credit Risk Number 

equals 10% or more of the clearing 

member’s net capital, OCC’s Operations 

staff would be required to provide email 

notification to Market Risk and Member 

Services staff. If any Credit Risk Number 

of a clearing member not approved for 

overnight trading sessions is $10 million 

or more, or any Credit Risk Number 

equals 10% or more of the clearing 

member’s net capital, OCC’s Operations 

would also notify Market Risk and 

Member Services staff as well as its 

senior management. Such departments 

would take action to prevent additional 

trading by the non-approved clearing 

member, including contacting the 

exchange to invoke use of the 

exchange’s kill switch. 

If any Credit Risk Number of a 

clearing member approved for overnight 

trading sessions is $50 million or more, 

or equals 25% or more of the clearing 

member’s net capital, Operations staff 

would be required to contact, by 

telephone: (i) Market Risk and Member 

Services, (ii) the applicable exchange for 

secondary review, and (iii) the clearing 

member’s designated contacts. The oncall Market Risk duty officer would also 

consider if additional action is 

necessary, which may include 

contacting a designated executive officer 

in order to issue an intra-day margin 

call, increase the clearing member’s 

margin requirement in order to prevent 

the withdrawal of a specified amount of 

excess margin collateral, if any, the 

clearing member has on deposit with 

OCC or contacting the exchange in order 

to invoke use of its kill switch. If any 

Credit Risk Number is $75 million or 

more, or equals 50% or more of the 

clearing member’s net capital, 

Operations staff would be required to 

contact, by telephone, Market Risk staff, 

the on-call Market Risk duty officer and 

a designated executive officer. Such 

officer would be responsible for 

reviewing the situation and determining 

whether to implement credit controls, 

which are described in greater detail 

below and include: issuing an intra-day 

margin call, increasing a clearing 

member’s margin requirement in order 

to prevent the withdrawal of a specified 

amount of excess margin collateral, if 

any, the clearing member has on deposit 

with OCC, whether further escalation is 

warranted in order for OCC to take 

protective measures pursuant to OCC 

Rule 305, or contact the exchange in 

order to invoke use of its kill switch. 

OCC chose the above described 

escalation thresholds based on its 

analysis of historical overnight trading 

activity across the futures industry. OCC 

believes that these thresholds strike an 

appropriate balance between effective 

risk monitoring and operational 

efficiency. 

Credit Controls 

In order to address credit risk 

associated with trading during overnight 

trading sessions, and as described 

above, OCC would collect Additional 

Margin from clearing members as well 

as monitor and analyze the impact that 

positions established during such 

sessions have on a clearing member’s 

overall exposure. Should the need arise 

based on threshold breaches described 

above, and pursuant to OCC Rule 609, 

OCC may require the deposit of 

additional margin (‘‘intra-day margin’’) 

by any clearing member that increases 

its incremental risk as a result of trading 

activity during overnight trading 

sessions. Accordingly, a clearing 

member’s positions established during 

such sessions will be incorporated into 

OCC’s intra-day margin process. Should 

a clearing member’s exposure 

significantly increase while settlement 

banks are not open to process an intraday margin call, OCC has the authority 

under OCC Rule 601 to increase a 

clearing member’s margin requirement 

which would restrict its ability to 

withdraw excess margin collateral. The 

implementation of these measures is 

discussed more fully below. 

In the event that a clearing member’s 

exposure during overnight trading 

sessions causes a clearing member to 

exceed OCC’s intra-day margin call 

threshold for overnight night trading 

sessions, OCC would require the 

clearing member to deposit intra-day 

margin equal to the increased 

incremental risk presented by the 

clearing member. Specifically, if a 

clearing member has a total risk 

charge 11 exceeding 25% (a reduction of 

the usual figure of 50%), as computed 

overnight by OCC’s STANS system, and 

a loss of greater than $50,000 from an 

overnight trading session(s), as 

computed by Portfolio Revaluation, 

OCC would initiate an intra-day margin 

call. OCC would know at approximately 

8:30 a.m. (Central Time) if an intra-day 

margin call on a clearing member would 

be initiated based on breaches of these 

thresholds. This ‘‘start of business’’ 

margin call is in addition to daily 

margin OCC collects from clearing 

members pursuant to OCC Rule 605, any 

intra-day margin call that OCC may 

initiate as a result of regular trading 

sessions or special margin call that OCC 

may initiate. 

In addition to, or instead of, requiring 

additional intra-day margin, OCC Rule 

601 12 and OCC’s Clearing Member 

Margin Call Policy work together to 

authorize Market Risk staff to increase a 

clearing member’s margin requirement 

which may be in an amount equal to an 

intra-day margin call.13 (Any increased 

margin requirement will remain in 

effect until the next business day.) This 

action would immediately prevent 

clearing members from withdrawing any 

excess margin collateral (in the amount 

of the increased margin requirement) 

the clearing member has deposited with 

OCC. With respect to clearing trades 

executed in overnight trading sessions, 

and in the event OCC requires 

additional margin from a clearing 

member, Market Risk staff may use 

increased margin requirements as a 

means of collateralizing the increase in 

incremental risk a clearing member 

incurred during such sessions without 

having to wait for banks to open to 

process an intra-day margin call.14 Such 

action may be taken by OCC instead of 

or in addition to issuing an intra-day 

margin call depending on the amount of 

excess margin a clearing member has on 

deposit with OCC and the amount of the 

incremental risk presented by such 

clearing member. The expansion of 

OCC’s intra-day margin call process as 

described in the preceding paragraph, 

including OCC’s ability to manually 

increase clearing members’ margin 

requirements, would mitigate the risk 

that OCC is under-collateralized as a 

result of overnight trading hours. 

Moreover, a designated executive 

officer may call an exchange offering 

overnight trading sessions to invoke use 

of its kill switch. The kill switch would 

prevent a clearing member (or the 

market participant clearing through a 

clearing member) from executing trades 

on the exchange during a given 

overnight trading session or, if needed, 

stop all trading during a given overnight 

trading session. Finally, pursuant to 

OCC Rule 305, the Executive Chairman 

or the President of OCC, in certain 

situations, has the authority to impose 

limitations and restrictions on the 

transactions, positions and activities of 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices 3291 

15See OCC Rule 1201(b). 

16 12 U.S.C. 5464(b). 

17 12 U.S.C. 5464(b)(1). 

a clearing member. This authority 

would be used, as needed, in the event 

a clearing member accumulates 

significant credit risk during overnight 

trading sessions, or a clearing member’s 

activities during such trading sessions 

otherwise warrant OCC taking 

protective action. 

Rule Enforcement Actions 

In order to deter clearing members 

from attempting to participate in 

overnight trading sessions without 

authorization as well as appropriately 

enforce the above described processes, 

OCC would ensure that any attempt by 

a clearing member to participate in 

overnight trading sessions without first 

obtaining the necessary approval would 

result in the initiation of a rule 

enforcement action against such 

clearing member. As described above, 

clearing members not approved for 

overnight trading sessions who trade 

during such overnight sessions would 

have their trades reviewed by OCC staff. 

Clearing members who attempted to 

participate in overnight trading sessions 

that did not obtain the necessary 

approval to do so would be subject to 

a minor rule violation fine.15 In 

addition, if a clearing member’s 

operational or risk contacts for 

overnight trading sessions were 

unavailable had OCC attempted to 

contact such individuals, the clearing 

member would be subject to a minor 

rule violation fine. OCC has existing 

processes in place to monitor for 

clearing member violations of OCC’s 

rules and such processes would also 

apply to clearing member activity 

during overnight trading sessions. 

Anticipated Effect on and Management 

of Risk 

Clearing transactions executed in 

overnight trading sessions may increase 

risk presented to OCC due to the period 

of time between trade acceptance and 

settlement, the staffing levels at clearing 

members during such trading sessions 

and the deferment of executing intraday margin calls until banking 

settlement services are operational. 

However, OCC would expand its risk 

management practices in order to 

mitigate these risks by implementing, 

and expanding, the various tools 

discussed above. For example, OCC 

would enhance its monitoring practices 

in order to closely monitor clearing 

members’ credit risk from trades placed 

during overnight trading sessions as 

well as implement processes so that 

OCC takes appropriate action when 

such credit risk exceeds certain limits. 

OCC would also use its existing 

authority to require adequate clearing 

member staffing during such trading 

sessions, in order to mitigate the 

operational risk associated with clearing 

members trading while they are not 

fully staffed. These risk management 

functions would work in tandem with 

risk controls, including the 

implementation of kill switch 

capabilities, adopted by the exchanges 

operating overnight trading sessions or 

by clearing FCMs, as applicable. 

In addition to the above, OCC would 

adapt existing processes so that such 

processes can be used to mitigate risk 

associated with overnight trading 

sessions. Specifically, OCC would 

exercise its authority to issue margin 

calls, and prevent the withdrawal of 

excess margin on deposit at OCC, as a 

result of activity during such trading 

sessions as a means of reducing risk. 

OCC also would implement a systemic 

function to identify trades executed 

during overnight trading sessions by 

clearing members not approved for such 

trading sessions for further review prior 

to allowing such trades to proceed 

further through OCC’s clearance 

processing, and therefore mitigate the 

risk of losses from erroneous trades. 

Finally, OCC would be able to assess the 

need to take protective action pursuant 

to OCC Rule 305 as a result of clearing 

member activity during such sessions. 

Consistency With the Payment, Clearing 

and Settlement Supervision Act 

OCC believes that the proposed 

change is consistent with Section 

805(b)(1) of the Payment, Clearing and 

Settlement Supervision Act 16 because 

the proposed change would promote 

robust risk management.17 OCC believes 

that the proposed changes described 

above would provide OCC with the 

tools necessary to mitigate risks that 

may occur as a result of overnight 

trading sessions. Specifically, OCC 

would implement risk monitoring 

processes designed to identify increases 

in credit risk presented to OCC as a 

result of such sessions as well as 

implement changes designed to mitigate 

operational risk associated with 

overnight trading sessions. In addition, 

OCC would adapt certain existing 

practices to accommodate these 

overnight trading sessions including its 

margin call process and its authority to 

take protective action pursuant to OCC 

Rule 305. These practices are designed 

to identify and mitigate risks that may 

be presented to OCC as a result of 

overnight trading sessions and thereby 

promote robust risk management. 

III. Date of Effectiveness of the Advance 

Notice and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

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

that the Commission receives the notice 

of proposed change, or (ii) the date the 

Commission receives any further 

information it requests for consideration 

of the notice. The clearing agency shall 

not implement the proposed change if 

the Commission has any objection to the 

proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission providing the clearing 

agency with prompt written notice of 

the extension. A proposed change may 

be implemented in less than 60 days 

from the date the advance notice is 

filed, or the date further information 

requested by the Commission is 

received, if the Commission notifies the 

clearing agency in writing that it does 

not object to the proposed change and 

authorizes the clearing agency to 

implement the proposed change on an 

earlier date, subject to any conditions 

imposed by the Commission. 

The clearing agency shall post notice 

on its Web site of proposed changes that 

are implemented. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed change, 

is consistent with the Payment, Clearing 

and Settlement Supervision Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SROCC-2014-812 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–OCC–2014–812. 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 


tkelley on DSK3SPTVN1PROD with NOTICES
3292 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices 

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

2 17 CFR 240.19b–4. 

3A Specialist is an Exchange member who is 

registered as an options specialist pursuant to Rule 

1020(a). An options Specialist includes a Remote 

Specialist which is defined as an options specialist 

in one or more classes that does not have a physical 

presence on an Exchange floor and is approved by 

the Exchange pursuant to Rule 501. 

4A ‘‘market maker’’ includes Registered Options 

Traders (Rule 1014(b)(i) and (ii)), which includes 

Streaming Quote Traders (see Rule 1014(b)(ii)(A)) 

and Remote Streaming Quote Traders (see Rule 

1014(b)(ii)(B)). Directed Participants are also market 

makers. 

5Specialists and Market Makers are subject to a 

‘‘Monthly Market Maker Cap’’ of $550,000 for: (i) 

Electronic and floor Option Transaction Charges; 

(ii) QCC Transaction Fees (as defined in Exchange 

Rule 1080(o) and Floor QCC Orders, as defined in 

1064(e)); and (iii) fees related to an order or quote 

that is contra to a PIXL Order or specifically 

responding to a PIXL auction. The trading activity 

of separate Specialist and Market Maker member 

organizations is aggregated in calculating the 

Monthly Market Maker Cap if there is Common 

Ownership between the member organizations. All 

dividend, merger, short stock interest, reversal and 

conversion, jelly roll and box spread strategy 

executions (as defined in Section II) are excluded 

from the Monthly Market Maker Cap. 6Category A rebates are paid to members 

executing electronically-delivered Customer Simple 

Orders in Penny Pilot Options and Customer 

Simple Orders in Non-Penny Pilot Options in 

Section II symbols. Rebates are paid on Customer 

PIXL Orders in Section II symbols that execute 

against non-Initiating Order interest. In the instance 

where member organizations qualify for Tier 4 or 

higher in the Customer Rebate Program, Customer 

PIXL Orders that execute against a PIXL Initiating 

Order will be paid a rebate of $0.14 per contract. 

7Category B rebates are paid to members 

executing electronically-delivered Customer 

Complex Orders in Penny Pilot Options and NonPenny Pilot Options in Section II symbols. Rebates 

are paid on Customer PIXL Complex Orders in 

Section II symbols that execute against nonInitiating Order interest. In the instance where 

member organizations qualify for Tier 4 or higher 

in the Customer Rebate Program, Customer 

Complex PIXL Orders that execute against a 

Complex PIXL Initiating Order will be paid a rebate 

of $0.17 per contract. The Category B Rebate is not 

paid when an electronically-delivered Customer 

Complex Order, including Customer Complex PIXL 

Order, executes against another electronicallydelivered Customer Complex Order. 

8See Section B of the Pricing Schedule. 9A QCC Order is comprised of an order to buy 

or sell at least 1000 contracts that is identified as 

being part of a qualified contingent trade, as that 

term is defined in Rule 1080(o)(3), coupled with a 

contra-side order to buy or sell an equal number of 

contracts. The QCC Order must be executed at a 

price at or between the National Best Bid and Offer 

and be rejected if a Customer order is resting on the 

Exchange book at the same price. A QCC Order 

shall only be submitted electronically from off the 

floor to the PHLX XL II System. See Rule 1080(o). 

See also Securities Exchange Act Release No. 64249 

(April 7, 2011), 76 FR 20773 (April 13, 2011) (SR– 

Phlx–2011–47) (a rule change to establish a QCC 

Order to facilitate the execution of stock/option 

Qualified Contingent Trades (‘‘QCTs’’) that satisfy 

the requirements of the trade through exemption in 

connection with Rule 611(d) of the Regulation 

NMS). 

10Members and member organizations under 

common ownership may aggregate their Customer 

volume for purposes of calculating the Customer 

Rebate Tiers and receiving rebates. Common 

ownership means members or member 

organizations under 75% common ownership or 

control. 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the advance notice that 

are filed with the Commission, and all 

written communications relating to the 

advance notice between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of OCC 

and on OCC’s Web site http://

www.theocc.com/components/docs/

legal/rules_and_bylaws/sr_occ_14_

812.pdf. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–OCC–2014–812 and should 

be submitted on or before February 6, 

2015. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00970 Filed 1–21–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74059; File No. SR–Phlx– 

2015–01] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Customer Rebate Program 

January 15, 2015. 

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 January 

2, 2015, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) 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 by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Customer Rebate Program in Section B 

of the Pricing Schedule. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://

nasdaqomxphlx.cchwallstreet.com/, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

‘‘Customer Rebate Program,’’ in Section 

B of the Pricing Schedule to: (i) Increase 

certain Category B rebates; and (ii) 

increase the additional Category B Tier 

2 and 3 rebates paid to Specialists 3 and 

Market Makers 4 that reach the Monthly 

Market Maker Cap.5 The Exchange 

believes that the proposed increased 

rebates will encourage market 

participants to direct a greater number 

of Customer orders to the Exchange. 

Currently, the Exchange has a 

Customer Rebate Program consisting of 

five tiers that pays Customer rebates on 

two Categories, A 6 and B,7 of 

transactions.8 A Phlx member qualifies 

for a certain rebate tier based on the 

percentage of total national customer 

volume in multiply-listed options that it 

transacts monthly on Phlx. The 

Exchange calculates Customer volume 

in Multiply Listed Options by totaling 

electronically-delivered and executed 

volume, excluding volume associated 

with electronic Qualified Contingent 

Cross (‘‘QCC’’) Orders,9 as defined in 

Exchange Rule 1080(o).10


tkelley on DSK3SPTVN1PROD with NOTICES