Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 12215 

15 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1)(A). The Financial Stability 

Oversight Council designated OCC a systemically 

important financial market utility on July 18, 2012. 

See Financial Stability Oversight Council 2012 

Annual Report, Appendix A, http://

www.treasury.gov/initiatives/fsoc/Documents/

2012%20Annual%20Report.pdf. Therefore, OCC is 

required to comply with the Payment, Clearing and 

Settlement Supervision Act and file advance 

notices with the Commission. 

2 17 CFR 240.19b–4(n)(1)(i). As the Commission 

noted in the notice of filing of the advance notice, 

as modified by Amendment No. 1, OCC stated that 

the purpose of this proposal is, in part, to facilitate 

compliance with proposed Commission rules and 

address Principle 15 of the Principles for Financial 

Market Infrastructures (‘‘PMFIs’’). The proposed 

Commission rules are pending. See Securities 

Exchange Act Release No. 71699 (March 12, 2014), 

79 FR 29508 (May 22, 2014) (S7–03–14). Therefore, 

the Commission has evaluated this advance notice 

under the Payment, Clearing and Settlement 

Supervision Act and the rules currently in force 

thereunder. See Securities Exchange Act Release 

No. 74202 (February 4, 2015), 80 FR 7056 (February 

9, 2015) (SR–OCC–2014–813) at note 3. 

3According to OCC, OCC filed Amendment No. 

1 to: (i) Update OCC’s plan for raising additional 

capital (‘‘Capital Plan’’) in connection with 

negotiations between OCC and the options 

exchanges that own equity in OCC (‘‘Stockholder 

Exchanges’’ or ‘‘stockholders’’) and that would 

contribute additional capital under the Capital Plan, 

(ii) correct typographical errors, and (iii) update the 

Term Sheet included as an exhibit, which 

summarizes material features of the Capital Plan. 

4Securities Exchange Act Release No. 74202 

(February 4, 2015), 80 FR 7056 (February 9, 2015) 

(SR–OCC–2014–813). In conjunction with this 

advance notice, OCC filed a corresponding 

proposed rule change seeking approval of changes 

to its By-Laws, Certificate of Incorporation and 

relevant agreements, including its Stockholders 

Agreement, necessary to implement the Capital 

Plan. This proposed rule change was published in 

the Federal Register on January 30, 2015. Securities 

Exchange Act Release No. 74136 (January 26, 2015), 

80 FR 5171 (January 30, 2015) (SR–OCC–2015–02). 

5See Letter from Eric Swanson, General Counsel 

& Secretary, BATS Global Markets, Inc., (February 

19, 2015) (‘‘BATS Letter’’); Letter from Tony 

McCormick, Chief Executive Officer, BOX Options 

Exchange, (February 19, 2015) (‘‘BOX Letter’’); 

Letter from Howard L. Kramer on behalf of 

Belvedere Trading, CTC Trading Group, IMC 

Financial Markets, Integral Derivatives, 

Susquehanna Investment Group, and Wolverine 

Trading, (February 20, 2015) (‘‘MM Letter’’); Letter 

from Ellen Greene, Managing Director, Financial 

Services Operations, SIFMA, (February 20, 2015) 

(‘‘SIFMA Letter’’); Letter from James E. Brown, 

General Counsel, OCC, (February 23, 2015) 

(responding to BATS Letter and BOX Letter) (‘‘OCC 

Letter I’’); Letter from James E. Brown, General 

Counsel, OCC, (February 23, 2015) (responding to 

MM Letter) (‘‘OCC Letter II’’); Letter from Barbara 

J. Comly, Executive Vice President, General Counsel 

& Corporate Secretary, Miami International 

Securities Exchange, LLC (February 24, 2015) 

(‘‘MIAX Letter’’); Letter from James E. Brown, 

General Counsel, OCC, (February 24, 2015) 

(responding to SIFMA Letter) (‘‘OCC Letter III’’). 

Since the proposal was filed as both an advance 

notice and proposed rule change, the Commission 

considered all comments received on the proposal, 

regardless of whether the comments were submitted 

to the proposed rule change or advance notice. In 

its assessment of the advance notice, the 

Commission assessed whether the issues raised by 

the commenters relate to the level or nature of risks 

presented to OCC by the Capital Plan. See 

comments on the advance notice (File No. SR– 

OCC–2014–813), http://www.sec.gov/comments/srocc-2014-813/occ2014813.shtml and comments on 

the proposed rule change (File No. SR–OCC–2015– 

02), http://www.sec.gov/comments/sr-occ-2015-02/

occ201502.shtml. 

6OCC filed a proposed rule change seeking 

approval of changes to its By-Laws, Certificate of 

Incorporation and relevant agreements, including 

its Stockholders Agreement, necessary to 

implement the Capital Plan. See supra note 4. 

7The Stockholder Exchanges are: Chicago Board 

Options Exchange, Incorporated; International 

Securities Exchange, LLC; NASDAQ OMX PHLX 

LLC; NYSE MKT LLC; and NYSE Arca, Inc. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–05190 Filed 3–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74387; File No. SR–OCC– 

2014–813] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of No Objection to Advance Notice 

Filing, as Modified by Amendment No. 

1, Concerning a Proposed Capital Plan 

for Raising Additional Capital That 

Would Support The Options Clearing 

Corporation’s Function as a 

Systemically Important Financial 

Market Utility 

February 26, 2015. 

On December 29, 2014, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

advance notice File No. SR–OCC–2014– 

813 pursuant to Section 806(e)(1)(A) of 

the Payment, Clearing, and Settlement 

Supervision Act of 2010 (‘‘Payment, 

Clearing and Settlement Supervision 

Act’’) 1 and Rule 19b–4(n)(1)(i) under 

the Securities Exchange Act of 1934 

(‘‘Act’’).2 On January 14, 2015, OCC 

filed Amendment No. 1 to the advance 

notice.3 The advance notice was 

published for comment in the Federal 

Register on February 9, 2015.4 The 

Commission received eight comment 

letters on OCC’s proposal.5 This 

publication serves as a notice of no 

objection to proposal discussed in the 

advance notice. 

I. Description of the Advance Notice 

Pursuant to this advance notice, OCC 

is implementing a Capital Plan under 

which the Stockholder Exchanges will 

make an additional capital contribution 

and commit to replenishment capital 

(‘‘Replenishment Capital’’) in 

circumstances discussed below, and 

will receive, among other things, the 

right to receive dividends from OCC. In 

addition to the additional capital 

contribution and Replenishment 

Capital, the main features of the Capital 

Plan include: (i) A policy establishing 

OCC’s clearing fees at a level that would 

be sufficient to cover OCC’s estimated 

operating expenses plus a ‘‘business risk 

buffer’’ as described below (‘‘Fee 

Policy’’), (ii) a policy establishing the 

amount of the annual refund to clearing 

members of OCC’s fees (‘‘Refund 

Policy’’), and (iii) a policy for 

calculating the amount of dividends to 

be paid to the options exchanges 

owning equity in OCC (‘‘Dividend 

Policy’’). OCC stated that it intends to 

implement the Capital Plan on or about 

February 27, 2015, subject to all 

necessary regulatory approvals.6

OCC states in its proposal that it is 

implementing this Capital Plan, in part, 

to increase significantly OCC’s capital in 

connection with its increased 

responsibilities as a systemically 

important financial market utility. 

OCC’s proposal includes an infusion of 

substantial additional equity capital by 

the Stockholder Exchanges to be made 

prior to February 27, 2015, subject to 

regulatory approval, that when added to 

retained earnings accumulated by OCC 

in 2014 will significantly increase 

OCC’s capital levels as compared to 

historical levels. Additionally, the 

proposed change includes the 

Replenishment Capital commitment, 

which will provide OCC with access to 

additional equity contributed by the 

Stockholder Exchanges should OCC’s 

equity fall close to or below the amount 

that OCC determines to be appropriate 

to support its business and manage 

business risk. 

A. Background 

OCC is a clearing agency registered 

with the Commission and is also a 

derivatives clearing organization 

(‘‘DCO’’) regulated in its capacity as 

such by the Commodity Futures Trading 

Commission (‘‘CFTC’’). OCC is a 

Delaware business corporation and is 

owned equally by the Stockholder 

Exchanges, five national securities 

exchanges for which OCC provides 

clearing services.7 In addition, OCC 

provides clearing services for seven 

other national securities exchanges that 

trade options (‘‘Non-Stockholder 

Exchanges’’). In its capacity as a DCO, 

OCC provides clearing services to four 

futures exchanges. OCC also has been 

designated systemically important by 

the Financial Stability Oversight 

Council pursuant to the Payment, 

Clearing and Settlement Supervision 

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12216 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 

8 12 U.S.C. 5462(8). 

9See OCC 2013 Annual Report, Financial 

Statements, Statements of Financial Condition, 

available on OCC’s Web site, http://

optionsclearing.com/components/docs/about/

annual-reports/occ_2013_annual_report.pdf. 

10The obligation to provide Replenishment 

Capital will be capped at $200 million, which OCC 

projects will account for increases in its capital 

requirements for the foreseeable future. 

11According to OCC, ‘‘the $72 million is after 

giving effect to the approximately $40 million 

refund’’ expected to be made for 2014. Securities 

Exchange Act Release No. 74202 (February 4, 2015), 

80 FR 7056, 7058 at note 15 (February 9, 2015) (SR– 

OCC–2014–813). 

Act, and the Commission is OCC’s 

‘‘Supervisory Agency’’ under Section 

803(8) of the Payment, Clearing and 

Settlement Supervision Act.8

According to OCC, it has devoted 

substantial efforts during the past year 

to: (1) Develop a 5-year forward looking 

model of expenses; (2) quantify 

maximum recovery and wind-down 

costs under OCC’s recovery and winddown plan; (3) assess and quantify 

OCC’s operational and business risks; 

(4) model projected capital 

accumulation taking into account 

varying assumptions concerning 

business conditions, fee levels, buffer 

margin levels and refunds; and (5) 

develop an effective mechanism that 

provides OCC access to replenishment 

capital in the event of losses. 

Incorporating the results of those efforts, 

the Capital Plan is intended to provide 

OCC with the means to increase its 

stockholder equity. 

B. OCC’s Projected Capital Requirement 

According to OCC, using the methods 

described in detail below, OCC will 

annually determine a target capital 

requirement consisting of (i) a baseline 

capital requirement equal to the greatest 

of (x) six months operating expenses for 

the following year, (y) the maximum 

cost of the recovery scenario from OCC’s 

recovery and wind-down plan, and (z) 

the cost to OCC of winding down 

operations as set forth in the recovery 

and wind-down plan (‘‘Baseline Capital 

Requirement’’), plus (ii) a target capital 

buffer linked to plausible loss scenarios 

from operational risk, business risk and 

pension risk (‘‘Target Capital Buffer’’) 

(collectively, ‘‘Target Capital 

Requirement’’). OCC determined that 

the appropriate Target Capital 

Requirement is $247 million, reflecting 

a Baseline Capital Requirement of $117 

million, which is equal to six months of 

projected operating expenses, plus a 

Target Capital Buffer of $130 million. 

This Target Capital Buffer would 

provide a significant capital cushion to 

offset potential business losses. 

According to OCC, it had total 

shareholders’ equity of approximately 

$25 million as of December 31, 2013,9

meaning that OCC proposes to add 

additional capital of $222 million to 

meet its 2015 Target Capital 

Requirement. OCC determined that a 

viable plan for Replenishment Capital 

should provide for a replenishment 

capital amount which would give OCC 

access to additional capital as needed 

up to a maximum of the Baseline 

Capital Requirement (‘‘Replenishment 

Capital Amount’’).10 Therefore, OCC’s 

Capital Plan will include the following 

in order to provide OCC in 2015 with 

ready access to approximately $364 

million in equity capital: 

Baseline Capital Requirement .................................. $117,000,000 

Target Capital Buffer ............ $130,000,000 

Target Capital Requirement $247,000,000 

Replenishment Capital 

Amount .............................. $117,000,000 

Total OCC Capital Resources ...................... $364,000,000 

C. Procedures Followed in Order To 

Determine Capital Requirement 

According to OCC, various measures 

were used in determining the 

appropriate level of capital. An outside 

consultant conducted a ‘‘bottom-up’’ 

analysis of OCC’s risks and quantified 

the appropriate amount of capital to be 

held against each risk. The analysis was 

comprehensive across risk types, 

including credit, market, pension, 

operation, and business risk. Based on 

internal operational risk scenarios and 

loss modeling at or above the 99% 

confidence level, OCC’s operational risk 

was quantified at $226 million and 

pension risk at $21 million, resulting in 

the total Target Capital Requirement of 

$247 million. Business risk was 

addressed by taking into consideration 

that OCC has the ability to fully offset 

potential revenue volatility and manage 

business risk to zero by adjusting the 

levels at which fees and refunds are set 

and by adopting a Business Risk Buffer 

of 25% when setting fees. Other risks, 

such as counterparty risk and onbalance sheet credit and market risk, 

were considered to be immaterial for 

purposes of requiring additional capital 

based on means available to OCC to 

address those risks that did not require 

use of OCC’s capital. As discussed in 

more detail below in the context of 

OCC’s Fee Policy, the Business Risk 

Buffer of 25% is achieved by setting 

OCC’s fees at a level intended to achieve 

target annual revenue that will result in 

a 25% buffer for the year after paying all 

operating expenses. 

Additionally, OCC determined that its 

maximum recovery costs would be $100 

million and projected wind-down costs 

would be $73 million. OCC projected its 

expenses for 2015 will be $234 million, 

so that six months projected expenses 

are $234 million/2 = $117 million. The 

greater of recovery or wind-down costs 

and six months of operating expenses is 

therefore $117 million, and OCC’s 

Baseline Capital Requirement 

(minimum regulatory requirement) is 

therefore $117 million. According to 

OCC, it then computed the appropriate 

amount of a Target Capital Buffer from 

operational risk, business risk, and 

pension risk, resulting in a 

determination that the current Target 

Capital Buffer should be $130 million. 

Thus, the Target Capital Requirement is 

$117 million + $130 million = $247 

million. 

D. Overview of, and Basis for, OCC’s 

Proposal To Acquire Additional Equity 

Capital 

According to OCC, in order to meet its 

Target Capital Requirement, and after 

consideration of alternatives, OCC’s 

Board of Directors approved a proposal 

from OCC’s Stockholder Exchanges 

pursuant to which OCC would meet its 

Target Capital Requirement of $247 

million in early 2015 as follows: 

Shareholders’ Equity as 

of 1/1/2014 .................. $25,000,000 

Shareholders Equity Accumulated Through 

Retained Earnings 11 ... $72,000,000 

Additional Contribution 

from Stockholder Exchanges ....................... $150,000,000 

Target Capital Requirement ............................ $247,000,000 

Replenishment Capital 

Amount ........................ $117,000,000 

Total OCC Capital 

Resources ............ $364,000,000 

The additional contribution of the 

Stockholder Exchanges will be made in 

respect of their Class B Common Stock 

on a pro rata basis. The Stockholder 

Exchanges will also commit to provide 

additional equity capital up to the 

Replenishment Capital Amount, which 

is currently $117 million, in the event 

Replenishment Capital is needed. While 

the Replenishment Capital Amount will 

increase as the Baseline Capital 

Requirement increases, under OCC’s 

proposal, it would be capped at a total 

of $200 million, which could be 

outstanding at any point in time. OCC 

estimates that the Baseline Capital 

Requirement will not exceed this 

amount before 2022. When the limit is 

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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 12217 

12 If OCC’s fee schedule needs to be changed in 

order to achieve the 25% Business Risk Buffer, OCC 

would file a proposed rule change seeking approval 

of the revised fee schedule. 

being approached, OCC will revise the 

Capital Plan as needed to address future 

needs. In consideration for their capital 

contributions and replenishment 

commitments, the Stockholder 

Exchanges will receive dividends as 

described in the Dividend Policy 

discussed below for so long as they 

remain stockholders, and maintain their 

contributed capital and commitment to 

replenish capital up to the 

Replenishment Capital Amount, subject 

to the $200 million cap. 

E. Fee, Refund, and Dividend Policies 

Upon reaching the Target Capital 

Requirement, the Capital Plan requires 

OCC to set its fees at a level that utilizes 

a Business Risk Buffer of 25%. The 

purpose of this Business Risk Buffer is 

to ensure that OCC accumulates 

sufficient capital to cover unexpected 

fluctuations in operating expenses, 

business capital needs, and regulatory 

capital requirements. Furthermore, the 

Capital Plan requires OCC to maintain 

Fee, Refund, and Dividend Policies, 

described in more detail below, which 

are designed to ensure that OCC’s 

shareholders’ equity remains well above 

the Baseline Capital Requirement. 

The required Business Risk Buffer of 

25% is below OCC’s 10-year historical 

pre-refund average buffer of 31%. The 

target will remain 25% so long as OCC’s 

shareholders’ equity remains above the 

Target Capital Requirement amount. 

The reduction in buffer margin from 

OCC’s 10-year average of 31% to 25% 

reflects OCC’s commitment to operating 

as an industry utility and ensuring that 

market participants benefit as much as 

possible from OCC’s operational 

efficiencies in the future. This reduction 

will permit OCC to charge lower fees to 

market participants rather than 

maximize refunds to clearing members 

and dividend distributions to 

Stockholder Exchanges. OCC will 

review its fee schedule on a quarterly 

basis to manage revenue as closely to 

this target as possible.12 For example, if 

the Business Risk Buffer is materially 

above 25% after the first quarter of a 

particular year, OCC may decrease fees 

for the remainder of the year, and 

conversely if the Business Risk Buffer is 

materially below 25% at this time, OCC 

may increase fees for the remainder of 

the year. 

The Capital Plan will allow OCC to 

refund approximately $40 million from 

2014 fees to clearing members in 2015 

and to reduce fees in an amount to be 

determined by OCC’s Board of Directors, 

effective in the second quarter of 2015. 

OCC will announce new fee levels early 

in 2015 and will make such fees 

effective following notification to 

clearing members, making any 

necessary filings, and receiving any 

necessary approvals from the 

Commission. OCC will endeavor to 

provide clearing members with no less 

than 60-day notice in advance of the 

effectiveness of changes to fee levels, 

particularly those that result in 

increases to fee levels. No dividends 

will be declared until December 2015 

and no dividends will be paid until 

2016. 

Changes to the Fee, Refund or 

Dividend Policies will require the 

affirmative vote of two-thirds of the 

directors then in office and approval of 

the shareholders of all of OCC’s 

outstanding Class B Common Stock. The 

formulas for determining the amount of 

refunds and dividends under the 

Refund and Dividend Policies, 

respectively, which are described in 

more detail below, are based on, among 

other things, the current tax treatment of 

refunds as a deductible expense. The 

Refund and Dividend Policies will 

provide that in the event that refunds 

payable under the Refund Policy are not 

tax deductible, the policies would be 

amended to restore the relative 

economic benefits between the 

recipients of the refunds and the 

Stockholder Exchanges. 

1. Fee Policy 

Under the Fee Policy, in setting fees 

each year, OCC will calculate an annual 

revenue target based on a forward 

twelve months expense forecast divided 

by the difference between one and the 

Business Risk Buffer of 25% (i.e., OCC 

will divide the expense forecast by .75). 

Establishing a Business Risk Buffer at 

25% will allow OCC to manage the risk 

that fees may generate less revenue than 

expected due to lower-than-expected 

trading volume or other factors, or that 

expenses may be higher than projected. 

The Fee Policy also will include 

provisions from existing Article IX, 

Section 9, of OCC’s By-Laws to 

effectively state that the fee schedule 

also may include additional amounts 

necessary to (i) maintain such reserves 

as are deemed reasonably necessary by 

OCC’s Board of Directors to provide 

facilities for the conduct of OCC’s 

business and to conduct development 

and capital planning activities in 

connection with OCC’s services to the 

options exchanges, clearing members 

and the general public, and (ii) 

accumulate such additional surplus as 

the Board of Directors may deem 

advisable to permit OCC to meet its 

obligations to clearing members and the 

general public. However, OCC states 

that these provisions will be used only 

in extraordinary circumstances and to 

the extent that the Board of Directors 

has determined that the required 

amount of such additional reserves or 

additional surplus will exceed the full 

amount that will be accumulated 

through the Business Risk Buffer (prior 

to payment of refunds or dividends) so 

OCC’s fees will ordinarily be based on 

its projected operating expenses and the 

Business Risk Buffer of 25%. 

Under the advance notice proposal, 

OCC will use the following formula to 

calculate its annual revenue target as 

follows: 

Annual Revenue Target = Forward 12 

Months Expense Forecast/(1-.25). 

Because OCC’s clearing fee schedules 

typically reflect different rates for 

different categories of transactions, fee 

projections will include projections as 

to relative volume in each such 

category. The clearing fee schedule will 

therefore be set to achieve a blended or 

average rate per contract sufficient, 

when multiplied by total projected 

contract volume, to achieve the Annual 

Revenue Target. Under extraordinary 

circumstances, OCC will add any 

amount determined to be necessary for 

additional reserves or surplus and 

divide the resulting number by the 

projected contract volume to determine 

the applicable average fee per cleared 

contract needed to achieve the 

additional amounts required. Consistent 

with past practice, OCC will notify its 

clearing members of the fees OCC 

determines it will apply for any 

particular period by describing the 

change in an information memorandum 

distributed to all clearing members. 

Consistent with past practice, OCC also 

will notify regulators of the fees it 

determines would apply for any 

particular period by filing an 

amendment to its schedule of fees as a 

proposed rule change for immediate 

effectiveness under Section 19(b)(3)(A) 

of the Act and Rule 19b–4(f)(2) 

thereunder. 

2. Refund Policy 

Under the Refund Policy, except at a 

time when Replenishment Capital is 

outstanding as described below, OCC 

will declare a refund to clearing 

members in December of each year, 

beginning in 2015, in an amount equal 

to 50% of the excess, if any, of (i) the 

pre-tax income for the year prior to the 

refund over (ii) the sum of (x) the 

amount of pre-tax income after the 

refund necessary to produce after-tax 

income sufficient to maintain 

mstockstill on DSK4VPTVN1PROD with NOTICES

12218 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 

13According to OCC, its common stock and paid 

in capital total $2,659,999. See OCC 2013 Annual 

Report, Financial Statements, Statements of 

Financial Condition, available on OCC’s Web site, 

http://optionsclearing.com/components/docs/

about/annual-reports/occ_2013_annual_report.pdf. 

14According to OCC, Non-Stockholder Exchanges 

contribute capital by purchasing a promissory note 

in the principal amount of $1,000,000. See Section 

2 of Article VIIB of OCC’s By-Laws. The required 

Capital Contribution of Non-Stockholder exchanges 

will not change under the Capital Plan. 

shareholders’ equity at the Target 

Capital Requirement for the following 

year plus (y) the amount of pre-tax 

income after the refund necessary to 

fund any additional reserves or 

additional surplus not already included 

in the Target Capital Requirement. Such 

refund will be paid in the year following 

the declaration after the issuance of 

OCC’s audited financial statements, 

provided that (i) the payment does not 

result in total shareholders’ equity 

falling below the Target Capital 

Requirement, and (ii) such payment is 

otherwise permitted by applicable 

Delaware law and applicable federal 

laws and regulations. OCC will not be 

able to pay a refund on a particular date 

unless dividends were paid on the same 

date. If Replenishment Capital has been 

contributed and remains outstanding, 

OCC will not pay refunds until such 

time as the Target Capital Requirement 

is restored through the accumulation of 

retained earnings. Refunds in 

accordance with the Refund Policy will 

resume once the Target Capital 

Requirement is restored and all 

Replenishment Capital is repaid in full, 

provided that the restoration of the 

Target Capital Requirement and the 

repayment of Replenishment Capital 

occurred within 24 months of the 

issuance date of the Replenishment 

Capital. If within 24 months of the 

issuance date of any Replenishment 

Capital, such Replenishment Capital has 

not been repaid in full or shareholders’ 

equity has not been restored to the 

Target Capital Requirement, OCC will 

no longer pay refunds to clearing 

members, even if the Target Capital 

Requirement is restored and all 

Replenishment Capital is repaid at a 

later date. 

3. Dividend Policy 

The Dividend Policy provides that, 

except at a time when Replenishment 

Capital is outstanding, OCC will declare 

a dividend on its Class B Common Stock 

in December of each year in an aggregate 

amount equal to the excess, if any, of (i) 

after-tax income for the year, after 

application of the Refund Policy (unless 

the Refund Policy has been eliminated, 

in which case the refunds shall be 

deemed to be $0) over (ii) the sum of (A) 

the amount required to be retained in 

order to maintain total shareholders’ 

equity at the Target Capital Requirement 

for the following year, plus (B) the 

amount of any additional reserves or 

additional surplus not already included 

in the Target Capital Requirement. Such 

dividend will be paid in the year 

following the declaration after the 

issuance of OCC’s audited financial 

statements, provided that (i) the 

payment does not result in total 

shareholders’ equity falling below the 

Target Capital Requirement, and (ii) 

such payment is otherwise permitted by 

applicable Delaware law and applicable 

federal laws and regulations. If 

Replenishment Capital has been 

contributed and remains outstanding, 

OCC would not pay dividends until 

such time as the Target Capital 

Requirement is restored. 

F. OCC’s Status as an Industry Utility 

According to OCC, OCC has always 

been operated on an ‘‘industry utility’’ 

model. The Stockholder Exchanges have 

contributed only minimal capital to 

OCC.13 OCC’s By-Laws currently require 

that OCC set its clearing fees at a level 

that is designed to cover operating 

expenses and to maintain such reserves 

and accumulate such additional capital 

as are deemed reasonably necessary for 

OCC to meet its obligations to its 

clearing members and the public. 

Clearing fees that are collected in excess 

of these amounts are refunded annually 

on a pro rata basis to the clearing 

members that paid them. Under this 

model, OCC has never paid dividends to 

the Stockholder Exchanges, but has paid 

significant refunds to clearing members 

each year. OCC is aware that some 

portion of those refunds may not be 

passed through by the clearing members 

to their end user customers. 

Accordingly, OCC believes that by 

adopting an approach that pays 

dividends to the Stockholder 

Exchanges, which have invested a 

significant amount of additional capital 

($150 million), but that reduces the 

historical pre-refund average buffer of 

31% by adopting a Business Risk Buffer 

of 25%, the approach outlined in its 

Capital Plan maintains, and perhaps 

better aligns with, an industry utility 

model. 

According to OCC, given the very 

large increase in capital that OCC has 

determined to be appropriate and to 

meet the increased responsibilities 

imposed upon it as a systemically 

important financial market utility, OCC 

has decided that the best alternative 

available to it is to obtain a substantial 

further capital contribution from the 

Stockholder Exchanges. OCC believes 

that this cannot be accomplished 

without modification of the past 

practice of not providing dividends to 

stockholders. Accordingly, OCC is 

establishing a new Fee Policy, Refund 

Policy, and Dividend Policy. Because of 

the Business Risk Buffer being set at 

25%, the combination of the Fee, 

Refund and Dividend Policies will 

effectively cap the dividends to be paid 

to the Stockholder Exchanges at a level 

that OCC’s Board of Directors (with the 

advice of outside financial experts) has 

determined results in a reasonable rate 

of return on contributed capital, 

particularly in comparison to the 

implied cost of capital to the clearing 

members and their customers of an 

alternative approach considered by the 

Board of Directors that would require 

the accumulation of retained earnings 

through higher fees and no refunds for 

several years. OCC will continue to 

refund a percentage of excess clearing 

fees to clearing members, thereby 

benefiting both clearing members and 

their customers. 

OCC believes that the Capital Plan 

therefore effectively preserves OCC’s 

industry utility model of providing its 

services in an efficient manner, while 

also enhancing the benefits to the end 

user customers by charging lower initial 

fees due to the decrease in the buffer 

margin from OCC’s 10-year average of 

31% to 25%. OCC states that it believes 

clearing members and customers will 

benefit from the proposed Capital Plan 

because the plan will allow OCC to 

continue to provide clearing services at 

low cost, including through a significant 

refund of 2014 fees, a reduction of fees 

beginning in 2015 and projected 

continuing refunds and lower fees for 

the foreseeable future. 

According to OCC, it believes that 

Stockholder Exchanges will benefit from 

the dividend they receive and, perhaps 

more importantly, they will be assured 

that OCC is in a position to provide 

clearing services for their markets on an 

on-going basis within the same basic 

structure that has served these markets 

well since their inception and without 

the need to radically change the 

structure to address potential demands 

of outside equity investors. NonStockholder Exchanges also will benefit 

by continuing to receive OCC’s clearing 

services for their products on the same 

basis as they presently do.14

OCC also believes that the Capital 

Plan will better align the interests of 

Stockholder Exchanges and clearing 

members with respect to expenses, 

because changes to the level of 

operating expenses directly affect the 

Target Capital Requirement. In short, 

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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 12219 

15The Replenishment Capital Plan is a 

component of the Capital Plan. 

16The requirement for stockholder consent would 

arise under OCC’s Restated Certificate of 

Incorporation, which would provide that any 

decision to attempt a recovery would require 

separate approval by the stockholders, while a 

decision to wind-down would require separate 

approval by the stockholders. 

17According to OCC, based on current federal tax 

rates, if the full amount of the payment is classified 

as a dividend and the recipient is entitled to a 

dividends received deduction, this gross up is 

estimated to be approximately 12% of the payment. 

OCC believes that the present proposal 

represents a fair and reasonable 

balancing of the interests of the 

Stockholder Exchanges, the other 

exchanges for which OCC provides 

clearing services, clearing members, 

customers, and the general public while 

providing an immediate infusion of 

capital and a structure within which 

OCC can meet its obligations to the 

public as a systemically important 

financial market utility. 

G. Replenishment Capital Plan 

OCC is establishing a Replenishment 

Capital Plan whereby OCC’s 

Stockholder Exchanges are obligated to 

provide on a pro rata basis a committed 

amount of Replenishment Capital 

should OCC’s total shareholders’ equity 

fall below the hard trigger, as described 

below.15 The aggregate committed 

amount for all five Stockholder 

Exchanges in the form of Replenishment 

Capital that could be outstanding at any 

time will be capped at the excess of (i) 

the lesser of (A) the Baseline Capital 

Requirement, which is currently $117 

million, at the time of the relevant 

funding, or (B) $200 million, over (ii) 

amounts of outstanding Replenishment 

Capital (‘‘Cap Formula’’). The $200 

million figure in the Cap Formula takes 

into account projected growth in the 

Baseline Capital Requirement for the 

foreseeable future. The commitment to 

provide Replenishment Capital will not 

be limited by time, but rather only by 

the Cap Formula. Replenishment 

Capital will be called in whole or in part 

after the occurrence of a ‘‘hard trigger’’ 

event described below. If the Baseline 

Capital Requirement approaches or 

exceeds $200 million, OCC’s Board of 

Directors may consider, as part of its 

annual review of the Replenishment 

Capital Plan, alternative arrangements to 

obtain replenishment capital in excess 

of the $200 million committed under 

the Replenishment Capital Plan. In 

addition, the Refund Policy and the 

Dividend Policy will provide that, in the 

absence of obtaining any such 

alternative arrangements, the amount of 

the difference will be subtracted from 

amounts that would otherwise be 

available for the payment of refunds and 

dividends. 

Replenishment Capital contributed to 

OCC under the Replenishment Capital 

Plan will take the form of a new class 

of common stock (‘‘Class C Common 

Stock’’) of OCC to be issued to the 

Stockholder Exchanges solely in 

exchange for Replenishment Capital 

contributions. 

The Replenishment Capital Plan is a 

component of OCC’s overall Capital 

Plan. In implementing the 

Replenishment Capital Plan, OCC’s 

management would monitor OCC’s 

levels of shareholders’ equity to identify 

certain triggers, or reduced capital 

levels, that might require action. OCC 

has identified two key triggers—a soft 

trigger and a hard trigger—and proposes 

that OCC will take certain steps upon 

the occurrence of either. The ‘‘soft 

trigger’’ for re-evaluating OCC’s capital 

will occur if OCC’s shareholders’ equity 

falls below the sum of (i) the Baseline 

Capital Requirement and (ii) 75% of the 

Target Capital Buffer. The soft trigger 

will be a warning sign that OCC’s 

capital had fallen to a level that requires 

attention and responsive action to 

prevent it from falling to unacceptable 

levels. Upon a breach of the soft trigger, 

OCC’s senior management and OCC’s 

Board of Directors will review 

alternatives to increasing capital, and 

take appropriate action as necessary, 

including increasing fees or decreasing 

expenses, to restore shareholders’ equity 

to the Target Capital Requirement. 

The ‘‘hard trigger’’ for making a 

mandatory Replenishment Capital call 

will occur if shareholders’ equity falls 

below 125% of the Baseline Capital 

Requirement (‘‘Hard Trigger 

Threshold’’). OCC considers that a 

breach of the Hard Trigger Threshold is 

a sign that significant corrective action, 

with a more immediate impact than 

increasing fees or decreasing expenses, 

should be taken to increase OCC’s 

capital, either as part of a recovery plan 

or a wind-down plan for OCC’s 

business. OCC’s shareholders’ equity 

will have to fall more than $100,000,000 

below the fully funded capital amount 

described above in order to breach the 

Hard Trigger Threshold. As a result, 

OCC views the breach of the Hard 

Trigger Threshold as unlikely and 

occurring only as a result of a 

significant, unexpected event. In the 

event of such a breach, OCC’s Board of 

Directors must determine whether to 

attempt a recovery, a wind-down of 

OCC’s operations, or a sale or similar 

transaction, subject in each case to any 

necessary stockholder consent.16 If the 

Board of Directors decides to winddown OCC’s operations, OCC will 

access the Replenishment Capital in an 

amount sufficient to fund the winddown, as determined by the Board and 

subject to the Cap Formula. If the Board 

of Directors decides to attempt a 

recovery of OCC’s capital and business, 

OCC will access the Replenishment 

Capital in an amount sufficient to return 

shareholders’ equity to an amount equal 

to $20 million above the Hard Trigger 

Threshold, subject to the Cap Formula. 

While Replenishment Capital is 

outstanding, no refunds or dividends 

will be paid and, if any Replenishment 

Capital remains outstanding for more 

than 24 months or the Target Capital 

Requirement is not restored during that 

period, changes to how OCC calculates 

refunds and dividends may be necessary 

(as described in more detail in OCC’s 

Refund Policy and Dividend Policy). In 

addition, while Replenishment Capital 

is outstanding, OCC will first utilize the 

entire amount of available funds to 

repurchase, on a pro rata basis from 

each Stockholder Exchange, to the 

extent permitted by applicable Delaware 

and federal law and regulations, 

outstanding shares of Class C Common 

Stock as soon as practicable after 

completion of the financial statements 

following the end of each calendar 

quarter at a price equal to the original 

amount paid for such shares, plus an 

additional ‘‘gross up’’ amount to 

compensate the holders of the Class C 

Common Stock for taxes on dividend 

income (if any) that they may have to 

recognize as a result of such 

repurchase.17 For this purpose, 

‘‘Available Funds’’ will equal, as of the 

end of any calendar quarter, the excess, 

if any, of (x) shareholders’ equity over 

(y) the Minimum Replenishment Level. 

The ‘‘Minimum Replenishment Level’’ 

will mean $20 million above the Hard 

Trigger Threshold, so that OCC’s 

shareholders’ equity will remain at or 

above the Minimum Replenishment 

Level after giving effect to the 

repurchase. 

According to OCC, the capital base 

described above will permit OCC to 

hold at all times cash and other assets 

of high quality and sufficiently liquid to 

allow OCC to meet its current and 

projected operating expenses under a 

range of scenarios, including adverse 

market conditions. OCC expects it will 

hold at all times liquid net assets 

funded by equity sufficient to cover 

potential general business losses so that 

OCC can continue operations and 

services as a going concern if those 

losses materialize, which assets will 

always be greater than either (x) six 

months of the covered clearing agency’s 

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12220 Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 

18OCC stated that these assets will be held in 

addition to resources held to cover participant 

defaults or other risks covered under certain credit 

risk standards and liquidity risk standards set forth 

in proposed Commission rules. See Securities 

Exchange Act Release No. 74202 (February 4, 2015), 

80 FR 7056 (February 9, 2015) (SR–OCC–2014–813). 

19The Commission received one comment letter 

on the proposed rule change and advance notice 

(See SIFMA Letter) and four comment letters on the 

proposed rule change only (See BOX Letter; BATS 

Letter; MM Letter; and MIAX Letter). See supra note 

5. 

20See BOX Letter; SIFMA Letter; and MM Letter. 

21See BOX Letter; SIFMA Letter; BATS Letter; 

MM Letter; and MIAX Letter. 

22See SIFMA Letter. 

23 Id. 

24 Id. 

25 Id. 

26See OCC Letter III. 

27 Id. 

28 Id. 

29 Id. 

30See 12 U.S.C. 5461(b). 

31 Id. 

32 12 U.S.C. 5464(a)(2). 

33 12 U.S.C. 5464(b). 

34 Id. 

current operating expenses, or (y) the 

amount determined by the Board of 

Directors to be sufficient to ensure a 

recovery or orderly wind-down of 

critical operations and services. These 

assets will be held in addition to 

resources held to cover participant 

defaults, among other risks.18

II. Summary of Comments Received 

The Commission received five 

comment letters on OCC’s proposal and 

three comment letters from OCC 

responding to the issues raised by the 

commenters.19 Three of the five 

commenters generally supported OCC’s 

need to raise additional capital,20 but all 

five commenters opposed how the 

Capital Plan raised the additional 

capital.21 After careful review of those 

comments, the Commission has 

determined that most of the issues 

raised by the commenters do not relate 

to the nature or level of risks presented 

by OCC. 

One commenter, however, raised the 

issue that the Replenishment Capital 

Plan may create a misalignment of 

interests between the exchanges and 

clearing members, which could in turn 

create an imbalance in the management 

of certain risks.22 Specifically, this 

commenter stated that because no 

refunds are paid to clearing members 

while any portion of that Replenishment 

Capital remains outstanding and that 

refunds are discontinued permanently if 

the Replenishment Capital remains 

outstanding for two years, the plan 

effectively uses the fees to maximize 

and prioritize the dividends payable to 

the Stockholder Exchanges, which is at 

the expense of the clearing members.23

Further, this commenter notes that the 

proposed amendments to OCC’s ByLaws would allow the Stockholder 

Exchanges to manage the risk of their 

Replenishment Capital being required 

by determining whether retained 

earnings could be used to compensate 

for a loss or deficiency in the clearing 

fund, thereby also allowing the 

Stockholder Exchanges to determine to 

fund clearing fund deficiencies through 

additional retained earnings rather than 

risk having to fund their required 

Replenishment Capital commitment.24

As a result, this commenter believes that 

the Replenishment Capital Plan may 

create a misalignment of interests 

between the Stockholder Exchanges and 

clearing members, which could in turn 

create an imbalance in the management 

of certain risks.25

OCC asserts in its response that these 

concerns regarding Replenishment 

Capital are misplaced.26 OCC contends 

that its By-Laws provide that in lieu of 

charging a loss or deficiency 

proportionately to the clearing fund 

computed contributions of nondefaulting clearing members, OCC may, 

in its discretion, and subject to the 

unanimous approval of the holders of 

Class A Common Stock and Class B 

Common Stock, elect to charge such loss 

or deficiency in whole or in part to 

OCC’s current earning or retained 

earnings.27 Accordingly, OCC considers 

the net effect of its Replenishment 

Capital Plan to be simply a timing effect, 

with Replenishment Capital treated as 

an advance against the refunds to which 

Stockholder Exchanges otherwise would 

have been entitled.28 OCC contends that 

it is neither the purpose nor the effect 

of the Replenishment Capital Plan to 

shift the potential loss from a clearing 

member default, which has always been 

mutualized, so long as OCC remains 

solvent.29

III. Discussion and Commission 

Findings 

Although the Payment, Clearing and 

Settlement Supervision Act does not 

specify a standard of review for an 

advance notice, its stated purpose is 

instructive.30 The stated purpose is to 

mitigate systemic risk in the financial 

system and promote financial stability 

by, among other things, promoting 

uniform risk management standards for 

systemically-important financial market 

utilities and strengthening the liquidity 

of systemically important financial 

market utilities.31

Section 805(a)(2) of the Payment, 

Clearing and Settlement Supervision 

Act 32 authorizes the Commission to 

prescribe risk management standards for 

the payment, clearing, and settlement 

activities of designated clearing entities 

and financial institutions engaged in 

designated activities for which it is the 

supervisory agency or the appropriate 

financial regulator. Section 805(b) of the 

Payment, Clearing and Settlement 

Supervision Act 33 states that the 

objectives and principles for the risk 

management standards prescribed under 

Section 805(a) shall be to: 

• Promote robust risk management; 

• promote safety and soundness; 

• reduce systemic risks; and 

• support the stability of the broader 

financial system. 

After carefully considering OCC’s 

proposal, the comments received, and 

OCC’s responses thereto, the 

Commission finds that OCC’s Capital 

Plan is consistent with the objectives 

and principles described in Section 

805(b) of the Payment, Clearing and 

Settlement Supervision Act.34

While most of the issues raised by the 

commenters do not relate to the nature 

or level of risks presented by OCC, one 

commenter raised a specific concern 

with respect to OCC’s Replenishment 

Capital Plan. The Commission, 

however, believes that OCC’s Capital 

Plan, when considered in its totality, 

does not adversely change the nature or 

level of risks presented by OCC. 

Although this commenter alleged a 

potential misalignment of interests 

between the Stockholder Exchanges and 

clearing members when Replenishment 

Capital is outstanding, decisions made 

regarding the capitalization of OCC are 

made by the Board of Directors. OCC’s 

By-Laws address the use of capital to 

cover clearing member defaults in lieu 

of using the clearing fund and address 

the power of the Board of Directors to 

make decisions in such circumstances. 

Further, the Board of Directors’ 

obligations under corporate law will 

require the Board of Directors to revisit 

on a periodic basis material provisions 

of the Capital Plan in the future, 

including those related to decisions 

regarding Replenishment Capital, and to 

review any credible new capital 

proposals that may be brought forward 

by management or members of the 

Board of Directors from time to time. 

The Commission believes such 

processes create a reasonable 

expectation that the potential concerns 

described by the commenter can be 

controlled by OCC, and therefore the 

Commission agrees with OCC that the 

commenter’s contentions regarding the 

purpose and use of the Replenishment 

Capital are misplaced. 

The Capital Plan will provide OCC 

with an immediate injection of capital 

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Federal Register / Vol. 80, No. 44 / Friday, March 6, 2015 / Notices 12221 

35 12 U.S.C. 5464(b). 

36 12 U.S.C. 5465(e)(1)(I). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Mary Jo White, Chair, Securities and 

Exchange Commission, Speech at the Sandler, 

O’Neill & Partners, L.P. Global Exchange and 

Brokerage Conference (June 5, 2014) (available at 

www.sec.gov/News/Speech/Detail/Speech/

1370542004312#.U5HI-fmwJiw). 

5See Letter from James Burns, Deputy Director, 

Division of Trading and Markets, Securities and 

Exchange Commission, to Jeffrey C. Sprecher, Chief 

Executive Officer, Intercontinental Exchange, Inc., 

dated June 20, 2014. 

6See Securities Exchange Act Release No. 72708 

(July 29, 2014), 79 FR 45572 (Aug. 5, 2014) (SR– 

NYSEArca–2014–82) (‘‘July 2014 Data Feed 

Filing’’). 

7The SIP feeds are disseminated pursuant to 

effective joint-industry plans as required by Rule 

603(b) of Regulation NMS. 17 CFR 242.603(b). The 

three joint-industry plans are: (1) The CTA Plan, 

which is operated by the Consolidated Tape 

Association and disseminates transaction 

information for securities with the primary listing 

market on exchanges other than NASDAQ Stock 

Market LLC (‘‘Nasdaq’’): (2) The CQ Plan, which 

disseminates consolidated quotation information 

for securities with their primary listing on 

exchanges other than Nasdaq; and (3) the Nasdaq 

UTP Plan, which disseminates consolidated 

transaction and quotation information for securities 

with their primary listing on Nasdaq. 

8The Exchange notes that because the FINRA 

Alternate Display Facility (‘‘ADF’’) does not 

currently display any quotations, the Exchange does 

not need any data feeds to provide it with ADF 

quotes. 

and future committed capital to help 

ensure that it can continue to provide its 

clearing services if it suffers business 

losses as a result of a decline in 

revenues or otherwise. Given that OCC 

has been designated as a systemically 

important financial market utility, 

OCC’s ability to provide its clearing 

services if it suffers business losses 

contributes to reducing systemic risks 

and supporting the stability of the 

broader financial system. In so doing, 

OCC’s Capital Plan is consistent with 

the objectives of Section 805(b) of the 

Payment, Clearing and Settlement 

Supervision Act, 35 which are to 

promote robust risk management, 

promote safety and soundness, reduce 

systemic risks, and support the stability 

of the broader financial system. 

IV. Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(I) of the Payment, 

Clearing and Settlement Supervision 

Act,36 that the Commission does not 

object to advance notice proposal (File 

No. SR–OCC–2014–813) and that OCC is 

authorized to implement the proposal as 

of the date of this notice or the date of 

an order by the Commission approving 

a proposed rule change that reflects rule 

changes that are consistent with this 

advance notice proposal (File No. SR– 

OCC–2015–02), whichever is later. 

By the Commission. 

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–05117 Filed 3–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74409; File No. SR– 

NYSEARCA–2015–11] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Specifying in Exchange 

Rules the Exchange’s Use of Certain 

Data Feeds for Order Handling and 

Execution, Order Routing, and 

Regulatory Compliance 

March 2, 2015. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on February 

24, 2015, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. 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 specify in 

Exchange rules the Exchange’s use of 

certain data feeds for order handling 

and execution, order routing, and 

regulatory compliance. The text of the 

proposed rule change is available on the 

Exchange’s Web site at www.nyse.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 

self-regulatory organization 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 those 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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On June 5, 2014, in a speech entitled 

‘‘Enhancing Our Market Equity 

Structure,’’ Mary Jo White, Chair of the 

Securities and Exchange Commission 

(‘‘SEC’’ or the ‘‘Commission’’) requested 

the equity exchanges to file with the 

Commission the data feeds used for 

purposes of (1) order handling and 

execution (e.g., with pegged or midpoint 

orders); (2) order routing, and (3) 

regulatory compliance, if applicable.4

Subsequent to the Chair’s speech, the 

Division of Trading and Markets stated 

that it ‘‘believes there is a need for 

clarity regarding whether (1) the SIP 

data feeds, (2) proprietary data feeds, or 

(3) a combination thereof,’’ are used for 

these purposes and requested that 

proposed rule changes be filed that 

disclose such information.5 The stated 

goal of disclosing this information was 

to provide broker-dealers and investors 

with enhanced transparency to better 

assess the quality of an exchange’s 

execution and routing services. 

On July 18, 2014, in response to the 

above request, the Exchange filed a 

proposed rule change that clarified the 

Exchange’s use of certain data feeds for 

order handling and execution, order 

routing, and regulatory compliance.6 As 

noted in that filing, the data feeds 

available for the purposes of order 

handling and execution, order routing, 

and regulatory compliance at the 

Exchange include the exclusive 

securities information processor (‘‘SIP’’) 

data feeds 7 or proprietary data feeds 

from individual market centers (‘‘Direct 

Feed’’). 

SEC staff has requested that the 

Exchange file a supplemental proposed 

rule change to specify in Exchange rules 

which data feeds the Exchange uses for 

the above-described purposes. 

Accordingly, the Exchange is filing this 

proposed rule change. 

At the time of the July 2014 Data Feed 

Filing, the Exchange used only the SIP 

data feeds for BATS Y-Exchange, Inc., 

Chicago Stock Exchange, Inc., and 

NYSE MKT LLC and uses a combination 

of Direct Feeds and the SIP data feeds 

for the other exchanges trading NMS 

stocks, i.e., BATS Exchange, Inc., EDGA 

Exchange, Inc., EDGX Exchange, Inc. 

NASDAQ OMX BX LLC, NASDAQ 

OMX PHLX LLC, NASDAQ Stock 

Market LLC and New York Stock 

Exchange LLC.8 These data feeds are 

used by the Exchange to: 

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