Federal Register / Vol. 80, No. 57 / Wednesday, March 25, 2015 / Notices 15845 

32 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 74212 

(February 5, 2015), 80 FR 7668 (February 11, 2015) 

(SR–OCC–2015–04). 

4For example, OCC Rule 1106(a) provides OCC 

with significant flexibility with respect actions it 

may take in order to close out a defaulting clearing 

member’s open long positions. 5OCC filed Amendment No. 1 in order to correct 

an inadvertent grammatical error. Specifically, a 

comma after the word ‘‘Executive Chairman’’ was 

removed because it caused the description of the 

proposed rule change to not be consistent with the 

text of the proposed rule change. 

6OCC’s proposal is similar to the summary 

suspension process employed by the National 

Securities Clearing Corporation (‘‘NSCC’’). See 

NSCC Rule 46, Section 3. 

7A description of OCC’s default management 

process is located at: http://www.theocc.com/riskmanagement/default-rules/> 

8OCC staff will notify the Board within two hours 

of the summary suspension. 

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

10 15 U.S.C. 78q–1(b)(3)(F). 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEArca-2015–19 and should be 

submitted on or before April 15, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06719 Filed 3–24–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74537; File No. SR–OCC– 

2015–04] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Approving Proposed Rule Change, as 

Modified by Amendment 1 Thereto, To 

Expand the Officers Who May Declare 

That a Clearing Member Is Summarily 

Suspended 

March 19, 2015. 

On January 23, 2015, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2015–04 

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

Securities Exchange Act of 1934 

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

The proposed rule change was 

published for comment in the Federal 

Register on February 11, 2015.3 The 

Commission did not receive any 

comments on the proposed rule change. 

This order approves the proposed rule 

change, as modified by Amendment 1. 

I. Description 

OCC is amending its Rules to permit 

OCC to expand the officers who may 

declare that a clearing member is 

summarily suspended from OCC. 

Currently, OCC Rule 1102 provides that 

only OCC’s Board of Directors (‘‘Board’’) 

and its Executive Chairman may 

summarily suspend a clearing member. 

OCC believes that, given the time 

sensitive nature of managing a clearing 

member default, it is prudent risk 

management to expand the number of 

officers with the authority to summarily 

suspend a clearing member so that OCC 

may begin its default management 

process and, in turn, take protective 

action as soon as possible. 

Pursuant to OCC Rule 1102, OCC’s 

Board and Executive Chairman have the 

authority to summarily suspend a 

clearing member. As set forth in 

Interpretation and Policy .01 of Rule 

1102, such action constitutes a 

‘‘default’’ with respect to the clearing 

member. OCC’s ability to timely and 

effectively begin its clearing member 

default management process serves a 

key role in protecting OCC, nondefaulting clearing members and the 

public from potential consequential 

damage(s) that may be caused by the 

default of a clearing member. In order to 

provide OCC with the necessary tools to 

manage a clearing member default, 

Chapter XI of OCC’s Rules provides 

OCC with the authority to take certain 

protective action(s) once a clearing 

member has been summarily suspended 

(and declared to be in default).4 While 

OCC believes that the authority 

provided to it in Chapter XI of its Rules 

is sufficiently robust to manage a 

clearing member default, OCC may not 

exercise such authority unless and until 

a clearing member has been summarily 

suspended by either the Board or the 

Executive Chairman. 

In order to provide greater assurance 

that OCC will be able to timely and 

effectively manage a clearing member 

default, pursuant to its proposal as 

approved, OCC is amending Rule 1102 

to expand the list of officers who may 

summarily suspend a clearing member 

to include OCC’s President or a designee 

of the Executive Chairman 5 or President 

of the rank of Senior Vice President or 

higher (each a ‘‘Designed Officer’’).6

OCC believes that the change will 

provide it with additional operational 

flexibility because more individuals will 

be able to timely summarily suspend a 

clearing member and thereby allow OCC 

to exercise its authority to manage a 

clearing member default. OCC’s clearing 

member default management process is 

designed to protect OCC, non-defaulting 

clearing members and the public from 

the defaulting clearing member without 

materially impacting financial markets.7

By providing additional officers with 

the authority to summarily suspend a 

clearing member, and thereby allow 

OCC to begin its default management 

processes, there will be greater 

assurance that OCC will timely take 

action(s) necessary to protect itself, nondefaulting clearing members, and the 

public from a defaulting clearing 

member. OCC also is amending Rule 

1102 to require notification to the Board 

as soon as practicable should a 

Designated Officer summarily suspend a 

clearing member.8 The addition of such 

a requirement will ensure that the Board 

is timely informed of such suspensions. 

Furthermore, pursuant to this rule 

change as approved, OCC is making 

conforming amendments consistent 

with the above to Article VI, Section 25 

of its By-Laws and OCC Rule 707, which 

concern the summary suspension of 

clearing members that participate in 

OCC’s cross-margining programs. 

Specifically, Article VI, Section of 

OCC’s By-Laws and OCC Rule 707 will 

explicitly state that the Board of 

Directors or a Designated Officer may 

summarily suspend a clearing member 

based on a cross-margining related 

default. 

Except for the changes described 

above, no other changes are proposed to 

OCC’s suspension or default 

management processes as set forth in 

the Rules, including a clearing 

member’s right to appeal a summary 

suspension in accordance with OCC 

Rule 1110. 

II. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 9 directs 

the Commission to approve a proposed 

rule change of a self-regulatory 

organization if it finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

such organization. 

The Commission finds that the 

proposed rule change is consistent with 

Section 17A(b)(3)(F) of the Act, which 

requires, among other things, that the 

rules of a clearing agency are designed 

to assure the safeguarding of securities 

and funds which are in the custody or 

control of the clearing agency or for 

which it is responsible.10 By expanding 

the list of officers with the authority to 

summarily suspend a clearing member, 

OCC will be better able to ensure that 

has the ability to timely begin the 

clearing member default management 

processes. In turn, timely beginning the 


rljohnson on DSK3VPTVN1PROD with NOTICES
15846 Federal Register / Vol. 80, No. 57 / Wednesday, March 25, 2015 / Notices 

11 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

12 15 U.S.C. 78s(b)(2). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities and Exchange Act Release No. 

19422 (January 12, 1983), SR–OCC–1982–08 [sic]. 

4Tier 1 Capital is the measure used by the Basel 

Committee on Banking Supervision to measure the 

financial health of a bank. The goal of the Basel 

Committee on Banking Supervision is to strengthen 

the regulation, supervision and risk management of 

the banking sector. The Basel Committee on 

Banking Supervision’s most recent set of reform 

measures, Basel III, is located at: http://

www.bis.org/publ/bcbs189.pdf. 

5See https://www.kansascityfed.org/Publicat/

BasicsforBankDirectors/

BasicsforBankDirectors.pdf.> 

6OCC does not anticipate that the proposed rule 

change would impact any of the banks already 

approved to issue letters of credit that may be 

deposited by clearing members as a form of margin 

since all such banks maintain amounts of Tier 1 

Capital that exceed, as applicable, $100 million for 

U.S. banks or $200 million for Non-U.S. banks. 

7See OCC Rule 604(c). For example, OCC accepts 

letters of credit issued by banks regulated by The 

Federal Reserve Board, The Office of the 

Comptroller of the Currency, The Australian 

Prudential Regulation Authority and The German 

Federal Financial Supervisory Authority. 

default management process will further 

the safeguarding of securities and funds 

which are in the custody or control of 

OCC, or for which it is responsible. 

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the 

Act 11 and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,12 that the 

proposed rule change (SR–OCC–2015– 

04), as modified by Amendment 1, be, 

and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06715 Filed 3–24–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74536; File No. SR–OCC– 

2015–007] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change To 

Enhance the Measurement Used To 

Establish Minimum Capital 

Requirements for Banks Approved To 

Issue Letters of Credit 

March 19, 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 March 6, 

2015, The Options Clearing Corporation 

(‘‘OCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

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

have been prepared by OCC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

OCC proposes to amend its By-Laws 

and Rules in order to enhance the 

measurement used to establish 

minimum capital requirements for 

banks approved to issue letters of credit 

that may be deposited by clearing 

members as a form of margin asset. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

The purpose of this proposed rule 

change is to enhance the measurement 

used by OCC to establish minimum 

capital requirements for banks approved 

to issue letters of credit that may be 

deposited by clearing members as a 

form of margin asset. Currently, OCC 

Rule 604 Interpretation and Policy .01 

requires U.S. banks to have 

$100,000,000 or more in shareholders’ 

equity, and non-U.S. banks to have 

$200,000,000 or more in shareholders’ 

equity, in order to be approved as an 

issuer of letters of credit that may 

deposited by clearing members to meet 

their margin obligation(s) at OCC. The 

purpose of these minimum capital 

requirements is to ensure that issuers of 

letters of credit whose letters of credit 

are deposited at OCC as a margin asset 

by clearing members have the ability to 

honor a demand for payment by OCC 

under such letters of credit should a 

need to do so arise, such as in the case 

of a clearing member default. 

The financial requirements set forth 

in OCC Rule 604 Interpretation and 

Policy .01 concerning issuers of letters 

of credit have been in place for some 

time.3 In the years since OCC adopted 

OCC Rule 604 Interpretation and Policy 

.01, bank financial reporting standards 

have evolved and now place a greater 

emphasis on Tier 1 Capital as opposed 

shareholders’ equity.4 In fact, Tier 1 

Capital is the primary component of a 

bank’s total regulatory capital.5 Tier 1 

Capital is a more conservative measure 

of a bank’s financial health as it ignores 

subordinated debt, intermediate-term 

preferred stock, cumulative and longterm preferred stock and a portion of a 

bank’s allowance for loan and lease 

losses. In light of the more universal 

acceptance of Tier 1 Capital for bank 

financial reporting standards, OCC is 

now proposing to amend OCC Rule 604 

Interpretation and Policy .01 to 

substitute Tier 1 Capital for 

shareholders’ equity. 

OCC believes that by measuring a 

bank’s financial health based on Tier 1 

Capital, instead of shareholders’ equity, 

OCC will reduce its credit risk to banks 

issuing letters of credit deposited by 

clearing members as a form of margin 

asset. As stated above, Tier 1 Capital is 

a more conservative measure of a bank’s 

financial health. Therefore, after 

implementation of the proposed rule 

change, should OCC need to demand 

payment on a letter of credit deposited 

by a clearing member as a margin asset, 

such as in the case of a clearing member 

default, it is less likely that the bank 

issuing such letter of credit would not 

perform upon its payment commitment 

because the bank would be required to 

hold a greater amount of capital in order 

to be an OCC letter of credit bank. In 

turn, credit risk presented to OCC as a 

result of accepting letters of credit as a 

form of margin asset is reduced.6

In order to effect the proposed rule 

change, and in addition to amending 

OCC Rule 604 Interpretation and Policy 

.01 as described above, OCC is 

proposing to add a paragraph ‘‘c’’ to 

Interpretation and Policy .01 of OCC 

Rule 604 in order to adopt a definition 

for Tier 1 Capital that leverages the 

definition of Tier 1 Capital employed by 

a bank’s regulatory agency. OCC 

believes that such a definition is 

appropriate given that OCC accepts 

letters of credit from banks regulated by 

different regulatory authorities.7 In 

addition, and for the reasons stated 


rljohnson on DSK3VPTVN1PROD with NOTICES