[Federal Register Volume 80, Number 57 (Wednesday, March 25, 2015)]
[Notices]
[Pages 15845-15846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06715]


-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 74212 (February 5, 
2015), 80 FR 7668 (February 11, 2015) (SR-OCC-2015-04).
---------------------------------------------------------------------------

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, non-defaulting 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.
---------------------------------------------------------------------------

    \4\ For 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.
---------------------------------------------------------------------------

    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, non-defaulting 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.
---------------------------------------------------------------------------

    \5\ OCC 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.
    \6\ OCC's proposal is similar to the summary suspension process 
employed by the National Securities Clearing Corporation (``NSCC''). 
See NSCC Rule 46, Section 3.
    \7\ A description of OCC's default management process is located 
at: http://www.theocc.com/risk-management/default-rules/>
    \8\ OCC staff will notify the Board within two hours of the 
summary suspension.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

    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

[[Page 15846]]

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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    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