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
Federal Register / Vol. 80, No. 57 / Wednesday, March 25, 2015 / Notices 15847 

8 15 U.S.C. 78q-1(b)(3)(F). 

9 17 CFR 240.17Ad-22(d)(3). 

10 15 U.S.C. 78q-1(b)(3)(I). 11See OCC Rule 604. 12 17 CFR 200.30–3(a)(12). 

above, OCC is proposing to make a 

conforming change to OCC Rule 604 

Interpretation and Policy .04 so that any 

one bank may not issue letters of credit 

for an individual clearing member 

exceeding 15% of the bank’s Tier 1 

Capital (instead of shareholders’ equity). 

2. Statutory Basis 

OCC believes that the proposed rule 

change is consistent with Section 

17A(b)(3)(F) of the Act 8 because it will 

help ensure the safeguarding of 

securities and funds which are in the 

custody and control of OCC, or for 

which it is responsible. OCC believes 

that the proposed rule change would 

help ensure the safeguarding of 

securities and funds which are in the 

custody and control of OCC, or for 

which OCC is responsible, because 

banks approved to issue letters of credit 

that may be deposited by clearing 

members as a form of margin asset at 

OCC will be subject to a more 

conservative capital requirement 

thereby increasing the likelihood that 

the bank will have the ability to honor 

a demand for payment made by OCC. 

For the same reason, OCC believes that 

the adoption of a more conservative 

capital requirement for banks approved 

to issue letters of credit that may be 

deposited by clearing members as a 

form of margin asset is consistent with 

the requirement of SEC Rule 17Ad22(d)(3), which requires OCC hold 

assets in a manner that minimizes risk 

of loss or delay in access to them.9 The 

proposed rule change is not inconsistent 

with any rules of OCC, including any 

other rules proposed to be amended. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burden on competition.10 Changes to 

the rules of a clearing agency may have 

an impact on the participants in a 

clearing agency and the markets that the 

clearing agency serves. This proposed 

rule change enhances the measurement 

used to establish capital requirements 

for banks that want to be, or are, 

approved to issue letters of credit that 

clearing members may deposit as a 

margin asset at OCC. The proposed 

modifications would not unfairly inhibit 

access to OCC’s services or disadvantage 

or favor any particular user in 

relationship to another user because 

each user will continue to be able to use 

the same set of approved letter of credit 

banks if it wishes to deposit a letter of 

credit as a form of margin asset. In 

addition, OCC permits a wide variety of 

other assets to be deposit by clearing 

members to meet their margin 

requirements at OCC.11 The proposed 

modifications would not disadvantage 

or favor any particular bank wishing to 

become an approved letter of credit 

bank, or already an approved letter of 

credit bank, as those wishing to become 

letter of credit banks will have the same 

capital requirement applied to them, 

and those currently approved as letter of 

credit banks already meet the enhanced 

capital measurement. 

For the foregoing reasons, OCC 

believes that the proposed rule change 

is in the public interest, would be 

consistent with the requirements of the 

Act applicable to clearing agencies and 

would not impose a burden on 

competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments on the proposed 

rule change were not and are not 

intended to be solicited with respect to 

the proposed rule change and none have 

been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

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– 

OCC–2015–007 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–2015–007. 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 

10:00 a.m. and 3:00 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 at 

http://www.theocc.com/components/

docs/legal/rules_and_bylaws/sr_occ_15_

007.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–2015–007 and should 

be submitted on or before April 15, 

2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06714 Filed 3–24–15; 8:45 am] 

BILLING CODE 8011–01–P 


rljohnson on DSK3VPTVN1PROD with NOTICES