20534 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3 In Amendment No. 1, OCC amended the 

advance notice to include the Monthly Clearing 

Fund Sizing Procedure and the Financial Resource 

Monitoring and Call Procedure as exhibits to the 

filing, both defined hereinafter, as Exhibit 5A and 

Exhibit 5B, respectively. OCC has requested 

confidential treatment for Exhibit 5A, Exhibit 5B, 

and Exhibit 5C, referred to hereinafter, pursuant to 

Exchange Act Rule 24b–2. 

4Securities Exchange Act Release No. 74091 

(January 20, 2015), 80 FR 4001 (January 26, 2015) 

(File No. SR–OCC–2014–811). OCC also filed the 

proposal contained in the advance notice, and 

Amendment No. 1 thereto, as a proposed rule 

change, and subsequent amendment no. 1 thereto, 

under section 19(b)(1) of the Exchange Act and Rule 

19b–4 thereunder. See Securities Exchange Act 

quotation and last sale information for 

the Shares. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of exchange-traded 

product that invests principally in 

municipal securities and that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures relating to trading in the 

Shares and may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. In addition, investors will 

have ready access to information 

regarding the IIV and quotation and last 

sale information for the Shares. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of an 

additional type of exchange-traded 

product that invests principally in 

municipal securities and that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

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 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 

the 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– 

NYSEArca–2015–18 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–NYSEArca–2015–18. 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 such 

filing also will be available for 

inspection and copying at the principal 

offices of the Exchange and on its 

Internet Web site at www.nyse.com. 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–NYSEArca–2015–18, and 

should be submitted on or before May 

7, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–08695 Filed 4–15–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74713; File No. SR–OCC– 

2014–811] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Amendment No. 2 to an 

Advance Notice Concerning the 

Monthly Resizing of the Clearing Fund 

and the Addition of Financial 

Resources 

April 10, 2015. 

Pursuant to section 806(e)(1) of title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 1

(‘‘Payment, Clearing and Settlement 

Supervision Act’’) and Rule 19b– 

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

Act of 1934 (‘‘Exchange Act’’),2 notice is 

hereby given that on March 4, 2015, The 

Options Clearing Corporation (‘‘OCC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) 

Amendment no. 2 to the advance notice 

(‘‘Amendment No. 2’’) as described in 

Items I, II and III below, which Items 

have been prepared by OCC. On 

December 1, 2014, OCC originally filed 

the advance notice with the 

Commission. On December 16, 2014, 

OCC filed Amendment No.1 to the 

advance notice (‘‘Amendment No. 1’’), 

which amended and replaced, in its 

entirety, the advance notice as originally 

filed on December 1, 2014.3

Amendment No. 1 to the advance notice 

was published for comment in the 

Federal Register on January 26, 2015.4


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 20535 

Release No. 73853 (December 16, 2014), 79 FR 

76417 (December 22, 2014) (File No. SR–OCC– 

2014–22). The Commission did not receive any 

comments on the proposed rule change. 

5 ‘‘Financial Resources’’ means, with respect to a 

projected loss attributable to a particular Clearing 

Member or Clearing Member Group, as defined 

below, the sum of the margin deposits (less any 

excess margin a Clearing Member or Clearing 

Member Group may have on deposit at OCC) and 

deposits in lieu of margin in respect of such 

Clearing Members’ or Clearing Member Groups’ 

accounts, and the value of OCC’s Clearing Fund, 

including both the Base Amount, as defined below, 

and the prudential margin of safety, as discussed 

below. 

6 ‘‘Clearing Member Group’’ means a Clearing 

Member and any affiliated entities that control, are 

controlled by or are under common control with 

such Clearing Member. See OCC By-Laws, Article 

I, sections 1.C.(15) and 1.M(11). 

7This advance notice filing has also been filed as 

a proposed rule change (SR–OCC–2014–22). 

8The procedures described herein would be in 

effect until the development of a new standard 

Clearing Fund sizing methodology. Following such 

development, which will include a quantitative 

approach to calculating the ‘‘prudential margin of 

safety,’’ as discussed below, OCC will file a separate 

rule change and advance notice with the 

Commission that will include a description of the 

new methodology as well as a revised Monthly 

Clearing Fund Sizing Procedure. 

9On October 16, 2014, OCC filed an emergency 

notice with the Commission to suspend the 

effectiveness of the second sentence of Rule 

1001(a). See Securities Exchange Act Release No. 

73579 (November 12, 2014), 79 FR 68747 

(November 18, 2014) (SR–OCC–2014–807). On 

November 13, 2014, OCC filed SR–OCC–2014–21 

with the Commission to delete the second sentence 

of Rule 1001(a), preserving the suspended 

effectiveness of that sentence until such time as the 

Commission approves or disapproves SR–OCC– 

2014–21. See Securities Exchange Act Release No. 

73685 (November 25, 2014), 79 FR 71479 

(December 2, 2014), (SR–OCC–2014–21). 

10See OCC Rule 1001(a). 

The Commission did not receive any 

comments on Amendment No. 1 to the 

advance notice. Amendment No. 2 to 

the advance notice amends and 

replaces, in its entirety, Amendment No. 

1 to the advance notice. The 

Commission is publishing this notice to 

solicit comments on Amendment No. 2 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice is filed by OCC 

in connection with OCC’s proposal to 

establish procedures regarding the 

monthly resizing of its Clearing Fund 

and the addition of financial resources 

through intra-day margin calls and/or an 

intra-month increase of the Clearing 

Fund to ensure that it maintains 

adequate financial resources in the 

event of a default of a Clearing Member 

or group of affiliated Clearing Members 

presenting the largest exposure to OCC. 

This Amendment No. 2 to SR–OCC– 

2014–811 (SR–OCC–2014–811 is 

hereinafter defined as the ‘‘Filing’’) 

amends and replaces in its entirety the 

Filing as originally submitted on 

December 1, 2014, and amended on 

December 16, 2014. The purpose of this 

Amendment No. 2 is to clarify the 

operation of a Margin Call Event in the 

period of time between the calculation 

of the next month’s Clearing Fund 

Sizing and the collection of the funds 

pursuant to the Clearing Fund Sizing. 

Specifically, the amendment clarifies 

that: (i) Funds deposited by a clearing 

member pursuant to a Margin Call Event 

are considered in aggregate with other 

funds remaining on deposit with OCC 

by the same Clearing Member pursuant 

to a separate Margin Call Event within 

the same monthly period, as applicable; 

and (ii) funds deposited by a clearing 

member pursuant to a Margin Call 

Event(s) may not be withdrawn until 

OCC collects all funds to satisfy the next 

regular monthly Clearing Fund resizing. 

OCC is also proposing amendments that 

clarify the definition of ‘‘Financial 

Resources’’ within the Filing. A restated 

description of the purpose of the 

proposed rule change is below. In 

addition, conforming changes were 

made to Exhibit 5B, the Financial 

Resources Monitoring and Call 

Procedure, which is attached hereto. 

Further, OCC is proposing to add the 

Clearing Fund Intra-Month Re-Sizing 

Procedure, as Exhibit 5C to the Filing, 

through this Amendment No. 2. The 

Clearing Fund Intra-Month Re-Sizing 

Procedure would provide additional 

clarity regarding the resizing process 

discussed above. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notice 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the advance 

notice and discussed any comments it 

received on the advance notice. The text 

of these statements may be examined at 

the places specified in Item IV below. 

OCC has prepared summaries, set forth 

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

most significant aspects of these 

statements. 

(A) Clearing Agency’s Statement on 

Comments on the Advance Notice 

Received From Members, Participants or 

Others 

Written comments on the advance 

notice were not and are not intended to 

be solicited with respect to the advance 

notice and none have been received. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing 

and Settlement Supervision Act 

The proposed change would establish 

new procedures regarding the monthly 

resizing of the Clearing Fund and the 

addition of financial resources through 

intra-day margin calls and/or an intramonth increase of the Clearing Fund to 

ensure that OCC maintains adequate 

Financial Resources in the event of a 

default of a Clearing Member or group 

of affiliated Clearing Members 

presenting the largest exposure to OCC. 

Purpose of the Proposed Change 

The proposed change is intended to 

describe the situations in which OCC 

would exercise authority under its Rules 

to ensure that it maintains adequate 

Financial Resources 5 in the event that 

stress tests reveal a default of the 

Clearing Member or Clearing Member 

Group 6 presenting the largest exposure 

would threaten the then-current 

Financial Resources. This proposed 

change would establish procedures 

governing: (i) OCC’s resizing of the 

Clearing Fund on a monthly basis 

pursuant to Rule 1001(a) (the ‘‘Monthly 

Clearing Fund Sizing Procedure’’); and 

(ii) the addition of Financial Resources 

through an intra-day margin call on one 

or more Clearing Members under Rule 

609 and, if necessary, an intra-month 

increase of the Clearing Fund pursuant 

to Rule 1001(a) (the ‘‘Financial Resource 

Monitoring and Call Procedure’’).7 The 

Monthly Clearing Fund Sizing 

Procedure would permit OCC to 

determine the size of the Clearing Fund 

by relying on a broader range of sound 

risk management practices than those 

historically used under Rule 1001(a).8

The Financial Resource Monitoring and 

Call Procedure would require OCC to 

collect additional Financial Resources 

in certain circumstances, establish how 

OCC calculates and collects such 

resources and provide the timing by 

which such resources would be required 

to be deposited by Clearing Members. 

Background 

OCC monitors the sufficiency of the 

Clearing Fund on a daily basis but, prior 

to emergency action taken on October 

15, 2014,9 OCC had no express authority 

to increase the size of the Clearing Fund 

on an intra-month basis.10 During 

ordinary course daily monitoring on 

October 15, 2014, and as a result of 

increased volatility in the financial 

markets in October 2014, OCC 

determined that the Financial Resources 

needed to cover the potential loss 

associated with a default of the Clearing 

Member or Clearing Member Group 

presenting the largest exposure could 


tkelley on DSK3SPTVN1PROD with NOTICES
20536 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 

11OCC also has submitted an advance notice that 

would provide greater detail concerning conditions 

under which OCC would increase the size of the 

Clearing Fund intra-month. The change would 

permit an intra-month increase in the event that the 

five-day rolling average of projected draws are 

150% or more of the Clearing Fund’s then current 

size. See Securities Exchange Act Release No. 72804 

(August 11, 2014), 79 FR 48276 (August 15, 2014) 

(SR–OCC–2014–804). 

12 12 U.S.C. 5465(e)(2). 

13See supra, note 10. 

14See Information Memorandum #35397, dated 

October 16, 2014, available on OCC’s Web site, 

http://www.theocc.com/clearing/clearinginfomemos/infomemos1.jsp. Clearing members also 

were informed that a prudential margin of safety of 

$1.8 billion would be retained until a new Clearing 

Fund sizing formula has been approved and 

implemented. 

15See Information Memorandum #35507, dated 

October 31, 2014, available on OCC’s Web site, 

http://www.theocc.com/clearing/clearinginfomemos/infomemos1.jsp. 

16See OCC By-Laws, Article IX, section 14(c). 

17See supra, note 10. OCC also submitted this 

proposed rule change to the Commodity Futures 

Trading Commission. 

18As noted in SR–OCC–2014–21, OCC would use 

its intra-month resizing authority only to increase 

the size of the Clearing Fund where appropriate, not 

to decrease the size of the Clearing Fund. 

19On a daily basis, OCC computes its exposure 

under the idiosyncratic and minor systemic events. 

The greater of these two exposures is that day’s 

‘‘peak exposure.’’ To calculate the ‘‘rolling five day 

average’’ OCC computes the average of the peak 

exposure for each consecutive five-day period 

observed over the prior three-month period. To 

determine the Base Amount, OCC would use the 

largest five-day rolling average observed over the 

past three-months. This methodology was used to 

determine the Base Amount of the Clearing Fund 

for November 2014 and December 2014. 

20Considering only the peak exposures is a more 

conservative methodology that gives greater 

weighting to sudden increases in exposure 

experienced by Clearing Members, thus enhancing 

the responsiveness of the procedure to such sudden 

increases. By using a longer look-back period, the 

methodology would respond more slowly to 

recently observed decreases in peak exposures. 

have exceeded the Financial Resources 

then available to apply to such a default. 

To permit OCC to increase the size of 

its Clearing Fund prior to the next 

monthly resizing that was scheduled to 

take place on the first business day of 

November 2014, OCC’s Executive 

Chairman, on October 15, 2014, 

exercised certain emergency powers as 

set forth in Article IX, section 14 of 

OCC’s By-Laws 11 to waive the 

effectiveness of the second sentence of 

Rule 1001(a), which states that OCC will 

adjust the size of the Clearing Fund 

monthly and that any resizing will be 

based on data from the preceding 

month. OCC then filed an emergency 

notice with the Commission pursuant to 

section 806(e)(2) of the Payment, 

Clearing and Settlement Supervision 

Act of 2010 12 and increased the 

Clearing Fund size for the remainder of 

October 2014 as otherwise provided for 

in the first sentence of Rule 1001(a).13

Clearing Members were informed of 

the action taken by the Executive 

Chairman 14 and the amount of their 

additional Clearing Fund requirements, 

which were met without incident. As a 

result of these actions, OCC’s Clearing 

Fund for October 2014 was increased by 

$1.8 billion. In continued reliance on 

the emergency rule waiver and in 

accordance with the first sentence of 

Rule 1001(a), OCC set the November 

2014 Clearing Fund size at $7.8 billion, 

which included an amount determined 

by OCC to be sufficient to protect OCC 

against loss under simulated default 

scenarios (i.e., $6 billion), plus a 

prudential margin of safety (the 

additional $1.8 billion collected in 

October).15 All required contributions to 

the November 2014 Clearing Fund were 

met by affected Clearing Members. 

Under Article IX, section 14(c), absent 

the submission of a proposed rule 

change to the Commission seeking 

approval of OCC’s waiver of the 

provisions of the second sentence of 

Rule 1001(a), such waiver would not be 

permitted to continue for more than 

thirty calendar days from the date 

thereof.16 Accordingly, on November 

13, 2014, OCC submitted SR–OCC– 

2014–21 to delete the second sentence 

of Rule 1001(a) and, by the terms of 

Article IX, section 14(c), preserve the 

suspended effectiveness of the second 

sentence of Rule 1001(a) beyond thirty 

calendar days.17

SR–OCC–2014–21 was submitted in 

part to permit OCC to determine the size 

of its Clearing Fund by relying on a 

broader range of sound risk management 

practices than considered in basing such 

size on the average daily calculations 

under Rule 1001(a) that are performed 

during the preceding calendar month. 

The Monthly Clearing Fund Sizing 

Procedure, as described below, is based 

on such broader risk management 

practices and establishes the procedures 

OCC would use to determine the size of 

the Clearing Fund on a monthly basis. 

Similarly, SR–OCC–2014–21 was 

submitted in part to permit OCC to 

resize the Clearing Fund more 

frequently than monthly when the 

circumstances warrant an increase of 

the Clearing Fund. The Financial 

Resource Monitoring and Call 

Procedure, as described below, 

establishes the procedures that OCC 

would use to add Financial Resources 

through an intra-day margin call on one 

or more Clearing Members under Rule 

609 and, if necessary, an intra-month 

increase of the Clearing Fund pursuant 

to Rule 1001(a).18

Monthly Clearing Fund Sizing 

Procedure 

Under the Monthly Clearing Fund 

Sizing Procedure, OCC would continue 

to calculate the size of the Clearing 

Fund based on its daily stress test 

exposures under simulated default 

scenarios as described in the first 

sentence of Rule 1001(a) and resize the 

Clearing Fund on the first business day 

of each month. However, instead of 

resizing the Clearing Fund based on the 

average of the daily calculations during 

the preceding calendar month, as stated 

in the suspended second sentence of 

Rule 1001, OCC would resize the 

Clearing Fund so that it is the sum of: 

(i) An amount equal to the peak five-day 

rolling average of Clearing Fund draws 

observed over the preceding three 

calendar months of daily idiosyncratic 

default and minor systemic default 

scenario calculations based on OCC’s 

daily Monte Carlo simulations (‘‘Base 

Amount’’) and (ii) a prudential margin 

of safety determined by OCC and 

currently set at $1.8 billion.19

OCC believes that the proposed 

Monthly Clearing Fund Sizing 

Procedure provides a sound and 

prudent approach to ensure that the 

Financial Resources are adequate to 

protect against the largest risk of loss 

presented by the default of a Clearing 

Member or Clearing Member Group. By 

virtue of using only the peak five-day 

rolling average and by extending the 

look-back period, the proposed Monthly 

Clearing Fund Sizing Procedure is both 

more responsive to sudden increases in 

exposure and less susceptible to 

recently observed decreases in exposure 

that would reduce the overall sizing of 

the Clearing Fund, thus mitigating 

procyclicality.20 Furthermore, the 

prudential margin of safety provides an 

additional buffer to absorb potential 

future exposures not previously 

observed during the look-back period. 

The proposed Monthly Clearing Fund 

Sizing Procedure would be 

supplemented by the Financial 

Resource Monitoring and Call 

Procedure, described below, to provide 

further assurance that the Financial 

Resources are adequate to protect 

against such risk of loss. 

Financial Resource Monitoring and Call 

Procedure 

Under the Financial Resource 

Monitoring and Call Procedure, OCC 

would use the same daily idiosyncratic 

default calculation as under the 

Monthly Clearing Fund Sizing 

Procedure to monitor daily the 

adequacy of the Financial Resources to 

withstand a default by the Clearing 

Member or Clearing Member Group 

presenting the largest exposure under 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 20537 

21Since the minor systemic default scenario 

contemplates two Clearing Members’ 

simultaneously defaulting and OCC maintains 

Financial Resources sufficient to cover a default by 

a Clearing Member or Clearing Member Group 

representing the greatest exposure to OCC, OCC 

does not use the minor systemic default scenario to 

determine the adequacy of the Financial Resources 

under the Financial Resource Monitoring and Call 

Procedure. 

22Rule 609 authorizes OCC to require the deposit 

of additional margin in any account at any time 

during any business day by any Clearing Member 

for, inter alia, the protection of OCC, other Clearing 

Members or the general public. Clearing Members 

must meet a required deposit of intra-day margin 

in immediately available funds at a time prescribed 

by OCC or within one hour of OCC’s issuance of 

debit settlement instructions against the bank 

account(s) of the applicable Clearing Member(s), 

thereby ensuring the prompt deposit of additional 

Financial Resources. 

23 ‘‘Capping’’ the intra-day margin call avoids 

placing a ‘‘liquidity squeeze’’ on the subject 

Clearing Member(s) based on exposures presented 

by a hypothetical stress test, which would have the 

potential for causing a default on the intra-day 

margin call. Back testing results determined that 

such calls would have been made against Clearing 

Members that are large, well-capitalized firms, with 

more than sufficient resources to satisfy the call for 

additional margin with the proposed limitations. 

24The Risk Committee would be notified, and 

could take action to address potential Financial 

Resource deficiencies, in the event that a Projected 

Draw resulted in a Margin Call Event and as a result 

of the 500/100 Limitation the margin call was less 

than the Exceedance Above Base Amount, but the 

Projected Draw was not so large as to result in an 

increase in the Clearing Fund as discussed below. 

25The back testing analysis performed assumed a 

single Clearing Member caused the exceedance. 

extreme but plausible market 

conditions.21 If such a daily 

idiosyncratic default calculation 

projected a draw on the Clearing Fund 

(a ‘‘Projected Draw’’) that is at least 75% 

of the Clearing Fund maintained by 

OCC, OCC would be required to issue an 

intra-day margin call pursuant to Rule 

609 against the Clearing Member or 

Clearing Member Group that caused 

such a draw (‘‘Margin Call Event’’).22

Subject to a limitation described below, 

the amount of the margin call would be 

the difference between the Projected 

Draw and the Base Clearing Fund 

(‘‘Exceedance Above Base Amount’’). In 

the case of a Clearing Member Group 

that causes the Exceedance Above Base 

Amount, the Exceedance Above Base 

Amount would be pro-rated among the 

individual Clearing Members that 

compose the Clearing Member Group 

based on each individual Clearing 

Member’s proportionate share of the 

‘‘total risk’’ for such Clearing Member 

Group as defined in Rule 1001(b), i.e., 

the margin requirement with respect to 

all accounts of the Clearing Member 

Group exclusive of the net asset value 

of the positions in such accounts 

aggregated across all such accounts. 

However, in the case of an individual 

Clearing Member or a Clearing Member 

Group, the margin call would be subject 

to a limitation under which it could not 

exceed the lower 23 of: (a) $500 million, 

or (b) 100% of a Clearing Member’s net 

capital. Such limitation would be 

measured in aggregate with any funds 

remaining on deposit with OCC 

deposited by the same Clearing Member 

pursuant to a Margin Call Event within 

the same monthly period, as applicable, 

until collection of all funds to satisfy the 

next regular monthly Clearing Fund 

resizing (the ‘‘500/100 Limitation’’).24

Upon satisfaction of the margin call, 

OCC would use its authority under Rule 

608 to preclude the withdrawal of such 

additional margin amount until it 

collects all of the funds determined by 

the next Monthly Clearing Fund Sizing 

Procedure. Based on three years of back 

testing data, OCC determined that it 

would have had Margin Call Events in 

10 of the months during this time 

period. For each of these months, the 

maximum call amount would have been 

equal to $500 million, with one 

exception in which the maximum call 

amount for the month was $7.7 

million.25 After giving effect to the intraday margin calls, i.e., by increasing the 

Financial Resources by $500 million, 

there was only one Margin Call Event 

where there was an observed stress test 

exceedance of the Financial Resources. 

To address this one observed 

instance, the Financial Resource 

Monitoring and Call Procedure also 

would require OCC to increase the size 

of the Clearing Fund (‘‘Clearing Fund 

Intra-month Increase Event’’) if a 

Projected Draw exceeds 90% of the 

Clearing Fund, after applying any funds 

then on deposit with OCC from the 

applicable Clearing Member or Clearing 

Member Group pursuant to a Margin 

Call Event. The amount of such increase 

(‘‘Clearing Fund Increase’’) would be the 

greater of: (a) $1 billion; or (b) 125% of 

the difference between (i) the Projected 

Draw, as reduced by the deposits 

resulting from the Margin Call Event 

and (ii) the Clearing Fund. Each 

Clearing Member’s proportionate share 

of the Clearing Fund Increase would 

equal its proportionate share of the 

variable portion of the Clearing Fund for 

the month in question as calculated 

pursuant to Rule 1001(b). OCC would 

notify the Risk Committee of the Board 

of Directors (the ‘‘Risk Committee’’), 

Clearing Members and appropriate 

regulatory authorities of the Clearing 

Fund Increase on the business day on 

which the Clearing Fund Intra-month 

Increase Event occurred. This ensures 

that OCC management maintains 

authority to address any potential 

Financial Resource deficiencies when 

compared to its Projected Draw 

estimates. The Risk Committee would 

then determine whether the Clearing 

Fund Increase was sufficient, and would 

retain authority to increase the Clearing 

Fund Increase or the margin call made 

pursuant to a Margin Call Event in its 

discretion. Clearing Members would be 

required to meet the call for additional 

Clearing Fund assets by 9:00 a.m. CT on 

the second business day following the 

Clearing Fund Intra-Month Increase 

Event. OCC believes that this collection 

process ensures additional Clearing 

Fund assets are promptly deposited by 

Clearing Members following notice of a 

Clearing Fund Increase, while also 

providing Clearing Members with a 

reasonable period of time to source such 

assets. Based on OCC’s back testing 

results, after giving effect to the intraday margin call in response to a Margin 

Call Event plus the prudential margin of 

safety, the Financial Resources would 

have been sufficient upon implementing 

the one instance of a Clearing Fund 

Intra-month Increase Event. 

OCC believes the Financial Resource 

Monitoring and Call Procedure strikes a 

prudent balance between mutualizing 

the burden of requiring additional 

Financial Resources and requiring the 

Clearing Member or Clearing Member 

Group causing the increased exposure to 

bear such burden. As noted above, in 

the event of a Margin Call Event, OCC 

limits the margin call until collection of 

all funds to satisfy the next regular 

monthly resizing to an aggregate of $500 

million, or 100% of a Clearing Member’s 

net capital in order to avoid putting an 

undue liquidity strain on any one 

Clearing Member. However, where a 

Projected Draw exceeds 90% of OCC’s 

Clearing Fund, OCC must act to ensure 

that it has sufficient Financial 

Resources, and determined that it 

should mutualize the burden of the 

additional Financial Resources at this 

threshold through a Clearing Fund 

Increase. OCC believes that this balance 

would provide OCC with sufficient 

Financial Resources without increasing 

the likelihood that its procedures 

would, based solely on stress testing 

results, cause a liquidity strain on any 

on Clearing Member that could result in 

such member’s default. 

The following examples illustrate the 

manner in which the Financial Resource 

Monitoring and Call Procedure would 

be applied. All assume that the Clearing 

Fund size is $7.8 billion, $6 billion of 

which is the Base Amount and $1.8 

billion of which is the prudential 

margin of safety. The 75% threshold in 

these examples is $5.85 billion. 


tkelley on DSK3SPTVN1PROD with NOTICES
20538 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 

26 12 U.S.C. 5464(b)(1). 

27 12 U.S.C. 5464(e)(2); see SR–OCC–2014–807, 

supra, note 8. 

Example 1: Single CM 

Under OCC’s stress testing the 

Projected Draw attributable to Clearing 

Member ABC, a Clearing Member with 

no affiliated Clearing Members and net 

capital of $500 million, is $6.4 billion, 

or 82% of the Clearing Fund. OCC 

would make a margin call for $400 

million, which represents the 

Exceedance Above Base Amount. In this 

case the 500/100 Limitation would not 

be applicable because the Exceedance 

Above Base Amount is less than $500 

million and 100% of the Clearing 

Member’s net capital. The Clearing 

Member would be required to meet the 

$400 million call within one hour 

unless OCC prescribed a different time, 

and OCC would retain the $400 million 

until collection of all the funds to satisfy 

the next monthly Clearing Fund sizing 

calculation. 

If, on a different day within the same 

month, CM ABC’s Projected Draw 

minus the $400 million already 

deposited with OCC results in an 

Exceedance above Base Amount, 

another Margin Call Event would be 

triggered, with the amount currently 

deposited with OCC applying toward 

the 500/100 Limitation. 

Example 2: Clearing Member Group 

Under OCC’s stress testing the 

Projected Draw attributable to Clearing 

Member Group DEF, comprised of two 

Clearing Members each with net capital 

of $800 million, is $6.2 billion, or 79% 

of OCC’s Clearing Fund. OCC would 

initiate a margin call on Clearing 

Member Group DEF for $200 million. 

The call would be allocated to the two 

Clearing Members that compose the 

Clearing Member Group based on each 

Clearing Member’s risk margin 

allocation. In this case the 500/100 

Limitation would not be applicable 

because the Exceedance Above Base 

Amount is less than $500 million and 

100% of net capital. The margin call 

would be required to be met within one 

hour of the call unless OCC prescribed 

a different time. For example, in the 

case where one Clearing Member 

accounts for 75% of the risk margin for 

the Clearing Member Group, that 

Clearing Member would be allocated 

$150 million of the call and the other 

Clearing Member, accounting for 25% of 

the risk margin for the Clearing Member 

Group, would be allocated $50 million 

of the call. The funds would remain 

deposited with OCC until collection of 

all the funds to satisfy the next monthly 

Clearing Fund sizing calculation. 

Example 3: Clearing Member Group 

With $500 Million Cap 

Under OCC’s stress testing the 

Projected Draw attributable to Clearing 

Member Group GHI, comprised of two 

Clearing Members each with net capital 

of $800 million, is $6.8 billion, or 87% 

of the Clearing Fund. The Exceedance 

Above Base Amount would be $800 

million, allocated to the two Clearing 

Members that compose the Clearing 

Member Group based on each Clearing 

Member’s risk margin allocation. Using 

the 75/25 risk margin allocation from 

Example 2, one Clearing Member would 

be allocated $600 million and the other 

Clearing Member would be allocated 

$200 million. The first Clearing Member 

would be required to deposit $500 

million with OCC, which is the lowest 

of $500 million, that member’s net 

capital, or that member’s share of the 

Exceedance Above Base Amount, and 

the other Clearing Member would be 

required to deposit $200 million with 

OCC. After collecting the additional 

margin, OCC would determine whether 

the Projected Draw would exceed 90% 

of the Clearing Fund after reducing the 

Projected Draw by the additional 

margin. This calculation would divide a 

Projected Draw of $6.1 billion, which is 

the original Projected Draw of $6.8 

billion reduced by the additional 

margin, by the Clearing Fund of $7.8 

billion. The resulting percentage of 78% 

would be below the 90% threshold, and 

accordingly there would not be a 

Clearing Fund Intra-month Increase 

Event. 

Example 4: Margin Call and Increase in 

Size of Clearing Fund 

Under OCC’s stress testing the 

Projected Draw attributable to Clearing 

Member JKL, a Clearing Member with 

no affiliated Clearing Members and net 

capital of $600 million, is $10.0 billion, 

or 128% of the Clearing Fund. OCC 

would make a margin call for $500 

million, which represents the lowest of 

the Exceedance Above Base Amount, 

$500 million and 100% of net capital. 

The Clearing Member would be required 

to meet the $500 million call within one 

hour unless OCC prescribed a different 

time, and OCC would retain the $500 

million until collection of all the funds 

to satisfy the next monthly Clearing 

Fund sizing calculation. After collecting 

the additional margin, OCC would 

determine whether the Projected Draw 

would exceed 90% of the Clearing Fund 

after reducing the Projected Draw by the 

additional margin. This calculation 

would divide a Projected Draw of $9.5 

billion, which is the original Projected 

Draw of $10 billion reduced by the 

additional margin, by the Clearing Fund 

of $7.8 billion. The resulting percentage 

of 122%, while lower, would still 

exceed the 90% threshold, and 

accordingly OCC would declare a 

Clearing Fund Intra-month Increase 

Event. To calculate the Clearing Fund 

Increase, OCC would first determine the 

difference between the modified 

Projected Draw ($9.5 billion) and the 

Clearing Fund ($7.8 billion), which in 

this case would be $1.7 billion, OCC 

would then multiply this by 1.25, 

resulting in $2.125 billion. Because this 

amount is greater than $1 billion, the 

Clearing Fund Increase would be $2.125 

billion and a modified Clearing Fund of 

OCC totaling $9.925 billion ($425 

million in excess of the modified 

Projected Draw of $9.5 billion). 

Consistency With the Payment, Clearing 

and Settlement Supervision Act 

OCC believes that the proposed 

change regarding the establishment of 

the Monthly Clearing Fund Sizing 

Procedure and Financial Resource 

Monitoring and Call Procedure 

described above is consistent with 

section 805(b)(1) of the Payment, 

Clearing and Settlement Supervision 

Act 26 because the proposed procedures 

will promote robust risk management by 

setting forth a process in order to ensure 

that OCC maintains adequate Financial 

Resources in the event of a default of a 

Clearing Member or Clearing Member 

Group presenting the largest exposure to 

OCC. The proposed change regarding 

the establishment of these procedures is 

also consistent with section 806(e)(2) of 

the Payment, Clearing and Settlement 

Supervision Act, upon which OCC 

relied in originally suspending the 

effectiveness of the second sentence of 

Rule 1001(a) and increasing the size of 

the Clearing Fund on October 15, 2014, 

because it allows OCC to continue to 

provide its services in a safe and sound 

manner.27

Anticipated Effect on and Management 

of Risk 

OCC believes that the proposed 

change will reduce OCC’s overall level 

of risk because the proposed change 

makes it less likely that OCC’s Clearing 

Fund would be insufficient should OCC 

need to use its Clearing Fund to manage 

a Clearing Member or Clearing Member 

Group default. The Monthly Clearing 

Fund Sizing Procedure would permit 

OCC to determine the size of its Clearing 

Fund by relying on a broader range of 

sound risk management practices than 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices 20539 

those considered in the suspended 

second sentence of Rule 1001(a). OCC 

believes that using the peak five-day 

rolling average of Clearing Fund draws 

observed over a three-month period will 

result in a monthly resizing of the 

Clearing Fund that will better reflect the 

risks posed by sudden increases in 

exposure experienced by Clearing 

Members. OCC also believes that the 

proposed prudential margin of safety 

will provide an additional buffer to 

protect against exposures not reflected 

in the three-month look-back period. 

The Financial Resource Monitoring and 

Call Procedure would enable OCC to 

minimize losses in the event of a default 

of a Clearing Member or Clearing 

Member Group presenting the largest 

exposure to OCC, by allowing it the 

flexibility to obtain additional Financial 

Resources either through an intra-day 

margin call or an intra-month increase 

in the size of the Clearing Fund, which 

would ensure that the clearance and 

settlement of transactions in options 

and other contracts occurs without 

interruption. Accordingly, OCC believes 

that the proposed changes would reduce 

risks to OCC and its participants. 

Moreover, and for the same reasons, the 

proposed change will facilitate OCC’s 

ability to manage risk. 

III. Date of Effectiveness of the Advance 

Notice and Timing for Commission 

Action 

The advance notice may be 

implemented if the Commission does 

not object to the advance notice within 

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

the advance notice was filed with the 

Commission or (ii) the date that any 

additional information requested by the 

Commission is received. OCC shall not 

implement the advance notice if the 

Commission has any objection to the 

advance notice. 

The Commission may extend the 

period for review by an additional 60 

days if the advance notice raises novel 

or complex issues, subject to the 

Commission providing OCC with 

prompt written notice of the extension. 

An advance notice may be implemented 

in less than 60 days from the date the 

advance notice is filed, or the date 

further information requested by the 

Commission is received, if the 

Commission notifies OCC in writing 

that it does not object to the advance 

notice and authorizes OCC to 

implement the advance notice on an 

earlier date, subject to any conditions 

imposed by the Commission. 

The clearing agency shall post notice 

on its Web site of proposed changes that 

are implemented. 

The proposal shall not take effect 

until all regulatory actions required 

with respect to the proposal are 

completed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing. 

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–2014–811 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–OCC–2014–811. 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 advance notice that 

are filed with the Commission, and all 

written communications relating to the 

advance notice between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 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_14_

811.pdf. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–OCC–2014–811 and should 

be submitted on or before May 7, 2015. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–08712 Filed 4–15–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

31549; File No. 812–14357] 

Dreyfus TMT Opportunities Fund, Inc., 

et al.; Notice of Application 

April 7, 2015. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of an application under 

section 6(c) of the Investment Company 

Act of 1940 (‘‘Act’’) for an exemption 

from section 19(b) of the Act and rule 

19b–1 under the Act. 

APPLICANTS: Dreyfus TMT Opportunities 

Fund, Inc. (‘‘TMT Fund’’) and The 

Dreyfus Corporation (‘‘Dreyfus’’ and, 

together with TMT Fund, the 

‘‘Applicants’’). 

SUMMARY OF APPLICATION: Applicants 

request an order to permit certain 

registered closed-end investment 

companies to make periodic 

distributions of long-term capital gains 

with respect to their outstanding 

common stock as frequently as twelve 

times in any one taxable year, and as 

frequently as distributions are specified 

by or in accordance with the terms of 

any outstanding preferred stock that 

such investment companies may issue. 

DATES: Filing Dates: The application was 

filed on September 5, 2014 and 

amended on February 18, 2015. 

HEARING OR NOTIFICATION OF HEARING: An 

order granting the application will be 

issued unless the Commission orders a 

hearing. Interested persons may request 

a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on May 4, 2015, and 

should be accompanied by proof of 

service on applicants, in the form of an 

affidavit or, for lawyers, a certificate of 

service. Pursuant to Rule 0–5 under the 

Act, hearing requests should state the 

nature of the writer’s interest, any facts 

bearing upon the desirability of a 

hearing on the matter, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Commission’s Secretary. 

ADDRESSES: The Commission: Brent J. 

Fields, Secretary, U.S. Securities and 


tkelley on DSK3SPTVN1PROD with NOTICES