1814 Federal Register / Vol. 87, No. 8 / Wednesday, January 12, 2022 / Notices 

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

2 17 CFR 240.19b–4(n)(1)(i). 

3 15 U.S.C. 78a et seq. 

4OCC’s By-Laws and Rules can be found on 

OCC’s website: https://www.theocc.com/CompanyInformation/Documents-and-Archives/By-Lawsand-Rules. 

5See By-Law Art. IX, Sec. 1. 

6See OCC Rule 604(a); Rule 1006(c). 

7See OCC Rule 1006(f). As discussed, infra, the 

proposed changes would amend this clause to 

apply when OCC reasonably believes it necessary 

to meet its liquidity needs for ‘‘daily settlement’’ as 

a result of the failure of any bank ‘‘to perform any 

obligation to the Corporation when due.’’ 

8OCC amended its Rules in 2018 to extend access 

to the Clearing Fund in the extraordinary event that 

OCC faces a liquidity need in order to complete 

same-day settlement for reasons other than a bank 

or clearing organization’s bankruptcy, insolvency, 

receivership, suspension of operations, or any 

similar event. See Securities Exchange Act 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–93915; File No. SR–OCC– 

2021–803] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Advance Notice 

Concerning The Options Clearing 

Corporation’s Cash and Investment 

Management 

January 6, 2022. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled Payment, Clearing and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) 2 under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’),3 notice is hereby given that on 

December 23, 2021, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

an advance notice 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 advance notice from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice is submitted in 

connection with proposed changes to: 

(1) Formalize OCC’s policy for 

safeguarding cash and related 

investments; (2) amend OCC’s Rules 

governing use of the Clearing Fund in 

the event of the failure of a bank to meet 

a settlement obligation with OCC to 

ensure such access extends to the failure 

of an investment counterparty with 

whom OCC has invested cash deposited 

by Clearing Members in respect of 

margin or Clearing Fund requirements 

under the conditions identified in OCC 

Rule 1006(c) and (f), regardless of 

whether the investment counterparty is 

a bank; and (3) implement changes to 

OCC’s revolving credit facility to reflect 

the proposed changes to OCC’s Rules. 

The proposed changes are described in 

detail in Item II below. The Cash and 

Investment Management Policy is 

included in confidential Exhibit 5a of 

File Number SR–OCC–2021–803. 

Proposed amendments to OCC’s Rules 

are included in Exhibit 5b of File 

Number SR–OCC–2021–803. All terms 

with initial capitalization that are not 

otherwise defined herein have the same 

meaning as set forth in the OCC ByLaws and Rules.4

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 were not and are 

not intended to be solicited with respect 

to the advance notice and none have 

been received. OCC will notify the 

Commission of any written comments 

received by OCC. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing, 

and Settlement Supervision Act 

OCC is proposing to enhance its cash 

and investment management practices 

by: (1) Formalizing OCC’s policy for 

safeguarding cash and related 

investments; (2) amending OCC’s Rules 

to ensure access to the Clearing Fund if 

a non-bank investment counterparty 

fails to return Clearing Member cash 

deposited in respect of margin or 

Clearing Fund requirements under the 

conditions identified in OCC Rule 

1006(c) and (f); and (3) implementing 

changes to OCC’s revolving credit 

facility to reflect the changes to OCC’s 

Rules. 

Background 

OCC’s By-Laws and Rules govern the 

management and investment of OCC’s 

own funds and cash deposited by 

Clearing Members. With respect to 

OCC’s own funds (other than Clearing 

Fund deposits), Article IX, Section 1 of 

OCC’s By-Laws provides that funds in 

excess of the amount needed as working 

capital may be invested by the Board in 

Government securities or such other 

securities or financial instruments as the 

Board or a Board-level committee may 

from time to time approve.5 With 

respect to cash deposited by Clearing 

Members, OCC Rules 604(a) and 1002(c) 

provide that cash deposited in respect of 

a Clearing Member’s margin 

requirements or Clearing Fund 

contributions may from time to time be 

partially or wholly invested by OCC for 

its account in Government securities.6

OCC does not propose to amend these 

By-Laws or Rules. 

OCC’s investments historically have 

been limited to overnight transactions 

under deliver-versus-payment (‘‘DVP’’) 

reverse repurchase agreements. As 

collateral, the investment counterparty 

deliveries Government securities equal 

to 102% of the cash invested at the time 

the investment is made. Such 

investments reduce OCC’s investment 

risks by permitting quick liquidation 

with little adverse price effect and 

controlling the movement of OCC’s 

assets via a custodian bank. To 

minimize counterparty risk, OCC 

restricts its potential counterparties to 

financial institutions that meet certain 

standards of size, capital adequacy, 

product offering and operational 

capacity. 

In the event of a failure or disruption 

of an investment counterparty that is a 

bank, OCC’s Rules provide OCC with 

authority to access the Clearing Fund to 

address liquidity shortfalls, including 

shortfalls arising from the investment of 

Clearing Member cash in Government 

securities. Specifically, OCC Rule 

1006(f) authorizes OCC to take 

possession of cash or securities 

deposited by Clearing Members in 

respect of the Clearing Fund when OCC 

reasonably believes it necessary to meet 

its liquidity needs for same-day 

settlement as a result of the failure of 

any bank to achieve daily settlement 

with OCC.7 In the extremely unlikely 

event that a bank investment 

counterparty failed to return the cash 

versus return of the Government 

securities to unwind a transaction under 

a reverse repurchase agreement—e.g., 

because of a systems disruption, 

operational outage, or otherwise—OCC 

could exercise authority under Rule 

1006(f) to borrow from the Clearing 

Fund to the extent required for OCC to 

meet its settlement obligations with 

Clearing Members.8


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Federal Register / Vol. 87, No. 8 / Wednesday, January 12, 2022 / Notices 1815 

(‘‘Exchange Act’’) Release No. 82309 (Dec. 13, 

2017), 82 FR 60262 (Dec. 19, 2017) (File No. SR– 

OCC–2017–017). 

9See OCC Rule 1006(c)(ii). 

10See OCC Rule 1006(c)(i). 

11OCC’s Capital Management Policy defines 

‘‘liquid net assets funded by equity’’ to be the level 

of cash or cash equivalents, no greater than OCC’s 

shareholders’ equity, less any approved adjustments 

(e.g., agency-related liabilities such as Section 31 

fees held by OCC and the Minimum Corporate 

Contribution). See Exchange Act Release No. 91199 

(Feb. 24, 2021), 86 FR 12237, 12241 (Mar. 2, 2021) 

(File No. SR–OCC–2021–003). 

12See OCC Rule 1006(e)(ii). 

13 15 U.S.C. 78s(b)(1). 

14 17 CFR 240.19b–4. 

15See Exchange Act Release No. 88029 (Jan. 24, 

2020), 85 FR 5500, 5501–02 (Jan. 30, 2020) (File No. 

SR–OCC–2019–007) (discussing the determination 

of Target Capital Requirement under OCC’s Capital 

Management Policy). 

16Working capital lines of credit, if any, are 

separate from the syndicated credit facility and 

liquidity facilities that OCC maintains to cover 

default losses or liquidity shortfalls. See Exchange 

Act Release No. 88971 (May 28, 2020), 85 FR 34257 

(June 3, 2020) (File No. SR–OCC–2020–804) 

(discussing OCC’s revolving credit facility); 

Exchange Act Release No. 89039 (June 10, 2020), 85 

FR 36444 (June 16, 2020) (File No. SR–OCC–2020– 

803) (discussing OCC’s non-bank liquidity facility). 

17See Exchange Act Release No. 92038 (May 27, 

2021), 86 FR 29861 (Jun. 3, 2021) (File No. SR– 

OCC–2021–003) (establishing a persistent minimum 

level of OCC’s own capital that it would contribute 

to default losses or liquidity shortfalls prior to 

allocating a default loss to the Clearing Fund 

contributions of non-defaulting Clearing Members). 

18See OCC Rule 1104. 

19See supra note 16 (citing SEC notices of noobjection to advance notices concerning OCC’s 

credit and liquidity facilities). 

20See supra note 6 and accompanying text. 

21See OCC Rule 1104. 

22See 17 CFR 39.15 (requiring a derivatives 

clearing organization to comply with the 

segregation requirements section 4d of the 

Commodity Exchange Act). 

23See OCC By-Laws Art. VI, Sec. 3(f) (providing 

for maintenance of segregated futures accounts). 

In the unlikely event that any part of 

the borrowing under Rule 1006(f) is 

outstanding after 30 calendar days, or if 

OCC determines that some or all of the 

amount borrowed constituted an actual 

loss, OCC would charge the loss to the 

Clearing Fund.9 In the unlikely event 

that OCC incurred an investment loss 

resulting from a bank’s failure to return 

the invested cash because of 

bankruptcy, insolvency, receivership, 

suspension of operations or other 

similar event, OCC may, at its 

discretion, charge the loss to the 

Clearing Fund.10 OCC may also, at its 

discretion, apply skin-in-the-game to a 

loss resulting from a borrowing or bank 

failure in the form of liquid net assets 

funded by equity 11 in excess of 110% 

of OCC’s Target Capital Requirement.12

Description of Proposed Change 

Cash and Investment Management 

Policy 

OCC proposes to file its Cash and 

Investment Management Policy (or 

‘‘Policy’’) as a proposed rule of the 

clearing agency within the meaning of 

Section 19(b)(1) of the Exchange Act 13

and SEC Rule 19b–4.14 The Policy 

would include statements of purpose, 

applicability and scope, safeguarding 

standards for maintaining cash and 

related investments to minimize credit 

and liquidity risk, and guidelines for 

investing OCC Cash and Clearing 

Member Cash, as defined below. 

Purpose, Applicability and Scope 

The Policy would include statements 

of the Policy’s purpose, applicability, 

and scope. The purpose of the Policy 

would be to (1) outline the safeguarding 

standards for cash and related 

investments managed by OCC to 

minimize credit and liquidity risk, and 

(2) provide guidelines for investments 

permitted by OCC’s By-Laws and Rules. 

The Policy principally would apply to 

OCC’s Treasury department 

(‘‘Treasury’’), which has responsibility 

for managing cash on behalf of OCC. 

The Policy’s scope would include the 

safeguarding standards and investment 

activities specific to OCC’s own cash 

(‘‘OCC Cash’’) and cash from OCC’s 

Clearing Members (‘‘Clearing Member 

Cash’’). 

The Policy would define OCC Cash to 

include working capital related to future 

operating costs, inclusive of financial 

resource held to meet liquidity and 

resiliency requirements,15 proceeds 

from lines of credit, if any, maintained 

to support OCC’s working capital,16 the 

Minimum Corporate Contribution,17

and investments made with OCC Cash. 

The Policy would not apply to cash held 

in respect of OCC’s pension plan, postretirement welfare plan, or other 

deferred compensation plans. The 

Policy would define Clearing Member 

Cash to include Clearing Fund cash 

deposits, cash deposited by Clearing 

Members in respect of margin 

requirements, cash held in liquidating 

settlement accounts for suspended 

Clearing Members,18 proceeds from 

OCC’s syndicated credit facility and 

liquidity facilities,19 and investments 

made with Clearing Member Cash.20

The Policy would not apply to non-cash 

collateral deposited by Clearing 

Members to satisfy margin or Clearing 

Fund requirements. 

Safeguarding Standards 

The Policy would address the 

safeguarding standards for managing 

OCC Cash and Clearing Member Cash, 

which OCC would either hold in a 

demand deposit or Federal Reserve 

Bank accounts or invest in accordance 

with OCC’s By-Laws and investment 

strategy, as discussed below. 

OCC Cash 

Unless invested, OCC Cash would be 

held in demand deposit accounts or at 

a Federal Reserve Bank. Demand 

deposit accounts would be limited to 

commercial financial institutions that 

meet initial and ongoing standards for 

depository banks outlined in OCC’s 

procedures concerning its banking 

relationships. 

Treasury would be responsible for 

maintaining appropriate levels of 

liquidity in OCC’s operating accounts to 

meet general business obligations and 

regulatory requirements. To fulfill this 

responsibility, the Policy would provide 

that OCC may maintain bank lines of 

credit for working capital purposes. The 

source of such credit line would need to 

meet the standards for credit facility 

banks outlined in OCC’s procedures 

concerning its banking relationships. 

Clearing Member Cash 

The Policy would provide that unless 

invested, Clearing Member Cash would 

be held in a demand deposit account or 

in accounts at a Federal Reserve Bank. 

With respect to commercial banks, 

Clearing Member Cash would only be 

held in financial institutions that meet 

the initial and ongoing standards for 

depository banks as provided in OCC’s 

procedures concerning banking 

relationships. The Policy would provide 

that Clearing Member Cash collected at 

OCC’s settlement banks may be 

transferred to other depository banks, 

including to and from OCC’s bank 

accounts for settlement, investment, and 

cash management purposes. Upon the 

suspension of a Clearing Member, OCC 

would promptly move all margin and 

Clearing Fund cash related to the 

Clearing Member into a liquidating 

settlement account for use in meeting 

the obligations of the Clearing Member, 

as provided under OCC’s Rules.21

Treasury would be responsible for 

ensuring accounts are appropriately 

funded to meet financial obligations. 

Interest earned on Clearing Fund cash 

deposits held at a Federal Reserve Bank 

would accrue to the benefit of Clearing 

Members, less a cash management fee. 

The Policy would also provide that 

OCC would employ a bank account 

structure that segregates customer funds 

per applicable regulatory 

requirements 22 and OCC’s By-Laws and 

Rules.23 Futures customer segregated 

cash would be held in segregated fund 

accounts pursuant to applicable 

Commodity and Futures Trading 

Commission (‘‘CFTC’’) regulations, 


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24See 17 CFR 1.20(g)(4). 

25See Disclosure Framework, available at https:// 

www.theocc.com/Risk-Management/PFMIDisclosures. 

26As discussed, interest earned on Clearing Fund 

cash deposits held at a Federal Reserve Bank would 

accrue to the benefit of Clearing Members, less a 

cash management fee. 

27 In addition to investments in Government 

securities through overnight DVP transactions, the 

Board has approved investments of OCC’s own cash 

in U.S. government money market mutual funds. 

28With respect to OCC’s liquid net assets funded 

by equity in excess of 110% of the Target Capital 

Requirement, the Board has initially approved 

investment of such funds in Government securities 

through DVP transactions for terms no more than 

30 days. 

29The Liquidity Risk Management Framework 

defines ‘‘Required Cash Deposits’’ (sometimes 

referred to as minimum cash requirements or 

‘‘MCR’’) as deposits of cash under OCC’s 

Contingency Funding Plan that supplement OCC’s 

Base Liquidity Resources (i.e., the amount of 

committed liquidity resources maintained at all 

times by OCC to meet its minimum Cover 1 

liquidity resource requirements under the 

applicable regulations). Under that framework, OCC 

may require a Clearing Member Group to post such 

additional cash collateral to supplement OCC’s 

Available Liquidity Resources (i.e., Base Liquidity 

Resources plus allowed Clearing Fund cash 

deposits in excess of the minimum required 

amount) when stressed liquidity demands for that 

Clearing Member Group are above established 

thresholds or until the settlement demand is met. 

See Exchange Act Release No. 89014 (June 4, 2020), 

85 FR 35446, 35449 (June 10, 2020) (File No. SR– 

OCC–2020–003). 

30Like Clearing Fund cash, OCC does not 

currently invest futures customer segregated funds. 

If OCC determined to invest such funds, such 

investments would be subject to CFTC regulations 

regarding a derivatives clearing organization’s 

investment of futures customer funds. See 17 CFR 

1.25. 

31See Exchange Act Release No. 90797 (Dec. 23, 

2020), 85 FR 86592 (Dec. 30, 2020) (File No. SR– 

OCC–2020–014) (approving OCC’s framework for 

identifying, measuring, monitoring, and managing 

OCC’s exposures to its counterparties); Exchange 

Act Release No. 89014, 85 FR 35446 (approving 

OCC’s approach to managing liquidity risk). 

including that OCC ensures that it 

receives proper written 

acknowledgment from the depository 

for each new segregated funds account 

that the account has been established to 

hold segregated cash generated from 

futures customers.24 The Policy would 

further provide that if OCC sustains an 

investment loss with respect to invested 

margin cash OCC will not pass on the 

loss to a futures customer segregated 

account. 

Investment Guidelines 

The Policy would also provide 

guidelines for investments permitted by 

OCC’s By-Laws and Rules and approved 

by the Board or Compensation and 

Performance Committee (‘‘CPC’’), 

including OCC’s investment strategy, 

investment governance principles, and 

guidelines for the investment of OCC 

Cash and Clearing Member Cash. 

Investment Strategy 

The Policy would provide that OCC’s 

investment strategy is to preserve 

principal and maintain adequate 

liquidity. After principal and liquidity 

requirements are satisfied, only then 

would Management seek to optimize 

investment returns. OCC would disclose 

its investment strategy through its 

public website on a periodic basis via its 

qualitative disclosures to the Principles 

for Financial Market Infrastructure 

Disclosures.25

Investment Governance Principles 

The Policy would provide that OCC 

may invest OCC Cash and Clearing 

Member Cash in permitted investments 

per applicable regulatory requirements, 

OCC’s By-Laws and Rules, the 

investment strategy and the following 

governance principles. Current 

investment practices would be outlined 

in procedures maintained by OCC. 

Investment counterparties would need 

to be financial institutions or financial 

market utilities that meet initial and ongoing standards outlined in OCC’s 

procedures concerning its banking 

relationships, which consider the 

financial institution’s size, capital 

adequacy, product offering and 

operational capabilities. Any interest or 

gain received on the investments would 

belong to OCC except as may otherwise 

be provided in OCC’s By-Laws, Rules or 

Board-approved policies.26 OCC would 

not commingle investments of OCC 

Cash with investments of Clearing 

Member Cash. 

Investment of OCC Cash 

The Policy would provide that OCC 

Cash may be invested in instruments 

that pose minimal credit and liquidity 

risk pursuant to applicable regulatory 

requirements, OCC’s By-Laws, the 

investment strategy, and Board or CPC 

approved investments. Approved 

investments other than in Government 

securities would continue to be subject 

to Board or CPC approval, as required 

under Section 1 of Article IX of OCC’s 

By-Laws.27 In addition, investment of 

working capital in excess of 110% of 

OCC’s Target Capital Requirement 

would not be limited to overnight 

transactions.28

Investment of Clearing Member Cash 

The Policy would further provide that 

Clearing Member Cash may be invested 

in Government securities by OCC in 

transactions that provide next-day 

liquidity in accordance with applicable 

regulatory requirements, OCC’s Rules, 

and the investment strategy, subject to 

the following guiding principles. First, 

the Policy would provide that 

notwithstanding the authority to invest 

Clearing Fund cash under OCC Rule 

1002(c), it is OCC’s policy not to invest 

Clearing Fund cash, which is instead 

maintained in accounts at a Federal 

Reserve Bank or a commercial bank. 

This policy would be subject to an 

exception approved by the Chief 

Executive Officer or Chief Operating 

Officer in emergency situations (such as 

a disruption at a Federal Reserve Bank) 

when necessary or advisable for the 

protection of the Corporation or 

otherwise in the public interest to 

continue to facilitate the prompt and 

accurate clearance and settlement of 

confirmed trades or other transactions 

and to provide OCC’s services in a safe 

and sound manner. Second, the Policy 

would provide that margin cash would 

only be invested in instruments that 

provide liquidity to OCC by the 

following business day. Third, the 

Policy would provide that OCC will 

implement procedures to ensure that 

end-of-day margin cash balances remain 

above the aggregate level of any 

Required Cash Deposits, as that term is 

defined in OCC’s Liquidity Risk 

Management Framework.29 The policy 

with respect to investing Required Cash 

Deposits would be subject to the same 

exception as for investment of Clearing 

Fund cash. Fourth, any change 

regarding whether to investment futures 

customer segregated funds would be 

approved by OCC’s Chief Financial 

Officer in consultation with OCC’s Legal 

and Compliance departments.30

The Policy would also describe how 

OCC maintains liquidity facilities for 

immediate access to liquidity in the 

event of a suspension of a Clearing 

Member or a failure of a bank, securities 

or commodity clearing organization, or 

investment counterparty (with respect 

to the investment of Clearing Member 

Cash) to meet an obligation owing to 

OCC, or in anticipation thereof, 

pursuant to OCC Rules 1006(c) and (f), 

proposed amendments to which are 

discussed below. The liquidity 

providers for these facilities would be 

approved and monitored according to 

OCC’s Third-Party Risk Management 

Framework and Liquidity Risk 

Management Framework.31

Amendments to OCC Rule 1006 

OCC proposes to amend OCC Rule 

1006, which governs its ability to access 

the Clearing Fund in the event of the 

failure (or anticipated failure) of bank to 

meet a settlement obligation with OCC, 

to extend such access to the failure of 

a non-bank investment counterparty to 

meet settlement obligations with OCC 


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Federal Register / Vol. 87, No. 8 / Wednesday, January 12, 2022 / Notices 1817 

32The same limitation would apply to Rule 

1006(a), which incorporates the reasons specified in 

Rule 1006(c) by reference. 

33See Exchange Act Release No. 88029, 85 FR at 

5502–03 (discussing OCC’s plan for replenishing its 

capital in the event that shareholders’ equity falls 

below certain thresholds). 34 15 U.S.C. 78s(b)(1). 

under the conditions identified in OCC 

Rule 1006(c) and (f). In addition, OCC 

proposes to restate OCC Rule 1006(f) for 

clarity. 

To ensure that OCC may access the 

Clearing Fund in the event of a failure 

or disruption of a non-bank 

counterparty with whom OCC has 

invested Clearing Member Cash, OCC 

would amend OCC Rule 1006(f) to 

include ‘‘investment counterparty’’ to 

the list of counterparties—currently, any 

bank or securities or commodities 

clearing organization—whose failure or 

disruption may result in a borrowing 

under Rule 1006(f). Similarly, OCC 

would also amend OCC Rule 1006(a) 

and (c) to add the same phrase to the list 

of counterparties whose failure resulting 

from bankruptcy, insolvency, 

receivership, suspension of operations, 

or any similar event may result in 

allocation of losses to the Clearing 

Fund. Rule 1006(c) and (f) would be 

further amended to provide that failure 

of an investment counterparty under 

those paragraphs would be limited to a 

failure with respect to Clearing Member 

Cash (i.e., cash invested under Rule 

604(a) or Rule 1002(c)).32 Any 

investment loss resulting from 

investment of OCC Cash would be 

treated as an operational loss that would 

be addressed under OCC’s Capital 

Management Policy, rather than a loss 

that would be allocated to the Clearing 

Fund.33

OCC would also amend the condition 

that triggers borrowing authority under 

Rule 1006(f)—currently clause (iii) of 

the first sentence of Rule 1006(f)— 

which would be renumbered as Rule 

1006(f)(1)(C). That condition would be 

amended to apply when the Corporation 

reasonably believes it necessary to 

borrow to meet its liquidity needs for 

‘‘daily settlement’’ rather than ‘‘sameday settlement,’’ as in the current text. 

OCC may reasonably believe that a 

disruption at a bank, securities or 

commodities clearing organization, or 

investment counterparty could last 

multiple days, resulting in liquidity 

needs for daily settlement over more 

than one day. This amendment would 

ensure that OCC has authority to initiate 

a borrowing for the amount OCC 

believes necessary to meet its liquidity 

needs over the timeframe OCC believes 

the disruption will affect OCC’s ability 

to meet daily settlement requirements 

with Clearing Members, rather than only 

that amount that OCC believes it needs 

on a day-by-day basis. 

OCC would further amend the 

condition in Rule 1006(f)(1)(C) to apply 

when OCC reasonably believes such a 

liquidity need will arise because of one 

of the identified counterparty’s failure 

‘‘to perform any obligation to the 

Corporation when due,’’ rather than 

such a counterparty’s failure ‘‘to achieve 

daily settlement.’’ This change aligns 

with the condition for allocation of 

losses under Rule 1006(c) and 

eliminates any ambiguity that might 

arise concerning the settlement 

obligations to which the current Rule 

refers. As under the current Rule, use of 

funds obtained through such a 

borrowing would continue to be limited 

to the purposes described in Rule 

1006(f)(1)(C), as amended, i.e., to meet 

OCC’s liquidity needs for daily 

settlement with Clearing Members. 

In addition to the substantive changes 

discussed above, OCC would also 

restate Rule 1006(f) for clarity. The 

current paragraph would be divided 

into four subparagraphs with courtesy 

headings: (1) Conditions; (2) Uses; (3) 

Term; Clearing Fund Charge; and (4) 

Substitution Requests. The conditions 

in Rule 1006(f)(1) would begin with the 

first sentence of current Rule 1006(f), 

less the conjoined clause beginning with 

‘‘and use such assets,’’ the substance of 

which would be moved to paragraph 

(f)(2). The remaining clause before the 

conjunction would be amended to 

describe OCC’s investment of Clearing 

Fund cash contributions in the active 

voice. The three conditions for a 

borrowing identified in Rule 1006(f), 

currently numbered (i) through (iii), 

would then follow after the conjunction 

as items (A) through (C). Item (A) would 

be further amended to remove legalese 

and state the condition more plainly. 

Item (C) would be amended 

substantively as discussed above. 

The prescribed uses for the borrowed 

funds described in several places 

throughout current Rule 1006(f) would 

be aggregated in Rule 1006(f)(2). As 

currently found in the conjoined clause 

in the first sentence of current Rule 

1006(f), Rule 1006(f)(2)(A) would 

provide that OCC may use funds it takes 

possession of under Rule 1006(f) to (i) 

meet obligations, losses or liquidity 

needs; or (ii) borrow or otherwise obtain 

funds through any means determined to 

be reasonable at the discretion of the 

Chairman, Chief Executive Officer or the 

Chief Operating Officer (including, 

without limitation, pledging such assets 

as security for loans and/or using such 

assets to effect repurchase, securities 

lending or other transactions). Proposed 

Rule 1006(f)(ii) would also be restated to 

remove a gendered pronoun. Rule 

1006(f)(2)(B) would describe the 

limitations on use of funds borrowed 

under the renumbered conditions in 

Rule 1006(f)(1)(A) and (C). 

Rule 1006(f)(3) would contain the 

term for a borrowing, as well as the 

conditions that would trigger a loss 

chargeable to the Clearing Fund. The 30- 

day period before which OCC would be 

obligated to charge a borrowed amount 

as a loss to the Clearing Fund would be 

located at Rule 1006(f)(3)(A), with 

certain non-substantive edits to the text. 

The conditions that would trigger the 

loss allocation to the Clearing Fund 

would be located at Rule 1006(f)(3)(B) 

and would be restated to move the 

lengthy conditions after the main 

clause, among other non-substantive 

revisions. 

Finally, Rule 1006(f)(4) would 

relocate OCC’s authority to refuse 

Clearing Member substitution requests 

regarding securities contributed to the 

Clearing Fund that the Corporation has 

taken possession of under Rule 1006(f). 

In addition to relocating that provision 

to the end of Rule 1006(f), the proposed 

changes would restate that provision to 

reflect the reorganization of Rule 

1006(f). 

Revolving Credit Facility Agreement 

Modifications 

Approval of the Rule 1006 

amendments discussed above will put 

into effect modifications to OCC’s 

revolving credit facility that conform 

with the extended borrowing authority 

under the Rule amendments. OCC’s 

existing credit facility was implemented 

as of June 21, 2021. In anticipation of 

the changes in this filing, OCC modified 

the permitted uses set forth in the 2021 

credit agreement to align with the 

proposed changes to OCC Rule 1006, 

provided those proposed changes 

receive regulatory approval. A summary 

of the terms and conditions for the 2021 

credit agreement reflecting the 

modification is provided in confidential 

Exhibit 3 to File No. SR–OCC–2021– 

803. Upon approval of those proposed 

changes, the modified credit agreement 

provisions will become effective, and 

OCC will be able to draw on the 

revolving credit facility to address nonbank investment counterparty failures 

with respect to Clearing Member Cash. 

Anticipated Effect on and Management 

of Risk 

As a rule of the clearing agency 

within the meaning of Section 

19(b)(1) 34 of the Exchange Act and Rule 


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1818 Federal Register / Vol. 87, No. 8 / Wednesday, January 12, 2022 / Notices 

35 17 CFR 240.19b–4. 

36 12 U.S.C. 5461(b). 

37 12 U.S.C. 5464(a)(2). 

38 12 U.S.C. 5464(b). 

39 17 CFR 240.17Ad–22. See Securities Exchange 

Act Release Nos. 68080 (October 22, 2012), 77 FR 

66220 (November 2, 2012) (S7–08–11) (‘‘Clearing 

Agency Standards’’); 78961 (September 28, 2016), 

81 FR 70786 (October 13, 2016) (S7–03–14) 

(‘‘Standards for Covered Clearing Agencies’’). 

40 17 CFR 240.17Ad–22. 

41See, e.g., Exchange Act Release No. 89039, 85 

FR at 36446. 

42 12 U.S.C. 5464(b). 

43 12 U.S.C. 5464(b)(1). 

44 17 CFR 240.17Ad–22(e)(7)(viii). 

45 17 CFR 240.17Ad–22(e)(13). 

46 17 CFR 240.17Ad–22(e)(16). 

47 17 CFR 240.17Ad–22(e)(16). 

48 17 CFR 240.17Ad–22(e)(7)(viii). 

49See OCC Rule 505 (Extension of Settlements). 

50 17 CFR 240.17Ad–22(e)(13). 

19b–4,35 OCC’s Cash and Investment 

Management Policy would promote the 

reduction of risks to OCC, its Clearing 

Members, and the markets OCC serves 

by outlining the safeguarding standards 

for cash and related investments 

managed by OCC to minimize credit and 

liquidity risk. In addition, the changes 

to OCC’s Rule 1006 help OCC minimize 

losses and address liquidity shortfalls 

by allowing OCC to access the Clearing 

Fund in the event of a failure or 

disruption at a non-bank investment 

counterparty. Similarly, implementing 

the related modifications to OCC’s 

revolving credit facility would allow 

OCC to obtain funds on extremely short 

notice to ensure clearance and 

settlement of transactions in options 

and other contracts without 

interruption. By drawing on the facility, 

OCC would also be able to avoid 

liquidating Clearing Fund contributions 

in what would likely be volatile market 

conditions, which would preserve funds 

available to cover any losses resulting 

from the failure or disruption at a nonbank investment counterparty. 

Consistency With the Payment, Clearing 

and Settlement Supervision Act 

The stated purpose of the Clearing 

Supervision Act 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.36 Section 805(a)(2) of the 

Clearing Supervision Act 37 also 

authorizes the Commission to prescribe 

risk management standards for the 

payment, clearing and settlement 

activities of designated clearing entities, 

like OCC, for which the Commission is 

the supervisory agency. Section 805(b) 

of the Clearing Supervision Act 38 states 

that the objectives and principles for 

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. 

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act and the Exchange Act in furtherance 

of these objectives and principles.39

Rule 17Ad–22 requires registered 

clearing agencies, like OCC, to establish, 

implement, maintain, and enforce 

written policies and procedures that are 

reasonably designed to meet certain 

minimum requirements for their 

operations and risk management 

practices on an ongoing basis.40

Therefore, the Commission has stated 41

that it believes it is appropriate to 

review changes proposed in advance 

notices against Rule 17Ad–22 and the 

objectives and principles of these risk 

management standards as described in 

Section 805(b) of the Clearing 

Supervision Act.42

OCC believes that the proposed 

changes are consistent with Section 

805(b)(1) of the Clearing Supervision 

Act 43 because the Cash and Investment 

Management Policy would promote the 

reduction of risks to OCC, its Clearing 

Members, and the markets OCC serves 

by outlining the safeguarding standards 

for cash and related investments 

managed by OCC to minimize credit and 

liquidity risk. Additionally, the 

proposed changes to Rule 1006 and 

corresponding modifications to the 

revolving credit facility would help 

OCC minimize losses and address 

liquidity shortfalls by allowing OCC to 

access the Clearing Fund and initiate a 

borrowing through the credit facility in 

the event of a failure or disruption at a 

non-bank investment counterparty. 

Allowing OCC to access liquid resources 

in the event of a disruption at a nonbank investment counterparty would 

help prevent disruption of OCC’s ability 

to meet its settlement obligations with 

Clearing Members. Accordingly, OCC 

believes that the proposed changes: (i) 

Are designed to promote robust risk 

management; (ii) are consistent with 

promoting safety and soundness; and 

(iii) are consistent with reducing 

systemic risks and promoting the 

stability of the broader financial system. 

OCC also believes the proposed 

changes are consistent with Rule 17Ad– 

22(e)(7)(viii),44 Rule 17Ad–22(e)(13),45

and Rule 17Ad–22(e)(16) 46 under the 

Exchange Act. 17Ad–22(e)(16) under the 

Exchange Act requires, in part, that OCC 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to safeguard OCC’s 

own and its participants’ assets, 

minimize the risk of loss and delay in 

access to these assets, and invest such 

assets in instruments with minimal 

credit, market, and liquidity risks.47 As 

discussed above, the Policy outlines 

safeguarding standards for cash and 

related investments intended to 

minimize credit and liquidity risks. In 

addition, the Policy sets forth OCC’s 

conservative investment strategy, 

according to which OCC’s primary 

objective is to preserve principal and 

maintain adequate liquidity. The Policy 

also requires cash and related 

investments to be maintained with 

counterparties that have been initially 

approved and routinely monitored in 

accordance with OCC’s Third Party Risk 

Management Policy and procedures 

governing banking relationships. 

Accordingly, OCC believes that the 

Policy is consistent with Rule 17Ad– 

22(e)(16). 

Additionally, Rule 17Ad–22(e)(7)(viii) 

requires that OCC address foreseeable 

liquidity shortfalls that would not be 

covered by OCC’s liquid resources and 

seek to avoid unwinding, revoking, or 

delaying the settlement of payment 

obligations.48 As stated above, OCC 

believes that it could be foreseeable, 

though extremely unlikely, that an 

investment counterparty that is not a 

bank may fail to return Clearing Member 

Cash as the result of the investment 

counterparty’s disruption or failure. An 

alternative available to OCC for 

addressing uncovered liquidity 

shortfalls would be to exercise authority 

under Rule 505 to extend the settlement 

window to the close of Fedwire.49 The 

proposed changes would improve OCC’s 

ability to address such situations by 

expanding OCC’s borrowing authority to 

enable OCC to borrow against the 

Clearing Fund to address a failure or 

disruption at a non-bank investment 

counterparty rather than disrupting 

OCC’s ordinary settlement cycle. 

Accordingly, OCC believes that 

proposed changes to OCC Rules are 

consistent with Rule 17Ad– 

22(e)(7)(viii). 

Finally, Rule 17Ad–22(e)(13) requires, 

in part, that OCC establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

ensure OCC has the authority to take 

timely action to contain losses and 

liquidity demands and continue to meet 

its obligations.50 As described above, 

this proposal would amend OCC’s Rules 


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Federal Register / Vol. 87, No. 8 / Wednesday, January 12, 2022 / Notices 1819 

51 17 CFR 200.30–3(a)(91). 

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

2 17 CFR 240.19b–4. 

3OCC’s By-Laws and Rules can be found on 

OCC’s website: https://www.theocc.com/CompanyInformation/Documents-and-Archives/By-Lawsand-Rules. 

concerning loss allocation in the 

extremely unlikely event that the failure 

or disruption of a non-bank investment 

counterparty results in a loss to OCC 

arising from the investment of Clearing 

Member Cash. The expansion of existing 

authority to allocate such losses 

attributable to a non-bank investment 

counterparty helps establish a more 

transparent and clear loss allocation 

process and ensure OCC’s authority to 

take action to contain losses and 

continue to meet its clearance and 

settlement obligations. Accordingly, 

OCC believes the proposed changes to 

OCC’s Rules are consistent with Rule 

17Ad–22(e)(13). 

III. Date of Effectiveness of the Advance 

Notice and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

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

the proposed change was filed with the 

Commission or (ii) the date any 

additional information requested by the 

Commission is received. OCC shall not 

implement the proposed change if the 

Commission has any objection to the 

proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission providing the clearing 

agency with prompt written notice of 

the extension. A proposed change 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 the 

clearing agency in writing that it does 

not object to the proposed change and 

authorizes the clearing agency to 

implement the proposed change on an 

earlier date, subject to any conditions 

imposed by the Commission. 

OCC shall post notice on its website 

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, 

including whether the advance notice is 

consistent with the Clearing 

Supervision 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–2021–803 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–OCC–2021–803. 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 website (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 website 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 the self-regulatory organization. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. 

All submissions should refer to File 

Number SR–OCC–2021–803 and should 

be submitted on or before February 2, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–00377 Filed 1–11–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–93916; File No. SR–OCC– 

2021–014] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Concerning the Options Clearing 

Corporation’s Cash and Investment 

Management 

January 6, 2022. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on December 23, 2021, 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 

This proposed rule change would (1) 

formalize OCC’s policy for safeguarding 

cash and related investments and (2) 

amend OCC’s Rules governing use of the 

Clearing Fund in the event of the failure 

of a bank to meet a settlement obligation 

with OCC to ensure such access extends 

to the failure of an investment 

counterparty with whom OCC has 

invested cash deposited by Clearing 

Members in respect of margin or 

Clearing Fund requirements under the 

conditions identified in OCC Rule 

1006(c) and (f), regardless of whether 

the investment counterparty is a bank. 

The Cash and Investment Management 

Policy is included in confidential 

Exhibit 5a of File Number SR–OCC– 

2021–014. Proposed amendments to 

OCC’s Rules are included in Exhibit 5b 

of File Number SR–OCC–2021–014. All 

terms with initial capitalization that are 

not otherwise defined herein have the 

same meaning as set forth in the OCC 

By-Laws and Rules.3

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 


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