20492 Federal Register / Vol. 87, No. 67 / Thursday, April 7, 2022 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 84417 

(October 12, 2018), 83 FR 52865 (October 18, 2018) 

(SR–MIAX–2018–14) (Order Granting Approval of a 

Proposed Rule Change by Miami International 

Securities Exchange, LLC to List and Trade on the 

Exchange Options on the SPIKES® Index). 

requirement extends to the financial and 

securities activities of the holding 

company, affiliates and subsidiaries of 

the broker-dealer that are reasonably 

likely to have a material impact on the 

financial or operational condition of the 

broker-dealer. Rule 17h–2T requires a 

covered broker-dealer to file with the 

Commission quarterly reports and a 

cumulative year-end report concerning 

the information required to be 

maintained and preserved under Rule 

17h–1T. 

The collection of information required 

by Rules 17h–1T and 17h–2T, 

collectively referred to as the ‘‘risk 

assessment rules,’’ is necessary to 

enable the Commission to monitor the 

activities of a broker-dealer affiliate 

whose business activities are reasonably 

likely to have a material impact on the 

financial or operational condition of the 

broker-dealer. Without this information, 

the Commission would be unable to 

assess the potentially damaging impact 

of the affiliate’s activities on the brokerdealer. 

There are currently 235 respondents 

that must comply with Rules 17h–1T 

and 17h–2T. Each of these 235 

respondents are estimated to require 10 

hours per year to maintain the records 

required under Rule 17h–1T, for an 

aggregate estimated annual burden of 

2,350 hours (235 respondents × 10 

hours). In addition, each of these 235 

respondents must make five annual 

responses under Rule 17h–2T. These 

five responses are estimated to require 

14 hours per respondent per year for an 

aggregate estimated annual burden of 

3,290 hours (235 respondents × 14 

hours). 

In addition, new respondents must 

draft an organizational chart required 

under Rule 17h–1T and establish a 

system for complying with the risk 

assessment rules. The staff estimates 

that drafting the required organizational 

chart requires one hour and establishing 

a system for complying with the risk 

assessment rules requires three hours. 

Based on the reduction in the number 

of filers in recent years, the staff 

estimates there will be zero new 

respondents, and thus, a corresponding 

estimated burden of zero hours for new 

respondents. Thus, the total compliance 

burden per year is approximately 5,640 

burden hours (2,350 hours + 3,290 

hours). 

The retention period for the 

recordkeeping requirement for the 

information, reports and records 

required under Rule 17h–1T is not less 

than three years. There is no specific 

retention period or recordkeeping 

requirement for Rule 17h–2T. The 

collection of information is mandatory. 

All information obtained by the 

Commission pursuant to the provisions 

of Rules 17h–1T and 17h–2T from a 

broker or dealer concerning a material 

associated person is deemed 

confidential information for the 

purposes of section 24(b) of the 

Exchange Act. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

under the PRA unless it displays a 

currently valid OMB control number. 

The public may view background 

documentation for this information 

collection at the following website: 

>www.reginfo.gov<. Find this particular 

information collection by selecting 

‘‘Currently under 30-day Review—Open 

for Public Comments’’ or by using the 

search function. Written comments and 

recommendations for the proposed 

information collection should be sent 

within 30 days of publication of this 

notice to (i) >MBX.OMB.OIRA.SEC_

desk_officer@omb.eop.gov< and (ii) 

David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o John 

Pezzullo, 100 F Street NE, Washington, 

DC 20549, or by sending an email to: 

PRA_Mailbox@sec.gov. Comments must 

be submitted to OMB within 30 days of 

this notice. 

Dated: April 1, 2022. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–07336 Filed 4–6–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94574; File No. SR–MIAX– 

2022–12] 

Self-Regulatory Organizations; Miami 

International Securities Exchange LLC; 

Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Its Fee Schedule To 

Extend the SPIKES Options Market 

Maker Incentive Program Until June 30, 

2022 

April 1, 2022. 

Pursuant to the provisions of Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on March 23, 2022, Miami International 

Securities Exchange LLC (‘‘MIAX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I, II, and III below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX Options Fee Schedule 

(the ‘‘Fee Schedule’’) to extend the 

SPIKES Options Market Maker Incentive 

Program (the ‘‘Incentive Program’’) until 

June 30, 2022. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to extend the 

Incentive Program until June 30, 2022. 

Background 

On October 12, 2018, the Exchange 

received approval from the Commission 

to list and trade on the Exchange 

options on the SPIKES® Index, a new 

index that measures expected 30-day 

volatility of the SPDR S&P 500 ETF 

Trust (commonly known and referred to 

by its ticker symbol, ‘‘SPY’’).3 The 

Exchange adopted its initial SPIKES 

transaction fees on February 15, 2019 

and adopted a new section of the Fee 

Schedule—Section 1(a)(xi), SPIKES—for 


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4See Securities Exchange Release No. 85283 

(March 11, 2019), 84 FR 9567 (March 15, 2019) (SR– 

MIAX–2019–11). The Exchange initially filed the 

proposal on February 15, 2019 (SR–MIAX–2019– 

04). That filing was withdrawn and replaced with 

SR–MIAX–2019–11. On September 30, 2020, the 

Exchange filed its proposal to, among other things, 

reorganize the Fee Schedule to adopt new Section 

1(b), Proprietary Products Exchange Fees, and 

moved the fees and rebates for SPIKES options into 

new Section 1(b)(i). See Securities Exchange Act 

Release No. 90146 (October 9, 2020), 85 FR 65443 

(October 15, 2020) (SR–MIAX–2020–32); Securities 

Exchange Act Release No. 90814 (December 29, 

2020), 86 FR 327 (January 5, 2021) (SR–MIAX– 

2020–39). 

5The term ‘‘Market Makers’’ refers to ‘‘Lead 

Market Makers’’, ‘‘Primary Lead Market Makers’’ 

and ‘‘Registered Market Makers’’ collectively. See 

Exchange Rule 100. 

6See SR–MIAX–2021–45. 

7See MIAX Options Regulatory Circular 2021–56, 

SPIKES Options Market Maker Incentive Program 

(September 30, 2021) available at https://

www.miaxoptions.com/sites/default/files/ 

circularfiles/MIAX_Options_RC_2021_56.pdf. 

8See Securities Exchange Act Release No. 93424 

(October 26, 2021), 86 FR 60322 (November 1, 2021) 

(SR–MIAX–2021–49). 

9See id., at note 4. 

10See Securities Exchange Act Release No. 93881 

(December 30, 2021), 87 FR 517 (January 5, 2022) 

(SR–MIAX–2021–63). 

11See id., at footnote 20. 

12The Exchange notes that at the end of the 

extension period, the Incentive Program will expire 

unless the Exchange files another 19b–4 Filing to 

amend the terms or extend the Incentive Program. 

13See supra note 7. 

14See id. 

15See id. 

16See id. 

17See id. 

18See id. 

19 15 U.S.C. 78f(b). 

20 15 U.S.C. 78f(b)(4) and (5). 

those fees.4 Options on the SPIKES 

Index began trading on the Exchange on 

February 19, 2019. 

Incentive Program Extension 

On September 30, 2021, the Exchange 

filed its initial proposal to implement a 

SPIKES Options Market Maker Incentive 

Program for SPIKES options to 

incentivize Market Makers 5 to improve 

liquidity, available volume, and the 

quote spread width of SPIKES options 

beginning October 1, 2021, and ending 

December 31, 2021.6 Technical details 

regarding the Incentive Program were 

published in a Regulatory Circular on 

September 30, 2021.7 On October 12, 

2021, the Exchange withdrew SR– 

MIAX–2021–45 and refiled its proposal 

to implement the Incentive Program to 

provide additional details.8 In that 

filing, the Exchange specifically noted 

that the Incentive Program would expire 

at the end of the period (December 31, 

2021) unless the Exchange filed another 

19b–4 Filing to amend the fees (or 

extend the Incentive Program).9 On 

December 23, 2021, the Exchange filed 

its proposal to, among other things, 

extend the Incentive Program for three 

months, with the Incentive Program 

ending on March 31, 2022.10 In that 

filing, the Exchange specifically noted 

that the Incentive Program would expire 

at the end of the period (March 31, 

2022) unless the Exchange filed another 

19b–4 Filing to amend the terms (or 

extend the Incentive Program).11 The 

Exchange now proposes to extend the 

Incentive Program for an additional 

three months, with the Incentive 

Program ending on June 30, 2022.12

The Exchange proposes to extend the 

Incentive Program for SPIKES options to 

continue to incentivize Market Makers 

to improve liquidity, available volume, 

and the quote spread width of SPIKES 

options. Currently, to be eligible to 

participate in the Incentive Program, a 

Market Maker must meet certain 

minimum requirements related to quote 

spread width in certain in-the-money 

(ITM) and out-of-the-money (OTM) 

options as determined by the Exchange 

and communicated to Members via 

Regulatory Circular.13 Market Makers 

must also satisfy a minimum time in the 

market in the front 2 expiry months of 

70%, and have an average quote size of 

25 contracts. The Exchange established 

two separate incentive compensation 

pools that are used to compensate 

Market Makers that satisfy the criteria 

pursuant to the Incentive Program. 

The first pool (Incentive 1) has a total 

amount of $40,000 per month, which is 

allocated to Market Makers that meet 

the minimum requirements of the 

Incentive Program. Market Makers are 

required to meet minimum spread 

width requirements in a select number 

of ITM and OTM SPIKES option 

contracts as determined by the 

Exchange and communicated to 

Members via Regulatory Circular.14 A 

complete description of how the 

Exchange calculates the minimum 

spread width requirements in ITM and 

OTM SPIKES options can be found in 

the published Regulatory Circular.15

Market Makers are also required to 

maintain the minimum spread width, 

described above, for at least 70% of the 

time in the front two (2) SPIKES options 

contract expiry months and maintain an 

average quote size of at least 25 SPIKES 

options contracts. The amount available 

to each individual Market Maker is 

capped at $10,000 per month for 

satisfying the minimum requirements of 

the Incentive Program. In the event that 

more than four Market Makers meet the 

requirements of the Incentive Program, 

each qualifying Market Maker is entitled 

to receive a pro-rated share of the 

$40,000 monthly compensation pool 

dependent upon the number of 

qualifying Market Makers in that 

particular month. 

The second pool (Incentive 2 Pool) is 

capped at a total amount of $100,000 

per month which is used during the 

Incentive Program to further incentivize 

Market Makers who meet or exceed the 

requirements of Incentive 1 (‘‘qualifying 

Market Makers’’) to provide tighter 

quote width spreads. The Exchange 

ranks each qualifying Market Maker’s 

quote width spread relative to each 

other qualifying Market Maker’s quote 

width spread. Market Makers with 

tighter spreads in certain strikes, as 

determined by the Exchange and 

communicated to Members via 

Regulatory Circular,16 are eligible to 

receive a pro-rated share of the 

compensation pool as calculated by the 

Exchange and communicated to 

Members via Regulatory Circular,17 not 

to exceed $25,000 per Member per 

month. Qualifying Market Makers are 

ranked relative to each other based on 

the quality of their spread width (i.e., 

tighter spreads are ranked higher than 

wider spreads) and the Market Maker 

with the best quality spread width 

receives the highest rebate, while other 

eligible qualifying Market Makers 

receive a rebate relative to their quality 

spread width. 

The Exchange now proposes to extend 

the Incentive Program until June 30, 

2022. The Exchange does not propose to 

make any amendments to how it 

calculates any of the incentives 

provided for in Incentive Pools 1 or 2. 

The details of the Incentive Program can 

continue to be found in the Regulatory 

Circular that was published on 

September 30, 2021 to all Exchange 

Members.18 The purpose of this 

extension is to continue to incentivize 

Market Makers to improve liquidity, 

available volume, and the quote spread 

width of SPIKES options. The Exchange 

will announce the extension of the 

Incentive Program to all Members via a 

Regulatory Circular. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its Fee Schedule is 

consistent with Section 6(b) of the Act 19

in general, and furthers the objectives of 

Section 6(b)(4) of the Act 20 in 

particular, in that it is an equitable 

allocation of reasonable fees and other 

charges among its members and issuers 

and other persons using its facilities. 

The Exchange also believes the proposal 

furthers the objectives of Section 6(b)(5) 

of the Act in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 


khammond on DSKJM1Z7X2PROD with NOTICES
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21 15 U.S.C. 78s(b)(3)(A)(ii). 

22 17 CFR 240.19b–4(f)(2). 

open market and a national market 

system, and, in general to protect 

investors and the public interest and is 

not designed to permit unfair 

discrimination between customers, 

issuers, brokers and dealers. 

The Exchange believes that it is 

reasonable, equitable, and not unfairly 

discriminatory to extend the Incentive 

Program for Market Makers in SPIKES 

options. The Incentive Program is 

reasonably designed because it will 

continue to incentivize Market Makers 

to provide quotes and increased 

liquidity in select SPIKES options 

contracts. The Incentive Program is 

reasonable, equitably allocated and not 

unfairly discriminatory because all 

Market Makers in SPIKES options may 

continue to qualify for Incentive 1 and 

Incentive 2, dependent upon each 

Market Maker’s quoting in SPIKES 

options in a particular month. 

Additionally, if a SPIKES Market Maker 

does not satisfy the requirements of 

Incentive Pool 1 or 2, then it simply will 

not receive the rebate offered by the 

Incentive Program for that month. 

The Exchange believes that it is 

reasonable, equitable and not unfairly 

discriminatory to continue to offer this 

financial incentive to Market Makers in 

SPIKES options because it will continue 

to benefit all market participants trading 

in SPIKES options. SPIKES options is a 

Proprietary Product on the Exchange 

and the continuation of the Incentive 

Program encourages Market Makers in 

SPIKES options to satisfy a heightened 

quoting standard, average quote size, 

and time in market. A continued 

increase in quoting activity and tighter 

quotes may yield a corresponding 

increase in order flow from other market 

participants, which benefits all 

investors by deepening the Exchange’s 

liquidity pool, potentially providing 

greater execution incentives and 

opportunities, while promoting market 

transparency and improving investor 

protection. 

The Exchange believes that the 

Incentive Program is equitable and not 

unfairly discriminatory because it will 

continue to promote an increase in 

SPIKES options liquidity, which may 

facilitate tighter spreads and an increase 

in trading opportunities to the benefit of 

all market participants. The Exchange 

believes it is reasonable to operate the 

Incentive Program for a continued 

limited period of time to strengthen 

market quality for all market 

participants. The resulting increased 

volume and liquidity will benefit those 

Members who are eligible to participate 

in the Incentive Program and will also 

continue to benefit those Members who 

are not eligible to participate in the 

Incentive Program by providing more 

trading opportunities and tighter 

spreads. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Intra-Market Competition 

The Exchange believes that the 

proposed extension of the Incentive 

Program would continue to increase 

intra-market competition by 

incentivizing Market Makers to quote 

SPIKES options, which will continue to 

enhance the quality of quoting and 

increase the volume of contracts 

available to trade in SPIKES options. To 

the extent that this purpose is achieved, 

all the Exchange’s market participants 

should benefit from the improved 

market liquidity for SPIKES options. 

Enhanced market quality and increased 

transaction volume in SPIKES options 

that results from the anticipated 

increase in Market Maker activity on the 

Exchange will benefit all market 

participants and improve competition 

on the Exchange. 

Inter-Market Competition 

The Exchange does not believe that 

the proposed rule changes will impose 

any burden on inter-market competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act 

because the proposed extension of the 

Incentive Program applies only to the 

Exchange’s Proprietary Products 

(including options on SPIKES), which 

are traded exclusively on the Exchange. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act,21 and Rule 

19b–4(f)(2) 22 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or 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– 

MIAX–2022–12 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–MIAX–2022–12. 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 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 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 Exchange. 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–MIAX–2022–12 and should 


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Federal Register / Vol. 87, No. 67 / Thursday, April 7, 2022 / Notices 20495 

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

OCC’s public website: https://www.theocc.com/ 

Company-Information/Documents-and-Archives/ 

By-Laws-and-Rules. 

4See Exchange Act Release No. 34–83916 (August 

23, 2018); 83 FR 44076 (August 29, 2018) (File No. 

SR–OCC–2017–020). 

5 83 FR at 44078. 

6 Id. 

7OCC By-Laws Art. VI, Section 27(a)(i), regarding 

default or insolvency of OCC, requires OCC to 

notify various stakeholders if OCC fails to comply 

with an undisputed obligation to pay money or 

deliver property to a Clearing Member under the 

By-Laws or Rules for a period of thirty days from 

the date that OCC receives notice from the Clearing 

Member of the past due obligation. 

8The letter OCC received from the FIA has been 

provided as Exhibit 3A to File No. SR–OCC–2022– 

005. 

be submitted on or before April 28, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–07338 Filed 4–6–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94583; File No. SR–OCC– 

2022–005] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Concerning Revisions to OCC’s Partial 

Tear-Up Rules 

April 1, 2022. 

Pursuant to Section 19(b) of the 

Securities Exchange Act of 1934 

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

19b–4 thereunder,2 notice is hereby 

given that on March 22, 2022, The 

Options Clearing Corporation (‘‘OCC’’) 

filed with the Securities and Exchange 

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

the proposed rule change as described 

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

have been prepared primarily 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 

The proposed rule change would: (i) 

Amend OCC Rule 1111(e) to clarify the 

nature of the claim issued to Clearing 

Members that receive a pro rata 

payment as a result of a Partial Tear-Up; 

and (ii) amend OCC Rule 1111(g) to 

impose a limit on the amount of the 

special charge that can be levied on 

Clearing Members to re-allocate losses, 

costs and fees among resulting from a 

Partial Tear-Up among all nondefaulting Clearing Members. The 

proposed changes to OCC Rules are 

included in Exhibit 5 of File No. SR– 

OCC–2022–005. Material proposed to be 

added to OCC’s Rules as currently in 

effect is underlined and material 

proposed to be deleted is marked in 

strikethrough text. All capitalized terms 

not defined herein have the same 

meaning as set forth in the OCC ByLaws 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 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

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

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(1) Purpose 

In 2018, OCC adopted enhanced and 

new tools for recovery scenarios, 

including a Partial Tear-Up process 

designed to return OCC to a matched 

book by extinguishing positions that 

remain open after OCC has attempted 

one or more auctions.4 The process for 

determining and terminating Partial 

Tear-Up Positions is set forth in OCC 

Rule 1111(e). In adopting Rule 1111(e), 

OCC noted that its Partial Tear-Up 

process would be initiated if OCC 

determined that potential losses from 

remaining positions of the defaulting 

member would exceed OCC’s financial 

resources and that the process was 

designed to be initiated in advance of 

the exhaustion of OCC’s financial 

resources in order to maintain its ability 

to meet obligations to non-defaulting 

members.5 OCC also acknowledged that 

the process may be used to allocate 

losses in the event OCC’s resources are 

insufficient to pay the Partial Tear-Up 

Price.6 When the Partial Tear-Up 

process is used to allocate losses, Rule 

1111(e)(iii) currently provides that each 

Clearing Member will receive a pro rata 

payment based on OCC’s remaining 

resources and an unsecured claim 

against OCC for the difference between 

the pro rata amount received and the 

Partial Tear-Up Price. 

An unsecured claim issued pursuant 

to Rule 1111(e) provides a mechanism 

for OCC to compensate Clearing 

Members that receive a pro rata 

payment when warranted by particular 

circumstances (e.g., when funds are 

subsequently recovered from a defaulted 

Clearing Member or the estate of the 

defaulted Clearing Member). However, 

OCC Rules do not specify a specific 

payment obligation for these claims. 

The purpose of the proposed 

amendment to Rule 1111(e) is to 

provide clarity regarding the nature of 

the claim issued following a Partial 

Tear-Up. More specifically, the 

revisions to Rule 1111(e) would clarify 

that: (i) A Clearing Member receiving a 

pro rata payment following a partial 

tear-up will have a claim for the value 

of the difference between the pro rata 

amount received and the Partial TearUp Price; and (ii) such a claim shall be 

an unsecured claim on any recovery 

from a suspended or defaulted Clearing 

Member (or from the estate of a 

suspended or defaulted Clearing 

Member). Clarification of the nature of 

the claim arising out of Rule 1111(e) 

would, in turn, clarify that such claims 

would not provide a basis for triggering 

close-out netting under Article VI, 

Section 27 of OCC’s By-Laws.7

As part of its Partial Tear-Up process, 

OCC also adopted Rule 1111(g), which 

provides the Board with discretionary 

authority to levy a special charge against 

remaining non-defaulting Clearing 

Members for the purpose of re-allocating 

the losses, costs and fees imposed on 

holders of torn-up positions. Following 

the adoption of OCC Rule 1111, OCC 

received a letter from the Futures 

Industry Association (‘‘FIA’’) requesting 

that OCC limit the amount of the special 

charge that could be levied by the Board 

pursuant to Rule 1111(g) to the amount 

of a Clearing Member’s required 

contribution to the Clearing Fund.8 OCC 

has considered this request and 

proposes to amend Rule 1111(g) to cap 

the amount of the special charge levied 

under the rule to the amount of the 

Clearing Members required contribution 

to the Clearing Fund at the time of the 

special charge. The purpose of this 

change is to improve Clearing Members’ 

ability to measure, monitor and manage 

their potential exposure to OCC. 


khammond on DSKJM1Z7X2PROD with NOTICES