2268 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 

15 17 CFR 200.30–3(a)(12) and (59). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(ii). 

4 17 CFR 240.19b–4(f)(2). 

5See the Exchange’s fee schedule available at 

http://markets.cboe.com/us/equities/membership/ 

fee_schedule/edgx/. 

6See Exchange Rule 13.8(a). 7A Trading Platform is defined as ‘‘any execution 

platform operated as or by a registered National 

Securities Exchange (as defined in Section 3(a)(1) 

of the Exchange Act), an Alternative Trading 

System (as defined in Rule 300(a) of Regulation 

ATS), or an Electronic Communications Network 

(as defined in Rule 600(b)(23) of Regulation NMS).’’ 

See the Exchange’s fee schedule available at http:// 

markets.cboe.com/us/equities/membership/fee_

schedule/edgx/. 

8See the Exchange’s fee schedule available at 

http://markets.cboe.com/us/equities/membership/ 

fee_schedule/edgx/. 

9See e.g., Nasdaq Rule IM–7023–1(c), U.S. NonDisplay Information. 

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–ISE–2018–03. 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–ISE–2018–03, and should 

be submitted on or before February 6, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00529 Filed 1–12–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82469; File No. SR– 

CboeEDGX–2017–006] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Related to Fees 

for the EDGX Depth Market Data 

Product 

January 9, 2018. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

27, 2017, Cboe EDGX Exchange, Inc. 

(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Exchange has designated the 

proposed rule change as one 

establishing or changing a member due, 

fee, or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act 3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change effective upon 

filing with the Commission. 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 filed a proposal to 

amend the Market Data section of its fee 

schedule to introduce new fees for NonDisplay Usage of EDGX Depth. 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.markets.cboe.com, at the principal 

office of the Exchange, 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 parts 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 amend the 

Market Data section of its fee schedule 

to introduce new fees for Non-Display 

Usage 5 of EDGX Depth. EDGX Depth is 

an uncompressed market data feed that 

provides depth-of-book quotations and 

execution information based on equity 

orders entered into the System.6 The 

Exchange currently charges subscribers 

to EDGX Depth a fee of $5,000 per 

month for Non-Display Usage of EDGX 

Depth by its Trading Platforms.7 NonDisplay Usage is defined as ‘‘any 

method of accessing a Market Data 

product that involves access or use by 

a machine or automated device without 

access or use of a display by a natural 

person or persons.’’ 8 Trading Platforms 

include registered National Securities 

Exchanges, Alternative Trading Systems 

(‘‘ATSs’’), and Electronic 

Communications Networks (‘‘ECNs’’) as 

those terms are defined in the Exchange 

Act and regulations and rules 

thereunder. Previously, subscribers of 

EDGX Depth that used the feed for NonDisplay purposes but did not utilize the 

feed within a Trading Platform were 

charged the existing Distributors fees. 

Forms of Non-Display Use include, 

but are not limited to, algorithmic or 

automated trading, order routing, 

surveillance, order management, risk 

management, clearance and settlement 

activities, and account maintenance.9

Non-Display Usage does not include any 

use of EDGX Depth that relates solely to 

transportation, dissemination, and 

redistribution of EDGX Depth, or that 

results in the output of EDGX Depth 

solely for display. Non-display uses of 

data for non-trading purposes benefits 

data recipients by allowing users to 

automate functions, to achieve greater 


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Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 2269 

10A ‘‘Distributor’’ is defined as ‘‘any entity that 

receives the Exchange Market Data product directly 

from the Exchange or indirectly through another 

entity and then distributes it internally or externally 

to a third party.’’ See the Exchange’s fee schedule 

available at http://markets.cboe.com/us/equities/ 

membership/fee_schedule/edgx/. 

11See e.g., Securities Exchange Act Release No. 

76900 at fn. 8 (January 14, 2016), 81 FR 3506 

(January 21, 2016) (SR–NYSE–2016–02). In this 

filing, the NYSE discontinued fees related to 

managed non-display for NYSE OpenBook. Id. 

12 15 U.S.C. 78f. 

13 15 U.S.C. 78f(b)(4). 

14 15 U.S.C. 78k–1. 

15See 17 CFR 242.603. 

16The Exchange believes that cost-based pricing 

would be impractical because it would create 

enormous administrative burdens for all parties, 

including the Commission, to cost-regulate a large 

number of participants and standardize and analyze 

extraordinary amounts of information, accounts, 

and reports. In addition, it is impossible to regulate 

market data prices in isolation from prices charged 

by markets for other services that are joint products. 

Cost-based rate regulation would also lead to 

litigation and may distort incentives, including 

those to minimize costs and to innovate, leading to 

further waste. Under cost-based pricing, the 

Commission would be burdened with determining 

a fair rate of return, and the industry could 

experience frequent rate increases based on 

escalating expense levels. Even in industries 

historically subject to utility regulation, cost-based 

ratemaking has been discredited. As such, the 

Exchange believes that cost-based ratemaking 

would be inappropriate for proprietary market data 

and inconsistent with Congress’s direction that the 

Commission use its authority to foster the 

development of the national market system, and 

that market forces will continue to provide 

appropriate pricing discipline. See Appendix C to 

NYSE’s comments to the Commission’s 2000 

Concept Release on the Regulation of Market 

Information Fees and Revenues, which can be 

found on the Commission’s website at http:// 

Continued 

speed and accuracy, and to reduce costs 

of labor. While some non-trading uses 

do not directly generate revenues, they 

can substantially reduce a data 

recipient’s costs by automating many 

functions. Those functions can be 

carried out in a more efficient and 

accurate manner, with reduced errors 

and labor costs. 

The Exchange now proposes to adopt 

a separate fee of $2,000 per month to 

cover other forms of Non-Display Usage 

other than through a Trading Platform. 

The proposed fee would be assessed in 

addition to existing Distributor 10 fees 

and would supplement the existing 

Non-Display Usage fee for Trading 

Platforms. Specifically, subscribers who 

are subject to the Non-Display Usage by 

Trading Platform fee but also utilize 

EDGX Depth for other Non-Display 

purposes would be subject to both fees. 

However, subscribers who utilize EDGX 

Depth for other Non-Display purposes 

and not within a Trading Platform 

would be subject only to the proposed 

fee for Non-Display Use. 

Certain subscribers that use an 

Exchange approved Managed NonDisplay Service Provider would be 

exempt from proposed Non-Display 

Usage Fee. To be approved as Managed 

Non-Display Service Provider, the 

Distributor must host subscriber’s 

applications that utilize EDGX Depth 

must within the Managed Non-Display 

Service Provider’s space/cage; fully 

manage and control access to EDGX 

Depth, and not permit further 

redistribution of the Exchange Data 

internally or externally.11 In order to 

qualify for the exemption, the subscriber 

must meet the following requirements: 

• Any subscriber applications that 

utilize EDGX Depth must be hosted 

within the Managed Non-Display 

Service Provider’s space/cage; 

• the subscriber’s access to EDGX 

Depth is fully managed and controlled 

by the Managed Non-Display Service 

Provider, and no further redistribution 

of the Exchange Data internally or 

externally is permitted; and 

• the subscriber is supported solely 

by one Managed Non-Display Service 

Provider, is not hosted by multiple 

Managed Non-Display Service 

Providers, and does not have their own 

data center-hosted environment that 

also receives EDGX Depth. 

The Exchange intends to implement 

the proposed fee changes on January 2, 

2018. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the objectives of Section 6 of the Act,12

in general, and furthers the objectives of 

Section 6(b)(4),13 in particular, as it is 

designed to provide for the equitable 

allocation of reasonable dues, fees and 

other charges among its members and 

other recipients of Exchange data. The 

Exchange believes that the proposed 

rates are equitable and nondiscriminatory in that they apply 

uniformly to all recipients of Exchange 

data. The Exchange believes the 

proposed fees are competitive with 

those charged by other venues and, 

therefore, reasonable and equitably 

allocated to recipients. 

The Exchange also believes that the 

proposed rule change is consistent with 

Section 11(A) of the Act 14 in that it 

supports (i) fair competition among 

brokers and dealers, among exchange 

markets, and between exchange markets 

and markets other than exchange 

markets and (ii) the availability to 

brokers, dealers, and investors of 

information with respect to quotations 

for and transactions in securities. 

Furthermore, the proposed rule change 

is consistent with Rule 603 of 

Regulation NMS,15 which provides that 

any national securities exchange that 

distributes information with respect to 

quotations for or transactions in an NMS 

stock do so on terms that are not 

unreasonably discriminatory. In 

adopting Regulation NMS, the 

Commission granted self-regulatory 

organizations and broker-dealers 

increased authority and flexibility to 

offer new and unique market data to the 

public. It was believed that this 

authority would expand the amount of 

data available to consumers, and also 

spur innovation and competition for the 

provision of market data. 

In addition, the proposed fees would 

not permit unfair discrimination 

because all of the Exchange’s 

subscribers will be subject to the 

proposed fees on an equivalent basis. 

EDGX Depth is distributed and 

purchased on a voluntary basis, in that 

neither the Exchange nor market data 

distributors are required by any rule or 

regulation to make this data available. 

Accordingly, Distributors and Users can 

discontinue use at any time and for any 

reason, including due to an assessment 

of the reasonableness of fees charged. 

Firms have a wide variety of alternative 

market data products from which to 

choose, such as similar proprietary data 

products offered by other exchanges and 

consolidated data. Moreover, the 

Exchange is not required to make any 

proprietary data products available or to 

offer any specific pricing alternatives to 

any customers. 

In addition, the fees that are the 

subject of this rule filing are constrained 

by competition. As explained below in 

the Exchange’s Statement on Burden on 

Competition, the existence of 

alternatives to EDGX Depth further 

ensures that the Exchange cannot set 

unreasonable fees, or fees that are 

unreasonably discriminatory, when 

subscribers can elect such alternatives. 

That is, the Exchange competes with 

other exchanges (and their affiliates) 

that provide similar market data 

products. If another exchange (or its 

affiliate) were to charge less to 

consolidate and distribute its similar 

product than the Exchange charges to 

consolidate and distribute EDGX Depth, 

prospective Users likely would not 

subscribe to, or would cease subscribing 

to, EDGX Depth. 

The Exchange notes that the 

Commission is not required to 

undertake a cost-of-service or ratemaking approach. The Exchange 

believes that, even if it were possible as 

a matter of economic theory, cost-based 

pricing for non-core market data would 

be so complicated that it could not be 

done practically.16


daltland on DSKBBV9HB2PROD with NOTICES
2270 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 

www.sec.gov/rules/concept/s72899/buck1.htm. See 

also Securities Exchange Act Release No. 73816 

(December 11, 2014), 79 FR 75200 (December 17, 

2014) (SR–NYSE–2014–64) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

to Establish an Access Fee for the NYSE Best Quote 

and Trades Data Feed, Operative December 1, 

2014). 

17See the non-display fees for NYSE OpenBook 

and NYSE ArcaBook in the NYSE and NYSE Arca 

fee schedules available at http://www.nyxdata.com/ 

nysedata/default.aspx?tabid=518&folder=207656. 

18See supra note 17. 

19 15 U.S.C. 78s(b)(3)(A). 

20 17 CFR 240.19b–4(f). 

The proposed Non-Display fee for 

usage other than through a Trading 

Platform for EDGX Depth is equitable 

and reasonable as the Exchange believes 

the proposed fee represents the value of 

the data provided by the feed and its use 

by market participants. The proposed 

fee changes reflects changing trends in 

the ways in which the industry uses 

market data. The proposed fee comport 

with the proliferation of the use of data 

for various non-display purposes and by 

non-display trading applications. It 

recognizes industry changes that have 

evolved as a result of numerous 

technological advances, the advent of 

trading algorithms and automated 

trading, different investment patterns, a 

plethora of new securities products, 

unprecedented levels of trading, 

decimalization, internationalization and 

developments in portfolio analysis and 

securities research. The Exchange 

believes the proposed fee reflects the 

value of the data provided. 

The Exchange notes that fees for nondisplay use have become commonplace 

in the industry. Several exchanges 

impose them as does the UTP, CTA/CQ, 

and OPRA Plans. In addition, the fee 

proposed is less than similar fees 

currently charged by other exchanges 

for their depth-of-book data products. 

For example, NYSE Arca, Inc. (‘‘NYSE 

Arca’’) and the New York Stock 

Exchange, Inc. (‘‘NYSE’’) charge $5,000 

and $6,000 per month, respectively, for 

its depth-of-book data used for nondisplay purposes.17

The proposed fee is also equitable and 

reasonable in that it ensures that heavy 

users of the EDGX Depth pay an 

equitable share of the total fees. 

Currently, External Distributors pay 

higher fees than Internal Distributors 

based upon their assumed higher usage 

levels. The Exchange believes that nondisplay users are generally high users of 

the data, using it to power a trading 

algorithms and other trading relates 

systems for millions or even billions of 

trading messages per day. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

The Exchange’s ability to price EDGX 

Depth is constrained by: (i) Competition 

among exchanges, other trading 

platforms, and Trade Reporting 

Facilities (‘‘TRF’’) that compete with 

each other in a variety of dimensions; 

(ii) the existence of inexpensive realtime consolidated data and marketspecific data and free delayed data; and 

(iii) the inherent contestability of the 

market for proprietary data. 

The Exchange and its market data 

products are subject to significant 

competitive forces and the proposed 

fees represent responses to that 

competition. To start, the Exchange 

competes intensely for order flow. It 

competes with the other national 

securities exchanges that currently trade 

equities, with electronic communication 

networks, with quotes posted in 

FINRA’s Alternative Display Facility, 

with alternative trading systems, and 

with securities firms that primarily 

trade as principal with their customer 

order flow. 

In addition, EDGX Depth competes 

with a number of alternative products. 

For instance, EDGX Depth does not 

provide a complete picture of all trading 

activity in a security. Rather, the other 

national securities exchanges, the 

several TRFs of FINRA, and ECNs that 

produce proprietary data all produce 

trades and trade reports. Each is 

currently permitted to produce depthof-book information products, and many 

currently do, including Nasdaq, NYSE, 

and NYSE Arca. 

In sum, the availability of a variety of 

alternative sources of information 

imposes significant competitive 

pressures on Exchange data products 

and the Exchange’s compelling need to 

attract order flow imposes significant 

competitive pressure on the Exchange to 

act equitably, fairly, and reasonably in 

setting the proposed data product fees. 

The proposed data product fees are, in 

part, responses to that pressure. The 

Exchange believes that the proposed 

fees would reflect an equitable 

allocation of its overall costs to users of 

its facilities. 

In addition, when establishing the 

proposed fees, the Exchange considered 

the competitiveness of the market for 

proprietary data and all of the 

implications of that competition. The 

Exchange believes that it has considered 

all relevant factors and has not 

considered irrelevant factors in order to 

establish fair, reasonable, and not 

unreasonably discriminatory fees and an 

equitable allocation of fees among all 

Users. The existence of alternatives to 

EDGX Depth, including existing similar 

feeds by other exchanges, consolidated 

data, and proprietary data from other 

sources, ensures that the Exchange 

cannot set unreasonable fees, or fees 

that are unreasonably discriminatory, 

when subscribers can elect these 

alternatives or choose not to purchase a 

specific proprietary data product if its 

cost to purchase is not justified by the 

returns any particular vendor or 

subscriber would achieve through the 

purchase. 

The Exchange believes the adoption 

of the fee for Non-Display Usage for 

EDGX Depth would increase 

competition amongst the exchanges that 

offer depth-of-book products. In 

addition, the proposed Non-Display 

Usage fee is less than similar fees 

currently charged by the NYSE and 

NYSE Arca for their depth-of-book 

data.18

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

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) 

of the Act 19 and paragraph (f) of Rule 

19b–4 thereunder.20 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. 

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– 

CboeEDGX–2017–006 on the subject 

line. 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 2271 

21 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.17Ad–22(b)(2), (b)(4), (e)(2)–(4), and 

(e)(6)–(7). 

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

OCC’s public website: http://optionsclearing.com/ 

about/publications/bylaws.jsp. 

5Under the proposed Policy, ‘‘Model Risk’’ 

would be defined as the potential for adverse 

consequences from decisions based on incorrect or 

misused model outputs. 

6Under the proposed Policy, ‘‘Risk Models’’ 

would be defined as any quantitative method or 

approach that applies statistical, economic, 

financial, or mathematical theories, techniques, 

and/or assumptions to process inputs into 

quantitative estimates, forecasts, or projections. A 

Risk Model may also be a quantitative method with 

inputs that are qualitative or based on business 

judgment. Under the Policy, the term Risk Models 

would be used specifically in the context of credit 

risk models, margin system and related models, and 

liquidity risk models. 

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 CboeEDGX–2017–006. 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 CboeEDGX–2017–006 and 

should be submitted on or before 

February 6, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00526 Filed 1–12–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82473; File No. SR–OCC– 

2017–011] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Related to The Options Clearing 

Corporation’s Model Risk Management 

Policy 

January 9, 2018. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

28, 2017, 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 

The proposed rule change by OCC 

would formalize and update OCC’s 

Model Risk Management Policy (‘‘MRM 

Policy’’ or ‘‘Policy’’) in connection with 

multiple requirements applicable to 

OCC under Rule 17Ad–22, including 

Rules 17Ad–22(b)(2) concerning margin 

requirements and (b)(4) concerning 

model validation as well as Rules 

17Ad–22(e)(2) concerning governance, 

(e)(3) concerning frameworks for the 

comprehensive management of risks, 

and (e)(4)(vii), (e)(6)(vii) and (e)(7)(vii) 

concerning model validation.3 The 

MRM Policy is included as confidential 

Exhibit 5 of the filing. The Policy is 

being is submitted without marking to 

improve readability as it is being 

submitted in its entirety as new rule 

text. 

The proposed rule change does not 

require any changes to the text of OCC’s 

By-Laws or Rules. 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.4

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 

Background 

OCC’s use of models inherently 

exposes OCC to model risk.5 To help 

manage this risk, OCC is proposing to 

formalize and update its MRM Policy, 

which sets forth the general framework 

for OCC’s model risk management 

practices. The MRM Policy would apply 

to all Risk Models 6 used by OCC to 

determine, quantify or measure actual or 

potential risk exposures or risk 

mitigating actions. The purpose of the 

MRM Policy is to ensure that OCC 

appropriately manages its model risks 

by clearly outlining the roles and 

responsibilities of OCC’s (1) 

Quantitative Risk Management 

department (‘‘QRM’’), (2) Model 

Validation Group (‘‘MVG’’), and (3) 

Model Risk Working Group (‘‘MRWG’’) 

in model development, implementation, 

use, monitoring, and validation. The 

provisions of the MRM Policy 

addressing these core elements are 

described in greater detail below and are 

designed to ensure that OCC uses an 

appropriate approach to managing 

model risk. OCC notes that the MRM 

Policy is part of a broader framework 

regarding model risk management that 

is designed to further the appropriate 


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