Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 2843 

28See TOPO Plus approval order, 75 FR at 31833. 

29 Id. 

30 15 U.S.C. 78s(b)(3)(A)(ii). 31 17 CFR 200.30–3(a)(12). 

with access to the internet or television. 

Conversely, the value of such products 

to Distributors and investors decreases if 

order flow falls, because the products 

contain less content. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products, but 

different platforms may choose from a 

range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. The 

Exchange pays rebates to attract orders, 

charges relatively low prices for market 

information and charges relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower liquidity rebates to 

attract orders, setting relatively low 

prices for accessing posted liquidity, 

and setting relatively high prices for 

market information. Still others may 

provide most data free of charge and 

rely exclusively on transaction fees to 

recover their costs. Finally, some 

platforms may incentivize use by 

providing opportunities for equity 

ownership, which may allow them to 

charge lower direct fees for executions 

and data. 

In this environment, there is no 

economic basis for regulating maximum 

prices for one of the joint products in an 

industry in which suppliers face 

competitive constraints with regard to 

the joint offering. Such regulation is 

unnecessary because an ‘‘excessive’’ 

price for one of the joint products will 

ultimately have to be reflected in lower 

prices for other products sold by the 

firm, or otherwise the firm will 

experience a loss in the volume of its 

sales that will be adverse to its overall 

profitability. In other words, an increase 

in the price of data will ultimately have 

to be accompanied by a decrease in the 

cost of executions, or the volume of both 

data and executions will fall. 

Indeed, in approving the fees for 

TOPO Plus in 2010, the Commission 

noted that the Exchange was subject to 

competitive pressures in setting its fees 

for TOPO Plus. First, the Commission 

noted that the Exchange had a 

‘‘compelling need’’ to attract order flow, 

which imposed ‘‘significant pressure’’ 

on the Exchange to act reasonably in 

setting its fees for PHLX market data, 

particularly given that ‘‘the market 

participants that will pay such fees 

often will be the same market 

participants from whom Phlx must 

attract order flow.’’ 28 The Commission 

also found that there were a number of 

alternative sources of information that 

imposed significant competitive 

pressures on the Exchange in setting the 

terms for distributing TOPO Plus. The 

Commission found that the availability 

of those alternatives, as well as the 

Exchange’s compelling need to attract 

order flow, imposed ‘‘significant 

competitive pressure on Phlx to act 

equitably, fairly, and reasonably in 

setting the terms of its proposal.’’ 29 The 

Exchange believes that the same 

analysis and conclusions apply here. 

In sum, the proposed fee structure is 

designed to ensure a fair and reasonable 

use of Exchange resources by allowing 

the Exchange to recoup costs while 

continuing to offer its data products at 

competitive rates to firms 

3. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or 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.30

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) 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– 

Phlx–2018–08 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–Phlx–2018–08. 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–Phlx–2018–08, and should 

be submitted on or before February 9, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00852 Filed 1–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82501; File No. SR–OCC– 

2017–808] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of No Objection to Advance Notice, as 

Modified by Amendment No. 1, 

Concerning the Adoption of a New 

Minimum Cash Requirement for the 

Clearing Fund 

January 12, 2018. 

The Options Clearing Corporation 

(‘‘OCC’’) filed on November 14, 2017 


daltland on DSKBBV9HB2PROD with NOTICES
2844 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 

1 12 U.S.C. 5465(e)(1). The Financial Stability 

Oversight Council designated OCC a systemically 

important financial market utility (‘‘SIFMU’’) on 

July 18, 2012. See Financial Stability Oversight 

Council 2012 Annual Report, Appendix A, http:// 

www.treasury.gov/initiatives/fsoc/Documents/ 

2012%20Annual%20Report.pdf. Therefore, OCC is 

required to comply with the Payment, Clearing and 

Settlement Supervision Act and file advance 

notices with the Commission. 

2 17 CFR 240.19b–4(n)(1)(i). 

3Unless specified otherwise, capitalized terms 

shall have the meaning OCC ascribes in its By-Laws 

and Rules. 

4Exchange Act Release No. 34–82247 (Dec. 8, 

2017), 82 FR 59031 (Dec. 14, 2017) (‘‘Notice of 

Filing of Advance Notice’’). 

5See Exchange Act Release No. 81058 (June 30, 

2017), 82 FR 31371 (July 6, 2017) (SR–OCC–2017– 

803); Exchange Act Release No. 76641 (December 

14, 2015), 80 FR 79114 (December 18, 2015) (SR– 

OCC–2015–805). Both facilities allow OCC to obtain 

cash in exchange for government securities 60 

minutes after notice is given and collateral is 

posted. 

6OCC represented that it performed an analysis 

of its stress liquidity demands based on a 1-in-70 

year hypothetical market event. Specifically, OCC 

started its analysis by selecting the largest historical 

peak monthly settlements that occurred over the 

historical look-back period of data generated by the 

stress test system. It then also selected certain large 

non-expiration days to supplement the analysis. 

From this it estimated the mark-to-market and cash 

settled exercise and assignment obligations for the 

members driving the historical peak demand under 

the proposed stress tests scenario to determine the 

stressed peak demand. 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–OCC–2017–808 (‘‘Advance 

Notice’’) pursuant to Section 806(e)(1) of 

the Payment, Clearing, and Settlement 

Supervision Act of 2010 (‘‘Payment, 

Clearing and Settlement Supervision 

Act’’) 1 and Rule 19b–4(n)(1)(i) under 

the Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 2 to propose a new 

minimum cash contribution 

requirement for its Clearing Fund 3

(‘‘Cash Clearing Fund Requirement’’) 

and also provide for the pass-through of 

interest income earned on such deposits 

to its Clearing Members. The proposed 

changes are intended to enhance OCC’s 

liquidity risk management by increasing 

the amount of qualifying liquid 

resources available, as well as to 

provide for a more consistent level of 

cash available in its prefunded financial 

resources. The Advance Notice was 

published for comment in the Federal 

Register on December 14, 2017.4 The 

Commission did not receive any 

comments on the Advance Notice. This 

publication serves as notice of no 

objection to the Advance Notice. 

I. Background 

OCC maintains a Clearing Fund, 

composed of contributions required to 

be made by all Clearing Members, to 

make good losses suffered by OCC 

under a number of circumstances, 

including the default or failure of a 

Clearing Member to make good on any 

obligation for which OCC may be 

responsible in the exercise of its duties 

as a central counterparty. Presently, 

Article VIII, Section 3(a) of OCC’s ByLaws provides that Clearing Fund 

contributions shall be in the form of 

cash and Government securities, but 

neither OCC’s By-Laws nor Rules 

provides a minimum cash requirement 

for contributions to the Clearing Fund. 

Article VIII, Section 4(a) of OCC’s ByLaws allows for OCC to invest cash 

contributions to the Clearing Fund, 

partially or wholly, in OCC’s account in 

Government securities, and to the extent 

that such contributions are not so 

invested, they shall be deposited by 

OCC in a separate account or accounts 

for Clearing Fund contributions in 

approved custodians. Article VIII, 

Section 4(a) of OCC’s By-Laws, 

however, presently does not account for 

the treatment of interest earned on cash 

deposits held in OCC’s bank account at 

the Federal Reserve. 

II. Description of the Advance Notice 

A. Proposed Change To Establish the 

Cash Clearing Fund Requirement 

OCC proposes to establish a Cash 

Clearing Fund Requirement for its 

Clearing Fund to increase the amount of 

qualifying liquid resources available to 

OCC to account in the event there is an 

extreme scenario in the financial 

markets and OCC has to address any 

resultant liquidity demands. Further, 

the proposal seeks to ensure that OCC 

holds, and maintains access to, a more 

consistent level of cash clearing fund 

resources in its available prefunded 

financial resources. Specifically, the 

proposed rule change would require 

that Clearing Members collectively 

contribute $3 billion in cash to the 

Clearing Fund. Each Clearing Member’s 

proportionate share of the Cash Clearing 

Fund Requirement shall be determined 

by the current Clearing Fund allocation 

methodology in OCC Rule 1001. 

OCC’s current liquidity resources are 

sized to cover historically observed 

liquidity demands and potential 

demands based on forecasts with a 12 

month time horizon. The sizing 

calculations, in turn, are based on the 

potential exposure resulting from the 

default of a single clearing member. 

Further, the current clearing fund is 

sized, at a minimum, to ensure that OCC 

maintains sufficient collateral to access 

its committed liquidity facilities. OCC 

represented that it maintains committed 

liquidity facilities of $3 billion to cover 

its calculated historical and forecasted 

demands.5

After analyzing its liquidity demands 

in extreme stress scenarios,6 OCC 

determined that it would propose the $3 

billion Cash Clearing Fund Requirement 

to increase the amount and reliability of 

its liquid resources. OCC represented 

that, based upon its analysis, the peak 

stressed liquidity demands of the largest 

or two largest Clearing Members, which 

normally occur in conjunction with 

certain monthly expirations, could 

exceed the capacity of OCC’s current 

committed liquidity facilities. Although 

OCC believes that it would be able to 

cover the resulting shortfall with cash 

already present in the Clearing Fund, 

OCC stated that it could not rely on 

such cash always being available 

because, under OCC’s current By-Laws 

and Rules, there is no ability for OCC to 

ensure that a minimum amount of cash 

is maintained in the Clearing Fund at all 

times. As a result, OCC believes that the 

proposed $3 billion Cash Clearing Fund 

Requirement, combined with OCC’s $3 

billion of committed liquidity facilities, 

would provide liquid resources 

sufficient to cover the peak stressed 

liquidity demands of the largest one or 

two Clearing Members observed in the 

analysis. 

B. Proposed Change To Allow 

Temporary Increase of Cash Clearing 

Fund Requirement 

The proposed change would also 

provide authority for OCC to 

temporarily increase the amount of the 

Cash Clearing Fund Requirement. OCC’s 

Executive Chairman, Chief 

Administrative Officer (‘‘CAO’’), or 

Chief Operating Officer (‘‘COO’’), would 

have the authority, upon providing 

notice to the Risk Committee, to 

temporarily raise the Cash Clearing 

Fund Requirement up to an amount that 

includes the size of the Clearing Fund 

as determined in accordance with Rule 

1001 for the month in question. A 

Clearing Member will be required to 

satisfy any increase in its required cash 

contribution pursuant to an increase in 

the Cash Clearing Fund Requirement no 

later than one hour before the close of 

the Fedwire on the business day 

following OCC’s issuance of an 

instruction to increase cash 

contributions. 

In such circumstances, the Risk 

Committee, by rule, would be obligated 

to review any such temporary increase 

as soon as practicable, but in any event 

within 20 calendar days of the increase. 

In its review, the Risk Committee shall 

determine whether (1) the increase in 

the minimum Cash Clearing Fund 

Requirement is no longer required, or 

(2) OCC’s Clearing Fund contribution 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 2845 

7However, OCC represented that it would not 

decrease the Cash Clearing Fund Requirement 

while the regulatory approvals for a change in the 

Cash Clearing Fund Requirement are being obtained 

to ensure that OCC continues to maintain sufficient 

liquid resources to cover its liquidity demands 

during that time. 

8While interest income earned by OCC from its 

bank account at the Federal Reserve would be 

passed on to its Clearing Members, OCC anticipates 

that it would charge a cash management fee to cover 

associated costs (i.e., administrative and similar 

costs). OCC would file a separate proposed rule 

change with the Commission, subject to receiving 

all necessary regulatory approvals for the proposed 

changes described herein, prior to implementing 

any cash management fee 

9See 12 U.S.C. 5461(b). 

10 Id. 

11 12 U.S.C. 5464(a)(2). 

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

13 12 U.S.C. 5464(c). 

14 17 CFR 240.17Ad–22. See Securities Exchange 

Act Release No. 68080 (October 22, 2012), 77 FR 

66220 (November 2, 2012) (S7–08–11). See also 

Securities Exchange Act Release No. 78961 

(September 28, 2016), 81 FR 70786 (October 13, 

2016) (S7–03–14) (‘‘Covered Clearing Agency 

Standards’’). The Commission established an 

effective date of December 12, 2016, and a 

compliance date of April 11, 2017, for the Covered 

Clearing Agency Standards. On March 4, 2017, the 

Continued 

requirements and other related rules 

should be modified to ensure that OCC 

continues to maintain sufficient liquid 

resources to cover its largest aggregate 

payment obligations in extreme but 

plausible market conditions. In the 

event that the Risk Committee would 

determine to permanently increase the 

Cash Clearing Fund Requirement, OCC 

would initiate any regulatory approval 

process required to effect such a 

change.7

OCC acknowledged that increasing 

the Cash Clearing Fund Requirement 

could impose a liquidity constraint on 

its clearing members. Accordingly, OCC 

has proposed to limit the circumstances 

in which it could make such an 

increase. By rule, OCC would only be 

able to exercise this authority to protect 

OCC, its clearing members, or the 

general public. Further, any Cash 

Clearing Fund Requirement increase 

would have to: (i) Be based upon thenexisting facts and circumstances, (ii) be 

in furtherance of the integrity of OCC 

and the stability of the financial system, 

and (iii) take into consideration the 

legitimate interests of Clearing Members 

and market participants. 

These changes would be reflected in 

new paragraph (a)(i) of Section 3 of 

Article VIII of OCC’s By-Laws, as well 

as in new Interpretation and Policy .04 

to Section 3 of Article VIII. 

C. Proposed Changes to Pass-Through 

Interest on Clearing Fund Cash to 

Clearing Members 

Under the proposal, OCC stated that 

substantially all the cash deposits in the 

Clearing Fund would be held in an 

account established by OCC at a Federal 

Reserve Bank. OCC proposes that it 

would pass the interest income earned 

in such account through to its Clearing 

Members. Specifically, OCC proposes to 

revise Article VIII, Section 4(a) of OCC’s 

By-Laws to provide that any interest 

earned on cash deposits held at an 

account at the Federal Reserve shall 

accrue to the benefit of Clearing 

Members (calculated daily based on 

each Clearing Member’s pro rata share 

of Clearing Fund cash deposits), 

provided that such Clearing Members 

have provided OCC with all tax 

documentation as OCC may from time 

to time require in order to effectuate 

such payment. 

To accommodate the pass through of 

interest income, OCC would also amend 

its Fee Policy to add definitions for 

‘‘Pass-Through Interest Revenue’’ and 

‘‘Operating Expenses’’ to exclude from 

the calculation of the Business Risk 

Buffer projected interest revenue and 

expense, respectively, related to the 

pass-through of earned interest from 

OCC to Clearing Members.8 OCC also 

proposes to add a new example of the 

Business Risk Buffer calculation 

reflecting this change and make 

clarifying changes throughout the policy 

to incorporate the use of the new 

defined terms. In addition, OCC 

proposes to amend the Fee Policy to 

remove references to ‘‘Proposed Rule 

17Ad–22(e)(15)’’ to reflect the adoption 

of the Commission’s Covered Clearing 

Agency Standards. 

D. Proposed Conforming Changes 

In conjunction with the 

aforementioned changes, OCC is also 

proposing to make four related 

conforming changes. First, OCC 

proposes to revise Interpretation and 

Policy .01 of Rule 1001 to reflect that 

the new minimum Clearing Fund size is 

$3 billion (instead of $1 billion) plus 

110% of the size of OCC’s committed 

liquidity facilities, which conforms to 

the Cash Clearing Fund Requirement. 

Second, OCC proposes to amend the 

definition of ‘‘Approved Custodian’’ in 

Article I, Section 1 of the By-Laws to 

clarify that the Federal Reserve Bank 

may also be an Approved Custodian, to 

the extent it is available to OCC. Third, 

OCC is proposing to delete existing 

Article VIII, Section 4(b), regarding the 

establishment of a segregated funds 

account for cash contributions to the 

Clearing Fund. The segregated funds 

account allows a Clearing Member to 

contribute cash to a bank or trust 

company account maintained in the 

name of OCC, subject to OCC’s 

exclusive control, but the account also 

includes the name of the Clearing 

Member and any interest accrues to the 

Clearing Member rather than OCC. OCC 

proposes to eliminate the account type 

because Clearing Members have not 

expressed interest in using such an 

account, no such accounts are in use 

today, and moving forward, 

substantially all cash Clearing Fund 

contributions will held in OCC’s 

account at the Federal Reserve Bank. 

Fourth, OCC proposes to introduce new 

language to Article VIII, Section 4(a) to 

clarify that cash contributions to the 

Clearing Fund that are deposited at 

approved custodians may be 

commingled with the Clearing Fund 

contributions of different Clearing 

Members. 

III. Discussion and Commission 

Findings 

Although the Payment, Clearing and 

Settlement Supervision Act does not 

specify a standard of review for an 

advance notice, the stated purpose is 

instructive.9 The stated purpose of the 

Payment, Clearing and Settlement 

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 SIFMUs and 

strengthening the liquidity of SIFMUs.10

Section 805(a)(2) of the Payment, 

Clearing and Settlement Supervision 

Act 11 authorizes the Commission to 

prescribe regulations containing riskmanagement standards for the payment, 

clearing, and settlement activities of 

designated clearing entities engaged in 

designated activities for which the 

Commission is the supervisory agency. 

Section 805(b) of the Payment, Clearing 

and Settlement Supervision Act 12

provides the following objectives and 

principles for the Commission’s riskmanagement standards prescribed under 

Section 805(a): 

• To promote robust risk 

management; 

• To promote safety and soundness; 

• To reduce systemic risks; and 

• To support the stability of the 

broader financial system. 

Section 805(c) provides, in addition, 

that the Commission’s risk-management 

standards may address such areas as 

risk-management and default policies 

and procedures, among others areas.13

The Commission has adopted riskmanagement standards under Section 

805(a)(2) of the Payment, Clearing and 

Settlement Supervision Act and the 

Exchange Act (the ‘‘Clearing Agency 

Rules’’).14 The Clearing Agency Rules 


daltland on DSKBBV9HB2PROD with NOTICES
2846 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 

Commission granted covered clearing agencies a 

temporary exemption from compliance with Rule 

17Ad–22(e)(3)(ii) and certain requirements in Rules 

17Ad–22(e)(15)(i) and (ii) until December 31, 2017, 

subject to certain conditions. OCC is a ‘‘covered 

clearing agency’’ as defined in Rule 17Ad–22(a)(5). 

15 12 U.S.C. 5464(b). 16 17 CFR 240.17Ad–22(e)(7). 

17 17 CFR 240.17Ad–22(e)(7)(i). 

18 17 CFR 240.17Ad–22(e)(7)(iii). 

19 17 CFR 240.17Ad–22(e)(7)(viii). 

20 12 U.S.C. 5465(e)(1)(G). 

require each covered clearing agency, 

among other things, to establish, 

implement, maintain, and enforce 

written policies and procedures that are 

reasonably designed to meet certain 

minimum requirements for operations 

and risk-management practices on an 

ongoing basis. As such, it is appropriate 

for the Commission to review advance 

notices for consistency with the 

objectives and principles for riskmanagement standards described in 

Section 805(b) of the Payment, Clearing 

and Settlement Supervision Act and the 

Clearing Agency Rules. 

A. Consistency With Section 805(b) of 

the Payment, Clearing and Settlement 

Supervision Act 

The Commission believes the 

Advance Notice is consistent with the 

stated objectives and principles of 

Section 805(b) of the Payment, Clearing 

and Settlement Supervision Act of 

promoting robust risk management, 

promoting safety and soundness, 

reducing systemic risks, and supporting 

the stability of the broader financial 

system.15

The Commission believes that the 

Cash Clearing Fund Requirement would 

enhance OCC’s ability to manage its 

liquidity risk exposure, thereby 

promoting robust risk management. 

Similarly, the Commission believes that 

increasing the amount of cash, and 

therefore the overall amount of 

qualifying liquid resources, available to 

cover OCC’s liquidity demands arising 

in stressed scenarios is consistent with 

promoting safety and soundness. Based 

on the analysis provided by OCC, the 

Commission believes that OCC’s 

conclusion is reasonable, i.e., that under 

certain stressed conditions as set forth 

in the analysis, the peak stressed 

liquidity demands of the largest clearing 

member could exceed the size of OCC’s 

committed liquidity facilities. Moreover, 

the Commission understands that OCC 

is unable to rely on the fact that there 

will always be deposits of cash in the 

Clearing Fund sufficient to cover such 

demands because, under its current Bylaws and Rules, there is no ability for 

OCC to ensure that a minimum amount 

of cash is maintained in the Clearing 

Fund at all times. Therefore, there is a 

risk that OCC could face liquidity 

shortfalls in the event of a default by a 

clearing member whose payment 

obligations exceed OCC’s liquid 

resources. OCC determined to address 

this risk by proposing to establish the 

Cash Clearing Fund Requirement. 

Establishing the Cash Clearing Fund 

Requirement would provide OCC with 

more qualifying liquid resources, which, 

in turn, enhances OCC’s ability to cover 

payment obligations that could arise in 

stressed conditions. Further, the 

proposal to give OCC the authority to 

temporarily increase the Cash Clearing 

Fund Requirement gives OCC additional 

means to address liquidity shortfalls in 

extreme scenarios. 

The Commission also believes that the 

proposed changes are consistent with 

reducing systemic risks and supporting 

the stability of the broader financial 

system. OCC is the sole registered 

clearing agency for the U.S. listed 

options markets and a SIFMU. As such, 

it is important for OCC to implement 

measures that enhance its ability to 

manage risks that could cause a 

financial loss or settlement disruption 

and threaten the stability of the U.S. 

listed options markets and the broader 

financial system. The Commission 

believes that the proposed change is 

designed to enhance OCC’s ability to 

continue to make timely settlement of 

payment obligations and otherwise 

service the U.S. options markets while 

in the midst of experiencing an extreme 

market event in the form of the default 

of up to two of its largest clearing 

members. As such, the Commission 

believes the proposed change is 

consistent with reducing systemic risks 

and supporting the stability of the 

broader financial system. 

B. Consistency With Rules 17Ad– 

22(e)(7)(i), (iii), and (viii) Under the 

Exchange Act 

The Commission further believes that 

the proposed change is consistent with 

the Covered Clearing Agency Standards, 

specifically Rule 17Ad–22(e)(7), which 

requires that a covered clearing agency 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to effectively 

measure, monitor, and manage its 

liquidity risk. This includes measuring, 

monitoring, and managing the covered 

clearing agency’s settlement and 

funding flows on an ongoing and timely 

basis, as well as its use of intraday 

liquidity.16 The Division believes that 

the proposed change is consistent with 

several particular sub-parts of Rule 

17Ad–22(e)(7), which require that 

OCC’s liquidity risk management 

policies and procedures be reasonably 

designed to achieve the following: 

• Maintaining sufficient liquid resources at 

the minimum in all relevant currencies to 

effect same-day and, where appropriate, 

intraday and multiday settlement of payment 

obligations with a high degree of confidence 

under a wide range of foreseeable stress 

scenarios that includes, but is not limited to, 

the default of the participant family that 

would generate the largest aggregate payment 

obligation for the covered clearing agency in 

extreme but plausible market conditions; 17

• using the access to accounts and services 

at a Federal Reserve Bank or other relevant 

central bank, when available and where the 

board of directors of the covered clearing 

agency has determined that it would be 

practical to enhance its management of 

liquidity risk; 18 and 

• addressing foreseeable liquidity 

shortfalls that would not be covered by a 

covered clearing agency’s liquid resources 

and seeking to avoid unwinding, revoking, or 

delaying the same-day settlement of payment 

obligations.19

By proposing the Cash Clearing Fund 

Requirement, OCC has taken measures 

consistent with the standard in Rule 

17Ad–22(e)(7)(i). OCC also represented 

that substantially all of OCC’s Clearing 

Fund deposits consisting of cash would 

be held in an account established by 

OCC at a Federal Reserve Bank and 

further clarified that interest earned in 

such an account would be paid to its 

members on a specified basis. By 

proposing to use its access to accounts 

at a Federal Reserve Bank to support the 

maintenance of the Cash Clearing Fund 

Requirement, OCC has taken measures 

consistent with the standard in Rule 

17Ad–22(e)(7)(iii) which provides for 

using access to a central bank account, 

where available and determined to be 

practical. Further, the proposed 

authority to temporarily increase the 

Cash Clearing Fund Requirement is 

intended to address a foreseeable 

liquidity shortfall and is therefore 

consistent with the requirement in Rule 

17Ad–22(e)(7)(viii). 

IV. Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(G) of the Payment, 

Clearing and Settlement Supervision 

Act,20 that the Commission does not 

object to Advance Notice (SR–OCC– 

2017–808) and that OCC is authorized 

to implement the proposed change. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–00857 Filed 1–18–18; 8:45 am] 

BILLING CODE 8011–01–P 


daltland on DSKBBV9HB2PROD with NOTICES