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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7For example, OCC’s Margin Policy is also part 

of OCC’s framework regarding model risk 

management in that it is designed to be consistent 

with the requirement in Rule 17Ad–22(e)(6)(vii) 

that OCC’s policies and procedures provide for a 

risk-based margin system that requires a margin 

model validation not less than annually. See 17 

CFR 240.17Ad–22(e)(6)(vii). OCC recently filed a 

proposed rule change with the Commission 

concerning the formalizing and updating of its 

Margin Policy, which is currently pending 

Commission review. See Securities Exchange Act 

Release No. 82355 (December 19, 2017), 82 FR 

61060 (December 26, 2017) (SR–OCC–2017–007). 

8See SR Letter 11–7, ‘‘Guidance on Model Risk 

Management,’’ Board of Governors of the Federal 

Reserve System (April 4, 2011), and OCC Bulletin 

2011–12, ‘‘Sound Practices for Model Risk 

Management,’’ The Office of the Comptroller of the 

Currency (April 4, 2011). 

9 Id. 

10Under the proposed Policy, ‘‘Risk Model 

Defect’’ would be defined as an error, flaw, failure, 

or fault in a computer program or system that 

causes a Risk Model to produce an incorrect or 

unexpected result, or to behave in unintended 

ways. 

11Under the proposed Policy, ‘‘Decommissioned 

Model’’ would be defined as a Risk Model that has 

been approved by the Risk Committee to no longer 

be used to estimate margin or Clearing Fund 

exposures. 

12The MRWG is responsible for assisting OCC’s 

Management Committee in overseeing and 

governing OCC’s model-related risk issues and 

consists of representatives from Financial Risk 

Management, QRM, MVG and Enterprise Risk 

Management. 

13Under the proposed Policy, ‘‘Material Change’’ 

would be defined as a change to a Risk Model that, 

as deemed by the MRWG, requires Risk Committee 

approval due to its anticipated effect on margin or 

Clearing Fund requirements, impact to Clearing 

Members, volume or open interest, backtesting 

performance, etc. Material Changes may be 

quantitative or qualitative in nature and take into 

account the likelihood, impact, and context of the 

change relative to Risk Model. 

design, validation and operation of 

OCC’s Risk Models.7

Model Risk Management Policy 

Introduction 

The MRM Policy would apply to all 

Risk Models used by OCC to determine, 

quantify or measure actual or potential 

risk exposures or risk mitigating actions. 

As noted above, Risk Models are 

defined under the Policy to be credit 

risk models (e.g., models concerning 

OCC’s Clearing Fund), margin system 

and related models (e.g., OCC’s System 

for Theoretical Analysis and Numerical 

Simulations or ‘‘STANS’’), and liquidity 

risk models. 

The MRM Policy also would clarify 

that OCC considers a Risk Model to be 

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 can also be a quantitative 

method with inputs that are qualitative 

or based on business judgment.8 The 

MRM Policy also would define 

‘‘Methodology’’ to mean a collection of 

Risk Models used to estimate financial 

risk exposures. 

To guide activities in this part of 

OCC’s model risk framework, OCC shall 

primarily follow the Supervisory 

Guidance on Model Risk Management 

issued by the Board of Governors of the 

Federal Reserve System and the Office 

of the Comptroller of the Currency 

(April 4, 2011), as well as any 

applicable regulatory requirements.9

The MRM Policy sets forth a 

governance structure for the allocation 

of roles and responsibilities for Risk 

Model development, implementation, 

use, monitoring, and validation among 

different groups and individuals, 

including OCC’s Board, the Risk 

Committee of the Board (‘‘Risk 

Committee’’), management, and other 

OCC staff. These roles and 

responsibilities are described in further 

detail below. 

Quantitative Risk Management 

Under the proposed Policy, the 

Executive Vice President of OCC’s 

Financial Risk Management department 

(‘‘EVP–FRM’’) would be responsible for 

(i) having staff with the requisite 

knowledge, skills, and expertise to 

perform model risk management 

activities necessary to the staffs’ 

responsibilities and (ii) overseeing Risk 

Model development, implementation, 

monitoring, and use. 

Risk Model Development 

Under the proposed Policy, Risk 

Model development and 

implementation shall be conducted by 

QRM unless a third-party is otherwise 

engaged by QRM to develop a Risk 

Model. Where QRM does not develop a 

Risk Model, it shall oversee the 

development, implementation, and 

monitoring in accordance with the Risk 

Model Development Procedure. 

The design, theory, and logic of each 

Risk Model used by OCC shall be 

described in a document maintained by 

QRM and shall take into consideration 

published literature and industry best 

practice, where it is available. The 

document shall include a description of 

the Risk Model, the intended purpose of 

the Risk Model, the motivation of the 

Risk Model assumptions, the test data 

supporting the Risk Model, the Risk 

Model limitations, and other details as 

outlined in OCC’s Maintenance and 

Periodic Review of Methodology 

Procedure. QRM also would be 

responsible for describing each Risk 

Model Methodology in a Methodology 

document. Requirements for 

Methodology documentation shall be 

contained in the Maintenance and 

Periodic Review of Methodology 

Procedure. The EVP–FRM also shall 

review and, if appropriate, approve the 

Risk Model documentation. The EVP– 

FRM may delegate the responsibility for 

reviewing and approving such Risk 

Model documentation to the First Vice 

President, Quantitative Risk 

Management, who shall provide notice 

of any approval to the EVP–FRM. 

Risk Model Implementation 

Under the proposed MRM Policy, 

QRM would review, evaluate, and 

propose model changes (to include 

Model Defects,10 enhancements, and/or 

Decommissioning 11 of a Risk Model) in 

accordance with the Model 

Implementation Procedure and OCC’s 

Legal Services Policy (and related 

procedures). New products that are nonstandard equity options/futures shall be 

reviewed by QRM according to the 

Model Implementation Procedure for 

determination as to whether or not a 

new Risk Model is required or if the use 

of an existing Risk Model is fit for 

purpose. QRM shall recommend 

approval to OCC’s Model Risk Working 

Group (‘‘MRWG’’) 12 in accordance with 

the Model Risk Working Group 

Procedure subsequent to effective 

challenge and approval by MVG. 

Under the Policy, QRM shall seek 

Legal department (‘‘Legal’’) review to 

determine if a new Risk Model or 

change to an existing Risk Model 

requires regulatory filing prior to 

implementation and use in accordance 

with OCC’s Legal Services Policy and 

related procedures. OCC shall not 

implement or use such Risk Model until 

Legal provides a written notice to QRM 

and MVG that the Risk Model does not 

require any additional regulatory action 

prior to implementation and use or, if a 

regulatory filing is required, that all 

requisite filing and approvals are 

complete. 

Under the proposed Policy, QRM 

shall implement new Risk Models and 

changes to existing Risk Models in 

accordance with the Risk Model 

Development Procedure and the Model 

Implementation Procedure. QRM shall 

be responsible for overseeing the quality 

assurance and related testing procedures 

required for implementation and/or 

Decommissioning of a Risk Model. 

Reporting and escalation to the MRWG 

shall be performed in accordance with 

the Model Risk Working Group 

Procedure. The MRWG shall review 

and, if appropriate, approve all new 

Risk Models, Material Changes 13 to Risk 


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14Under the proposed Policy, ‘‘Model Inventory’’ 

would be defined as OCC’s database of in-use Risk 

Models and Methodologies. 

15Under the proposed Policy, ‘‘Independent 

Model Validation’’ would be defined as the 

evaluation of the performance of a Risk Model 

performed by a qualified person who is free from 

influence from the persons responsible for the 

development or operation of the models being 

validated. 

Models, and proposals for 

Decommissioning Risk Models prior to 

submitting to the Management 

Committee for approval. 

Under the Policy, the Management 

Committee would be responsible for 

reviewing and approving each new Risk 

Model and each Material Change to a 

Risk Model prior to implementation and 

use. The Management Committee also 

would review and approve each 

proposal for Decommissioning a Risk 

Model. Each approval shall constitute a 

recommendation and be reported to the 

Risk Committee for further review and 

approval. The Risk Committee shall 

review and, if appropriate, approve each 

new Risk Model and each Material 

Change prior to implementation and 

use, except that Material Changes to 

OCC’s margin and Clearing Fund 

methodologies shall be referred to the 

Board for review and, if appropriate, 

final approval, upon a recommendation 

from the Risk Committee. The Risk 

Committee also shall review and, if 

appropriate, approve the 

Decommissioning of a Risk Model prior 

to removing it from the Model 

Inventory.14

Risk Model Monitoring 

Pursuant to the proposed Policy, QRM 

shall monitor the use and performance 

of Risk Models according to the Model 

Backtesting Procedure, the Business 

Backtesting Procedure, and the Margin 

Model Parameter Review and 

Sensitivity Analysis Procedure. 

Monitoring shall be reasonably designed 

to determine if the Risk Model is 

accurate, reliable and robust, and to 

identify limitations. The results of 

monitoring also shall be used to 

evaluate the behavior of a Risk Model 

over a range of input values. Risk 

tolerance and associated key risk 

indicators would be maintained by 

QRM to measure and monitor model 

risk. These risk measures, in addition to 

monthly Risk Model parameter reviews 

shall be reported to the MRWG and 

escalated to the Management Committee 

and/or Risk Committee as necessary in 

accordance with the Model Risk 

Working Group Procedure. 

Model Validation Group 

Under the proposed Policy, the First 

Vice President of MVG shall have 

qualified staff with the requisite 

knowledge, skills, and expertise to 

perform validations in accordance with 

the Model Validation Procedure. MVG 

personnel responsible for validation 

shall be independent from, shall not 

report to, and shall otherwise be free 

from influence from OCC business areas 

involved in the development, 

implementation and operation of such 

Risk Models. 

Annual Model Validation Plan 

The First Vice President of MVG shall 

develop and maintain an Annual Model 

Validation Plan (‘‘Annual Plan’’). The 

Annual Plan, as defined in the Annual 

Model Validation Plan Procedure, is a 

schedule of Risk Model validations 

performed for all Risk Models on the 

Model Inventory. MVG’s Annual Plan 

shall require all Risk Models on the 

Model Inventory to be validated no less 

than annually (where annually is 

defined as 12 months, or 365 days). 

Pursuant to the proposed Policy, the 

Risk Committee shall review and 

approve the Annual Model Validation 

Plan and any removals or deferrals from 

the previously approved Annual Model 

Validation Plan based on 

recommendations from the Chief Risk 

Officer (‘‘CRO’’). In addition, the CRO 

shall provide a quarterly report to the 

Risk Committee that provides 

information on progress against the 

Annual Model Validation Plan. 

Model Inventory 

Pursuant to the proposed Policy, MVG 

shall maintain a complete and accurate 

inventory of Risk Models according to 

the Model Inventory Procedure. To 

ensure the Model Inventory is complete 

and accurate, MVG shall perform a firmwide assessment on an annual basis in 

accordance with the Model 

Identification Procedure. 

Independent Model Validation 

Under the proposed Policy, MVG 

would be responsible for evaluating the 

performance of each Risk Model by 

performing Independent Model 

Validations 15 in accordance with the 

Model Validation Procedure. 

Validations shall be performed 

according to the Model Validation 

Procedure, and shall include a review of 

Risk Model performance, parameters, 

and assumptions. Conclusions shall be 

formulated in the form of a ‘‘Model 

Assessment Report’’ and shall be 

reviewed by QRM upon conclusion of 

the report. MVG shall perform 

performance monitoring of Risk Models 

according to the Model Performance 

Monitoring Procedure. Findings from 

validations and performance monitoring 

shall be identified, monitored, 

remediated, and reported according to 

the Model Findings Management 

Procedure and presented to the 

Management Committee and Risk 

Committee in the form of a Model Risk 

Management Findings Dashboard. 

Pursuant to the proposed Policy, MVG 

shall validate all Risks Models prior to 

implementation and use in accordance 

with the Model Validation Procedure. 

Additionally, MVG shall review 

Material Changes to Risk Models prior 

to implementation of the Material 

Change and in accordance with the 

Model Implementation Procedure. MVG 

shall assign a model rating and model 

risk level to each Risk Model on the 

Model Inventory. The effectiveness of 

each Risk Model shall be reported by 

the CRO to the Risk Committee on a 

quarterly basis. 

In the event a third-party validator is 

used to validate a Risk Model or in the 

event that OCC uses a third-party to 

develop a Risk Model, MVG shall 

oversee/perform the validation in 

accordance with the Model Validation 

Procedure. The CRO shall report results 

of third party validations of OCC’s Risk 

Models and results of validations of 

third-party Risk Models to the 

Management Committee and Risk 

Committee along with any 

recommended actions and remediation 

plans associated with such validations. 

Model Risk Working Group 

Under the proposed Policy, the 

MRWG would be responsible for 

assisting OCC’s Management Committee 

in overseeing and governing OCC’s 

model-related risk issues. The MRWG 

consists of representatives from 

Financial Risk Management, QRM, MVG 

and Enterprise Risk Management as well 

as representatives from Legal to provide 

adequate support and Legal expertise as 

it relates to Model Risk. The MRWG 

shall serve as a resource by overseeing 

model risk, which includes, without 

limitation, ongoing model risk 

monitoring activities, approving, or 

recommending approval of new Risk 

Models and Material Changes to Risk 

Models, and tracking Model Defects and 

remediation activities as stipulated in 

the Model Risk Working Group 

Procedure. 

Policy Updates Exceptions and 

Violations 

Finally, pursuant to the proposed 

Policy, OCC’s Management Committee 

shall review and approve the Policy on 

an annual basis and recommend 

approval of the Policy to the Risk 


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16OCC’s Office of the Executive Chairman 

currently consists of the Executive Chairman and 

Chief Executive Officer, President and Chief 

Operating Officer, and Chief Administrative Officer. 17 15 U.S.C. 78q–1(b)(3)(F). 

18 Id. 19 17 CFR 240.17Ad–22(e)(2). 20 15 U.S.C. 78q–1. The public interest 

requirements in Section 17A of the Act include that 

the ‘‘prompt and accurate clearance and settlement 

of securities transactions, including the transfer of 

record ownership and the safeguarding of securities 

and funds related thereto, are necessary for the 

protection of investors and persons facilitating and 

acting on behalf of investors.’’ See 15 U.S.C. 78q– 

1(a)(1)(A). 

21 17 CFR 240.17Ad–22(e)(3)(i). 

22 Id. 

23 17 CFR 240.17Ad–22(e)(4)(vii), (e)(6)(vii) and 

(e)(7)(vii). 

24 Id. 

25 17 CFR 240.17Ad–22(b)(4). 

Committee. The Management 

Committee also shall review and 

approve any material changes to the 

Policy and recommend further approval 

to the Risk Committee. 

The MRM Policy also would contain 

OCC’s standard policy language 

concerning the policy exception and 

violation processes. Specifically, any 

request for an exception to the Policy 

must be made in writing to a member 

of the Office of the Executive 

Chairman,16 who is then responsible for 

reviewing the exception request and 

providing a decision in writing to the 

person requesting the exception. OCC’s 

CRO, Chief Compliance Officer, or Chief 

Audit Executive may also request an 

exception to the Policy directly to the 

Board. All requests for exceptions and 

their dispositions would be reported to 

the Board or Risk Committee as 

appropriate no later than its next 

regularly scheduled meeting, in a format 

approved by the Chair of the Board or 

Risk Committee. In addition, Policy 

violations shall be reported to OCC’s 

Chief Compliance Officer, or, if the 

violation involves the Compliance 

Department, to the head of Internal 

Audit or a member of the Office of the 

Executive Chairman. 

(2) Statutory Basis 

Section 17A(b)(3)(F) of the Act 17

requires, among other things, that the 

rules of a clearing agency be designed to 

assure the safeguarding of securities and 

funds in the custody or control of the 

clearing agency or for which it is 

responsible, and, in general, to protect 

investors and the public interest. As 

described in more detail above, OCC 

believes that formalizing the MRM 

Policy would help to ensure that OCC 

maintains policies and procedures that 

are reasonably designed to provide for a 

robust model risk management 

framework, which includes controls 

pertaining to the governance, 

development, implementation, use, 

monitoring, and Independent Model 

Validation of OCC’s Risk Models. In this 

way, the Policy is intended to further 

the appropriate design, validation and 

operation of Risk Models within OCC’s 

performance of clearance and settlement 

services. The MRM Policy thereby 

promotes, for example, the 

development, use and monitoring of 

appropriately conservative margin and 

Clearing Fund requirements. As a result, 

OCC believes the proposed rule change 

is designed to assure the safeguarding of 

securities and funds at OCC and, in 

general, protect investors and the public 

interest consistent with Section 

17A(b)(3)(F) of the Act.18

Rule 17Ad–22(e)(2) 19 requires a 

covered clearing agency to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide for 

governance arrangements that, among 

other things: (i) Are clear and 

transparent; (ii) clearly prioritize safety 

and efficiency of the covered clearing 

agency; (iii) support the public interest 

requirements in Section 17A of the 

Act 20 applicable to clearing agencies, 

and the objectives of owners and 

participants; and (iv) specify clear and 

direct lines of responsibility. The 

proposed Policy would describe, in 

detail, OCC’s overall framework for Risk 

Model governance. This includes 

establishing clear, transparent, and 

direct responsibilities for OCC’s Board, 

Risk Committee, management, and other 

OCC staff in connection with OCC’s 

model risk management framework and 

how the relevant groups and individuals 

interact. In particular, the proposed 

Policy is designed to establish 

appropriate governance arrangements 

for the development, implementation, 

use, monitoring, and Independent 

Model Validation of OCC’s Risk Models. 

OCC believes that these governance 

arrangements prioritize the safety and 

efficiency of OCC and support the 

public interest requirements of the Act 

by describing specifies roles, 

responsibilities and requirements for 

OCC’s model testing, monitoring, 

validation, and review processes, 

thereby helping to ensure that OCC 

maintains a robust framework for 

managing its model risk. 

Rule 17Ad–22(e)(3)(i) 21 requires a 

covered clearing agency to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to, among other 

things, maintain a sound risk 

management framework for 

comprehensively managing its risks, 

which includes risk management 

policies, procedures, and systems 

designed to identify, measure, monitor, 

and manage such risks and that are 

subject to review on a specified periodic 

basis and approved by its Board 

annually. OCC believes the proposed 

Policy is consistent with Rule 17Ad– 

22(e)(3)(i) 22 because it is an essential 

component of OCC’s overall framework 

for comprehensively managing its risks, 

which includes model risk. Specifically, 

OCC believes the proposed Policy is 

reasonably designed to identify, 

measure, monitor, and manage model 

risks by providing a sound framework 

for defining, developing, maintaining, 

and validating OCC’s Risk Models and 

for making any changes necessary to 

ensure those Risk Models continue to 

address relevant risks appropriately. As 

noted above, the proposed Policy 

provides that OCC’s QRM staff, as part 

of model risk management and model 

development, are responsible for 

monitoring model performance on a 

continuous basis. Specifically, QRM 

staff would monitor OCC’s Risk Models 

to determine whether such models 

perform as intended and are accurate, 

reliable and robust and to identify any 

Risk Model limitations. The results of 

monitoring also shall be used to 

evaluate the behavior of a Risk Model 

over a range of input values. Moreover, 

the proposed Policy describes MVG’s 

obligations for the independent 

validation of new Risk Models, Material 

Changes to Risk Models, and the annual 

validation of Risk Models. 

Rules 17Ad–22(e)(4)(vii), (e)(6)(vii) 

and (e)(7)(vii) 23 require a covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

perform independent model validations 

on its credit risk models, margin 

models, and liquidity risk models not 

less than annually or more frequently as 

may be contemplated by the clearing 

agency’s risk management framework. 

OCC believes the proposed rule change 

is consistent with Rules 17Ad– 

22(e)(4)(vii), (e)(6)(vii) and (e)(7)(vii) 24

because the Policy would require OCC 

to perform an Independent Model 

Validation of its Risk Models on at least 

an annual basis, or more frequently as 

needed, and prior to the implementation 

of new Risk Models or Material Changes 

to Risk Models. OCC also believes that 

the proposed rule change is consistent 

with the requirement in Rule 17Ad– 

22(b)(4) 25 that OCC’s policies and 

procedures be reasonably designed to 

provide for an annual model validation 

of OCC’s margin models, that evaluates 

their performance and the related 


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26 17 CFR 240.17Ad–22(b)(2). 

27 Id. 

28 15 U.S.C. 78q–1(b)(3)(I). 29 17 CFR 200.30–3(a)(12). 

parameters and assumptions, by a 

qualified person who is free from 

influence from the persons responsible 

for the development or operation of the 

models being validated. As noted above, 

the proposed Policy provides that OCC’s 

model validation staff reviews each Risk 

Model in OCC’s inventory, including 

margin models, at least annually and 

such staff is removed from the primary 

development path of a model to 

preserve its ability to provide an 

independent assessment. 

Finally, Rule 17Ad–22(b)(2) 26

requires, in part, that a registered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

use risk-based models and parameters to 

set margin requirements. OCC believes 

that the proposed Policy would provide 

for clear identification of its risk-based 

models and thereby promote 

compliance with the requirement in 

Rule 17Ad–22(b)(2) 27 that OCC’s 

policies and procedures be reasonably 

designed to use risk-based models and 

parameters to set margin requirements. 

The proposed rule change is not 

inconsistent with the existing rules of 

OCC, including any other rules 

proposed to be amended. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

Section 17A(b)(3)(I) of the Act 28

requires that the rules of a clearing 

agency not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. OCC does not 

believe that the proposed rule change 

would impact or impose any burden on 

competition. The proposed rule change 

addresses OCC’s internal framework 

surrounding the governance, 

development, implementation, use, 

monitoring, and validation of Risk 

Models. Under this framework, OCC’s 

controls regarding the design, use, 

implementation and validation of 

models, as set forth in the proposed 

Policy, insofar as they affect margin or 

Clearing Fund requirements, would 

have an equal impact on all Clearing 

Members. Consequently, the proposed 

Policy does not provide any Clearing 

Member with a competitive advantage 

over any other Clearing Member. 

Further, the proposed rule change 

would not affect any Clearing Member’s 

access to OCC’s services or impose any 

direct burdens on Clearing Members. 

Accordingly, the proposed rule change 

would not unfairly inhibit access to 

OCC’s services or disadvantage or favor 

any particular user in relationship to 

another user. 

For the foregoing reasons, OCC 

believes that the proposed rule change 

is in the public interest, would be 

consistent with the requirements of the 

Act applicable to clearing agencies, and 

would not impact or impose a burden 

on competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments on the proposed 

rule change were not and are not 

intended to be solicited with respect to 

the proposed rule change and none have 

been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

OCC–2017–011 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–OCC–2017–011. 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 such 

filing also will be available for 

inspection and copying at the principal 

office of OCC and on OCC’s website at 

https://www.theocc.com/components/ 

docs/legal/rules_and_bylaws/sr_occ_17_

011.pdf. 

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–2017–011 and should 

be submitted on or before February 6, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.29

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00530 Filed 1–12–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–135, OMB Control No. 

3235–0176] 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736. 

Extension: 

Rules 8b–1 to 8b–33 

Notice is hereby given that, pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.), the Securities 

and Exchange Commission 

(‘‘Commission’’) is soliciting comments 


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