710 Federal Register / Vol. 90, No. 3 / Monday, January 6, 2025 / Notices 

58 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Notice of Filing infra note 4, at 89 FR 81958. 

4See Securities Exchange Act Release No. 101246 

(Oct. 3, 2024), 89 FR 81958 (Oct. 9, 2024) (File No. 

SR–OCC–2024–014) (‘‘Notice of Filing’’). 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 101684 

(Nov. 21, 2024), 89 FR 93693 (Nov. 27, 2024) (File 

No. SR–OCC–2024–014). 

7Capitalized terms used but not defined herein 

have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ 

publications/bylaws.jsp. 

8See Securities Exchange Act Release No. 78961 

(Sep. 28, 2016), 81 FR 70786, 70819 (Oct. 13, 2016) 

(‘‘Standards for Covered Clearing Agencies’’) 

(stating that a covered clearing agency generally 

should consider, among other things, ‘‘whether 

initial margin meets an established single-tailed 

confidence level of at least 99 percent with respect 

to the estimated distribution of future exposure[.]’’). 

9See Securities Exchange Act Release No. 91079 

(Feb. 8, 2021), 86 FR 9410 (Feb. 12, 2021) (File No. 

SR–OCC–2020–016) (‘‘STANS Methodology 

Approval’’). 

10See Notice of Filing, notes 25–28 (describing 

the parameters to which bounds are applied). 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

ISE–2024–62 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–ISE–2024–62. 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 (https://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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–ISE–2024–62 and should be 

submitted on or before January 27, 2025. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.58

Stephanie J. Fouse, 

Assistant Secretary. 

[FR Doc. 2024–31771 Filed 1–3–25; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–102057; File No. SR–OCC– 

2024–014] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Granting Approval of Proposed Rule 

Change, as Modified by Partial 

Amendment No. 1, by The Options 

Clearing Corporation Concerning Its 

Process for Adjusting Certain 

Parameters in Its Proprietary System 

for Calculating Margin Requirements 

During Periods When the Products It 

Clears and the Markets It Serves 

Experience High Volatility 

December 30, 2024. 

I. Introduction 

On October 1, 2024, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2024– 

014, pursuant to Section 19(b) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 2

thereunder, to codify OCC’s process for 

adjusting certain parameters in its 

proprietary system for calculating 

margin requirements during periods 

when the products OCC clears and the 

markets it serves experience high 

volatility.3 The proposed rule change, as 

modified by Partial Amendment No. 1 

(hereinafter, the ‘‘Proposed Rule 

Change’’) was published for public 

comment in the Federal Register on 

October 9, 2024.4 The Commission has 

received no comments regarding the 

Proposed Rule Change. 

On November 21, 2024, pursuant to 

Section 19(b)(2) of the Exchange Act,5

the Commission designated a longer 

period within which to approve, 

disapprove, or institute proceedings to 

determine whether to disapprove the 

Proposed Rule Change.6 For the reasons 

discussed below, the Commission is 

approving the Proposed Rule Change. 

II. Background 7

OCC is a central counterparty 

(‘‘CCP’’), which means that as part of its 

function as a clearing agency, it 

interposes itself as the buyer to every 

seller and the seller to every buyer for 

financial transactions. As the CCP for 

the listed options markets and for 

certain futures in the United States, 

OCC is exposed to the risk that one or 

more of its Clearing Members may fail 

to make a payment or to deliver 

securities. OCC addresses such risk 

exposure, in part, by requiring its 

Clearing Members to provide collateral, 

including margin collateral. Margin is 

the collateral that CCPs collect to cover 

potential changes in a member’s 

positions over a set period of time. 

Typically, margin is designed to cover 

such exposures during normal market 

conditions, which means that margin 

collateral should be sufficient to cover 

exposures at least 99 out of 100 days.8

OCC’s methodology for calculating 

margin collateral—including daily and 

intra-day margin requirements for 

Clearing Members—is a collection of 

margin models collectively called the 

System for Theoretical Analysis and 

Numerical Simulations (‘‘STANS’’). The 

STANS Methodology Description is a 

document that comprehensively 

describes the material aspects of OCC’s 

risk-based margin system, including its 

approach for calculating daily and intraday margin requirements for its Clearing 

Members.9

As a collection of models, STANS is 

subject to assumptions and limitations 

that are incorporated into STANS as 

margin model parameters. For example, 

OCC has a price return model that 

employs bounds, or ‘‘control sets’’ that 

are implemented under either regular or 

high volatility settings, for certain 

parameters that are calculated daily 

based on current market data.10 OCC 

maintains authority under its rules to 

adjust member margin requirements to 

protect the respective interests of OCC, 

its Clearing Members, and the public. 

OCC has established an exception 

process for implementing, changing, 

and terminating certain of these margin 

model parameters in STANS to control 

margin requirements where such 

parameters cause STANS to produce 

inappropriate margin requirements 


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11 In the initial rule filing to introduce the STANS 

Methodology Description, OCC included a brief 

description of the high-volatility parameter controls 

discussion. See Securities Exchange Act Release 

No. 90763 (Dec. 21, 2020), 85 FR 85788, 85793 (Dec. 

29, 2020) (File No. SR–OCC–2020–016) (‘‘The 

STANS Methodology Description would also 

describe the controls that may be placed on the 

GJR–GARCH parameters after their initial 

calibration. GARCH volatility forecasting models 

can be very reactive in certain market 

environments. As a result, OCC may implement 

parameter controls for risk factors and classes of 

risk factors, which are subject to periodic review 

and approval by the [Model Risk Working 

Group].’’). 

12OCC also intends to update its internal Margin 

Setting and Maintenance procedure (Exhibit 3F to 

the Proposed Rule Change) to provide greater detail 

about its high-volatility parameter control process. 

13See Notice of Filing, 89 FR 81959. 

14See id. at 81961–62 (describing an instance 

when OCC applied the idiosyncratic control 

settings in 2021). Additionally, various exhibits to 

File No. SR–OCC–2024–014 indicate OCC’s use of 

high-volatility parameter control settings since 

2020. For example, confidential Exhibit B to that 

filing, which is an internal OCC memorandum 

addressing high-volatility parameter control 

settings, describes an instance on March 9, 2020 

when OCC implemented the global control settings. 

15OCC defines a risk factor in STANS as a 

product or attribute whose historical data is used 

to estimate and simulate the risk for an associated 

product. The majority of risk factors utilized in 

STANS are the returns on individual equity 

securities. 

16See Notice of Filing, 89 FR 81960. For example, 

OCC states that its GARCH model produced 

forecasts for particular S&P 500 Index (‘‘SPX’’) 

options that were four-fold larger than the 

comparable market index, leading to margin 

requirement increasing by 80% overnight, with 

some margin requirements increasing ten-fold. Id. 

OCC has attempted a number of approaches to 

mitigate the impact of procyclicality, including 

changes to its GARCH model. See Securities 

Exchange Act Release No. 84879 (Dec. 20, 2018), 83 

FR 67392, 67393 (Dec. 28, 2018) (File No. SR–OCC– 

2018–014). OCC has also developed a new model 

to replace GARCH for simulating implied volatility 

for SPX-based options and volatility index futures. 

See Securities Exchange Act Release No. 95319 

(July 19, 2022), 87 FR 44167 (July 25, 2022) (File 

No. SR–OCC–2022–001). 

17See Notice of Filing, 89 FR 81959. OCC also 

provides detailed examples in which high-volatility 

parameter control settings were implemented. Id. at 

81962, notes 41–42. 

18When OCC implements global control settings 

for a class or sector of risk factors, it is OCC’s 

practice to blend the high volatility and regular 

control settings based on a weighted percentage 

between them. See Notice of Filing, 89 FR 81961. 

Such a ‘‘blended’’ or ‘‘weighted’’ approach allows 

OCC’s risk managers, when appropriate, to select 

bounds that provide more conservative margin 

coverage when applying high volatility control 

settings globally across multiple risk factors. See id. 

19The proposed language states that in the case 

of the regular control set, the review assesses 

whether the GARCH parameter bounds are 

appropriately risk-based, including but not limited 

to assessing whether they align with the 95th 

percentile of the parameter calibrations over the 

prior review period; and, in the case of the highvolatility parameter control sets, the review assesses 

whether they effectively mitigate procyclicality 

while remaining appropriately risk-based, including 

but not limited to whether the bounds keep the dayover-day change in 2-day expected shortfall 

coverage within a factor of approximately 1.5, 

assuming price shocks based on observed returns 

for top risk factors. 

during periods of heightened volatility 

(the ‘‘high-volatility parameter 

controls’’). While the STANS 

Methodology Description currently 

includes a brief discussion of the highvolatility parameter controls that OCC 

uses,11 it does not provide a detailed 

description of OCC’s actual process and 

governance for implementing, changing, 

and terminating the high-volatility 

parameter controls. As such, OCC is 

filing the Proposed Rule Change to 

codify and describe more fully in the 

STANS Methodology Description its 

process and governance surrounding the 

high-volatility parameter controls. 

More specifically, OCC proposes to 

amend its existing Margin Policy to 

include material details regarding its 

high-volatility parameter control setting 

process.12 Although the Proposed Rule 

Change would amend OCC’s Margin 

Policy, OCC states that the proposal 

does not significantly change OCC’s 

existing high-volatility parameter 

control setting practices,13 which OCC 

indicates have been in use since at least 

2020.14

Proposed additions to the Margin 

Policy describing OCC’s exception 

process for setting high-volatility 

parameter controls include the 

following: (1) setting and reviewing 

regular and high-volatility parameter 

control settings; (2) monitoring the 

volatility of products being cleared and 

markets served, and establishing 

thresholds to escalate the results of such 

monitoring to senior decisionmakers; 

and (3) internal governance for 

implementing and terminating highvolatility parameter control settings. 

The three sets of changes to OCC’s 

Margin Policy are described in further 

detail below. 

A. Setting and Reviewing Regular and 

High-Volatility Parameter Control 

Settings 

STANS uses large-scale Monte Carlo 

simulations to calculate the margin 

requirements of OCC’s Clearing 

Members. The methodology includes 

econometric models that incorporate a 

number of risk factors.15 One of these 

econometric models, GARCH, is used to 

estimate the volatility of equity 

securities based on historical data. Over 

time, OCC has observed that the margin 

requirements produced by its GARCH 

model are strongly reactive to market 

movements and are considered to be 

‘‘procyclical’’—meaning that changes in 

margin requirements produced by the 

GARCH model may be positively 

correlated with the overall state of the 

market. OCC states that such 

procyclicality could inflate the margin 

requirements of OCC’s Clearing 

Members beyond the related risk posed 

by Clearing Members’ positions if it is 

not addressed during high-volatility 

periods in the market, and would 

potentially threaten the operational 

stability of those Clearing Members.16

As part of its current practice, OCC 

applies high-volatility parameter control 

settings to constrain the GARCH 

parameters temporarily during periods 

of high market volatility. OCC’s price 

return model uses upper and lower 

bounds for parameters calculated daily 

based on market data. OCC’s highvolatility parameter control settings 

consist of parameters that are bounded 

differently than regular control settings. 

These high-volatility parameter control 

settings, when applied to GARCH 

parameters after their initial calibration, 

mitigate the reactivity of the model 

volatility forecast and, in turn, generally 

prevent significant overestimation of 

Clearing Members’ margin 

requirements.17 Depending on the 

circumstances, OCC may apply control 

settings to individual risk factors (i.e., 

‘‘idiosyncratic control settings’’), or to 

all or a class of risk factors (i.e., ‘‘global 

control settings’’).18

As part of the Proposed Rule Change, 

OCC proposes to amend its Margin 

Policy to describe the current exception 

process for setting and reviewing both 

regular and high-volatility parameter 

control settings. Specifically, the 

proposed addition to the Margin Policy 

would state that GARCH parameters 

may be temporarily constrained through 

the application of idiosyncratic or global 

control settings. The added language 

would state that OCC’s Financial Risk 

Management team (‘‘FRM’’) maintains 

both regular and high-volatility 

parameter control sets, which it reviews 

on an at-least annual basis. FRM’s 

review of the high-volatility parameter 

control sets assesses whether they 

effectively mitigate procyclicality while 

remaining appropriately risk-based. The 

new Margin Policy language would 

further state that OCC’s Model Risk 

Working Group (‘‘MRWG’’) must 

approve any changes to the regular or 

high-volatility sets. The Proposed Rule 

Change would also provide further 

detail on the review of both regular and 

high-volatility parameter control sets.19

These proposed changes to the Margin 

Policy describe current OCC processes 

that will remain unchanged. 


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20The establishment of these CCA Monitoring 

Thresholds is described in OCC’s internal Clearing 

Fund Methodology Policy and its internal Stress 

Test Reporting Procedure. 

21FRM is the parent department of QRM, which 

is responsible for, among other things, monitoring 

the use and performance of risk models according 

to relevant procedures, maintaining risk tolerances 

and associated key risk indicators to measure and 

monitor risk models. See Securities Exchange Act 

Release No. 97484 (May 11, 2023), 88 FR 31549, 

31550 (May 17, 2023) (File No. SR–OCC–2023–004). 

22When OCC implements global control settings, 

MRWG evaluates and selects a control setting with 

different weightings between the regular control set 

and high-volatility parameter control set based on 

an assessment of which blended approach generates 

a coverage level that converges with the implied 

volatility of the SPX. Factors that the MRWG 

considers when determining whether to revert to 

regular control settings include, but are not limited 

to, whether SPX coverage rates produced under 

regular control settings have converged with the 

initial coverage rates when the global control 

settings were first implemented. See Notice of 

Filing, 89 FR 81961. 

23These ‘‘idiosyncratic thresholds’’ are defined in 

OCC’s internal Margin Setting and Maintenance 

Procedure. OCC included a copy of this procedure 

as Exhibit 3F for the Proposed Rule Change. 24 15 U.S.C. 78s(b)(2)(C). 

25Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

26 Id. 

27 Id. 

28Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017). 

29 15 U.S.C. 78q-1(b)(3)(F). 

30 17 CFR 240.17Ad–22(e)(2). 

31 17 CFR 240.17Ad–22(e)(6). 

32 15 U.S.C. 78q–1(b)(3)(F). 

B. Monitoring Volatility of Products and 

Markets Served 

As part of the Proposed Rule Change, 

OCC proposes to amend the Margin 

Calls and Adjustments section of the 

Margin Policy to include details about 

how OCC currently sets volatility 

controls. Specifically, the new Control 

Setting details would include 

information about OCC’s current use of 

certain monitoring thresholds related to 

high market volatility, low market 

liquidity, and significant increases in 

position size or concentration (‘‘CCA 

Monitoring Thresholds’’).20 The new 

details would state that the Quantitative 

Risk Management (‘‘QRM’’) team,21 in 

collaboration with Stress Testing and 

Liquidity Risk Management, will 

perform a review of the CCA Monitoring 

Thresholds to ensure that they remain 

adequate to identify periods of high 

market volatility, low market liquidity, 

and significant increases in position size 

or concentration. Moreover, the new 

language would state that any changes 

to the CCA Monitoring Thresholds must 

be approved by the MRWG and the 

Stress Testing Working Group. 

OCC also proposes to amend the 

Margin Calls and Adjustments section to 

state that QRM shall perform a monthly 

sensitivity analysis of the margin model, 

but may review more frequently when 

CCA Monitoring Thresholds are 

breached. 

These proposed changes to the Margin 

Policy describe current OCC processes 

that will remain unchanged. 

C. Internal Governance for 

Implementing and Terminating HighVolatility Parameter Controls 

As part of the Proposed Rule Change, 

OCC proposes to amend its Margin 

Policy to include details about its 

current internal governance process for 

implementing and terminating highvolatility parameter control settings. 

The new Margin Policy details would 

include descriptions of both 

idiosyncratic and global control settings, 

and the circumstances under which 

these settings may be used. 

For example, for global control 

settings, FRM monitors market volatility 

on a daily basis, and escalates to the 

MRWG if a market volatility threshold 

is exceeded. As part of the escalation to 

the MRWG, FRM recommends whether 

global control settings should be applied 

to all risk factors or to a class of risk 

factors. MRWG approval is required for 

OCC to implement global control 

settings, and for OCC to revert back to 

regular control settings.22

Meanwhile, for idiosyncratic control 

settings, FRM monitors securities 

against thresholds for idiosyncratic 

price moves.23 These thresholds may be 

a tiered structure that takes into account 

the type and magnitude of OCC’s risk 

exposure to the security, the value of the 

security, the magnitude of the price 

move, and the coverage rates. When an 

idiosyncratic threshold is breached, 

FRM Officer approval is required for 

any implementation of idiosyncratic 

control settings for an individual risk 

factor. An FRM Officer may also 

approve idiosyncratic control settings 

based on additional considerations, 

including market moves, expected 

shortfall risk contribution, and changes 

in Clearing Member positions. 

Generally, the FRM Officer will approve 

the reversion back to regular control 

settings once market volatility lessens, 

but in exceptional circumstances, the 

FRM Officer has the discretion to apply 

the idiosyncratic control settings for a 

longer or shorter period of time. 

The new language in the Margin 

Policy would also state that changes to 

the idiosyncratic thresholds require 

MRWG approval. 

These proposed changes to the Margin 

Policy describe current OCC processes 

that will remain unchanged. 

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Exchange 

Act directs the Commission to approve 

a proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Exchange 

Act and the rules and regulations 

thereunder applicable to such 

organization.24 Under the Commission’s 

Rules of Practice, the ‘‘burden to 

demonstrate that a proposed rule change 

is consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization [‘SRO’] that proposed the 

rule change.’’ 25

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,26 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.27

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.28

After carefully considering the 

Proposed Rule Change, the Commission 

finds that the Proposed Rule Change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to 

OCC. More specifically, the Commission 

finds that the Proposed Rule Change is 

consistent with Section 17A(b)(3)(F) of 

the Exchange Act 29 and Rules 17Ad– 

22(e)(2) 30 and 17Ad–22(e)(6) 31

thereunder, as described in detail 

below. 

A. Consistency With Section 

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

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

Act requires, among other things, that 

the rules of a clearing agency be 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible.32 Based 

on the review of the record, and for the 

reasons described below, OCC’s 

proposed update to its Margin Policy in 

the manner described above is 

consistent with the safeguarding of 

securities and funds which are in OCC’s 

custody or control or for which it is 

responsible. 


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33Examples of unreasonably inflated margin 

requirements were included in backtesting data and 

analysis provided as part of OCC’s confidential 

Exhibit 3C to File No. SR–OCC–2024–014. See 

Notice of Filing, 89 FR 81962, note 43. 

34As stated in the Margin Policy, OCC monitors 

margin sufficiency by using its ‘‘business 

backtesting’’ process for monitoring account 

exceedances. OCC has provided responses to 

Commission requests for backtesting data and 

analysis as part of its confidential Exhibit 3C to File 

No. SR–OCC–2024–014. See Notice of Filing, 89 FR 

81962, note 43. 

35Notice of Filing, 89 FR 81962. 

36See supra note 8. 

37 15 U.S.C. 78q–1(b)(3)(F). 

38 17 CFR 240.17Ad–22(e)(2)(v). 

39 17 CFR 240.17Ad–22(e)(2). 

40 17 CFR 240.17Ad–22(e)(6)(i). 

41 17 CFR 240.17Ad–22(e)(6)(iii). 

OCC’s high-volatility parameter 

control settings provide an exception 

handling process for OCC to correct for 

procyclicality effects on the GARCH 

model calculation that may 

unreasonably inflate Clearing Members’ 

margin requirements during periods of 

high market volatility.33 The 

idiosyncratic control settings allow OCC 

to adjust Clearing Member margin 

requirements to be commensurate with 

the risk of the products, portfolios, or 

markets when an individual risk factor 

becomes volatile (e.g., reflecting genuine 

changes in the risk of the Clearing 

Member’s products or portfolio, or the 

markets), rather than allowing the 

Clearing Member’s margin requirement 

to diverge from observed market 

dynamics based on the reactivity of 

OCC’s GARCH model. The global 

control settings offer the same benefit 

for periods during which all or a class 

of risk factors becomes volatile. 

Therefore, by setting and reviewing 

high-volatility parameter control 

settings, OCC is able to reduce the 

likelihood that Clearing Members would 

become operationally unstable or, 

potentially, default as the result of 

unreasonably high margin calls. This in 

turn further assures the safeguarding of 

Clearing Members’ collateral by 

reducing the likelihood that OCC would 

be forced to charge losses from a 

defaulting Clearing Member to the 

Clearing Fund. 

OCC’s use of CCA Monitoring 

Thresholds to monitor for market 

volatility is also consistent with the 

safeguarding of securities and funds 

which are in OCC’s custody or control 

or for which it is responsible. The CCA 

Monitoring Thresholds are set and used 

for FRM to detect both high market 

volatility generally and high volatility of 

individual risk factors. When FRM 

observes that any of these thresholds are 

exceeded, FRM determines whether or 

not to recommend that OCC’s highvolatility parameter control settings be 

implemented—either to MRWG that 

global controls should be implemented 

for market-wide volatility, or to the FRM 

Officer that idiosyncratic controls 

should be implemented for 

idiosyncratic volatility. OCC’s 

monitoring and proper setting of these 

thresholds helps to lower the chances of 

a Clearing Member default resulting 

from margin calls that are significantly 

higher than necessary to account for the 

risk presented by the Clearing Member’s 

products, portfolio, or the market, and 

thus assures the safeguarding of 

Clearing Members’ collateral from any 

loss charges to OCC’s Clearing Fund. 

The high-volatility parameter control 

setting practices described in the 

Proposed Rule Change are designed to 

ensure that Clearing Member margin 

requirements remain commensurate 

with market risk in circumstances when 

the margin model reacts unreasonably to 

high market volatility. Indeed, the 

confidential backtesting data that OCC 

provided to the Commission 34 shows 

that no account level exceedance has 

been attributed to OCC’s 

implementation of high-volatility 

parameter control settings. Thus, the 

application of the high-volatility 

parameter control settings does not 

appear to have reduced OCC’s ability to 

cover the risk posed by Clearing 

Members’ positions. Additionally, the 

confidential information regarding 

model backtesting provided by OCC and 

reviewed by the Commission 

demonstrates that, overall, the use of 

high-volatility parameter control 

settings has not prevented OCC from 

maintaining a 2-day expected shortfall 

coverage level of 99%.35 This 

demonstrates that, even with the use of 

the high-volatility parameter control 

settings, OCC’s margin collateral 

remains sufficient to cover exposures at 

least 99 out of 100 days, as discussed 

above.36

For the foregoing reasons, the 

Proposed Rule Change is consistent 

with the requirements of Section 

17A(b)(3)(F) of the Exchange Act.37

B. Consistency with Rule 17Ad–22(e)(2) 

under the Exchange Act 

Rule 17Ad-22(e)(2) under the 

Exchange Act requires that a covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to, 

as applicable, provide for governance 

arrangements that, among other things, 

specify clear and direct lines of 

responsibility.38 Based on the review of 

the record, and for the reasons described 

below, OCC’s proposed update to its 

Margin Policy in the manner described 

above is consistent with Rule 17Ad– 

22(e)(2)(v). 

OCC’s amendments to its Margin 

Policy describe the the arrangements 

governing the implemention, 

modification, and termination of highvolatility parameter controls. Defining 

the MRWG, QRM, FRM, and FRM 

Officer’s roles and responsibilities in 

these processes specifies clear and 

direct lines of responsibility. 

Specifically, the added language to the 

Margin Policy describes the role of FRM 

in monitoring for both market and 

idiosyncratic volatility. It also describes 

the FRM’s direct line of responsibility to 

either the MRWG for global control 

settings or the FRM Officer for 

idiosyncratic control settings, as well as 

the roles of MRWG and the FRM Officer 

in approving the eventual reversion 

back to regular control settings. 

For the foregoing reasons, the 

Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(2) under the 

Exchange Act.39

C. Consistency With Rule 17Ad–22(e)(6) 

Under the Exchange Act 

Rule 17Ad–22(e)(6) under the 

Exchange Act requires that a covered 

clearing agency establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

cover, if the covered clearing agency 

provides central counterparty services, 

its credit exposures to its participants by 

establishing a risk-based margin system 

that, among other things, (1) considers, 

and produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market 40 and (2) 

calculates sufficient margin to cover its 

potential future exposure to participants 

in the interval between the last margin 

collection and the close out of positions 

following a participant default.41 Based 

on the review of the record, and for the 

reasons described below, OCC’s 

proposed update to its Margin Policy in 

the manner described above is 

consistent with Rule 17Ad–22(e)(6). 

As described above, the highvolatility parameter control settings 

provide a necessary exception process 

allowing OCC to mitigate a limitation of 

its GARCH models that have 

demonstrated extreme sensitivity to 

sudden spikes in volatility. Such 

reactivity can produce instability, and 

in certain instances, over- or 

underestimation of margin 


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714 Federal Register / Vol. 90, No. 3 / Monday, January 6, 2025 / Notices 

42For example, OCC’s 2018 model would have 

increased aggregate margin requirements by 80 

percent overnight in response to increased volatility 

observed on February 5, 2018. OCC stated that it 

believed that these margin requirements were 

unreasonable and procyclical. See Notice of Filing, 

89 FR 81960; Securities Exchange Act Release No. 

84879, at 83 FR 67392, 67393. 

43OCC has provided responses to Commission 

requests for backtesting data and analysis as part of 

its confidential Exhibit 3C to File No. SR–OCC– 

2024–014. See Notice of Filing, 89 FR 81962, note 

43. 

44See Standards for Covered Clearing Agencies, 

81 FR 70819. 

45 17 CFR 240.17Ad–22(e)(6). 

46 In approving the Proposed Rule Change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

47 15 U.S.C. 78s(b)(2). 

48 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f). At any time within 60 days 

of the filing of the proposed rule change, the 

Commission summarily may temporarily suspend 

such rule change if it appears to the Commission 

that such action is necessary or appropriate in the 

public interest, for the protection of investors, or 

otherwise in furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission will institute proceedings to determine 

whether the proposed rule change should be 

approved or disapproved. 

5An ‘‘Industry Member’’ is defined as ‘‘a member 

of a national securities exchange or a member of a 

national securities association.’’ See LTSE Rule 

11.610(u). See also Section 1.1 of the CAT NMS 

Plan. Unless otherwise specified, capitalized terms 

used in this rule filing are defined as set forth in 

the CAT NMS Plan and/or the CAT Compliance 

Rule. See Exchange Rule Series 11.600. 

6Copies 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 a.m. and 3 p.m. 

Copies of the filing also will be available for 

inspection and copying at the principal office of 

SRO. 

requirements.42 The confidential 

backtesting data that OCC provided to 

the Commission has shown that during 

instances of market volatility where 

OCC has employed either the 

idiosyncratic control settings or the 

global control settings, the control 

settings have limited Clearing Member 

margin requirements to be 

commensurate with market risk by 

countering procyclicality effects, while 

still ensuring that OCC is collecting 

appropriate margin to cover its exposure 

to relevant products, portfolios, and 

markets.43 Ensuring that OCC maintains 

processes to counter procyclicality, in 

turn, allows for reduced margin 

requirements that, as described above, 

do not degrade backtesting coverage. 

Therefore, OCC is still able to calculate 

sufficient margin, while limiting the 

need for ‘‘destabilizing, procyclical 

changes.’’ 44 Further, including such 

high-volatility parameter control 

settings reduces the likelihood that 

Clearing Members would be required to 

provide additional financial resources 

unnecessarily, which, in turn, could 

reduce the strain on such Clearing 

Members during stressed market 

conditions. 

Accordingly, the Proposed Rule 

Change is consistent with Rule 17Ad– 

22(e)(6) under the Exchange Act.45

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

requirements of the Exchange Act, and 

in particular, the requirements of 

Section 17A of the Exchange Act 46 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,47

that the proposed rule change, as 

modified by Partial Amendment No. 1 

(SR–OCC–2024–014), be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.48

Stephanie J. Fouse, 

Assistant Secretary. 

[FR Doc. 2024–31610 Filed 1–3–25; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–102054; File No. SR–LTSE– 

2024–11] 

Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Establish 

Fees for Industry Members Related to 

Reasonably Budgeted CAT Costs of 

the National Market System Plan 

Governing the Consolidated Audit Trail 

for 2025 

December 30, 2024. 

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 

20, 2024, Long-Term Stock Exchange, 

Inc. (‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Item I below, 

which Item has been substantially 

prepared by the Exchange. The 

Exchange has designated this proposal 

for immediate effectiveness pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f) thereunder.4 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 proposes a rule change 

to establish fees for Industry Members 5

related to reasonably budgeted CAT 

costs of the National Market System 

Plan Governing the Consolidated Audit 

Trail for 2025. 

The proposed rule change, including 

the Exchange’s statement of the purpose 

of, and statutory basis for, the proposed 

rule change, is available on the 

Exchange’s website at https://longterm

stockexchange.com/, at the principal 

office of the Exchange, and on the 

Commission’s website at https://

www.sec.gov/rules-regulations/selfregulatory-organization-rulemaking/ 

national-securities-exchanges?file_

number=SR-LTSE-2024-11. 

II. 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.6

Comments may be submitted 

electronically by using the 

Commission’s internet comment form 

(https://www.sec.gov/rules-regulations/ 

self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-LTSE-2024- 

11) or by sending an email to rulecomments@sec.gov. Please include file 

number SR–LTSE–2024–11 on the 

subject line. Alternatively, paper 

comments may be sent to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. All submissions should 

refer to file number SR–LTSE–2024–11. 

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 

(https://www.sec.gov/rules-regulations/ 

self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-LTSE-2024- 

11). Do not include personal identifiable 

information in submissions; you should 

submit only information that you wish 

to make available publicly. We may 

redact in part or withhold entirely from 

publication submitted material that is 

obscene or subject to copyright 

protection. All submissions should refer 


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