```

[Federal Register Volume 90, Number 13 (Wednesday, January 22, 2025)]
[Notices]
[Pages 7722-7731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01412]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102202; File No. SR-OCC-2024-010]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Amendment No. 3 to Proposed Rule Change by The 
Options Clearing Corporation To Establish a Margin Add-On Charge That 
Would Be Applied to All Clearing Member Accounts To Help Mitigate the 
Risks Arising From Intraday and Overnight Trading Activity

January 15, 2025.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on January 14, 2025, The Options Clearing 
Corporation (``OCC'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') This amendment (``Amendment No. 3'') to the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared primarily by OCC. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    On July 25, 2024, OCC filed the proposed rule change File No. SR-
OCC-2024-010 (``Initial Filing'').\3\ On January 8, 2025, OCC filed 
Amendment No. 2 to the Initial Filing (``Amendment No. 2''). This 
Amendment No. 3 to the Initial Filing is identical in substance to 
Amendment No. 2 but includes changes to references and table format to 
facilitate publication of the notice of filing in the Federal Register 
and supersedes Amendment No. 2. Amendment No. 3 would establish a 
margin add-on charge that would be applied to all Clearing Member 
accounts to help mitigate the risks arising from intraday and overnight 
trading activity. Through this amendment OCC is incorporating certain 
modifications to its proposal to address comments from industry 
participants. OCC also intends to conform the proposed rule change to 
the Commission's final rule \4\ amending the Covered Clearing Agency 
(``CCA'') Standards concerning intraday margin calls, and to extend the 
implementation timeframe to address industry concerns and participants' 
desire for additional time to prepare for the proposed changes. This 
Amendment No. 3 would modify those aspects of the proposal as further 
described below and amend and restate the Initial Filing.
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    \3\ See Exchange Act Release No. 100664 (Aug.6, 2024), 89 FR 
65695 (Aug. 12, 2024) (File No. SR-OCC-2024-010).
    \4\ See Exchange Act Release No. 101446 (Oct. 25, 2024), 89 FR 
91000 (Nov 18, 2024) (File No. S7-10-23).
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    Proposed changes to OCC's Rules are contained in Exhibit 5A to 
Amendment No. 3 to File No. SR-OCC-2024-010. Proposed changes to OCC's 
Margin Policy are contained in confidential Exhibit 5B to Amendment No. 
3 to File No. SR-OCC-2024-010. Material proposed to be added is marked 
by italicizing and material proposed to be deleted is marked with 
strikethrough text. 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.\5\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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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),

[[Page 7723]]

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

    On July 25, 2024, OCC filed with the Commission a proposed rule 
change, SR-OCC-2024-010 to establish a margin add-on charge (the 
``Intraday Risk Charge'') that would be applied to all Clearing Member 
accounts to assist with mitigating the risks arising from intraday and 
overnight trading activity. On September 4, 2024, OCC amended the 
filing to include as Exhibit 2 an information memorandum OCC published 
on its website informing OCC's membership of the details of the margin 
add-on charge. The Commission received comments regarding the proposed 
rule change \6\ and on November 7, 2024, issued an order instituting 
proceedings, pursuant to Section 19(b)(2)(B) of the Exchange Act, to 
determine whether to approve or disapprove the proposed rule change.
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    \6\ Comments on the proposed rule change are available at http://www.sec.gov/comments/sr-occ-2024-010/srocc2024010.htm.
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    Based on the comments the Commission received and a recent release 
of the Commission's October 25, 2024, final rule amending the CCA 
Standards,\7\ OCC is filing this amendment to the Initial Filing. 
Material changes to the Initial Filing and the rationale for such 
amendments are summarized in the following table:
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    \7\ See Exchange Act Release No. 101446 (Oct. 25, 2024), 89 FR 
91000 (Nov. 18, 2024) (amending 17 CFR 240.17Ad-22-22(e)(6)(ii)).

         Table 1--Summary of Changes Proposed by Amendment No. 3
                      [Footnotes at end of table.]
------------------------------------------------------------------------
                                                         Rationale for
         Initial filing                Amendment           amendment
------------------------------------------------------------------------
The Intraday Risk Charge would    The Intraday Risk   Industry
 be calculated based on the        Charge would be     participants
 average of the previous month's   calculated based    commented that 20-
 daily peak intraday risk          on the average of   minute snapshots
 increases observed from 20-       the previous        during trading
 minute snapshots in overnight     month's daily       hours were too
 and regular trading hours,        peak intraday       frequent, and
 between 12:30 a.m. through 3:15   risk increases      suggested the OCC
 p.m. Central Time.                observed from 20-   use fewer
                                   minute snapshots    snapshots at
                                   between 11:00       predictable
                                   a.m. through        intervals.\a\
                                   12:30 p.m.         OCC would continue
                                   Central Time.       to manage the
                                                       intraday risk
                                                       associated with
                                                       overnight trading
                                                       activity through
                                                       its existing
                                                       extended trading
                                                       hour
                                                       procedures.\b\
An OCC Officer may issue a        An OCC Officer may  The single
 margin call if a verified         issue a margin      collection
 intraday risk increase during     call at a single    timeframe aligns
 regular trading hours is          intraday            with (1) the
 greater than 3 standard           collection time     timeframe in
 deviations of a Clearing          if a Clearing       which the
 Member's Intraday Risk Charge.    Member's verified   observations for
                                   intraday risk       the Intraday Risk
                                   increase at or      Charge are
                                   around 12:00 p.m.   measured, and (2)
                                   Central Time is     OCC's current
                                   greater than 3      scheduled
                                   standard            Portfolio
                                   deviations of the   Revaluation
                                   previous month's    margin calls
                                   daily peak          previous approved
                                   intraday risk       by the
                                   increases,          Commission.\c\
                                   observed from 20-  Measuring against
                                   minute snapshots    the Clearing
                                   between 12:30       Member's peak
                                   a.m. through 3:15   intraday risk
                                   p.m. Central Time.  increases from
                                                       both overnight
                                                       and regular
                                                       trading hours
                                                       would result in a
                                                       manageable number
                                                       of potential risk
                                                       increases to
                                                       investigate for
                                                       purposes of
                                                       issuing margin
                                                       calls, allowing
                                                       OCC to focus on
                                                       intraday activity
                                                       presenting the
                                                       most risk.
                                  OCC would continue  This amendment
                                   to monitor for      aligns with (1)
                                   breaches of the 3   Commission
                                   standard            guidance in the
                                   deviation           above-referenced
                                   threshold in 20-    final rule that
                                   minute snapshots    schedule intraday
                                   throughout the      margin calls may
                                   trading day, and    not be sufficient
                                   would continue to   and that CCAs
                                   have authority to   need to have the
                                   issue an intraday   ability to make
                                   margin call under   unscheduled
                                   Rule 609, as it     intraday margin
                                   does today.         calls,\d\ and (2)
                                   Margin calls        OCC's current
                                   issued outside of   Portfolio
                                   the single          Revaluation
                                   intraday            margin call
                                   collection time     process in
                                   must be approved    allowing margin
                                   by the Chief        calls to be
                                   Financial Risk      issued outside
                                   Officer, Chief      the single
                                   Executive           intraday
                                   Officer, Chief      collection time
                                   Operation           with escalated
                                   Officer, or Chief   approvals
                                   Risk Officer.
120-day implementation period     OCC would           Industry
 following receipt of all          implement the       participants have
 necessary regulatory approval.    changes in          commented that
                                   September 2025.     120 days is
                                                       insufficient for
                                                       them to prepare
                                                       for the changes.
                                                      The proposed
                                                       implementation
                                                       dates are within
                                                       the compliance
                                                       period for the
                                                       Commission's
                                                       above-referenced
                                                       final rule, which
                                                       requires a CCA to
                                                       implement rule-
                                                       filed changes by
                                                       December 15,
                                                       2025.\e\
------------------------------------------------------------------------
\a\ See, e.g., letter from Kimberly Unger, CEO and Executive Director,
  The Security Traders Association of New York, Inc. dated October 30,
  2024, available at https://www.sec.gov/comments/sr-occ-2024-010/srocc2024010.htm.
\b\ See Exchange Act Release No. 74268 (Feb. 12, 2015), 80 FR 8917 (Feb.
  19, 2015) (SR-OCC-2014-24) (SR-OCC-2014-24) (requiring Clearing
  Members qualified to participate in overnight trading sessions to
  provide an additional margin requirement in an amount of the lesser of
  $10 million or 10% of the Clearing Member's net capital).
\c\ See Exchange Act Release No. 82658 (Feb. 7, 2018), 83 FR 6646, 6648
  (SR-OCC-2017-007).
\d\ See Exchange Act Release No. 101446, supra note 7, 89 FR 91005.
\e\ Id. at 91037.

[[Page 7724]]

(1) Purpose
Background
    OCC is the sole clearing agency for standardized equity options 
listed on national securities exchanges registered with the Commission. 
OCC also clears stock loan and futures transactions. In its role as a 
clearing agency, OCC guarantees the performance of its Clearing Members 
for all transactions cleared by OCC by becoming the buyer to every 
seller and the seller to every buyer (or the lender to every borrower 
and the borrower to every lender, in the case of stock loan 
transactions). These clearing activities could expose OCC to financial 
risks if a Clearing Member fails to fulfil its obligations to OCC. In 
its role as guarantor for all transactions cleared through OCC, one of 
the more material risks related to a Clearing Member's failure to 
perform is credit risk arising from the activity of the Clearing 
Members whose performance OCC guarantees. OCC manages these financial 
risks through financial safeguards, including the collection of margin 
collateral from Clearing Members designed to, among other things, 
address the market risk associated with a Clearing Member's positions 
during the period of time OCC has determined it would take to liquidate 
those positions.
    At the start of each business day, OCC collects margin requirements 
for each marginable account calculated by OCC's proprietary System for 
Theoretical Analysis and Numerical Simulation (``STANS'') based on the 
account's end-of-day positions from the previous business day.\8\ OCC 
also makes intraday margin calls in defined circumstances. For example, 
pursuant to OCC Rule 609 and OCC's Margin Policy, which has been filed 
with and approved as a rule by the Commission,\9\ OCC requires the 
deposit of intraday margin to reflect changes in the value of 
securities deposited by the Clearing Member as margin when certain 
defined thresholds are breached.\10\ OCC also issues intraday margin 
calls when unrealized losses observed for an account based on positions 
from extended trading hours (``ETH'') \11\ exceed certain 
thresholds.\12\ In addition, OCC maintains broad authority under OCC 
Rule 609 to issue intraday margin calls or otherwise set a Clearing 
Member's margin requirement in other circumstances, including as a 
protective measure pursuant to Rule 307.\13\
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    \8\ OCC makes its STANS Methodology Description available to 
Clearing Members. An overview of the STANs methodology is posted to 
OCC's public website: https://www.theocc.com/Risk-Management/Margin-Methodology.
    \9\ See Exchange Act Release Nos. 100998 (Sept. 11, 2024), 89 FR 
76171 (Sept. 17, 2024) (SR-OCC-2024-009); 99169 (Dec. 14, 2023), 88 
FR 88163 (Dec. 20, 2023) (SR-OCC-2023-008); 98101 (Aug. 10, 2023), 
88 FR 55775 (Aug. 16, 2023) (SR-OCC-2022-012); 96566 (Dec. 22, 
2022), 87 FR 80207 (Dec. 29, 2022) (SR-OCC-2022-010); 91079 (Feb. 8, 
2021), 86 FR 9410 (Feb. 12, 2021) (SR-OCC-2020-016); 90797 (Dec. 23, 
2020), 85 FR 86592 (Dec. 30, 2020) (SR-OCC-2020-014); 87718 (Dec. 
11, 2019), 84 FR 68992 (Dec. 17, 2019) (SR-OCC-2019-010); 86436 
(July 23, 2019), 84 FR 36632 (July 29, 2019) (SR-OCC-2019-006); 
86119 (June 17, 2019), 84 FR 29267 (June 21, 2019) (SR-OCC-2019-
004); 83799 (Aug. 8, 2018), 83 FR 40379 (Aug. 14, 2018) (SR-OCC-
2018-010); 82658 (Feb. 7, 2018), 83 FR 6646 (Feb. 14, 2018) (SR-OCC-
2017-007).
    \10\ See OCC Rule 609(a) (``[OCC] may require the deposit of 
additional margin (`intra-day margin') by any Clearing Member in any 
account at any time during any business day to reflect changes in: . 
. . (3) the value of securities deposited by the Clearing Member as 
margin . . . .''); Exchange Act Release No. 82658, supra note 9, 83 
FR 6648 (``Pursuant to the Margin Policy, OCC issues margin calls 
during standard trading hours when unrealized losses exceeding 50% 
of an account's total risk charges are observed for that account 
based on start-of-day positions.'').
    \11\ ETH refers to trades executed in extended and overnight 
trading sessions offered by exchanges for which OCC provides 
clearance and settlement services. See Exchange Act Release No. 
73343 (Oct. 14, 2014), 79 FR 62684 (Oct. 20, 2014) (SR-OCC-2014-
805).
    \12\ See Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR 
61060, 61064 (Dec. 26, 2017) (SR-OCC-2017-007) (codifying in the 
Margin Policy the ETH intraday margin call OCC would issue prior to 
9:00 a.m. Central Time when: (1) unrealized losses observed for an 
account, based on new ETH positions, exceed 25% of that account's 
total risk charges and (2) the overall Clearing Member portfolio is 
also experiencing losses).
    \13\ See OCC Rule 307C(b) (providing for protective measures in 
the form of requiring Clearing Members to adjust the amount or 
composition of margin, including but not limited to requiring the 
deposit of additional margin).
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    Since the time these existing margin collection processes were 
established, OCC has observed a significant increase in contract volume 
and, in particular, volume in option contracts traded on the day of 
their expiration--so-called ``zero-days-to-expiration'' or ``0DTE'' 
options.\14\ Currently, 0DTE option trading volume can spike to up to 
40% of total trading volume on Friday expirations.\15\ This increase in 
0DTE options trading has coincided with the proliferation of option 
expiries. Traditionally, listed options expired on the third Friday of 
the month.\16\ In 2005, the Chicago Board Options Exchange (``Cboe''), 
one of the participant exchanges for which OCC provides clearance and 
settlement services, began listing weekly options on the S&P 500 Index 
(``SPX'') expiring each Friday of the month, and subsequently 
introduced Monday and Wednesday weekly SPX expirations in 2016 before 
adding Tuesday and Thursday weekly SPX expirations in 2022.\17\ Weekly 
and daily expiration cycles were introduced to options on other 
indexes, single-name stocks, and exchange traded products (e.g., ETFs). 
As a result, options now expire every trading day of the year.
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    \14\ OCC has provided a confidential Exhibit 3A to Amendment No. 
3 to File No. SR-OCC-2024-010 a 2023 study it conducted of its risk 
exposure to short-dated options.
    \15\ Id. at 3-4.
    \16\ Originally, options expiries occurred on the Saturday 
following the third Friday before the industry moved to Friday 
expirations in 2013. See Exchange Act Release No. 69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013) (File No. SR-OCC-2013-04).
    \17\ See Cboe, The Rise of SPX & 0DTE Options, at 5 (July 27, 
2023), available at https://go.cboe.com/l/77532/2023-07-27/ffc83k.
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    The increase in 0DTE options trading combined with increased 
intraday trading activity across other products poses challenges to 
OCC's risk management, particularly with respect to the management of 
OCC's overnight and intraday risk exposure to its Clearing Members in 
between the collections of margin at the start of each business day. 
Because OCC's STANS margin calculation is based on end-of-day 
positions, the margin requirement may not account for 0DTE options 
trading activity, since the Clearing Member would have either traded 
out of or exercised the options position, or the option would have 
expired by the end of the day. Similarly, in the current system the 
risk increase from intraday trading activity across other products 
would only be captured once end-of-day positions are established, which 
when margin calculations are applied would not account for the intraday 
risk increase from any positions that were traded out of. In addition, 
OCC's portfolio revaluation process for purposes of determining 
intraday margin calls to address the change in value of margin 
collateral is based on a Clearing Member's start-of-day collateral 
deposits, which would not include margin for 0DTE options or intraday 
positions. For these reasons OCC proposes to establish the Intraday 
Risk Charge add-on to capture such risk increases, and the associated 
Intraday Monitoring Thresholds regime to observe and measure risk 
increasing activity.
Proposed Changes
    Based on industry and participant feedback and to conform to the 
recent release of the Commission's final rule amending the CCA 
Standards concerning intraday margin calls, and in order to mitigate 
OCC's intraday risk exposures, OCC proposes to: (i) narrow the window 
over which the Intraday Risk Charge would be calculated to between 
11:00 a.m. to 12:30 p.m. Central Time, (ii) to remove any

[[Page 7725]]

reference to the Intraday Risk Charge with respect to the Intraday 
Monitoring Thresholds and limit the issuance of a margin calls to a 
single intraday collection time at or around 12:00 p.m. Central Time, 
(iii) clarify that intraday margin calls would be issued at a single 
intraday collection time, and any margin calls outside of the 
collection time must be approved by the Chief Financial Risk Officer, 
Chief Executive Officer, Chief Operations Officer, or Chief Risk 
Officer, (iv) provide FRM Officers with discretion on whether to issue 
or not issue a margin call based on certain facts and circumstances, 
while also requiring the documentation of such decisions, and (v) 
extend the implementation time frame from within 120 days of approval 
to September of 2025 to align with the projected Ovation release date, 
and provide more time for industry participants to prepare for the 
proposed rule change.
1. Intraday Risk Charge Add-On
    In the Initial Filing,\18\ OCC had proposed a margin add-on charge 
(the ``Intraday Risk Charge''), which would be calculated using the 
system currently employed to monitor Clearing Members' overnight 
trading activity. Through OCC's Watch Level surveillance under its 
Third-Party Risk Management Framework, OCC has also used this system to 
identify patterns of risk increasing activity in 0DTE options for 
purposes of considering and calculating protective measures in the form 
of additional margin for particular Clearing Members when certain 
thresholds have been breached relative to a Clearing Member's net 
capital. OCC proposed to extend that approach to all Clearing Members 
(without regard to net capital thresholds) and with respect to all 
products OCC clears.
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    \18\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65696-98.
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    OCC's current intraday margin system recalculates the STANS margin 
risk using portfolio position sets updated every 20 minutes between 
8:30 a.m. and 6:30 p.m. Central Time, and at-least every hour during 
ETH sessions. OCC considers that 20 minutes is sufficient time under 
OCC's current system capabilities to provide consistent and reliable 
snapshot results at a steady cadence during regular trading hours with 
heavy trading activity. Outside of regular trading hours and during 
overnight trading, hourly intervals between snapshots were deemed more 
appropriate because of the significantly lower trading activity. OCC 
currently employs and will continue to use the intraday margin system 
for ETH monitoring, including to determine when to issue an ETH margin 
call.\19\ This system calculates a forecasted margin requirement as if 
the positions at that point in time were present during the previous 
night's margin calculation. Results that show an increase to the prior 
night's margin requirement based on the STANS expected shortfall and 
stress test components are considered risk increasing. OCC would use 
the outputs from the previous night's daily STANS methodology 
calculation, incorporating current portfolio changes, to monitor that 
day's peak intraday risk increases. Under the Initial Filing,\20\ the 
Intraday Risk Charge would have been calculated monthly as at least the 
average of the peak intraday risk increases (i.e., an average of the 
largest risk increase calculated on each business day of the lookback 
period) as measured throughout overnight and regular trading hours 
(i.e., between 12:30 a.m. through 3:15 p.m.).
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    \19\ See Exchange Act Release No. 74268, supra Table 1 note b, 
80 FR 8919 (describing the thresholds for overnight monitoring and 
potential margin calls).
    \20\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65696.
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    OCC proposes to amend the proposed Intraday Risk Charge so that it 
is determined based on a narrower monitoring interval. Specifically, 
OCC would calculate the Intraday Risk Charge based on the average daily 
increased risk identified through OCC's current intraday margin system 
between the hours of 11:00 a.m. and 12:30 p.m. Central Time; provided 
however, that OCC may adjust the Intraday Risk Charge as described 
further below. This change would address comments that the 20-minute 
snapshots during overnight and intraday trading hours were too frequent 
and suggested that OCC use fewer snapshots at predictable intervals. In 
particular, by narrowing the window, Execution-Only Clearing Members 
\21\ that are able to allocate trades prior to that window may 
eliminate or significantly reduce their intraday risk exposure for 
purposes of determining an Intraday Risk Charge.
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    \21\ OCC's By-Laws define ``Execution-Only Clearing Members'' to 
mean a Clearing Member approved to act only as a Clearing Member 
that transfers confirmed trades or allocates position so other 
Clearing Members, and not to carry positions in its accounts with 
the OCC on a routine basis.
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    As under the Initial Filing,\22\ the Intraday Risk Charge would be 
calculated on the first business day of the month and would be based on 
data and STANS outputs generated over the lookback period, which will 
be set as the previous month. The Intraday Risk Charge would be 
calculated monthly as at least the average of the peak intraday risk 
increases over the shorter duration. OCC considers the one-month 
lookback period, a timeframe that includes one monthly and multiple 
weekly standard expirations, to be a conservative approach that would 
react faster to recent changes in the risk behavior of Clearing Members 
compared to a more extended lookback period and produces more relevant 
forecasts for the next monitoring cycle.\23\
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    \22\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65696.
    \23\ OCC also considered lookback periods of less than one-
month, including a one-week period, and observed that any lookback 
period less than one-month was operationally intensive to implement. 
Establishing a monthly cadence allows OCC to investigate and exclude 
results from the intraday risk system that are not attributable to 
actual risk increasing activity, such as results caused by corporate 
actions. In any case, using a one-week lookback period would result 
in procyclical effects. Intraday Risk Charge moves for Clearing 
Members from one week to another would reduce the predictability of 
the add-on charge on Clearing Member margin requirements. As 
described above, OCC believes the one-month lookback provides a more 
conservative and relevant forecasts.
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    As under the Initial Filing,\24\ the calculation of the peak 
intraday activity would capture all products that OCC clears, including 
0DTE options. The Intraday Risk Charge would apply to all margin 
accounts other than cross-margin accounts for OCC's cross-margining 
program with the Chicago Mercantile Exchange (``CME''), which do not 
currently support intraday position feeds. OCC would retain authority 
to increase the amount of the charge for a particular Clearing Member 
beyond the average of the peaks, either when adjusting the Intraday 
Risk Charge on a monthly basis or on an intra-month basis, when 
conditions would warrant a different approach consistent with 
maintaining sufficient financial resources to cover OCC's intraday 
credit exposure. Conditions that would cause OCC to increase the 
Intraday Risk Charge above the minimum amount include when OCC 
determines it maintains insufficient margin resources to cover the 
pattern or distribution of risk increases over the previous lookback 
period, or in cases of an account's business expansion. OCC would also 
have authority to decrease the amount of the charge, which would be 
limited to a Clearing Member's business reduction, termination of 
account(s), transfer of positions to different account(s), or the 
imposition of protective measures under Rule 307B. Such charge 
adjustments may apply to particular or all Clearing Members.
---------------------------------------------------------------------------

    \24\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65696-97.
---------------------------------------------------------------------------

    To effect the proposed changes, OCC proposes to amend Rule 601 by 
adding

[[Page 7726]]

a new paragraph (i) as described above to incorporate the shorter time 
frame involved in the calculation of the Intraday Risk Charge. As in 
the Initial Filing,\25\ OCC proposes to define the Intraday Risk Charge 
under proposed Rule 601(i)(1) to mean the additional margin assets 
required from a Clearing Member to mitigate any increased risk exposure 
to OCC not otherwise covered by the margin requirements already 
calculated in accordance with Rule 601 and OCC's policies and 
procedures. To reflect the narrower time from which the observations 
that determine the Intraday Risk Charge would be drawn, Rule 601(i)(1) 
would further provide that OCC may assess the Intraday Risk Charge as 
part of the Clearing Member's daily margin required, as needed, to 
mitigate exposure and cover uncollateralized risk resulting from 
``intraday trading activities,'' as opposed to ``overnight and intraday 
trading activities'' as proposed in the Initial Filing.\26\ In the 
amended proposal, OCC would similarly remove other references to 
overnight trading activity from the OCC Rules and Margin Policy as 
proposed in the Initial Filing.
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    \25\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65697.
    \26\ As discussed above, OCC would continue to address intraday 
risk exposure from overnight trading activity as it currently does 
under its ETH procedures. See supra Table 1 note b and accompanying 
text. Clearing Members trading during ETH hours will still be 
obligated to pay an ETH margin add-on charge, and any ETH related 
risk controls will continue to operate independently from the 
proposed Intraday Risk Charge changes.
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    Proposed Rule 601(i)(2) would be modified to provide the method of 
calculation for the Intraday Risk Charge add-on, which would generally 
be set as the average of the peak intraday risk increases from 
portfolio position changes between 11:00 a.m. and 12:30 p.m. Central 
Time over the preceding month.\27\ Proposed Rule 601(i)(3), would 
remain unchanged from the Initial Filing.\28\ Specifically, that Rule 
would provide that OCC retains authority to adjust the Intraday Risk 
Charge if OCC determines that circumstances particular to a Clearing 
Member's activity would warrant a different approach consistent with 
maintaining sufficient financial resources to cover OCC's intraday 
credit exposure. Any adjustment under this Rule to decrease the amount 
of the Intraday Risk Charge calculated from the previous month's 
intraday risk increases would be limited to a Clearing Member's 
business reduction, termination of account(s), transfer of positions to 
different account(s), or the imposition of protective measures under 
Rule 307B. Rule 601(i)(3) would also provide that OCC retains the 
authority to adjust the Intraday Risk Charge more frequently than 
monthly.
---------------------------------------------------------------------------

    \27\ A lookback of one month was selected to represent a 
complete monthly options expiration cycle.
    \28\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65697.
---------------------------------------------------------------------------

    OCC would also amend its Margin Policy to describe material aspects 
of the Intraday Risk Charge as discussed herein. As under the Initial 
Filing,\29\ the new charge would be added to the ``Add-On Charges'' 
section. That proposed addition, as amended, would provide that between 
11:00 a.m. through 12:30 p.m., OCC measures the intraday exposure to 
each margin account for which intraday position information is 
available to identify intraday risk increases above the baseline STANS 
risk measurement. The proposed amendments to the Margin Policy would 
define this time window as the ``Intraday Risk Charge Measurement 
Time.'' As under the Initial Filing,\30\ the Margin Policy would define 
``risk increases'' in this context as results that show an increase to 
a portfolio's prior night calculated risk measurement based on the 
STANS expected shortfall and stress test components.
---------------------------------------------------------------------------

    \29\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65697.
    \30\ Id.
---------------------------------------------------------------------------

    As under the Initial Filing,\31\ the Margin Policy would further 
provide that on at least a monthly basis, OCC's Financial Risk 
Management department (``FRM'') reviews and verifies the daily peak 
increases in the Intraday Risk Charge Measurement Time based on a 
referenced procedure maintained by FRM's Market Risk business unit.\32\ 
This verification of risk-increasing activity is intended to address 
certain known limitations in OCC's existing intraday system.\33\ For 
example, the system does not take into account options affected by 
corporate action adjustments and newly listed option series or strikes, 
which do not receive adjusted metrics until the next overnight margin 
calculation process. In addition, the 20-minute snapshot generated by 
the system may not capture a complete trade in a single snapshot, which 
may result in a misalignment of the peak calculation for an account. 
The snapshot timing may also cause collateral movements to be recorded 
as risk-increasing deposits instead of being risk-reducing movements. 
Pursuant to the referenced procedures, Market Risk would verify the 
peak daily results to prevent erroneous results from affecting the 
calculation of the Intraday Risk Charge. This verification process is 
similar to, and would proceed in a similar manner as, Market Risk's 
long-standing process for verifying results from OCC's system for 
monitoring a portfolio's unrealized losses based on current prices and 
start-of-day positions for purposes of charging intraday margin 
calls.\34\ Upon completion of the verification process, OCC would apply 
the Intraday Risk Charge to Clearing Members for the upcoming month.
---------------------------------------------------------------------------

    \31\ Id.
    \32\ OCC has provided as confidential Exhibit 3B to Amendment 
No. 3 to File No. SR-OCC-2024-010 a copy of the referenced 
procedure, the Market Risk Monitoring Procedure, marked to indicate 
changes that OCC intends to implement upon regulatory approval of 
this proposal.
---------------------------------------------------------------------------

    As under the Initial Filing,\35\ the Margin Policy would provide 
that OCC may impose the Intraday Risk Charge in the amount of the 
average of the verified peak daily risk increases in the Intraday Risk 
Charge Measurement Time over the prior month with FRM Officer \36\ 
approval. Adjustments to the charge can occur at the time of the 
monthly review or on an intramonth basis, e.g., in response to the 
intraday monitoring thresholds discussed below. Reductions would be 
limited to persistent changes in clearing activity that would reduce 
the risk profile of the account, e.g., business reduction, account 
terminations transfer of positions to different account(s), or the 
imposition of protective measures under Rule 307B. Any changes that 
would increase the charge over the minimum calculated may result from 
changes in the pattern or distribution of risk increases over the 
previous lookback period or persistent changes in clearing activity 
that would increase the risk profile of the account, e.g. business 
expansions. If the FRM Officer recommends any changes to an Intraday 
Risk Charge, the Model Risk Working Group (``MRWG'') must review and is 
authorized to escalate the recommendation to the Office of the Chief 
Executive Officer, who must review and is authorized to approve the 
changes.\37\ The Margin Policy vests review responsibility and 
escalation authority to the MRWG because it is a cross-functional group 
responsible for assisting OCC's management in overseeing OCC's model-
related risk

[[Page 7727]]

comprised of representatives from relevant OCC business units. OCC 
believes that the MRWG is the appropriate decisionmaker to consider 
whether a higher Intraday Risk Charge is warranted because it is 
composed of the subject matter experts most familiar with the 
performance of and risks associated with OCC's margin models, including 
personnel in OCC's Model Risk Management business unit, who, under 
OCC's Risk Management Framework, are responsible for evaluating model 
parameters and assumptions and providing effective and independent 
challenge through OCC's model lifecycle.\38\
---------------------------------------------------------------------------

    \35\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65697-98.
    \36\ Officers are identified in OCC's By-Laws. See OCC By-Law 
Art IV. In this context, an FRM Officer would include any member of 
FRM appointed by the Chief Executive Officer or Chief Operating 
Officer, including a Managing Director, Executive Director or 
Executive Principal. Id., at Sec.  9.
    \37\ Such changes to the Intraday Risk Charge must be based on 
the current charge being insufficient as defined in Exhibit 5A and 
confidential Exhibit 5B to Amendment No. 3 to File No. SR-OCC-2024-
010.
    \38\ See Exchange Act Release No. 95842, 87 FR 58416 (File No. 
SR-OCC-2022-010) (filing to establish OCC's Risk Management 
Framework). OCC Risk Management Framework is available on OCC's 
public website: https://www.theocc.com/risk-management/risk-management-framework.
---------------------------------------------------------------------------

    OCC has reviewed the potential impact of the proposed add-on charge 
on all Clearing Members over a thirteen-month period.\39\ OCC has 
observed that the proposed add-on would have generated a margin 
increase of less than 1.1% in the aggregate on average,\40\ 
representing almost $1.099 billion across all Clearing Members out of 
margin requirements. For comparison, under the Initial Filing, the 
proposed add-on would have generated an average margin increase of 
approximately $1.968 billion, less than a 1.9% increase. Of the ten 
firms that would be most impacted, which collectively represent 
approximately 73% of the additional margin that would have been 
assessed, the average daily margin percentage increases ranges from 
approximately 1% to less than 15%, based on data from September 2023 to 
September 2024, or between $22 million and $315 million.
---------------------------------------------------------------------------

    \39\ This impact assessment does not account for potential 
changes in Clearing Member behavior that might further reduce the 
impact. To the extent a Clearing Member allocates trades to other 
Clearing Members under OCC's Clearing Member Trade Assignment 
(``CMTA'') Rules or otherwise reduces its intraday risk in advance 
of the Intraday Risk Measurement Time, the actual impact of the 
Intraday Risk Charge may be less.
    \40\ OCC has included as confidential Exhibit 3C to Amendment 
No. 3 to File No. SR-OCC-2024-010 an assessment of the impact of the 
Intraday Risk Charge on OCC's Clearing Members. Exhibit 3C to the 
Initial Filing used data from 2023. Exhibit 3C to Amendment No. 3 
uses data from September 2023 through September 2024.
---------------------------------------------------------------------------

    As compared to the Initial Filing, that aggregate amount of the 
additional margin would be distributed across market-maker, firm and 
customer accounts as follows:

                     Table 2--Impact by Account Type
------------------------------------------------------------------------
                                                            Proposed
                                     Initial filing        amendment
------------------------------------------------------------------------
Market-Maker Accounts............  $392.1 million....  $276.6 million.
Firm Accounts....................  $590.5 million....  $306.3 million.
Customer Accounts................  $986.1 million....  $516.7 million.
    All Accounts.................  $1.9686 billion...  $1.0996 billion.
------------------------------------------------------------------------

    With respect to firms classified as Execution-Only Clearing 
Members, the add-on charge would generate approximately $23.4 million 
of additional margin in the aggregate, down from $39.4 million under 
the Initial Filing, assuming that Execution-Only Clearing Members made 
no changes to allocate trades prior to the Intraday Risk Charge 
Measurement Time.
2. Intraday Monitoring Thresholds
    Under the Initial Filing,\41\ OCC proposed to establish monitoring 
and escalation criteria when a Clearing Member's intraday risk increase 
departs significantly from the activity that set the Intraday Risk 
Charge (``Intraday Monitoring Thresholds''). Generally, the new credit 
risk thresholds would have been specified as a set of levels based on 
standard deviations from a Clearing Member's Intraday Risk Charge. 
While OCC has narrowed the window of time for purposes of calculating 
the Intraday Risk Charge, OCC intends to continue to monitor for 
intraday risk increases throughout regular trading hours.
---------------------------------------------------------------------------

    \41\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65698.
---------------------------------------------------------------------------

    OCC proposes to establish the Intraday Monitoring Thresholds as 
statistical measures (e.g., one, two or three standard deviations) 
above a Clearing Member's peak intraday risk increases over the prior 
month. OCC would measure the Intraday Monitoring Threshold for each 
Clearing Member against the average over the lookback period of the 
verified peak intraday risk increases determined between 12:30 a.m. and 
3:15 p.m. (i.e., the same window as for the Intraday Risk Charge under 
the Initial Filing). OCC believes that measuring the thresholds using 
this longer window, rather than against the Intraday Risk Charge as 
proposed to be amended above,\42\ would result in a more manageable 
number of potential risk increases for escalation, allowing OCC 
decisionmakers to focus on potential changes in activity that present 
the most risk. As under the Initial Filing,\43\ OCC proposes to amend 
the section of the Margin Policy that currently addresses margin calls 
and adjustments. The Margin Policy would provide that FRM would 
establish and maintain Intraday Monitoring Thresholds in referenced 
market risk procedures for verified intraday risk increases that are 
greater than statistical measures above a Clearing Member's average 
over the lookback period determined between 12:30 a.m. and 3:15 p.m. 
Central Time. This average would be determined separately and 
independently of the Intraday Risk Charge across Clearing Member 
accounts.
---------------------------------------------------------------------------

    \42\ As indicated in the impact assessment above, the proposed 
amendments to the Intraday Risk Charge would have the effect of 
reducing the charge, which would make breaches of the Intraday 
Monitoring Thresholds more likely if measured against the Intraday 
Risk Charge as proposed to be amended.
    \43\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65698.
---------------------------------------------------------------------------

    As under the Initial Filing,\44\ the Margin Policy would also 
provide that FRM coordinates a review of those thresholds, as well as 
the calculation and lookback period, on an at least annual basis, or on 
an ad-hoc basis, as needed. OCC retains the authority to adjust the 
Intraday Monitoring Thresholds, as well as the calculation and lookback 
period, based on the review of intraday risk posed by Clearing Member's 
portfolio changes. Any such adjustment to the Intraday Monitoring 
Thresholds, calculation, or lookback period may apply to particular or 
all Clearing Members depending on an analysis of the activity 
generating peak intraday margin numbers, the number of breaches above 
the monitoring thresholds, and overall market activity and trends 
within the lookback period. The review would be presented to the MRWG, 
which must review and is authorized to escalate any

[[Page 7728]]

recommended changes to the Office of the Chief Executive Officer, who 
must review and is authorized to approve them. OCC's Risk Committee 
will be notified of all changes. As discussed above,\45\ OCC believes 
that the MRWG is the appropriate decision-maker to consider any changes 
to the Monitoring Thresholds because it is composed of the subject 
matter experts most familiar with the performance of and risks 
associated with OCC's margin models.
---------------------------------------------------------------------------

    \44\ Id.
    \45\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------

3. Intraday Margin Calls
    In the Initial Filing,\46\ OCC proposed to issue margin calls on 
individual Clearing Member accounts if the verified intraday risk 
increases for those accounts breach and exceed the Intraday Risk 
Monitoring thresholds (e.g., in excess of three standard deviations). 
Under the proposed amendments, OCC would maintain the proposed margin 
call, but would specify a scheduled, single collection time in which 
such a margin call would be collected in the ordinary course while 
maintaining authority to issue an unscheduled margin call outside that 
timeframe in extraordinary circumstances with additional escalations. 
As discussed below, these amendments are intended to align with OCC's 
existing intraday margin call processes and the Commission's October 
25, 2024, final order amending the CCA Standards.
---------------------------------------------------------------------------

    \46\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65698.
---------------------------------------------------------------------------

    As under the Initial Filing,\47\ the Margin Policy would provide 
that on at least a daily basis, FRM would review the intraday risk 
increases generated by the intraday risk system against the Intraday 
Monitoring Thresholds. As proposed to be amended, the Margin Policy 
would provide that if a verified intraday risk increase breach at or 
around 12:00 p.m. Central Time is greater than the Intraday Monitoring 
Thresholds, the Margin Policy would provide that an FRM Officer may 
issue a margin call,\48\ make a margin adjustment to lock up excess 
collateral, or recommend protective measures under Rule 307. The Margin 
Policy would further be amended to provide that any such margin call 
issued by an FRM Officer would be collected as a single intraday 
collection time. Accordingly, the Margin Policy as amended would now 
provide a single, scheduled time for the issuance and collection of 
such intraday margin calls. This collection timeframe aligns with the 
timeframe during which the observations for the Intraday Risk Charge 
are measured, and gives Clearing Members greater certainty about when 
the activity that would inform the call would be measured and the call 
imposed. The timing also aligns with the timing for OCC's current 
Portfolio Revaluation margin calls, which are generally collected at a 
single time based on a measurement of a portfolio's profit and loss at 
or around noon.\49\ As with OCC's existing margin calls, the proposed 
margin call would be subject to a price minimum below which OCC 
generally would not issue a call.\50\ Specifically, OCC has established 
a $500,000 price minimum for issuing margin calls, which aligns with 
the minimum Clearing Fund deposit required of each Clearing Member.\51\
---------------------------------------------------------------------------

    \47\ Id.
    \48\ Margin calls in this context are demands by OCC to Clearing 
Members for the deposit of additional margin in immediately 
available funds to increase their margin resources to meet increased 
margin requirements. Margin calls are issued subject to OCC's 
policies and procedures.
    \49\ See Exchange Act Release No. 82658, supra Table 1 note c, 
83 FR 6648 (approving OCC's Margin Policy, including the timing of 
margin calls).
    \50\ Id. (approving OCC's Margin Policy, including the price 
minimum for margin calls).
    \51\ See OCC Rule 1002(d).
---------------------------------------------------------------------------

    The Margin Policy would further provide that any margin calls 
issued outside of the standard processing time window must be approved 
by the Chief Financial Risk Officer, Chief Executive Officer, Chief 
Operating Officer, or Chief Risk Officer. This change aligns with OCC's 
current Portfolio Revaluation margin call process in allowing margin 
calls to be issued outside the single intraday collection time in 
exceptional circumstances with escalated approval. OCC believes that 
margin calls issued outside the single intraday collection time would 
be the exception, rather than the rule. This change also aligns with 
Commission guidance from its October 25, 2024, final rule amending the 
CCA Standards, suggesting that scheduled intraday margin calls may not 
be sufficient and that CCAs would need to have the ability to make 
unscheduled intraday margin calls.\52\
---------------------------------------------------------------------------

    \52\ See supra Table 1 note d and accompanying text.
---------------------------------------------------------------------------

    The Margin Policy would be further revised to state that any margin 
call would be calculated as the difference between the reviewed 
intraday risk increase at the single intraday collection time at or 
around 12:00 p.m. Central Time and the Intraday Risk Charge. Intraday 
margin calls would only be increasing financial resources to OCC. 
Generally, an intraday margin call would be released the next business 
day.
    Data from September 2023 to September 2024 indicates there would 
have been approximately 1024 potential margin calls issued under the 
proposed changes, as amended. The number of potential margin calls 
would not change as a result of the amendments to the Initial Filing. 
As amended, the average daily margin call amount would have been $27 
million, as opposed to $25.1 million under the Initial Filing. This 
increase is attributable to the decrease in the pre-funded Intraday 
Risk Charge resulting from the proposed amendments to the Initial 
Filing.
4. Discretion To Issue Margin Calls
    OCC also proposes to modify the Margin Policy to add a provision 
whereby an FRM Officer will have the discretion to decide whether to 
issue or not issue a margin call, if in their judgement the call is not 
necessary to effectively manage the risk posed to OCC based on the 
specific facts and circumstances. As under the Initial Filing, such 
circumstances would include instances where OCC's intraday risk system 
may produce results that may not indicate actual risk increasing 
activity,\53\ such as (i) when the intraday risk increase can be 
attributed to one or more intraday events or actions including but not 
limited to portfolio level changes resulting from positive offsetting 
P&L amounts or positive offsetting asset values for options and 
collateral, or from non-risk increasing events such as the substitution 
of collateral or the pledging of additional valued securities within 
the same account, or (ii) if the risk increase in the account is the 
result of a corporate action, or the result of position transfers 
between accounts such as delayed CMTA's from execution-only accounts, 
or when a P&L unrealized loss generates a margin call that exceeds the 
intraday margin call. In addition, as proposed to be amended, the 
Margin Policy would provide that such circumstances also, including but 
not limited to, circumstances in which issuing a call would not align 
with broader systemic objectives such as minimizing potential 
procyclical effects and potential participant defaults.
---------------------------------------------------------------------------

    \53\ The Initial Filing discussed certain limitations of the 
intraday risk system that may result in erroneous intraday risk 
increases. See Exchange Act Release No. 100664, supra note 3, 89 FR 
65697.
---------------------------------------------------------------------------

    In all such cases, the FRM Officer would be required to document 
the basis for their decision not to issue a margin call at the single 
intraday collection time for an account breaching the Intraday Risk 
Monitoring Threshold

[[Page 7729]]

at or around 12:00 p.m. Central Time.\54\ These proposed change from 
the Initial Filing are aligned with the Commission's guidance on 
intraday margin calls issued in its October 25, 2024, final rule 
amending the CCA Standards, concerning intraday margin calls.\55\ The 
change is also aligned with the documentation requirement in new SEC 
Rule 17Ad-22(e)(6)(ii)(D), which requires a CCA to document when it 
determines not to issue an intraday call pursuant to its written 
policies and procedures.\56\
---------------------------------------------------------------------------

    \54\ For the avoidance of doubt, this documentation requirement 
would not extend to monitoring of Intraday Risk Monitoring Threshold 
breaches outside of the single intraday collection period, 
notwithstanding OCC's authority to make an exception to its written 
policies and procedures to issue a margin call for activity falling 
outside that period.
    \55\ See Exchange Act Release No. 101446, supra note 4, 89 FR 
91009-10 (discussing factors for CCAs to consider when determining 
whether to issue an intraday margin call).
    \56\ 17 CFR 240.17Ad-22(e)(6)(ii)(D).
---------------------------------------------------------------------------

5. Implementation Timeframe
    In the Initial Filing,\57\ OCC proposed a 120-day implementation 
timeframe based on the amount of time OCC believed it would need to 
deploy system changes following receipt of all necessary regulatory 
approval. Industry participants have commented on the proposal that 
more time is required for them to prepare for the changes. Accordingly, 
OCC proposes to extend the implementation period. Subject to regulatory 
approval of the proposal, OCC plans to implement the proposed changes 
in September of 2025. OCC will announce the implementation date of the 
proposed changes by an Information Memorandum posted to its public 
website at least 4 weeks prior to implementation. This proposed 
implementation is designed to align with, but is not contingent on, 
OCC's planned replacement of its core clearance and settlement system, 
ENCORE, with a new system, Ovation. The proposed implementation dates 
are within the compliance period for the Commission's October 25, 2024, 
final rule, which requires a CCA to implement rule-filed changes by 
December 15, 2025.\58\
---------------------------------------------------------------------------

    \57\ See Exchange Act Release No. 100664, supra note 3, 89 FR 
65698.
    \58\ See supra Table 1 note e and accompanying text.
---------------------------------------------------------------------------

(2) Statutory Basis
    OCC believes that the proposed changes are consistent with Section 
17A(b)(3)(F) of the Exchange Act \59\ and SEC Rule 17Ad-22(e)(6)(ii) 
thereunder.\60\ Section 17A(b)(3)(F) of the Act \61\ requires, among 
other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
and derivatives transactions and, in general protect investors and the 
public interest. OCC proposes to introduce a new Intraday Risk Charge 
add-on with certain associated monitoring procedures and establish new 
risk-based credit risk monitoring thresholds. The proposed rule change 
as described above would enhance OCC's framework for measuring, 
monitoring, and managing its credit risk. Currently, OCC may be exposed 
to increased credit exposure from uncollateralized intraday trading 
activity, including that of 0DTE options that is not otherwise 
collateralized and captured by OCC's current margin system at the start 
of each business day. OCC believes the proposed changes would enable 
OCC to mitigate the credit exposure resulting from the increased risk 
of intraday trading that includes 0DTE option contracts by using the 
system it currently operates to monitor overnight trading activity. The 
Intraday Risk Charge would provide OCC with additional margin resources 
to help mitigate this risk and allow OCC to continue to provide prompt 
and accurate clearance and settlement services of securities and 
derivatives transactions without disruption in the event of a Clearing 
Member default. Given OCC's designation as a systemically important 
financial market utility,\62\ OCC believes that changes that promote 
the prompt and accurate clearance and settlement thereby is in the 
public interest and the interests of investors. For these reasons, OCC 
believes the proposed changes are designed to promote the prompt and 
accurate clearance and settlement of securities transactions in 
accordance with Section 17A(b)(3)(F) of the Exchange Act.\63\
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78q-1(b)(3)(F).
    \60\ 17 CFR 240.17Ad-22(e)(6)(ii).
    \61\ 15 U.S.C. 78q-1(b)(3)(F).
    \62\ The Financial Stability Oversight Council designated OCC as 
a SIFMU under Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010, 12 U.S.C. 5463.
    \63\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(ii), as recently amended, requires OCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum:
    (A) Marks participant positions to market and collects margin 
(including variation margin or equivalent charges if relevant) at least 
daily;
    (B) Monitors intraday exposures on an ongoing basis;
    (C) Includes the authority and operational capacity to make 
intraday margin calls, as frequently as circumstances warrant, 
including (1) when risk thresholds specified by OCC are breached, or 
(2) when the products cleared or markets served display elevated 
volatility; and
    (D) Documents when OCC determines not to make an intraday call 
pursuant to its written policies and procedures required under Rule 
17Ad-22(e)(6)(ii)(C).\64\
---------------------------------------------------------------------------

    \64\ 17 CFR 240.17Ad-22(e)(6)(ii).
---------------------------------------------------------------------------

    OCC's existing margin processes are already designed to mark 
positions to market and collect margin at least daily, consistent with 
Rule 17Ad-22(e)(6)(ii)(A).\65\ Under the proposed changes, OCC would 
monitor accounts intraday activity in 20 minute intervals and would 
have the authority and operational capacity under OCC's existing Rule 
609 to issue a margin call or take other action under Rule 307 to 
protect OCC based on the result of such monitoring, consistent with new 
Rule 17Ad-22(e)(6)(ii)(B).\66\ Specifically, the Margin Policy would 
define risk thresholds--the Intraday Monitoring Threshold--for 
monitoring intraday exposure for purposes of issuing potential margin 
calls, consistent with Rule 17Ad-22(e)(6)(ii)(C).\67\
---------------------------------------------------------------------------

    \65\ 17 CFR 240.17Ad-22(e)(6)(ii)(A).
    \66\ 17 CFR 240.17Ad-22(e)(6)(ii)(B).
    \67\ 17 CFR 240.17Ad-22(e)(6)(ii)(C).
---------------------------------------------------------------------------

    In general, OCC would issue a Clearing Member a margin call during 
the scheduled intraday collection time in the event that Clearing 
Member's intraday risk increase, as measured at or around 12:00 p.m. 
Central Time breached the proposed Intraday Monitoring Threshold. The 
scheduled intraday margin call aligns with the timing of OCC's existing 
intraday margin calls when unrealized losses exceeding 50% of an 
account's total risk charges are observed for that account based on 
start-of-day positions, which were previously approved by the 
Commission.\68\ However, as the Commission has noted, covered clearing 
agencies also need the authority and operational capacity to issue 
unscheduled margin calls.\69\ Accordingly, OCC would maintain authority 
to make an exception to its general policy of issuing scheduled 
intraday margin calls with escalated

[[Page 7730]]

approvals from OCC's most senior Officers.
---------------------------------------------------------------------------

    \68\ See supra Table 1 note c and accompanying text.
    \69\ See supra Table 1 note d and accompanying text.
---------------------------------------------------------------------------

    In addition, consistent with Commission guidance from its October 
25, 2024, final rule,\70\ OCC's policies and procedures would preserve 
OCC's authority to determine not to issue an intraday margin call at 
the scheduled time, notwithstanding a breach of the Intraday Monitoring 
Thresholds, if OCC determines that the call is not necessary to 
effectively manage the risk posed to OCC based on the specific facts 
and circumstances, including, but not limited to, in circumstances in 
which the intraday risk system may not reflect actual intraday risk 
increases,\71\ or in circumstances in which issuing a call would not 
align with broader systemic objectives such as minimizing potential 
procyclical effects and potential participant defaults. In cases in 
which OCC does not issue a margin call at the single collection time 
under its policies and procedures when the Intraday Monitoring 
Thresholds are breached, the Margin Policy would require that an FRM 
Officer document that decision, consistent with, consistent with Rule 
17Ad-22(e)(6)(ii)(D).\72\ Accordingly, OCC believes that the proposal 
is consistent with Rule 17Ad-22(e)(6)(ii).\73\
---------------------------------------------------------------------------

    \70\ See supra note 55 and accompanying text.
    \71\ See, e.g., supra notes 32-46 and accompanying text.
    \72\ 17 CFR 240.17Ad-22(e)(6)(ii)(D).
    \73\ Id.
---------------------------------------------------------------------------

    For the above reasons, OCC believes that the proposed rule change 
is consistent with Section 17A of the Exchange Act \74\ and the rules 
and regulations thereunder applicable to OCC.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) requires that the rules of a clearing agency 
do not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\75\ The proposed introduction 
of the new Intraday Risk Charge add-on and establishment of new credit 
risk monitoring thresholds would be used by OCC to manage its credit 
risk across all Clearing Members. Accordingly, OCC does not believe 
that the proposed rule change would unfairly hinder access to OCC's 
services.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    While the proposed rule change may impact different accounts to a 
greater or lesser degree depending on each Clearing Member's trading 
activity, including portfolios containing a greater volume of 0DTE 
option positions, OCC does not believe that the proposed rule change 
would impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. As discussed above, 
OCC is obligated under the Exchange Act and the regulations thereunder 
to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, among 
other things, (i) considers, and produces margin levels commensurate 
with the risks and particular attributes of each relevant product, 
portfolio, and market, (ii) monitor intraday exposures on an ongoing 
basis, and (iii) maintain the authority and operational capacity to 
make intraday margin calls, as frequently as circumstances warrant, 
including when thresholds specified by the CCA are breached or when the 
products cleared or markets served display elevated volatility.\76\ 
Overall, the impact analysis from the proposed baseline approach 
indicates there would be on average a small add-on included across all 
Clearing Member margin requirements, with the more significant add-on 
charges attributed to Clearing Members in a manner that ties with their 
intraday trading activities and the increased risk they present. OCC 
notes that while the impact analysis is based on prior activity, OCC 
expects that the impact of the add-on charge when released in 
production may be less than predicted. This is because OCC expects 
Clearing Members may adjust their behaviors through different means 
such as allocating their trades earlier and more often throughout the 
day, or working to better understand their customers trading and 
allocation strategies, in order to minimize the effects of the Intraday 
Risk Charge on their portfolios.
---------------------------------------------------------------------------

    \76\ See 17 CFR 240.17Ad-22(e)(6)(i)-(ii).
---------------------------------------------------------------------------

    Moreover, the proposed rule change relates to risk management 
changes designed to mitigate OCC's credit exposure from the increased 
risk generated from Clearing Member trading activities that includes 
0DTE option contracts. As noted above, the risk exposure from the 
significant increase in intraday trading activity of 0DTE options may 
not be adequately captured under OCC's current margin system. OCC 
believes the Intraday Risk Charge would be a risk-based approach 
suitable to mitigate the increased intraday risk exposure presented to 
OCC from such trading activities.
    Furthermore, the proposed rule change would be applied uniformly 
across all Clearing Members and affect all cleared products. In 
response to feedback from industry participants, the amendments to the 
proposal would provide additional clarity to participants by shortening 
the time horizon for assessing the Intraday Risk Charge, while also 
designating a singular intraday margin issue collection time for 
potential margin calls in the ordinary course. These changes are 
designed to address feedback from industry participants to provide them 
with the necessary predictability they need to allocate trades within 
their portfolio more often throughout the day while also allowing 
Clearing Members to actively manage their exposure to the Intraday Risk 
Charge. Accordingly, OCC believes that the proposed rule change would 
not impose any burden or impact on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed 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 such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

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 (https://
www.sec.gov/

[[Page 7731]]

rules-regulations/self-regulatory-organization-rulemaking); or
     Send an email to [email protected]. Please include 
file number SR-OCC-2024-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to file number SR-OCC-2024-010. 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-regulations/self-regulatory-organization-rulemaking). 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 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/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    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-OCC-2024-010 and 
should be submitted on or before February 12, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\77\
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    \77\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01412 Filed 1-21-25; 8:45 am]
BILLING CODE 8011-01-P
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