February 6, 2023

VIA CFTC PORTAL

Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, DC 20581

Re: Rule Certification for Updates to OCC’s Operational Loss Fee

Dear Secretary Kirkpatrick:

Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (“Act”), and 

Commodity Futures Trading Commission (“CFTC”) Regulation 40.6, The Options Clearing 

Corporation (“OCC”) hereby certifies to the CFTC amendments to OCC’s schedule of fees to reflect 

annual updates to OCC’s Operational Loss Fee. The date of implementation of the rule is at least 10 

business days following receipt of the certification by the CFTC or the date the proposed rule is 

approved by the Securities and Exchange Commission (“SEC”) or otherwise becomes effective 

under the Securities Exchange Act of 1934 (“Exchange Act”). 

In conformity with the requirements of Regulation 40.6(a)(7), OCC states the following:

Explanation and Analysis

OCC proposes to revise its schedule of fees,1to implement a change in the maximum 

contingent Operational Loss Fee listed in OCC’s schedule of fees in accordance with OCC’s Capital 

Management Policy. Amendments to OCC’s schedule of fees are included in Exhibit A. Material 

proposed to be added is marked by underlining, 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.2

The revised schedule of fees would update the maximum aggregate Operational Loss Fee 

that OCC would charge Clearing Members in equal shares in the unlikely event that OCC’s 

1 This rule filing will be submitted to the SEC under the Exchange Act and will not become effective until all 

necessary regulatory requirements to implement the proposed change have been satisfied.

2 OCC’s By-Laws and Rules can be found on OCC’s public website: https://www.theocc.com/CompanyInformation/Documents-and-Archives/By-Laws-and-Rules.
Christopher J. Kirkpatrick

February 6, 2023

Page 2

shareholders’ equity (“Equity”) falls below certain thresholds defined in OCC’s Capital 

Management Policy. 

The proposed fee change is designed to enable OCC to replenish capital to comply with Rule 

17Ad-22(e)(15) under the Exchange Act, which requires OCC, in pertinent part, to “hold[ ] liquid 

net assets funded by equity to the greater of either (x) six months . . . current operating expenses, or 

(y) the amount determined by the board of directors to be sufficient to ensure a recovery or orderly 

wind-down of critical operations and service”P3F

3

P and “[m]aintain[ ] a viable plan, approved by the 

board of directors and updated at least annually, for raising additional equity should its equity fall 

close to or below the amount required.”P4F

4

P The proposed rule change would implement a change in 

the maximum contingent Operational Loss Fee listed in OCC’s schedule of fees in accordance with 

OCC’s Capital Management Policy.

OCC’s Capital Management Policy includes OCC’s replenishment plan.P5F

5

P Pursuant to the 

Capital Management Policy, OCC would charge an Operational Loss Fee in equal shares to Clearing 

Members to raise additional capital should OCC’s Equity, less the Minimum Corporate Contribution,6

fall below certain defined thresholds relative to OCC’s Target Capital Requirement (i.e., a “Trigger 

Event”), after first applying the unvested balance held in respect of OCC’s Executive Deferred 

Compensation Program.P6F

7

P Based on the Board-approved Target Capital Requirement for 2023 of 

$303 million, a Trigger Event would occur if OCC’s Equity less the Minimum Corporate 

Contribution falls below $272.7 million at any time or below $303 million for a period of 90 

consecutive calendar days.

In the unlikely event those thresholds are breached, OCC would charge an Operational Loss 

Fee in an amount to raise Equity to 110% of OCC’s Target Capital Requirement, up to the maximum 

3 See 17 CFR 240.17Ad-22(e)(15)(ii).

4 See 17 CFR 240.17Ad-22(e)(15)(iii).

5 See Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30, 2020) (File No. SR-OCC-2019-

007) (“Order Approving OCC’s Capital Management Policy”).

6 The Minimum Corporate Contribution is defined in the Capital Management Policy as the minimum level of 

OCC’s own funds maintained exclusively to cover credit losses or liquidity shortfalls, the level of which the 

OCC’s Board of Directors (“Board”) shall determine from time to time. See Exchange Act Release No. 92038 

(May 27, 2021), 86 FR 29861, 29862 (June 3, 2021) (File No. SR-OCC-2021-003). For 2023, the Board has 

approved a Minimum Corporate Contribution of $69 million. When combined with the unvested funds held in 

respect of OCC’s Executive Deferred Compensation Plan contributed after January 1, 2020 (the “EDCP 

Unvested Balance,” as defined in OCC’s Rules), OCC’s persistent minimum level of skin-in-the-game for 2023 

would be at least $76 million, or 25% of OCC’s Target Capital Requirement. In addition to this minimum 

level, OCC would also contribute liquid net assets funded by equity greater than 110% of the Target Capital 

Requirement. See OCC Rule 1006(e).

7 See Exchange Act Release No. 91199 (Feb. 24, 2021), 86 FR 12237, 12241 (Mar. 2, 2021) (File No. SR-OCC2021-003) (amending OCC’s replenishment plan, including the measurement for a Trigger Event, to account 

for the establishment of OCC’s persistent minimum skin-in-the-game). 
Christopher J. Kirkpatrick

February 6, 2023

Page 3

Operational Loss Fee identified in OCC’s schedule of fees less the amount of any Operational Loss 

Fees previously charged and not refunded.P7F

8

P OCC calculates the maximum aggregate Operational 

Loss Fee based on the amount determined by the Board to be sufficient for a recovery or orderly 

wind-down of critical operations and services (“RWD Amount”),P8F

9

P which is determined based on the 

assumptions in OCC’s Recovery and Orderly Wind-Down Plan (“RWD Plan”).P9F

10

P In order to 

account for OCC’s tax liability for retaining the Operational Loss Fee as earnings, OCC may apply a 

tax gross-up to the RWD Amount (“Adjusted RWD Amount”) depending on whether the operational 

loss that caused OCC’s Equity to fall below the Trigger Event thresholds is tax deductible.P10F

11

The RWD Amount and, in turn, the Adjusted RWD Amount are determined annually based 

on OCC’s corporate budget, the assumptions articulated in the RWD Plan,P1F and OCC’s projected 

effective tax rate.P12F

12

P The current Operational Loss Fee listed in OCC’s schedule of fees is the 

Adjusted RWD Amount calculated based on OCC’s 2022 corporate budget. Budgeted operating 

expenses in 2023 are higher than the 2022 budgeted operating expenses. This proposed rule change 

would revise the maximum Operational Loss Fee to reflect the Adjusted RWD Amount based on 

OCC’s 2023 budget, as follows:

Current Fee Schedule Proposed Fee Schedule

$157,000,000.00 less the aggregate amount of 

Operational Loss Fees previously charged and 

not refunded as of the date calculated, divided 

by the number of Clearing Members at the time 

charged.

$174,000,000.00 less the aggregate amount of 

Operational Loss Fees previously charged and 

not refunded as of the date calculated, divided 

by the number of Clearing Members at the time 

charged.

Since the allocation of the Operational Loss Fee is a function of the number of Clearing Members at 

the time of the charge, the maximum Operational Loss Fee per Clearing Member is subject to 

fluctuation during the course of the year. However, if the proposed Operational Loss Fee were 

charged to 111 Clearing Members, the number of Clearing Members as of December 13, 2022, for 

example, the maximum Operational Loss Fee per Clearing Member would be $1,567,568.

OCC would also update the schedule of fees to reflect the levels of Equity at which OCC 

would charge the Operational Loss Fee according to the thresholds defined in the Capital 

8 See Order Approving OCC’s Capital Management Policy, 85 FR at 5503. 

9

Id.

10 The RWD Plan states OCC’s basic assumptions concerning the resolution process, including assumptions about 

the duration of the resolution process, the cost of the resolution process, OCC’s capitalization through the 

resolution process, the maintenance of Critical Services and Critical Support Functions, as defined by the RWD 

Plan, and the retention of personnel and contractual relationships. See Exchange Act Release No. 83918 (Aug. 

23, 2018), 83 FR 44091, 44094 (Aug. 29, 2018) (File No. SR-OCC-2017-021).

11 See Order Approving OCC’s Capital Management Policy, 85 FR at 5503.

12 See Order Approving OCC’s Capital Management Policy, 85 FR at 5501 n.20, 5503.
Christopher J. Kirkpatrick

February 6, 2023

Page 4

Management Policy, as well as the level of Equity at which OCC would limit the Operational Loss 

Fee charged, based on OCC’s current Target Capital Requirement.13 Consistent with OCC’s 

approach to its persistent minimum skin-in-the-game, the threshold in the schedule of fees continues 

to reflect that consistent with OCC’s Capital Management Policy, the Trigger Event threshold is 

measured against Equity less the Minimum Corporate Contribution.

OCC reviewed the DCO core principles (“Core Principles”) as set forth in the Act, the 

regulations thereunder, and the provisions applicable to a DCO that elects to be subject to the 

provisions of 17 CFR Subpart C. During this review, OCC identified the following as potentially 

being impacted:

Public Information. OCC believes that implementing the proposed rule change will be 

aligned with Core Principle L,14 which requires, in part, that each DCO provide to market 

participants sufficient information to enable the market participants to identify and evaluate 

accurately the costs associated with using the services of the DCO. OCC believes that by 

implementing the proposed changes to its schedule of fees and by publishing the modified schedule 

of fees to its public website it would provide Clearing Members with sufficient information to 

enable them to identify and evaluate their contingent obligation to pay the Operational Loss Fee in 

the unlikely event that OCC experiences an operational loss that necessitates it to charge the fee.

Opposing Views

No opposing views were expressed related to the rule amendments. 

Notice of Pending Rule Certification

OCC hereby certifies that notice of this rule filing has been given to Clearing Members of 

OCC in compliance with Regulation 40.6(a)(2) by posting a copy of the proposed rule change on 

OCC’s website concurrently with the filing of this submission.

13 OCC does not propose any change to the thresholds and limits defined in the Capital Management Policy. This 

proposed change merely conforms the disclosure in OCC’s schedule of fees to the current amounts based on the 

Board-approved Target Capital Requirement of $303 million.

14 7 U.S.C. 7a-1(c)(2)(L).
Christopher J. Kirkpatrick

February 6, 2023

Page 5

Certification

OCC hereby certifies that the rule set forth at Item 1 of the enclosed filing complies with the 

Act and the CFTC’s regulations thereunder. 

Should you have any questions regarding this matter, please do not hesitate to contact me.

Sincerely,

/s/ Maria Alarcon

Assistant General Counsel

Enclosure: Exhibit A