July 21, 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 Concerning Updates to OCC’s Capital Management Policy 

and Cash and Investment Management Policy

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 a rule change concerning updates to OCC’s Capital 

Management Policy and Cash and Investment Management Policy. The date of implementation of 

the rule is at least 10 business days following receipt of the certification by the CFTC. The proposal 

has also been submitted to the Securities and Exchange Commission (“SEC”) under Section 19(b) of 

the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 19b-4 thereunder (File No. 

SR-OCC-2023-006). The change will not be implemented until OCC has obtained all necessary 

regulatory approvals. 

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

Explanation and Analysis

This proposed rule certification would: (1) amend the Capital Management policy to provide 

that Management will, at a minimum, review OCC’s fee schedule at each regularly scheduled 

Compensation and Performance Committee (“CPC”) meeting, consistent with recent updates to the 

OCC’s Board of Director (“Board”) and Board-level committee (“Committee”) charters, which 

require each Committee meet at least four times per year, rather than quarterly as the Capital 

Management Policy currently provides; (2) make certain other edits and additions to the Capital 

Management Policy for clarity and consistency with OCC’s other policies, and (3) amend the Cash 

and Investment Management Policy to better align the text of that policy to OCC Rules 604(a) and 

1002(c), which provide separate treatment for cash deposited by Clearing Members in respect of 

margin requirements and Clearing Fund deposits, respectively.

The proposed changes to the Capital Management Policy and the Cash and Investment 

Management Policy are included in confidential Exhibits A and B, respectively. Material proposed 
Christopher J. Kirkpatrick

July 21, 2023

Page 2

to be added is underlined and material proposed to be deleted is marked in strikethrough text. All 

terms with initial capitalization that are not otherwise defined herein have the same meaning as set 

forth in OCC’s By-Laws and Rules.1

Overview

OCC is proposing to make certain administrative and clarifying amendments to OCC’s 

Capital Management Policy, and Cash and Investment Management Policy identified and approved 

by the Board as part of the annual review of such policies. Specifically, as discussed in more detail 

below, the proposed changes to the Capital Management Policy would: (1) provide that Management 

will, at a minimum, review the fee schedule at each regularly scheduled CPC meeting, rather than 

quarterly, which would align the frequency of such reviews with recent updates to the Board and 

Committee charters that require each Committee to meet at least four times per year, not necessarily 

quarterly;2 and (2) make certain other administrative edits and additions for clarity and consistency 

with OCC’s other policies, including to (i) clarify the ways in which OCC may hold additional 

financial resources for capital needs, (ii) modify verbiage to avoid confusion with concepts 

addressed by other OCC rules, and (iii) conform the Capital Management Policy to OCC’s current 

template3for its rule-filed policies. The proposed changes to the Cash and Investment Management 

Policy would clarify that interest earned on Clearing Fund cash, as opposed to margin cash, held at a 

Federal Reserve Bank would accrue to the benefit of Clearing Members, less a cash management 

fee, consistent with OCC Rule 1002(c) and the intended meaning of the Cash and Investment 

Management Policy as expressed in the rule filing that established that policy.4 Interest or gain on 

1 OCC’s current 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. 

2 See Exchange Act Release No. 94988 (May 26, 2022), 87 FR 33535, 33537-8 (June 2, 2022) 

(SR-OCC-2022-002); see also CPC Charter, Section II.B, available at

https://www.theocc.com/company-information/documents-and-archives/board-charters

(“The Committee shall meet at least four times a year.”).

3 “Template” here refers to the format and organizational structure for OCC’s internal policies. 

Previous OCC filings have made similar changes across other policies to conform them to 

OCC’s standard template. See, e.g., Exchange Act Release No. 96566 (Dec. 22, 2022), 87 

FR 80207, 80210 (Dec. 29, 2022) (SR-OCC-2022-010) (approving conforming changes 

across risk policies to remove policy-specific sections concerning policy exceptions and 

violations in connection with adoption of a section in OCC’s Risk Management Framework 

that uniformly covered those processes); Exchange Act Release No. 93436 (Oct. 27, 2021), 

86 FR 60499, 60500 (Nov. 2, 2021) (SR-OCC-2021-010) (removing non-substantive items 

from OCC’s rule-filed policies, including repeated document titles, certain introductory 

information, related policies and standards, related procedures, and revision history). 

4 See infra note 16 and accompanying text.
Christopher J. Kirkpatrick

July 21, 2023

Page 3

investment of margin cash would continue to accrue to OCC in accordance with existing OCC Rule 

604(a).

Background

Capital Management Policy

Under the Capital Management Policy, OCC determines its Target Capital Requirement, 

monitors its levels of shareholders’ equity (“Equity”) and liquid net assets funded by equity 

(“LNAFBE”) to help ensure adequate financial resources are available for general business 

obligations, and manages Equity levels, including by adjusting OCC’s fee schedule as appropriate 

and establishing a plan for accessing additional capital should OCC’s Equity fall below certain 

thresholds (the “Replenishment Plan”).5In addition, OCC’s Rules6 and Capital Management Policy7 

provide for OCC’s skin-in-the-game, including a Minimum Corporate Contribution8 and the use of 

LNAFBE in excess of 110% of the Target Capital Requirement (i.e., the “Early Warning”9threshold 

under OCC’s Replenishment Plan) to cover losses arising from a Clearing Member’s default.

Target Capital Requirement 

Pursuant to the Capital Management Policy, the Target Capital Requirement is based on two 

components: (1) the amount of LNAFBE determined by OCC to be necessary to ensure compliance 

with OCC’s regulatory obligations, including Rule 17Ad-22(e)(15) under the Exchange Act10 and (2) 

any additional amounts determined to be necessary and appropriate for capital expenditures 

5 See Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500, 5501-03 (Jan. 30, 2020) 

(SR-OCC-2019-007).

6 See OCC Rule 1006(e)(i).

7 See Exchange Act Release No. 92038 (May 27, 2021), 86 FR 29861 (June 3, 2021) (SROCC-2021-003) (order approving changes to OCC’s Capital Management Policy and OCC 

Rule 1006(e) to establish OCC’s persistent minimum skin-in-the-game).

8 OCC Rule 101(M)(1) defines the term “Minimum Corporate Contribution” to mean the 

minimum level of OCC funds maintained exclusively to cover credit losses or liquidity 

shortfalls. The Minimum Corporate Contribution is determined by the Board from time to 

time.

9 The Capital Management Policy defines “Early Warning” as when Equity less the Minimum 

Corporate Contribution falls below 110% of the Target Capital Requirement. Management 

reviews the Early Warning threshold on an annual basis. See Exchange Act Release No. 

88029, 85 FR at 5502.

10 17 CFR 240.17Ad-22(e)(15).
Christopher J. Kirkpatrick

July 21, 2023

Page 4

approved by OCC’s Board.11 With respect to the first component, OCC must set its Target Capital 

Requirement at a level sufficient to maintain LNAFBE at least equal to the greater of: (1) six months 

of OCC’s current operating expenses, (2) the amount determined by the Board to be sufficient to 

ensure a recovery or orderly wind-down of critical operations and services (“RWD Amount”),

12 and 

(3) the amount determined by the Board to be sufficient for OCC to continue operations and services 

as a going concern if general business losses materialize. With respect to the second component, the 

Capital Management Policy authorizes the Board to increase the Target Capital Requirement by an 

amount to be retained for capital expenditures. Alternatively, the Board may determine to fund 

capital expenditures out of funds in excess of the Target Capital Requirement. In making such a 

determination, the Board would consider factors including, but not limited to, the amount of funding 

required, the amount of Equity proposed to be retained, the potential impact of the investment on 

OCC’s operations, and the duration of time over which funds would be accumulated.

On an annual basis, OCC’s Chief Financial Officer (“CFO”) recommends a Target Capital 

Requirement for the coming year to OCC management.

13

 Management reviews the CFO’s 

recommendation and, as appropriate, recommends the Target Capital Requirement to the CPC. The 

CPC then reviews and, as appropriate, recommends the proposal to the Board, which reviews and, as 

appropriate, approves the Target Capital Requirement for the coming year. 

11 In setting the Target Capital Requirement, OCC considers, but is not bound by, its projected 

rolling twelve-months’ operating expenses pursuant to OCC’s interpretation of CFTC 

Regulation 39.11(a)(2). See 17 CFR 39.11(a)(2). Unlike SEC Rule 17Ad-22(e)(15) and 

CFTC Regulation 39.11(e)(2), which concern the liquidity of the financial resources to meet 

six-months’ of operating expenses, the financial resources OCC may count toward the 

CFTC’s twelve-months’ requirement is not limited to LNAFBE or “unencumbered, liquid 

financial assets.” See 17 CFR 39.11(e)(2). OCC may count its “own capital” (i.e., Equity) 

and “[a]ny other financial resource deemed acceptable by the [CFTC]” toward the twelvemonths’ requirement. See 17 CFR 39.11(b)(2). Accordingly, the Capital Management 

Policy does not require OCC to set its Target Capital Requirement—the amount of LNAFBE 

it must maintain to meet its regulatory obligations—to equal twelve-months’ operating 

expenses. 

12 Management recommends an RWD Amount calculated on an annual basis pursuant to the 

Capital Management Procedure based on the assumptions in OCC’s Recovery and Orderly 

Wind-down Plan. See Exchange Act Release No. 88029, 85 FR at 5509.

13 The CFO’s recommendation is prepared in accordance with OCC’s Capital Management 

Procedure, which provides additional detail supporting the Capital Management Policy. See

Exchange Act Release No. 86725 (Aug. 21, 2019), 84 FR 44944, 44945 (Aug. 27, 2019) 

(SR-OCC-2019-007).
Christopher J. Kirkpatrick

July 21, 2023

Page 5

Fee Schedule

OCC’s fee structure is designed by the Board in accordance with Article IX, Section 9 of 

OCC’s By-Laws. The current Capital Management Policy provides that, on a quarterly basis, 

management will review OCC’s fee schedule and, considering factors including, but not limited to, 

projected operating expenses, projected volumes, anticipated cashflows and capital needs, 

recommend to the Board, or a Board-level Committee to which the Board has delegated authority,14

whether a fee increase, decrease or waiver should be made. If OCC’s Equity is above, in the 

aggregate, 110% of its Target Capital Requirement and other approved capital needs, the Board may 

use such tools as it determines appropriate to lower costs for Clearing Members, including lowering 

fees, fee holidays or refunds.15 On an annual basis, management reviews the operating margin level 

and, considering historical volume variance and other relevant factors (including, but not limited to, 

variance in revenue other than from clearing fees, such as interest income), recommends to the 

Board, or a Committee to which the Board has delegated authority, whether any changes should be 

made to OCC’s defined operating margin. 

Cash and Investment Management Policy

Among other things, OCC’s Cash and Investment Management Policy provides for how 

OCC may invest its own cash and cash deposited by Clearing Members in respect of margin 

requirements or Clearing Fund deposits. In recent filings, OCC explained that the policy would 

provide that “[i]nterest earned on Clearing Fund cash deposits held at a Federal Reserve Bank would 

accrue to the benefit of Clearing Members, less a cash management fee.”16 However, the proposed 

text of the policy submitted with the filing inadvertently did not qualify the scope as limited to 

Clearing Fund cash deposits. OCC Rule 1002(c) provides that interest on Clearing Fund cash 

deposits held at a Federal Reserve Bank accrue to Clearing Members less a cash management fee, 

consistent with the text of the policy.17 In contrast, under OCC Rule 604(a), interest earned on 

14 The Board has delegated such authority to the CPC under the CPC Charter. See supra note 

2. 

15 When determining which, if any, tools would be appropriate, the Board considers factors 

including, but not limited to, projecting future volume, expenses, cashflow, capital needs and 

the possibility and amount of unfunded obligations. During this process, Equity must always 

remain above the “Early Warning” threshold. See Exchange Act Release No. 87257 (Oct. 8, 

2019), 84 FR 55194, 55196 (Oct. 15, 2019) (SR-OCC-2019-805).

16 See Exchange Act Release No. 93916 (Jan. 6, 2022), 87 FR 1819, 1821 (Jan. 12, 2022) (SROCC-2021-014); Exchange Act Release No. 93915 (Jan. 6, 2022), 87 FR 1814, 1815 (Jan. 

12, 2022) (SR-OCC-2021-803) (emphasis added).

17 See OCC Rule 1002(c) (“Interest earned on cash deposits held at a Federal Reserve Bank 

shall accrue to the benefit of Clearing Members (calculated daily based on each Clearing 

Member’s pro rata share of Clearing Fund cash deposits), provided that each such Clearing 

Member has provided OCC with all tax documentation as OCC may from time to time 
Christopher J. Kirkpatrick

July 21, 2023

Page 6

investments of cash deposited by Clearing Members in respect of margin requirements accrues to the 

benefit of OCC.18 No change to Rule 604(a) was intended by the proposed implementation of 

OCC’s Cash and Investment Management Policy.19

Proposed Changes 

(1) Fee Schedule Review

Currently, the Capital Management Policy requires management to review the fee schedule 

with the CPC “[o]n a quarterly basis.” The proposed changes would amend this language to instead 

require management to review the fee schedule “[a]t regularly scheduled CPC meetings.” This 

change would align the fee schedule review with the cadence of meetings prescribed in the Board 

and Committee Charters, which OCC recently amended.20 While regular meetings generally occur 

on a quarterly basis, the proposed change would avoid the need to call special meetings to address 

the routine review of the fee schedule if a regularly scheduled meeting happens to fall at the 

beginning of the next quarter or the end of the last quarter. For this reason, OCC aligned other 

periodic reviews identified in the Committee Charters to occur at each regularly scheduled meeting, 

as opposed to quarterly.21 OCC proposes to do the same with respect to the cadence of fee schedule 

reviews in the Capital Management Policy.

(2) Additional Textual Changes

The proposed changes would also make other textual edits and additions to the Capital 

Management Policy for clarity and consistency with OCC’s other policies. For one, OCC would 

require in order to effectuate such payment, and all other interest earned on investments will 

accrue to the benefit of [OCC].”). See also, Exchange Act Release No. 82657 (Feb. 8, 2018), 

83 FR 6651 (Feb. 14, 2018) (SR-OCC-2018-005) (implementing a cash management fee to 

cover administrative and other operational expenses incurred by OCC in connection with 

passing through to Clearing Members the interest earned on Clearing Fund cash deposits 

held at an OCC account at a Federal Reserve Bank).

18 OCC Rule 604(a) (“Clearing Members may deposit U.S. dollars in accordance with 

procedures acceptable to [OCC]. Funds so deposited may from time to time be partially or 

wholly invested by [OCC] for its account in Government securities, and any interest or gain 

received or accrued on the investment of such funds shall belong to [OCC].”)

19 See Exchange Act Release No. 93916, 87 FR at 1820 (“OCC does not propose to amend 

[Rule 604(a)] by this proposed rule change.”).

20 See supra note 2.

21 See Exchange Act Release No. 94988, 87 FR at 33537-38 (approving amendments to the 

Audit Committee, Technology Committee and CPC Charters to align the cadence of periodic 

reviews to each regular meeting of the Committee, rather than “quarterly”).
Christopher J. Kirkpatrick

July 21, 2023

Page 7

amend the provision concerning management of OCC’s Equity to facilitate capital expenditures to 

clarify OCC’s intent that either of the two options identified for doing so—(1) increasing the Target 

Capital Requirement or (2) retaining the additional Equity as an amount in excess of the Target 

Capital Requirement—is available to the Board. The textual edits would state more generally at the 

outset that OCC may retain additional Equity generated from revenue for capital expenditures 

following a recommendation by Management and Board approval. Retention of such additional 

Equity generated from revenue is already implicit in the Capital Management Policy’s provisions for 

setting the fee schedule and determining whether to employ other tools to lower costs for Clearing 

Members (e.g., a clearing fee refund or holiday), both of which consider OCC’s capital needs as a 

factor. The proposed changes would also more expressly provide that option (2) is available as an 

alternative to option (1). The principal difference between the two options is that any excess capital 

retained under option (2) is available as skin-in-the-game in the event of a default loss. In addition, 

adding that such additional Equity would be “generated from revenue” would also clarify the source 

of the funds OCC may retain as additional Equity, which under OCC’s Capital Management Policy 

would be generated from fees or interest income—not from capital contributions from OCC’s 

stockholders that were part of the Capital Plan that predated the Capital Management Policy.22

The Capital Management Policy also currently provides that in determining whether to retain 

additional Equity for capital expenditures, the Board will consider the potential impact of the 

“investment” on OCC’s operations. The proposed changes would amend this language to instead 

provide that the Board will consider the potential impact of the “retention of additional Equity” on 

OCC’s operations, consistent with the terminology that OCC proposes to use throughout that 

paragraph of the Capital Management Policy. Use of the term “investment” in reference to the 

retention of Equity may lead to confusion when compared to OCC’s Cash and Investment 

Management Policy, which addresses guidelines for investing OCC’s own cash and cash deposited 

by Clearing Members, as discussed above. “Investment” in that context is a separate concept from 

OCC’s determination whether to retain additional Equity to meet its capital needs, rather than, for 

example, determining to use tools to decrease the cost of membership through a fee decrease, fee 

holiday or fee refund.

OCC is also proposing formatting edits to conform the Capital Management Policy to OCC’s 

current template format for its policies and procedures. Specifically, the proposed changes would 

add a new introductory paragraph at the outset of the Capital Management Policy that addresses the 

policy’s applicability and scope. This new introductory paragraph would clarify that the policy 

applies to the quantification, monitoring and management of OCC’s Equity, as well as identify the 

OCC departments that have roles in those processes, including, primarily, Accounting and Finance, 

as well as Member Services, Corporate Risk Management, Legal, and Financial Risk Management 

business units. Finally, OCC would correct a typo by deleting a duplicative word in one of the 

22 See Exchange Act Release No. 74452 (Mar. 6, 2015), 80 FR 13058 (Mar. 12, 2015) (SROCC-2015-02), disapproved on remand by Exchange Act Release No. 85121 (Feb. 13, 

2019), 84 FR 5157 (Feb. 20, 2019) (SR-OCC-2015-02).
Christopher J. Kirkpatrick

July 21, 2023

Page 8

footnotes to the Capital Management Policy, and such change would have no impact on the meaning 

of the footnote.23

(3) Cash and Investment Management Policy Correction

Finally, this proposed change would conform the text of the Cash and Investment 

Management Policy to the intended meaning by inserting “Clearing Fund” before “cash deposits” 

when stating that “[i]nterest earned on cash deposits held at a Federal Reserve Bank shall accrue to 

the benefit of Clearing Members less a cash management fee.” The term “Clearing Fund” was 

inadvertently omitted from the text of the policy, even though that was the intent of the change as 

described in the associated regulatory filings described above.24 This change would thereby align 

the policy statement with OCC Rules 604(a) and 1002(c), which provide different treatment for 

interest earned on margin cash and Clearing Fund cash deposited at a Federal Reserve Bank.

Consistency with DCO Core Principles

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 (“Subpart C DCO”). During this review, OCC identified the 

following as potentially being impacted:

Legal Risk Considerations. OCC believes that the proposed changes to the Cash and 

Investment Management Policy are consistent with Core Principle R25 and CFTC Regulations 

thereunder, which require a DCO to have a well-founded, transparent, and enforceable legal 

framework for each aspect of the activities of the DCO. Specifically, CFTC Regulation 39.27

requires, among other things, that a DCO’s legal framework must provide for the DCO’s interest in 

collateral.26 The proposed changes to OCC’s Cash and Investment Management Policy are designed 

to conform the text of the policy with OCC’s Rules,27 thereby improving the clarity and transparency 

of OCC rules and helping to support OCC’s legal basis for its cash management and investment 

activities, including OCC’s interest in various types of collateral that it collects from its members. 

Accordingly, OCC believes that proposed changes to the Cash and Investment Management Policy 

are consistent with Core Principle R and the CFTC Regulations thereunder.

23 Currently, the relevant footnote states that OCC management makes a recommendation that 

is “based calculated on an annual basis” pursuant to an underlying procedure. OCC proposes 

to remove the extraneous word “based” from the footnote. 

24 See supra note 16 and accompanying text.

25 7 U.S.C. 7a-1(c)(2)(R).

26 17 CFR 39.27(b)(3).

27 See supra notes 16 and accompanying text.
Christopher J. Kirkpatrick

July 21, 2023

Page 9

Governance. OCC believes that the proposed changes to the Capital Management Policy 

are consistent with Core Principle O28 and CFTC Regulations thereunder, including CFTC 

Regulation 39.24, which, among other things, requires that a DCO have governance arrangements 

that include clear and direct lines of responsibility.29 As noted above, the proposed changes to the 

Capital Management Policy would align the cadence of the fee schedule review to the CPC Charter,

which provides for at least four regularly scheduled meetings each year, but does not require those 

meetings be scheduled in each fiscal quarter. For that reason, OCC previously amended its 

Committee Charters to align the cadence of other periodic reviews to occur at each “regularly 

scheduled” meeting, rather than quarterly.30 In addition, the proposed change to conform OCC’s 

Capital Management Policy to the latest Board-approved format would add an Applicability and 

Scope section that would identify the OCC business units with responsibilities under that policy, 

thereby helping to delineate clear and direct lines of responsibility with respect to the processes set 

forth therein.

Risk Management. OCC also believes that the proposed changes to the Capital 

Management Policy and Cash and Investment Management Policy are consistent with Core Principle 

D31 and CFTC Regulations thereunder, including CFTC Regulation 39.13, which, among other 

things, requires that a DCO implement written policies, procedures, and controls approved by its 

board of directors, that establish an appropriate risk management framework that is reviewed 

regularly and updated as necessary.32 The proposed changes to the Capital Management Policy and 

the Cash and Investment Management Policy arose from the Board’s annual reviews of policies 

designed to address general business risk and investment risk, respectively. By helping to maintain 

consistency across OCC’s rules and conform those policies to the versions last approved by the 

Board, the proposed changes support the maintenance of OCC’s risk management policies consistent 

with regulatory expectations.

For these reasons, OCC believes that the proposed changes are consistent with the 

requirements of the DCO Core Principles and the CFTC Regulations thereunder. 

Opposing Views

No substantive opposing views were expressed related to the rule amendments by OCC’s 

Board members, Clearing Members or market participants. 

28 7 U.S.C. 7a-1(c)(2)(O).

29 17 CFR 39.24(b)(4).

30 See supra note 21 and accompanying text.

31 7 U.S.C. 7a-1(c)(2)(D).

32 17 CFR 39.13(b).
Christopher J. Kirkpatrick

July 21, 2023

Page 10

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 this certification on OCC’s 

website concurrently with the filing of this submission.

Certification

OCC hereby certifies that the rules set forth in Exhibits A and B of the enclosed filing 

comply with the Act and the CFTC Regulations thereunder. 

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

Sincerely,

/s/ Mark C. Brown

Mark C. Brown

Associate General Counsel

Enclosure: Exhibits A and B