1

EXHIBIT C

VP Draft: 2/27/2023

Draft shared with OCC Staff

for discussion purposes only

[Letterhead of Broadridge Business Process Outsourcing LLC]

March , 2023

Via E-Mail: rule-comments@sec.gov

Ms. Vanessa Countryman

Secretary

U.S. Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549

RE: File No. SR-OCC-2023-003; Release No. 34-

Proposed Amendments to Options Clearing Corporation By-Laws and Rules to

Replace Managing Clearing Member Framework with Outsourcing by ThirdParty Service Providers

Dear Ms. Countryman:

Broadridge Business Process Outsourcing LLC (“Broadridge”)1appreciates the

opportunity to comment on the above-referenced rule filing (the “Proposal”) of the Options

Clearing Corporation (the “OCC”). Broadridge currently provides broker-dealer outsourcing

services to fifteen OCC members and for the past two decades has been an industry leader in

providing outsourcing services to OCC members and other broker-dealers in options and all

other asset classes. One portion of the Proposal seeks to remove the portions of the OCC ByLaws and Rules that currently require outsourcing service providers to be registered as OCC

Managing Clearing Members even though such service providers are not responsible for, and

bear no economic risk in connection with, the clearing of options transactions effected by OCC

clearing members. In its place, the Proposal seeks to implement an outsourcing framework,

consistent with the framework adopted by FINRA and banking regulators, that would allow OCC

clearing members to perform clearing functions through their own personnel or “maintain

contractual arrangements with third-party service providers acceptable to” the OCC.2

1 Broadridge Business Process Outsourcing LLC is the broker-dealer subsidiary of Broadridge Financial Solutions,

Inc. (NYSE: BR), a $5 billion global Fintech firm, and a leading provider of investor communications and technologydriven solutions to banks, broker-dealers, asset and wealth managers, mutual funds, and corporate issuers. Broadridge

Financial Solutions’ technology solutions assist market participants, including registered broker-dealers, investment

advisers, hedge funds, and other institutional investors, in managing their orders, executions, and trading interest by

facilitating communications with others. Broadridge is part of the S&P 500® Index and employs over 13,000

associates in 21 countries. For more information about Broadridge, please visit www.broadridge.com.

2 Proposed OCC Rule 303(a).
Ms. Vanessa Countryman

U.S. Securities and Exchange Commission

March , 2023

Page 2

Broadridge fully supports these aspects of the Proposal and applauds the OCC and its

staff’s efforts to remove unnecessary financial impediments to OCC clearing members’ ability to

obtain high-quality services from third-party service providers with the necessary skill,

experience, and expertise to provide such services. We urge the Securities and Exchange

Commission (the “SEC” or the “Commission”) to approve the Proposal, but offer limited

comments to clarify certain aspects of the Proposal. Specifically, by commenting we seek to

avoid potential misinterpretations of portions of proposed OCC Rule 303, which sets forth the

OCC’s outsourcing framework. In particular, we seek to make clear that it is the OCC clearing

member (and not the contracted third-party service provider) that remains obligated to comply

with the OCC rules and other applicable regulatory requirements. Further, OCC clearing

members meet this requirement by supervising and overseeing the activities and functions

performed by third-party service providers and their personnel.3

With this background, and in full support of the OCC’s Proposal, we offer the specific

comments below.

Comment on Proposed Rule 303(a)

Proposed Rule 303(a) contains the requirement that “[e]very Clearing Member must

maintain supervisory authority over all internal and third-party staff conducting business with the

Corporation.” While we agree that OCC Clearing Members remain obligated to comply with

OCC and other regulatory requirements even when such Clearing Members engage third parties

to assist them in the performance of the tasks supporting those requirements, we are concerned

that the above language could be misinterpreted to suggest that OCC Clearing Members have an

obligation to directly supervise third-party staff, an unrealistic task given that OCC Clearing

Members would neither employ nor have control over such third-party staff. Such a misinterpretation could inadvertently be aided by the language of the Proposal which designates together

both “internal and third-party staff” as the group over which the member must maintain

supervisory authority.

3 As discussed more fully with our comments below, this is the regulatory framework for outsourcing that FINRA

(then known as the NASD) pioneered nearly two decades ago. In its seminal Notice to Members on Outsourcing,

FINRA/NASD made clear that “outsourcing an activity or function to a third party does not relieve members of their

ultimate responsibility for compliance with applicable federal securities laws and [self-regulatory organization] rules

regarding the outsourced activity or function.” NASD Notice to Members 05-48 (July 2005) at 1. NASD/FINRA also

makes clear that “the member has a continuing responsibility to oversee, supervise, and monitor the service provider’s

performance of covered activities.” Id. at 3. FINRA recently affirmed this guidance in Regulatory Notice 21-29:

“FINRA is publishing this Notice to remind member firms of their obligation to establish and maintain a supervisory

system, including written supervisory procedures (WSPs), for any activities and functions performed by third-party

vendors.” Regulatory Notice 21-29 (August 13, 2021) at 1 (emphasis in original). See also Board of Governors of the

Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the

Currency, Proposed Interagency Guidance on Third-Party Relationships: Risk Management, 86 Fed. Reg. 38182 (July

19, 2021) (providing similar guidance).
Ms. Vanessa Countryman

U.S. Securities and Exchange Commission

March , 2023

Page 3

To avoid such a misconstruction of the rule, we suggest that sentence be modified

slightly (additions and deletions shown) to read: “Every Clearing Member must maintain

supervisory authority over all internal and third party staff conducting business with the

Corporation and over the activities and functions performed by third-party vendors.” We do not

believe the proposed revision affects the OCC’s intended meaning of the language originally

proposed and it would aid significantly in avoiding a misinterpretation of applicable regulatory

requirements. Both OCC Clearing Members interpreting the rule and the OCC staff charged

with enforcing the rule would benefit from a more clear statement of an OCC Clearing

Member’s supervisory obligations over third-party services. In addition, those OCC Clearing

Members that are also FINRA members (that is, broker-dealers) would benefit from consistent

regulatory requirements and language. In this regard, FINRA specifically used the “activities

and functions” language proposed in its Regulatory Notice less than two years ago.4 Banking

agencies similarly have proposed guidance including “conducting ongoing monitoring of the

third party’s activities and performance.”5

We believe that the clarifying revision proposed above is the best way to avoid

misconstruing this requirement in OCC Rule 303(a). If the OCC or the SEC, however, is not

amenable to the clarifying revision, we urge the SEC to make clear in its approval Order that an

OCC Clearing Member is required to supervise only the activities or functions performed by the

third-party service provider and specifically that the OCC Clearing Member is not required to

supervise directly (or register as an associated person) any staff of the third-party service

provider.

Comment on Proposed Rule 303(b)

Proposed Rule 303(b) provides that “[e]very Clearing Member must employ personnel or

maintain contractual arrangements with third-party service personnel who are responsible for

such Clearing Member’s compliance with applicable net capital, recordkeeping, and other

financial, operational, and risk management rules” (emphasis added). The rule then provides that

the above requirement “includes” employing or contractually arranging for the services of either

a person registered as a Limited Principal Financial Operations with FINRA or a Chief Financial

Officer or other qualified person, depending on the registration of the OCC Clearing Member.

4 See Regulatory Notice 21-29 requiring FINRA members to establish supervisory systems “for any activities or

functions performed by third-party vendors.” Regulatory Notice 21-29 (August 13, 2021) at 1. This is consistent with

FINRA/NASD’s prior statements that “outsourcing an activity or function . . . does not relieve members of their

ultimate responsibility for compliance with [applicable rules] regarding that outsourced activity or function.” Id. at 3

(quoting NASD Notice to Members 05-48 at 1).

5 Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of

the Comptroller of the Currency, Proposed Interagency Guidance on Third-Party Relationships: Risk Management,

86 Fed. Reg. 38182, 38185 (July 19, 2021) (emphasis added).
Ms. Vanessa Countryman

U.S. Securities and Exchange Commission

March , 2023

Page 4

We are concerned that the underlined language above, coupled with the uses of the nonexclusive word “including” might suggest that a third-party service provider -- rather than the

OCC Clearing Members itself -- is “responsible for such Clearing Member’s compliance” with

regulatory requirements. While such a reading would be inconsistent with clear statements from

FINRA and other regulators (with which we understand that the OCC staff agrees) that a

member cannot delegate its supervisory obligations to an outsourced third party, it could still

find comfort in the plain language of the rule. To avoid any confusion, we suggest that the OCC,

or the SEC in its adopting Order, clarify that this requirement applies only to an OCC Clearing

Member’s FinOp or Chief Financial Officer, whether the OCC Clearing Member directly

employs such person or arranges for such person’s services on a contracted third-party basis.

Comment on Proposed Rule 303(c)

Proposed Rule 303(c) provides that “[e]ach Clearing Member must submit to the

Corporation a list of such personnel in such form as is acceptable to the Corporation, including

without limitation, the names, titles, primary offices, email addresses, and business phone

numbers for all such personnel.” We believe that the use of the modifier “such personnel” refers

back to the provision earlier in Rule 303(c) that a Clearing Member must have “an appropriate

number of clearing operations personnel or adequate contractual arrangements with third-party

service providers” for such purpose. Proposed Rule 303(c)(emphasis added). Accordingly, we

understand (and the OCC staff has confirmed to us in separate communications) that this

provision requires that an OCC Clearing Member provide only the names and other information

for its own personnel and that there is no obligation to provide names or other information of

third-party personnel engaged by contractual arrangement with a third-party service provider.

It would be helpful for the OCC, or the SEC in its approval Order, to clarify the scope of the

obligation so that OCC Clearing Members can know authoritatively that they are not required to

provide information on third-party personnel that specifically may provide them third-party

services.

Comment on Proposed Rule 303(d)(3)

Proposed Rule 303(d)(3) provides that any contractual agreement with a third-party

service provider must “provide the Corporation with the authority and ability to perform initial

and ongoing due diligence on the third-party service provider.” The rule does not indicate the

scope of due diligence that the OCC will perform, nor does it list that standards that a service

provider must meet to satisfy the OCC’s initial or ongoing due diligence. We understand from

communications with the OCC staff that the OCC contemplates conducting due diligence on

third-party service providers in the same manner and to the same extent that it currently conducts

due diligence on those providing facilities management services under the current framework.

Specifically, the Rule 303(d)(3) due diligence would consist of the OCC obtaining information

from a third-party service provider on whether the provider maintains a business continuity

plan, information on the provider’s systems resiliency, and information similar to the Risk

Questionnaire that the OCC currently obtains from Managing Clearing Members providing

facilities management services under the current framework. Further, we understand (and
Ms. Vanessa Countryman

U.S. Securities and Exchange Commission

March , 2023

Page 5

appreciate) that the OCC staff would require the OCC Clearing Member to provide the OCC

staff with direct access to the third-party service provider during the course of the third-party

provider’s provision of services to the OCC Clearing Member. If the OCC or its staff seeks to

conduct “initial and ongoing due diligence” beyond the scope described above or applying a

standard different than it has applied with respect to facilities management services, we ask that

the OCC staff clarify that point and provide OCC Clearing Members and their third-party

services providers with notice and the opportunity for comment.

* * *

We very much appreciate the opportunity to comment on the Proposal and, as indicated

above, fully support the efforts of the OCC and its staff to update the framework through which

OCC Clearing Members can obtain the services of third-party service providers without

unnecessary financial or other barriers. If the OCC or SEC staffs have any questions regarding

or otherwise wish to discuss any of our comments or recommendations above, please contact me

at 516-472-5008 or by email at Adam.Behar@broadridge.com.

Respectfully submitted.

Adam S.T. Behar

General Counsel

Broadridge Business Process

Outsourcing LLC

cc: Wayne M. Aaron, Esq.

Vedder Price PC