April 27, 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 by The Options Clearing Corporation Concerning the 

Amendment of its Clearing Membership Standards

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 the amendment of its clearing 

membership standards. 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. 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

OCC proposes to amend its clearing membership standards1. Amendments to OCC’s ByLaws and Rules are included in Exhibit A and Exhibit B, respectively. Material proposed to be 

added to OCC’s By-Laws or Rules is marked by underlining and material proposed to be deleted is 

marked by 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.2

1 This rule filing has been 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 current 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

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Page 2

Overview

The Options Clearing Corporation (“OCC”) acts as the central counterparty clearing house 

(“CCP”) for all U.S option exchanges and certain U.S. futures exchanges. OCC provides clearing 

services for options on equities, indices, Exchange Traded Funds (“ETFs”) and for certain futures 

products and options on futures products. Organizations become OCC Clearing Members to 

facilitate the clearing and settlement of their customer transactions or proprietary transactions 

through OCC. OCC also provides certain Clearing Members with the ability to novate stock loan 

transactions by acting as the counterparty to both sides of the transactions, guaranteeing that these 

obligations are fulfilled. 

Over the past two decades, industry best practices as well as financial, operational, and 

systems/data obligations applicable to market participants and financial entities have continuously 

evolved. As part of this evolution, OCC was designated in 2012 as a systemically important 

financial market utility, or “SIFMU,” and along with this designation came heightened regulatory 

expectations. With these heightened expectations, there has been an increased focus on OCC and 

Clearing Member liquidity resources and uses, the ability to meet obligations during stressed market 

conditions, the ability to meet larger margin and Clearing Fund obligations due to growth in options 

trading, and a requirement to have a documented and robust risk management framework. After a 

comprehensive review of OCC’s By-Laws and Rules in conjunction with changes in regulations, 

member risk practices and processes as well as other CCP Clearing Member standards, OCC 

determined it was necessary to amend, enhance and reorganize certain Clearing Member 

requirements to keep pace with these changes and ensure OCC continues to maintain a high level of 

market stability. 

Proposed Changes 

OCC’s proposed changes to membership standards comprehensively address the heightened 

expectations around financial, operational and systems/data obligations. More specifically, the 

proposed rule changes would amend OCC’s By-Laws and Rules addressing OCC’s membership 

standards, including but not limited to regulation and regulatory authorization, governance, financial 

condition, financial reporting, staffing, third-party arrangements, general operational capabilities, 

statutory disqualifications, notification requirements and protective measures, as well as the minor 

rule violation framework. The proposed rule changes would improve OCC’s existing financial and 

operational membership standards to further mitigate counterparty credit risk introduced by Clearing 

Members.

The proposed rule changes take a holistic review of existing membership standards, as 

opposed to one-off changes in response to new regulatory requirements. The proposed rule changes 

will enhance OCC’s risk mitigation processes and practices by, for example, requiring Clearing 

Members to meet higher standards intended to mitigate risk, e.g., through increased minimum 

capital requirements and heightened requirements around the qualification of financial, operational, 

and risk management personnel. Additionally, by proposing rules to expand OCC membership to 

new entity types and in additional jurisdictions, OCC will have the potential to increase the diversity 
Christopher J. Kirkpatrick

April 27, 2023

Page 3

of its Clearing Member population. Furthermore, proposing more robust notification requirements 

and expanded protective measures will allow more assurance that OCC is able to protect itself, its 

members, and the general public from emerging counterparty risks. OCC also believes that the 

proposed rule changes will provide greater clarity to Clearing Members and the broader public 

through the consolidation and simplification of OCC’s membership requirements in OCC’s ByLaws and Rules. 

In particular, while the membership standards that OCC proposes to change are described in 

further detail herein, thematically, they consist of the following: 

• expanding the list of institutions that may be eligible for membership as a Clearing 

Member;3

• expanding the available regulatory authorizations that may be granted to each type of 

institution that has been admitted to become a Clearing Member;4

• streamlining the membership application review and admission procedures;5

• amending the financial responsibility standards by consolidating initial and ongoing 

standards, raising the capital floor for existing categories of institutions and adopting 

capital standards for new categories of institutions;6

• amending the event-based and periodic reporting requirements for Clearing 

Members;7

• amending Clearing Member staffing requirements;8

• amending books and records requirements;9

• amending operational capability standards;10

3 See infra description of proposed Rule 201.

4

Id.

5 See infra descriptions of proposed Rules 203 and 204.

6 See infra description of proposed Rule 301.

7 See infra descriptions of proposed Rules 306, 306A and 306B.

8 See infra descriptions of proposed Rules 302 and 303.

9 See infra description of proposed Rule 208.

10 See infra description of proposed Rule 302 and 303.
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• revising the process by which OCC reviews a notification that the Clearing Member 

is subject to statutory disqualification;11

• updating the minor rule violation disciplinary process;12 and

• providing various other clarifying changes.

The proposed rule change generally would reflect each of these changes in the By-Laws and 

the Rules by modifying the provisions currently set forth in Article V of the By-Laws and Chapters 

II and III of the Rules and consolidating such provisions in new Chapters II and III of the Rules.13

Below is a description of the proposed changes under the section headers reflecting the proposed 

new rules in Chapters II and III.14

Proposed Rule 201 – Eligibility

Paragraphs (a) and (b) – Types of Memberships and Activities

Types of Clearing Members. Existing Article V of the By-Laws currently permits three 

different types of institutions to be eligible for clearing membership: (i) a broker-dealer registered in 

such capacity under Section 15(b)(1) or (2) of the Exchange Act (a “fully registered broker-dealer”); 

(ii) a futures commission merchant (an “FCM”) registered in such capacity under Section 4f(a)(1) of 

the Commodity Exchange Act (the “CEA”) (a “fully registered FCM”); and (iii) a Non-U.S.

Securities Firm,15 including but not limited to a Canadian investment dealer authorized and regulated 

in such capacity by the Investment Industry Regulatory Organization of Canada (“IIROC”).

16

11 See infra descriptions of proposed Rules 204, 306A and 308.

12 See infra description of proposed Rule 1203.

13 In addition, a minor subset of the changes would appear in various other portions of the Rules, including Rules 

101, 609, 1006, 1203, and 2201. The proposed rule change would eliminate Article V of the By-Laws.

14 Id.

15 Existing Article I of the By-Laws presently defines “Non-U.S. Securities Firm,” in relevant part, as a “securities 

firm: (1) formed and operating under the laws of a country other than the United States; (2) with its principal 

place of business in that country; and (3) that is subject to the regulatory authority of that country’s government 

or an agency or instrumentality thereof, or subject to the regulatory authority of an independent organization or 

exchange in that country. The term “Non-U.S. Securities Firm” shall not include any broker-dealer registered, 

or required to be registered, with the Securities and Exchange Commission pursuant to Section 15 of the 

Securities Exchange Act of 1934, as amended or any futures commission merchant registered, or required to be 

registered, as such pursuant to Section 4d of the Commodity Exchange Act, as amended.” Under the proposed 

rule change, the provisions of this definition would be moved to Rule 101. See infra discussion on Additional 

Proposed Changes to Terms.

16 The proposed rule change would incorporate in Rule 101 the definition of “Canadian Investment Dealer” as a 

Non-U.S. Securities Firm formed and operating under the laws of Canada or a province or territory thereof that 
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April 27, 2023

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The proposed rule change would relocate the list of eligible institutions from Article V of the 

By-Laws to new Rule 201(a)(1) through (a)(3) (including a minor clarification to specifically 

reference Canadian Investment Dealers in proposed subparagraph (a)(3)) and expand the list of 

eligible institutions to include certain banks. Specifically with respect to banks, proposed Rule 

201(a)(4) would provide that the following banks are eligible to become a Clearing Member: (i) a 

U.S. national bank registered with the Office of the Comptroller of the Currency for full-service 

operations; (ii) a U.S. state-chartered bank that is a member of the Federal Reserve System; and (iii) 

a similar non-U.S. bank registered with its home country national regulatory authority that conducts 

its activity with OCC through a Federal or State Branch or Agency (as defined in the International 

Banking Act of 1978) located in the United States (collectively, the “eligible banks”). In order to be 

eligible, the bank must provide adequate assurance to OCC that it does not engage in activity that 

would require registration as a broker-dealer, FCM or any other relevant registration status. Such 

assurance would help ensure that an eligible bank is not violating applicable laws with respect to 

failing to register as a financial intermediary or any otherwise. Likewise, the bank must provide 

adequate assurance to OCC that it is not prohibited from contributing to OCC’s Clearing Fund. 

Additionally, as a result of the relocation of Section 1 of Article V to proposed Rules, removal of 

reference to the first two sentences of Section 1 of Article V must be moved from Section 1 of 

Article XI. 17

Types of Activities. Various provisions in Article V of the By-Laws set forth the categories 

of products and other regulatory authorizations that each type of institution that is a Clearing 

Member may engage in. As a general matter, the proposed rule change would incorporate such 

provisions in new Rule 201(b) (and Rule 302(e) with respect to Stock Loan programs), subject to 

minor modifications. More specifically:

• proposed Rule 201(b)(1) would provide that transactions in options other than overthe-counter (“OTC”) index options, futures options or commodity options may be 

cleared by a Clearing Member that is (i) a fully-registered broker-dealer, (ii) a 

Canadian Investment Dealer or other Non-U.S. Securities Firm, or (iii) an eligible 

bank;

• proposed Rule 201(b)(2) would provide that transactions in commodity futures,

options and commodity futures options may be cleared by a Clearing Member that is 

is investment dealer under such laws, that is a dealer member of IIROC, and that has its principal place of 

business in Canada.

17 Section 1 of Article XI, which requires approval of holders of OCC Common Stock for amendment to certain 

By-Law provisions as named in that section, states that stockholder approval is required to amend the first two 

sentences of Section 1 of Article V of OCC's By-Laws. With the relocation of Section 1 of Article V to 

proposed OCC Rules, shareholder consent to amend the first two sentences of Section 1 of Article V will no 

longer be required and therefore Section 1 of Article XI must be amended to remove reference to the first two 

sentences of Section 1 of Article V.
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(i) a fully registered FCM or (ii) otherwise exempt from such registration under the 

CEA and regulations of the Commodity Futures Trading Commission (the “CFTC”);

• proposed Rule 201(b)(3) would provide that security futures transactions may be 

cleared by a Clearing Member that is (i) a fully registered broker-dealer that is also 

(A) a fully registered FCM, (B) a notice-registered as an FCM under Section 4f(a)(2) 

of the CEA (a “notice-registered FCM”) or (C) not required to register as an FCM 

under the CEA and the regulations of the CFTC, (ii) a fully registered FCM that is 

notice-registered as a broker-dealer under Section 15(b)(11)(A) of the Exchange Act

(a “notice-registered broker-dealer”), (iii) a Canadian Investment Dealer or other 

Non-U.S. Securities Firm, or (iv) an eligible bank;

• proposed Rule 201(b)(6) would provide that OTC index options transactions may be 

cleared by a Clearing Member that (i) is a fully registered broker-dealer, a Canadian 

Investment Dealer or other Non-U.S. Securities Firm or an eligible bank, (ii) executes 

and maintains in effect the relevant agreements and other documents required by 

OCC, (iii) is a user of or participant in an OTC Trade Source for the purpose of 

affirming and submitting confirmed trades to OCC for clearance and (iv) meets such 

other requirements as OCC may specify;

• proposed Rule 201(b)(5) would provide that Stock Loans (which includes both Hedge 

Loans and Market Loans under the Stock Loan/Hedge Program and the Loan Market 

program, respectively) may be cleared by a Clearing Member that is (i) a fullyregistered broker-dealer, (ii) a Canadian Investment Dealer or other Non-U.S. 

Securities Firm or (iii) an eligible bank;

• proposed Rule 302(f)(1) would provide that a Clearing Member participating in the 

Stock Loan/Hedge Program must (i) be a member of The Depository Trust Company 

(“DTC”) or be a Canadian Clearing Member on behalf of which the CDS Clearing 

and Depository Services Inc. (“CDS”) maintains an identifiable sub-account in a CDS 

account at the DTC and (ii) execute such agreements and other documents required 

by OCC;18 and

• proposed Rule 302(f)(2) would provide that a Clearing Member participating in the 

Loan Market program must meet the Stock Loan/Hedge Program participation 

requirements set forth above and (i) be a U.S. Clearing Member or Clearing Member 

from any foreign country or jurisdiction approved by the Risk Committee, (ii) be a 

subscriber to such Loan Market with full access to services provided by the Loan 

Market, (iii) be a member of the DTC that has provided the DTC with written 

authorization to honor instructions issued by OCC against such Clearing Member’s 

18 See infra discussion on proposed Rule 302.
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account at the DTC and (iv) execute such agreements and other documents required 

by OCC.19

Importantly, proposed Rule 201 would provide additional clarifications. In particular, 

proposed Rule 201(a)(4)(i) and (a)(5)(i) would restrict eligible banks to clear the products and 

participate in the programs listed above on a proprietary basis only. In addition, proposed Rule 

201(b) would continue to require that Clearing Members be in compliance with all registration and 

other regulatory requirements applicable to clearing particular product types. Similarly, proposed 

Rule 201(b)(4) would maintain the existing requirement (relocated from Article V, Section 1(b) of 

the By-Laws) that no notice-registered broker-dealer may clear transactions or carry positions in 

cleared securities other than security futures. These clarifications are intended, in part, to help 

prevent a Clearing Member from violating the Exchange Act, the CEA or other applicable laws by 

acting as an unregistered intermediary on OCC.

Separately, similar to existing Article V, Section 1, paragraph (d) of the By-Laws, proposed 

Rule 201(b)(2) would require a Clearing Member that holds positions in physically settled futures or 

futures options other than security futures to be a member of the Exchange on which the products 

are traded.

Paragraph (c) – Approval Required for each Type of Product

The proposed rule change would adopt as new Rule 201(c) the provisions currently set forth 

in existing Article V, Section 1, paragraph (c) of the By-Laws without any changes. Specifically, 

new Rule 201(c) would provide that the procedures of OCC may provide that a Clearing Member 

may not clear transactions in a particular type of product unless, in addition to satisfying any specific 

requirements applicable to such type of product set forth in the By-Laws and Rules, OCC has 

specifically approved the Clearing Member to clear such type of product.

Paragraphs (d) and (e) – Additional Standards

The proposed rule change would adopt as new Rules 201(d) and (e) a portion of the 

provisions currently set forth in existing Article V, Section 1, paragraph (a) and Interpretation and 

Policy .04 of the By-Laws with minor changes to reflect that the provisions apply to all Clearing 

Members (and not simply to applicants). The proposed rule change also would modify the 

provisions to specifically reference risk management capabilities and other standards as set forth in 

the Rules or such other qualifications and standards as OCC may promulgate.

Proposed Rule 201(d) would require each Clearing Member to meet such non-discriminatory 

standards of financial responsibility, operational capability, risk management capability, experience 

and competence as may from time to time be prescribed in the rules of OCC. Proposed paragraph 

(e) also would provide that in addition to the standards of financial responsibility, operational 

capability, risk management capability, and experience and competence, OCC will consider the 

19 Id.
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criteria of the Fitness Standards for Directors, Clearing Members and Others, as adopted or amended 

by the Board of Directors from time to time, before approving any application for clearing 

membership and other standards as set forth in the Rules or such other qualifications and standards 

as OCC may promulgate.

Proposed Rule 202 – Non-U.S. Entities and Foreign Financial Institution (“FFI”)

Clearing Members

The proposed rule change would relocate existing Article V, Section 1, paragraph (e) of the 

By-Laws and Rule 310(d) to new Rule 202 with certain modifications designed to accommodate the 

admission of Non-U.S. Clearing Members other than Canadian Clearing Members. New Rule 

202(a) and (b)(1) would amend existing Article V, Section 1, paragraph (e) of the By-Laws and Rule 

310(d)(1) to more generally require that an applicant that, if admitted, would meet the definition of 

an FFI Clearing Member, must not conduct transactions or activities with or through OCC unless 

such transaction and activities will not result in the imposition of taxes or withholding or reporting 

obligations with respect to amounts paid or received by OCC (other than U.S. federal and state 

income taxes imposed on the net income of OCC), and if such taxes or obligations would be 

imposed with respect to amounts paid or received by OCC but for the qualification of the applicant 

for a special U.S. or foreign tax status, such as a FATCA Compliant Qualified Intermediary 

Assuming Primary Withholding Responsibility, then the applicant’s initial and ongoing membership 

will be conditioned on the applicant or Member qualifying for, maintaining, and documenting such 

status to the satisfaction of OCC. Under appropriate circumstances, where the applicant’s regulatory 

and financial requirements are closely related to U.S. regulations, an applicant meeting the 

requirements of this section for the purposes of some products, such as stock loan or for give-up 

execution, but not others, or for transactions or activities in a specific capacity, such as an 

intermediary, may be admitted to conduct transactions or activities under limitations imposed by 

OCC. OCC also proposes to relocate existing Rules 310(d)(2) – (5) to new Rules 202(b)(2) – (5) 

with minor conforming changes. In addition, OCC would remove references to the defined terms 

Section 871(m) Effective Date and Section 871(m) Implementation Date as these Section 871(m) 

phase-in dates are no longer required in OCC’s Rules. 20

OCC also proposes to add new Rule 202(d) to require that OCC will only admit Clearing 

Members that are non-U.S. entities from foreign jurisdictions that have been approved by the Risk 

Committee.

21

 The proposed rule change would also adopt new paragraph (c) of Rule 202, which 

would require every Non-U.S. Clearing Member to provide all communications (oral or written), 

20 IRS Notice 2016-76 provides for staged implementation of Section 871(m). A copy of the Notice can be found 

here: (https://www.irs.gov/pub/irs-drop/n-16-76.pdf). The OCC issued Information Memo #40288 which 

announces the Section 871(m) Implementation Date as December 23, 2016. The information memo can be 

found on OCC’s website: (https://infomemo.theocc.com/infomemo/search-memo). 

21 Risk Committee review and approval would be based on the recommendation of OCC management after 

completing a non-U.S. jurisdiction review of regulatory, legal, and tax issues for each jurisdiction and product 

type. 
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financial reports and other information requested by OCC in English, and to state monetary amounts 

in U.S. dollar equivalents indicating the conversion rate and date used.

Proposed Rule 203 – Admission Procedures

The proposed rule change would consolidate in new Rule 203 the admission procedures and 

requirements currently set forth in existing Article V, Section 2 and Article V, Section 1, 

Interpretation and Policy .03, clause (e) of the By-Laws and modify such admission procedures and 

requirements. More specifically, similar to existing Article V, Section 2, paragraph (a), proposed 

Rule 203(a) would require Clearing Member applications to be in the form and contain such 

information as prescribed by OCC. Likewise, similar to existing Article V, Section 2, paragraph (a), 

proposed Rule 203(a) would authorize the Risk Committee or its designated delegates or agents to 

examine the books, records and workpapers of an applicant, take such evidence as they may deem 

necessary or employ such other means as they may deem desirable or appropriate to ascertain 

relevant facts bearing upon the applicant’s qualifications.

Proposed Rule 203(a) also would designate the Risk Committee with responsibility to 

approve or disapprove applications for clearing membership. As set forth in proposed Rule 203(a), 

the procedures for disapproving an application would be the same as described in existing Article V,

Section 2, paragraph (a). Specifically, if the Risk Committee proposes to disapprove an application, 

then OCC must adhere to the following procedures:

i. the Risk Committee must first furnish the applicant with a written statement of its 

proposed recommendation and the specific grounds for proposing to disapprove the 

application;

ii. the Risk Committee must give the applicant an opportunity to be heard and to present 

evidence on its own behalf;

iii. if the Risk Committee determines to disapprove the application, written notice of its 

decision, accompanied by a statement of the specific grounds for disapproval, must

be mailed or delivered to the applicant;

iv. the applicant must have the right to present evidence as it may deem relevant to its 

application; and

v. a verbatim record must be kept of any hearing held pursuant hereto.

However, in contrast with existing Article V, Section 2, paragraph (a), the proposed rule 

change would remove the automatic delegation of authority to the CEO and COO to approve 

Clearing Member applications. This change is intended to help streamline the application review 

process and permit the Risk Committee to maintain discretion on which person(s) to delegate 

authority for purposes of review. The proposed rule change also would remove the requirement in 

existing Article V, Section 2, paragraph (c) to inform the Board of Directors of all applications for 
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membership at its regularly scheduled meeting as all applications would now be approved by the 

Risk Committee as opposed to delegation to OCC management.

The proposed rule change also would adopt a new process for approving an applicant on an 

expedited basis under limited circumstances. Specifically, proposed Rule 203(b) would provide that 

the Risk Committee may approve an application on an expedited basis as appropriate for the 

protection of investors and the public interest. In connection with an expedited approval process, 

certain exceptions may be granted (i) for the applicant’s compliance with OCC’s membership 

standards for a reasonable period of time and/or (ii) from the general requirements set forth in 

OCC’s internal policies, procedures and due diligence processes in reviewing Clearing Member 

applicants. This expedited approval process is intended to grant OCC flexibility under various 

unforeseen circumstances. Furthermore, because of the infrequent nature of these types of scenarios, 

OCC cannot envision or describe all events in which expedited approval would be required. 

Nevertheless, the use of expedited approval would be limited to scenarios in which time is of the 

essence for the protection of OCC, other OCC Clearing Members, and the public. For example, 

expedited approval would be appropriate in a circumstance where a suitable non-Clearing Member 

candidate seeks to take on the entire business of an existing Clearing Member that is in distress. In 

this example, expedited approval would serve to protect OCC, other OCC Clearing Members, and 

the public against the ramifications from the likely default of the Clearing Member in distress. In 

the event there was a significant financial impact in one of these scenarios, the ability to provide 

expedited approval would make it less likely that OCC would have to employ the resources – OCC’s 

Minimum Contribution and other OCC liquid assets, the Clearing Fund, the EDCP Unvested 

Balance – that otherwise would have been used in the event the Clearing Member in distress 

defaulted. Additionally, the customers of the Clearing Member in distress would have certainty 

around the status and security of their accounts. 

In addition, the proposed rule change would modify the provisions applicable to Clearing 

Members seeking to engage in clearing activities beyond the scope of their current authorizations 

with OCC. In particular, under proposed Rule 203(c), a Clearing Member’s business expansion 

request may be reviewed and approved or disapproved by the CEO or the COO pursuant to OCC 

procedures. The Risk Committee must be notified at least ten business days in advance of any such 

approval/disapproval to determine whether the business expansion request should be reviewed by 

the Risk Committee.

Proposed Rule 204 – Conditions to Admission

The proposed rule change would consolidate in new Rule 204 the conditions to admission 

provisions currently set forth in existing Article V, Section 3 and various other portions of Article V 

of the By-Laws. Each paragraph of proposed Rule 204 is described below.

Paragraph (a) – General Statement

Proposed Rule 204(a) would clarify that the Risk Committee will not approve any 

application for clearing membership if the applicant fails to meet the membership requirements and 
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standards set forth in the Rules. This clarifying statement would replace many of the similar 

statements currently set forth in Article V of the By-Laws, including Section 1, Interpretations and 

Policies .01, .02, .03.

Paragraph (b) – Initial Contribution and Agreements

Proposed Rule 204(b) would adopt the provisions currently set forth in Article V, Section 3 

of the By-Laws with only minor clarifying changes. Specifically, proposed paragraph (b) would 

provide that, prior to admission as a Clearing Member, an applicant must deposit with OCC its 

initial contribution to the Clearing Fund in the amount required by the Risk Committee in 

accordance with Chapter X of the Rules. As compared to the provisions set forth in existing Article 

V, Section 3 of the By-Laws, proposed Rule 204(b) would clarify the Risk Committee’s role in 

requiring the initial contribution.

In addition, proposed Rule 204(b) would require the applicant to sign and deliver to OCC an 

agreement:

i. to clear through OCC, either directly or through another Clearing Member, all of its 

confirmed trades and all other transactions which the By-Laws or the Rules may 

require to be cleared through OCC;

ii. to abide by all provisions of the By-Laws and the Rules and by all policies and 

procedures adopted pursuant thereto;

iii. that the By-Laws and the Rules constitute a part of the terms and conditions of every 

confirmed trade or other contract or transaction which the applicant, while a Clearing 

Member, may make or have with OCC, or with other Clearing Members in respect of 

cleared contracts, or which may be cleared or required to be cleared through OCC;

iv. to grant OCC all liens, rights and remedies set forth in the By-Laws and the Rules;

v. to pay to OCC all fees and other compensation provided by or pursuant to the ByLaws and the Rules for clearance and for all other services rendered by OCC to the 

applicant while a Clearing Member;

vi. to pay such fines as may be imposed on it in accordance with the By-Laws and the 

Rules;

vii. to permit inspection of its books, records, and workpapers at all times by the 

representatives of OCC and to furnish OCC with all information in respect of the 

applicant’s business and transactions as OCC or its officers may require;

viii. to make such payments to or in respect of the Clearing Fund as may be required from 

time to time;
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ix. to comply, in the case of Canadian Investment Dealers and other Non-U.S. Securities 

Firms, with the guidelines and restrictions imposed on domestic broker-dealers 

regarding the extension of credit, as provided by Section 7 of the Exchange Act and 

Regulation T promulgated thereunder by the Board of Governors of the Federal 

Reserve System, with respect to any customer account that includes cleared contracts 

issued by OCC; and

x. to comply, in the case of Canadian Investment Dealers and other Non-U.S. Securities 

Firms, with the Rules of the Financial Industry Regulatory Authority (“FINRA”) 

governing maintenance margin and cut-off times for the submission of exercise 

notices by customers. 

As compared to the provisions set forth in existing Article V, Section 3 of the By-Laws, 

proposed Rule 204(b) would explicitly reference Canadian Investment Dealers in items ix and x 

above. In addition, OCC would eliminate the requirement in Article V, Section 3 of the By-Laws

that Non-U.S. Securities Firms consent to the jurisdiction of Illinois courts and to the application of 

United States law in connection with any dispute with OCC arising from membership because this 

requirement is already addressed in Article IX, Section 10 of the By-Laws.

Paragraph (c) – Statutory Disqualifications

Proposed paragraph (c) would adopt and modify the statutory disqualification membership 

requirements currently set forth in existing Article V, Section 1(a). Specifically, proposed paragraph 

(c) would provide that the Risk Committee may disapprove an application of any applicant or person 

of the applicant subject to a “Statutory Disqualification.” In turn, the proposed rule change would 

revise Rule 101 to define the term “Statutory Disqualification” as (i) in the case of a fully registered 

broker-dealer, a statutory disqualification as defined in Section 3 of the Exchange Act, (ii) in the 

case of a fully registered FCM, the applicant or Clearing Member or a principal thereof, as defined 

in CEA Section 8a(2), is subject to statutory disqualification under CEA Section 8a(2)-(4), or (iii) in 

the case of a Non-U.S. Securities Firm or bank, any similar provision of the laws or regulations 

applicable to such applicant or Clearing Member. In addition, similar to existing Article V, Section 

1, paragraph (a) of the By-Laws, proposed Rule 204(c)(1) would provide that in cases in which the 

SEC, by order, directs as appropriate in the public interest, OCC will disapprove an application for 

clearing membership by any applicant or person of the applicant subject to a statutory 

disqualification. Separately, proposed subparagraph (c)(2) would obligate every applicant to notify 

OCC in writing if the applicant is or becomes subject to a statutory disqualification in accordance 

with the requirements of new Rule 306A(c).22

Paragraph (d) – Just and Equitable Principles of Trade

Proposed paragraph (d) would adopt with no substantive changes the provisions currently set 

forth in existing Article V, Section 1, Interpretation and Policy .03, clause (b). Specifically, 

22 See infra discussion on proposed Rule 306A.
Christopher J. Kirkpatrick

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proposed paragraph (d) would permit the Risk Committee to disapprove an application if the 

applicant or any natural person associated with the applicant has engaged and there is a reasonable 

likelihood he will again engage in acts or practices inconsistent with just and equitable principles of 

trade.

Paragraph (e) – Satisfaction of Conditions

Proposed Rule 204(e) would provide that an applicant that has been approved for clearing 

membership subject to satisfaction of specified conditions must meet all conditions applicable to its 

admission within nine months from the date on which its application was approved, unless the Risk 

Committee prescribed an earlier date at the time the applicant was approved for clearing 

membership. As compared to Article V, Section 3, Interpretation and Policy .01, this proposed 

paragraph (e) would increase the maximum number of months from six months to nine months. The 

proposed rule change also would eliminate the authority to extend the deadline to no later than one 

year from the date on which the application originally was approved. These changes are intended to 

standardize and streamline the application process.

Paragraph (f) – Information from other Regulators

Proposed paragraph (f) would permit the Risk Committee to take into consideration 

information provided by an applicant’s Designated Examining Authority, designated self-regulatory 

organization (in the case of an applicant primarily regulated as an FCM), and other self-regulatory

organizations to which an applicant is a member or has applied for membership when considering an 

applicant’s compliance with OCC’s membership requirements and standards and overall fitness to 

be a Clearing Member. As compared with existing Article V, Section 1, Interpretation and Policy 

.02, clause (c) of the By-Laws, proposed paragraph (f) would clarify that the Risk Committee may 

take such information into consideration irrespective of whether the Designated Examining 

Authority, designated self-regulatory organization or other self-regulatory organization objects to the 

application. Proposed paragraph (f) also would clarify that the Risk Committee may take into 

consideration information from a self-regulatory organization that is not the applicant’s Designated 

Examining Authority or designated self-regulatory organization, as the case may be.

Paragraph (g) – Additional Temporary Requirements

Proposed paragraph (g) would provide that if the Risk Committee determines an applicant’s 

financial condition, operational capability, risk management capability, or experience and 

competence in relation to the business that the applicant is expected to transact with OCC, makes it 

necessary or advisable, for the protection of OCC, Clearing Members, or the general public, the Risk 

Committee may impose additional, temporary requirements for membership including, but not 

limited to, the imposition of protective measures pursuant to Rule 307.

23 Proposed paragraph (g) 

also would clarify that additional membership criteria may be imposed until the heightened risk 

presented by the Clearing Member is sufficiently reduced. In contrast with existing Article V, 

23 See infra description of proposed Rule 307.
Christopher J. Kirkpatrick

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Section 1, Interpretation and Policy .06, proposed paragraph (g) and proposed Rule 30724 would set 

forth OCC’s rights to impose protective measures under a uniform standard applicable to both 

applicants and existing Clearing Members.

Proposed Rule 205 – Evidence of Authority

The proposed rule change would move the provisions set forth in existing Rule 202 to new 

Rule 205 and modify the language to clarify that OCC may rely on an electronic (or similar means) 

signature rather than relying on an original signature. Such a signature will have the same effect as a 

valid and binding original signature. This change is intended to better reflect evolving technology 

and the means by which signatures generally may be accepted.

Proposed Rule 206 – Bank Accounts

The proposed rule change would move the provisions set forth in existing Rule 203 to new 

Rule 206 with no substantive changes.

Proposed Rule 207 – Submission to and Retrieval of Items to the Corporation

The proposed rule change would combine and modify the provisions currently set forth in 

existing Rules 205 and 206 and move such provisions to new Rule 207. Specifically, the provisions 

in existing paragraphs (a) and (b) of Rules 205 and 206 would be combined and modified in 

proposed Rule 207(a), which would require Clearing Members to submit and retrieve instructions, 

notices, reports, data, and other items to or from OCC in accordance with procedures prescribed or 

approved by OCC. As compared to existing Rules 205(a)-(b) and 206(a)-(b), proposed Rule 207(a) 

would apply uniformly to items submitted or retrieved via electronic and non-electronic means. In 

addition, proposed paragraph (a) would clarify that items submitted to or retrieved by OCC by 

electronic data entry will be deemed to constitute “writings” for purposes of any applicable law. 

Similar to the changes to the provisions in proposed Rule 205, the changes in this proposed Rule 

207(a) are intended to better reflect evolving technology.

Similarly, existing paragraphs (c) and (d) of Rule 205 would be combined and modified in 

proposed Rule 207(b), which would require timely submissions to OCC and permit OCC to 

disregard any untimely submission or correction. In addition, proposed paragraph (b) would provide 

that if unusual or unforeseen conditions prevent a Clearing Member from making a timely 

submission to OCC, then OCC may in its discretion (i) require the Clearing Member to submit the 

item by other means, and/or (ii) extend the applicable cut-off time by such period as OCC deems 

reasonable, practicable, and equitable under the circumstances. As compared to existing Rule 

205(d), proposed Rule 207(b) would further clarify that it applies to any unusual or unforeseen 

conditions that, in fact, prevent a Clearing Member from making a timely submission via electronic 

or non-electronic means. Proposed paragraph (b) also would clarify that cut-off times for 

24 Id.
Christopher J. Kirkpatrick

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Page 15

submission of exercise notices at expiration are governed by Rule 805, and by Article VI, Section 18 

of the By-Laws.

Finally, existing Rule 206(c) would be modified and moved to proposed Rule 207(c), which 

would provide that if unusual or unforeseen conditions (including but not limited to power failures 

or equipment malfunctions) prevent OCC from making any timely submission or other notification 

to a Clearing Member, then OCC may in its discretion (i) make such item available to such Clearing 

Member by other means, and/or (ii) extend the applicable time frame by such period as OCC deems 

reasonable, practicable, and equitable under the circumstances. As compared to existing Rule 

206(c), proposed Rule 207(c) would apply to submissions or other notifications via electronic or 

non-electronic means.

Proposed Rule 208 – Records

The proposed rule change would move the provisions set forth in existing Rule 207 to new 

Rule 208 and streamline such provisions to clarify that the Clearing Member records retention 

requirements apply to all confirmed trade data required pursuant to the By-Laws and Rules, 

including confirmed trade information reported to OCC under Rule 401. The remaining provisions 

currently set forth in existing Rule 207 would remain unchanged (aside from relocating to new Rule 

208).

Proposed Rule 209 – Security Measures

The proposed rule change would move the provisions set forth in existing Rule 212 to new 

Rule 209 with modifications to remove references to authorization stamps, including the deletion of 

existing paragraph (b) and the removal of authorization stamp references in existing paragraph (c) as 

they are no longer used by OCC. The remaining provisions presently set forth in existing Rule 212 

would remain unchanged (aside from relocating to new Rule 209).

Proposed Rule 210 – Payment of Fees and Charges

The proposed rule change would move the provisions set forth in existing Rule 209 to new 

Rule 210 with modifications to clarify that any fine levied by OCC for a minor rule violation that 

has not been timely contested, as described in new Rule 1203(a), or fine levied pursuant to Chapter 

XII of the Rules will be due and payable immediately upon notice as opposed to within five business 

days following the end of each calendar month. The remaining provisions currently set forth in 

existing Rule 209 would remain unchanged (aside from relocating to new Rule 210).

Proposed Rule 211 – Reports and Notices by the Corporation

The proposed rule change would combine and modify the provisions currently set forth in 

existing Rules 208, 211 and 213 and move such provisions to new Rule 211. Specifically, the 

provisions set forth in existing Rule 208 would be moved to proposed Rule 211(a) without any 

changes.
Christopher J. Kirkpatrick

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Page 16

The provisions set forth in existing Rule 211 (including the Interpretation and Policy) would 

be moved to proposed Rule 211(b) and modified to clarify that OCC will provide all Clearing 

Members and other registered clearing agencies with the text or a description of any proposed rule 

change filed with the SEC or the CFTC and a statement of its purpose and effect on Clearing 

Members by posting proposed rule changes on its website. As compared to existing Rule 211 

(including the Interpretation and Policy), proposed Rule 211(b) would eliminate the requirement to 

post the proposed rule change prior to filing the proposed rule change with the SEC or the CFTC, or 

as soon as possible thereafter.

Finally, the provisions in existing Rule 213 would be moved to proposed Rule 211(c) and 

modified to clarify that OCC will make available (rather than furnish) to each Clearing Member the 

audited financial statements and independent public accountant’s report described in proposed 

paragraph (c). The remaining provisions currently set forth in existing Rules 211 and 213 would 

remain unchanged (aside from relocating to new Rule 211(b) and (c)).

Proposed Rule 212 – Voluntary Termination of Membership

The proposed rule change would adopt new Rule 212 to address circumstances in which a 

Clearing Member may elect to voluntarily terminate its membership. Proposed paragraph (a) would 

provide that a Clearing Member may elect to voluntarily terminate its membership by providing 

written notice to OCC (“Voluntary Termination Notice”) that specifies a desired date for its 

withdrawal from membership (“Termination Date”). The terminating Clearing Member must close 

out or transfer all open positions with OCC by the Termination Date. Pursuant to proposed 

paragraph (c), if the Clearing Member does not close out or transfer all open positions by the 

specified Termination Date, the terminating Clearing Member must notify OCC of a new 

Termination Date, unless otherwise agreed upon by OCC.

With respect to the treatment of Clearing Fund deposits, proposed paragraph (b) would 

provide that OCC will retain the terminating Clearing Member’s Clearing Fund contribution at least 

until final billing is complete during the calendar month immediately following the Termination 

Date. During this time, OCC may debit from the terminating Clearing Member’s Clearing Fund 

contribution any outstanding payment obligations owed and not paid to OCC.

Proposed paragraph (b) also would clarify that a terminating Clearing Member’s Clearing 

Fund contribution may be subject to a proportionate charge or use for purposes of a borrowing 

pursuant to Rule 1006 until the next monthly or intra-month sizing of the Clearing Fund. In such 

instance, OCC may retain the Clearing Member’s Clearing Fund contribution until such time as it is 

no longer needed to satisfy its purpose and use under Rule 1006. However, a terminating Clearing 

Member will not be subject to replenishment or assessments under Rule 1006(h).

Finally, proposed paragraph (d) would clarify that any Voluntary Termination Notice 

provided during a cooling-off period implemented pursuant to Rule 1006(h) would be subject to the 

requirements of Rule 1006(h). Separately, the proposed rule change would revise Rule 1006(h) to 
Christopher J. Kirkpatrick

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Page 17

specifically refer to “Voluntary Termination Notice” and make other administrative clean up 

changes. 

Proposed Rule 301 – Financial Responsibility

OCC’s capital standards applicable to Clearing Members currently are set forth in existing 

Chapter III of the Rules. More specifically, existing Rule 301 sets forth the initial capital 

requirements that must be met by applicants for clearing membership, whereas existing Rule 302 

sets forth the ongoing capital requirements that must be met by each Clearing Member.

The proposed rule change would replace existing Rules 301 and 302 with new Rule 301 and 

eliminate the distinction between initial and ongoing capital requirements. The proposed rule 

change also would modify the capital requirements for existing types of Clearing Members and 

introduce capital requirements for the new types of Clearing Members. Below is a description of 

each of the paragraphs in proposed Rule 301.

Paragraph (a) – General

Paragraph (a) of proposed Rule 301 would adopt a new general statement that clarifies that 

each Clearing Member, including an applicant for clearing membership, is required to meet the 

financial resource and responsibility requirements set forth in these Rules and such other 

qualifications and standards as OCC may promulgate. In addition, proposed paragraph (a) would 

provide that dollar amounts in Rule 301 refer to U.S. dollars.

Paragraph (b) – Minimum Capital

Proposed paragraph (b) would require Clearing Members to maintain the applicable 

minimum capital requirements set forth in subparagraphs (b)(1) through (b)(5). Proposed paragraph 

(b) also would incorporate the language currently set forth in existing Rule 302(a) that prohibits a 

Clearing Member with capital below its respective minimum capital requirement to clear an opening 

purchase transaction or opening sale transaction or enter into a Stock Loan. To provide time for 

existing Clearing Members to meet the proposed changes, OCC will provide a six-month grace 

period upon approval by the SEC of the proposal. 

Below is a description of the minimum capital requirements that would be applicable to each 

type of Clearing Member. The proposed minimum capital requirements are intended to balance fair 

and open access to OCC with prudent financial qualifications for members and enhance the overall 

strength and resiliency of OCC and its ability to mitigate risk as a systemically important financial 

market utility. 

Fully Registered Broker-Dealers. Existing Rule 301 sets forth initial requirements for fully 

registered broker-dealers to maintain minimum net capital equal to or greater than (i) $2.5 million, 

(ii) in the case of a broker-dealer not electing to operate pursuant to the alternative net capital 

requirements, 12 1/2 percent of its aggregate indebtedness, or (iii) in the case of a broker-dealer 
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Page 18

electing to operate pursuant to the alternative net capital requirements, 5 percent of its aggregate 

debit items. Existing Rule 301 also sets forth an initial requirement that the aggregate principal 

amount of a Clearing Member’s satisfactory subordination agreements (excluding those treated as 

equity capital) cannot initially exceed 70% of its debt equity total. The initial requirements apply 

until the later of (1) three months after the firm’s admission to as a clearing member, or (2) twelve 

months after the firm commenced doing business as a broker-dealer. Separately, existing Rule 302 

sets forth ongoing requirements for fully registered broker-dealers to maintain minimum net capital 

equal to or greater than (i) $2 million, (ii) in the case of a broker-dealer not electing to operate 

pursuant to the alternative net capital requirements, 6 2/3 percent of its aggregate indebtedness, or 

(iii) in the case of a broker-dealer electing to operate pursuant to the alternative net capital 

requirements, 2 percent of its aggregate debit items. 

Under proposed Rule 301(b)(1), there would be no differentiation between initial and 

ongoing standards. The single standard, applicable on both an initial and ongoing basis, would 

provide that every Clearing Member that is a fully registered broker-dealer must maintain minimum 

net capital at least equal to the greater of (i) $10 million, (ii) in the case of a broker-dealer not 

electing to operate pursuant to the alternative net capital requirements, 6 2/3 percent of its aggregate 

indebtedness (i.e., aggregate indebtedness cannot exceed 1500% of net capital), or (iii) in the case of 

a broker-dealer electing to operate pursuant to the alternative net capital requirements, 2 percent of 

its aggregate debit items. OCC determined that the proposed minimum net capital requirement of 

$10 million was an appropriate amount based on OCC’s clearance and risk management of nonlinear products where volatility strongly influences margin and settlement obligation of Clearing 

Members. OCC selected an amount that provided greater security to ensure that Clearing Members 

have sufficient capital to meet margin, liquidity, and clearing fund obligations, but that also avoided 

creating an overly burdensome requirement on the vast majority of the existing OCC Clearing 

Member population. 

Fully Registered FCMs. Existing Rule 301 sets forth initial requirements for fully registered 

FCMs to maintain minimum net capital at least equal to the greater of (i) $2.5 million, or (ii) any 

additional minimum financial requirements as are established by CFTC regulations. The initial 

standards apply until the later of (1) three months after the firm’s admission as a clearing member, or 

(2) twelve months after the firm commenced doing business as an FCM. Separately, existing Rule 

302 sets forth ongoing requirements for fully registered FCMs to maintain minimum net capital at 

least equal to the greater of (i) $2 million, or (ii) any additional minimum financial requirements as 

are established under the CEA.

Under proposed Rule 301(b)(2), there would be no differentiation between initial and 

ongoing standards. The single standard, applicable on both an initial and ongoing basis, would 

provide that every Clearing Member that is a fully registered FCM must maintain minimum net 

capital equal to the greater of (i) $10 million or (ii) any other minimum financial requirements 

established by regulation of the CFTC.

Canadian Investment Dealers. Existing Rule 301 sets forth initial requirements for Canadian 

Clearing Members to maintain an early warning reserve at least equal to (i) $2.5 million or (ii) such 
Christopher J. Kirkpatrick

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Page 19

other amount determined by OCC. This initial standard applies until the later of (1) three months 

after the firm’s admission as a clearing member, or (2) twelve months after the firm commenced 

doing business as a broker or dealer, as applicable. Separately, existing Rule 302 sets forth ongoing 

requirements for Canadian Clearing Members to maintain an early warning reserve at least equal to

the greater of (i) $2 million or (ii) 2% of the Clearing Member’s total margin required.

Under proposed Rule 301(b)(3)(i), there would be no differentiation between initial and 

ongoing standards. The single standard, applicable on both an initial and ongoing basis, would 

provide that every Clearing Member that is a Canadian Investment Dealer must maintain risk 

adjusted capital equal to the greater of (i) $10 million or (ii) 2% of total margin required.

Other Non-U.S. Securities Firms. Existing Rules 301 and 302 provide that each exempt 

Non-U.S. Clearing Member must comply with initial and ongoing requirements for the ratio of net 

capital to aggregate indebtedness as OCC may specify.

Proposed Rule 301(b)(3)(ii) would set forth a single standard, applicable on both an initial 

and ongoing basis, that requires every Non-U.S. Securities Firm that is not a Canadian Investment 

Dealer to maintain capital substantially similar to (adjusted) net capital required for fully-registered 

broker-dealers or fully-registered futures commission merchants equal to the greater of (i) $10 

million or (ii) the amount required by the firm’s applicable regulatory minimum requirements, 

including any and all required buffers, established by the regulatory authority of that country’s 

government or an agency or instrumentality thereof. Further, proposed Rule 301(b)(3)(ii) would 

provide that if the Risk Committee prohibits the use of the non-U.S. jurisdiction’s regulatory 

minimum requirements or chooses to supplement a non-U.S. jurisdiction’s regulatory minimum 

requirements, then the Non-U.S. Securities Firm must maintain total equity greater than $25 million.

OCC initially intends to limit the admission of Non-U.S. Clearing Members to entities 

located in three Group of 7 jurisdictions – the United Kingdom, France, and Germany – because of 

the robust regulatory frameworks in each of those jurisdictions. However, in the future OCC may 

reevaluate whether it should consider admitting Non-U.S. Clearing Members from other 

jurisdictions, provided that if, after conducting a review of any such jurisdiction, OCC determines 

the jurisdiction supports a rigorous regulatory framework similar to the three countries mentioned 

above and satisfies any other risk related jurisdiction reviews undertaken during the member 

application process.

Banks. Existing OCC rules do not have minimum capital requirements for Clearing 

Members that are banks. Pursuant to the proposed rule change, new Rule 301(b)(4) would require 

each Clearing Member that is a U.S. bank (i) to maintain Tier 1 Capital of at least $500 million, (ii) 

to maintain a Tier 1 Capital Ratio greater than 6%, and (iii) be “adequately-capitalized” as measured 

by prompt corrective action (“PCA”) capital category ratios for National Banks and Federal Savings 

Associations. In addition, every U.S. branch of a non-U.S. bank that is a Clearing Member must be 

a branch of a non-U.S. bank that maintains (1) Tier 1 Capital of at least $500 million (or its 

equivalent in the relevant home country currency), (ii) a Tier 1 Capital Ratio greater than 6%, and 
Christopher J. Kirkpatrick

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Page 20

(iii) that remains at least adequately capitalized as calculated or defined pursuant to the regulatory 

capital rules of the applicable banking regulatory authority of its home country.

Paragraph (c) – Dually Registered Clearing Members

Proposed paragraph (c) would clarify that if a Clearing Member is registered as a brokerdealer under Section 15(b)(1) of the Exchange Act and also as an FCM under CEA Section 4f(a)(1), 

the Clearing Member must comply with all applicable capital requirements.

Paragraph (d) – Extreme but Plausible Events and Contingency Planning

Existing Article V, Section 1, Interpretation and Policy .01 requires an applicant (i) to meet 

the initial financial requirements set forth in the Rules, (ii) to not have sustained certain pre-tax 

losses, (iii) to not be listed in a special surveillance list with the Securities Investor Protection 

Corporation (or not be subject to similar special financial surveillance procedures in accordance with 

the CEA), and (iv) to have access to sufficient financial resources to meet obligations arising from 

clearing membership in extreme but plausible market conditions, as determined by OCC. Existing 

Rule 301(d) also requires every Clearing Member to have access to sufficient financial resources to 

meet obligations arising from clearing membership in extreme but plausible market conditions and 

maintain adequate procedures, including but not limited to contingency funding, to ensure that it is 

able to meet its obligations arising in connection with clearing membership when such obligations 

arise.

Proposed Rule 301(d) would replace existing Article V, Section 1, Interpretation and Policy 

.01 and Rule 301(d) and set forth a single standard, applicable on both an initial and ongoing basis, 

that requires every Clearing Member to have access to sufficient financial resources to meet 

obligations arising from clearing membership in extreme but plausible market conditions, as 

determined by OCC for such purposes, and maintain adequate procedures, including but not limited 

to contingency funding, to ensure that it is able to meet its obligations arising in connection with 

clearing membership when such obligations arise. Proposed Rule 301(d) would also be revised to 

clarify that contingency planning includes maintaining alternate settlement bank arrangements. 

Interpretations and Policies

Existing Rule 307 sets forth definitions for the terms “net capital,” “aggregate indebtedness,” 

“aggregate debit items,” “Examining Authority” and “customer.” Proposed Rule 301, Interpretation 

and Policy .01 would adopt these definitions. Existing Rule 307 also sets forth definitions for the 

terms “debt-equity total,” “satisfactory subordination agreement,” and “alternative net capital.” 

Proposed Rule 306A, Interpretation and Policy .01, would adopt the definitions of “debt-equity 

total” and “satisfactory subordination agreement.” The term “alternative net capital” is not 

referenced in any OCC Rules and therefore, the definition of “alternative net capital” is being 

removed from OCC Rules due to the lack of any reference to this term.
Christopher J. Kirkpatrick

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Page 21

Separately, proposed Rule 301, Interpretation and Policy .02 would adopt the provisions 

presently set forth in existing Rule 307, Interpretation and Policy .01 but strike the reference to 

Clearing Members that were Clearing Members on June 13, 2005 as no longer relevant.

Proposed Rule 302 – Operational Capability

Clearing Members currently are subject to operational capability, experience, and 

competence standards set forth in various provisions in the By-Laws and the Rules, including Article 

V, Section 1, Interpretations and Policies .02, .07 and .07A of the By-Laws and Rule 201. The 

proposed rule change would consolidate these provisions in new Rule 302 and modify the provisions 

as described below.

Paragraph (a) – General

Paragraph (a) of proposed Rule 302 would adopt a new general statement that clarifies that 

each Clearing Member, including applicants for clearing membership, is required to meet the 

operational capability, experience, and competence standards set forth in the Rules and such other 

qualifications and standards as OCC may promulgate.

Paragraph (b) – Offices

Proposed paragraph (b) would incorporate the language currently set forth in existing Rule 

201(a) to require each Clearing Member to maintain facilities for conducting business with OCC. 

Proposed paragraph (b) also would modify the language currently set forth in existing Rule 201(a) to 

eliminate the requirement that the representative must be at the Clearing Member’s facilities and to 

reference regular and overnight business hours. Taken together, proposed paragraph (b) would 

require each Clearing Member to make available during hours specified by OCC, a representative of 

the Clearing Member authorized in the name of the Clearing Member to take all action necessary for 

conducting business with OCC during regular and overnight business hours. As revised, this 

provision is intended to reflect the realities and needs of Clearing Members and OCC by permitting 

the representative to work remotely during regular and overnight business hours.

Paragraph (c) – Books and Records

Proposed paragraph (c) would amend the language currently set forth in existing Article V, 

Section 1, Interpretation and Policy .02, clause (a) and simplify and standardize (to the extent 

possible) the recordkeeping requirements applicable to each type of Clearing Member. Under 

proposed paragraph (c), each Clearing Member would be required to maintain books and records in 

accordance with the requirements of its applicable regulatory agency, including but not limited to 

any applicable requirements under the Exchange Act, the CEA, or the requirements of any non-U.S. 

regulatory agency, and with such additional requirements as OCC may impose. Taken together, this 

proposed paragraph (c) is intended to prevent unnecessary regulatory burdens by permitting each 

Clearing Member to maintain applicable records in accordance with its existing regulatory 

requirements, as applicable. 
Christopher J. Kirkpatrick

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Page 22

Paragraph (d) – Ability to Discharge Responsibilities

Proposed paragraph (d) would adopt the language currently set forth in existing Article V,

Section 1, Interpretation and Policy .02, clause (b) with minor changes to clarify that the provision 

applies to the facilities, systems and procedures of each Clearing Member. Proposed paragraph (d) 

also would clarify that each Clearing Member must be able to participate in applicable operational 

and default management activities.

Specifically, under proposed paragraph (d), each Clearing Member would be required to

maintain facilities, systems and procedures that are operationally sufficient to discharge its functions 

as a Clearing Member in a timely and efficient manner, including (i) the ability to process expected 

volumes and values of transactions cleared by the Clearing Member within required time frames, 

including at peak times and on peak days; (ii) the ability to fulfill collateral, payment, and delivery 

obligations as required by OCC; and (iii) the ability to participate in applicable operational and 

default management activities, including auctions, as may be required by OCC and in accordance 

with applicable laws and regulations.

Paragraph (e) – Physically-Settled Equity Options and Stock Futures

OCC Rule 901(a) requires that every Stock Clearing Member and every Clearing Member 

that effects transactions in physically-settled stock futures be a participant in good standing of the 

correspondent clearing corporation,25 however this does not apply to (i) an Appointing Clearing 

Member that has an effective agreement with an Appointed Clearing Member, or (ii) a Canadian 

Clearing Member on behalf of which CDS maintains an identifiable subaccount in a CDS account at 

the correspondent clearing corporation. OCC proposes to relocate Rule 901(a) to proposed 

paragraph (e) with minor modifications. OCC would also make conforming updates throughout the 

Rules to update cross-references to various provisions of revised Rule 901.

Paragraph (f) – Stock Loan Programs

Proposed paragraph (f) would adopt the language currently set forth in existing Article V, 

Section 1, Interpretations and Policies .07 and .07A and modify the language to refer to Clearing 

Members “participating in the Stock Loan/Hedge Program” or “participating in the Market Loan 

Program,” as the case may be, rather than referring to “Hedge Clearing Members” and “Market 

Loan Clearing Members.” Proposed paragraph (e) also would clarify that each Clearing Member 

participating in OCC’s Stock Loan programs must meet the additional operational requirements set 

forth in subparagraph (e)(1) and/or (e)(2), as applicable. The proposed change would also clarify 

that participants in the Market Loan Program must be either a U.S. Clearing Member or be located 

in any other foreign country or jurisdiction approved by the Risk Committee. The proposed change 

25 Article I, Section I.C(33) of the OCC By-Laws defines “correspondent clearing corporation” to mean the 

National Securities Clearing Corporation or any successor thereto which, by agreement with the Corporation, 

provides facilities for settlements in respect of exercised option contracts or BOUNDs or in respect of delivery 

obligations arising from physically-settled stock futures.
Christopher J. Kirkpatrick

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Page 23

would allow OCC to approve Non-U.S. Clearing Members for the Market Loan Program provided 

that the Risk Committee has completed a comprehensive review of regulatory, legal, and tax issues 

for the relevant non-U.S. jurisdiction.

26

Proposed Rule 303 – Financial, Operations, and Risk Management Personnel

OCC’s financial, operations and risk management personnel requirements currently are set 

forth in various provisions of the By-Laws and the Rules, including existing Article V, Section 1, 

Interpretations and Policies .03 and .05 of the By-Laws and Rule 214. The proposed rule change 

would consolidate and modify these requirements in new Rule 303. Below is a description of each 

of the paragraphs in proposed Rule 303.

Paragraph (a) – Substantial Experience

Proposed paragraph (a) would adopt certain of the provisions currently set forth in existing 

Article V, Section 1, Interpretations and Policies .03 and .05 of the By-Laws and modify the 

provisions to reference both applicants and Clearing Members. In addition, proposed paragraph (a) 

would contemplate “third-party service providers” more generally and eliminate references to 

facilities management agreements and Managing/Managed Clearing Members.

More specifically, proposed paragraph (a) would provide that every applicant and Clearing 

Member must employ personnel or maintain contractual arrangements with third-party service 

providers acceptable to OCC with substantial experience in clearing the kind(s) of cleared contracts 

applicable to the applicant or Clearing Member. Proposed paragraph (a) also would require every 

Clearing Member to maintain supervisory authority over all internal staff conducting business with 

the Corporation and over the activities and functions performed by third-party vendors. 

The elimination of references to facilities management agreements and Managing/Managed 

Clearing Members is intended to provide greater flexibility on the provision of third-party services. 

However, notwithstanding this greater flexibility, Clearing Members are required to maintain 

supervisory authority over any third-party arrangements. In addition, such arrangements would be 

subject to the additional requirements set forth in proposed paragraph (d) of Rule 303.

Paragraph (b) – FinOps, CFOs and Similar Personnel

Proposed paragraph (b) would adopt certain of the provisions currently set forth in existing 

Article V, Section 1, Interpretation and Policy .03 and further specify the roles required for each 

type of Clearing Member. More specifically, proposed paragraph (b) would require each Clearing 

Member to employ personnel who are responsible for such Clearing Member’s compliance with 

applicable net capital, recordkeeping, and other financial, operational, and risk management rules or 

26 See supra note 20.
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maintain contractual arrangements with third-party service providers to perform such activities or 

functions. The employed personnel are:

• in the case of a fully registered broker-dealer, an individual registered with FINRA as 

a “Limited Principal - Financial and Operations”;

• in the case of a fully registered FCM or other registrant registered under CEA Section 

4f that is not a fully registered broker-dealer, an individual serving as chief financial 

officer (“CFO”) or otherwise has the appropriate qualifications and is responsible for 

supervising the preparation of the applicant’s financial reports; and

• in the case of a bank, Canadian Investment Dealer or other Non-U.S. Securities Firm, 

an individual serving as CFO or otherwise has the appropriate qualifications and is 

responsible for supervising the preparation of the applicant’s financial reports.

Relatedly, the proposed rule change would remove the more prescriptive requirements 

currently set forth in Article V, Section 1, Interpretation and Policy .03, clause (d) relating to 

associated persons and/or key operations personnel serving as full-time employees. These 

amendments are intended to provide greater flexibility and reduce administrative burdens for OCC 

and its Clearing Members.27

Paragraph (c) – Clearing Operations Personnel

Proposed paragraph (c) would adopt certain of the provisions currently set forth in existing 

Rule 214(c) and (d) and modify the provisions to refer to both clearing operations personnel and 

adequate contractual arrangements with third-party service providers. Proposed paragraph (c) also 

would clarify that a Clearing Member must be able to discharge its functions in a timely and 

efficient manner. More specifically, proposed paragraph (c) would require each Clearing Member to 

ensure that it employs an appropriate number of clearing operations personnel or maintains adequate 

contractual arrangements with third-party service providers with the requisite capability, experience, 

and competency such that the Clearing Member can reasonably ensure that it is able to discharge its 

functions as a Clearing Member in a timely and efficient manner, including the ability to process 

expected volumes and values of transactions cleared by the Clearing Member within required time 

frames, including at peak times and on peak days; the ability to fulfill collateral, payment, and 

delivery obligations as required by OCC, and the ability to participate in applicable operational and 

default management activities, including auctions, as may be required by OCC and in accordance 

with applicable laws and regulations. Proposed paragraph (c) also would require that each Clearing 

Member must submit to the OCC a list of the clearing operations personnel it employs in such form 

as is acceptable to OCC, including, without limitation, the names, titles, primary offices, email 

addresses, and business phone numbers for all such personnel.

27 For example, the proposed change would eliminate the need for certain staffing exemptions/waivers currently 

contemplated by Article V, Section 1, Interpretation and Policy .03. 
Christopher J. Kirkpatrick

April 27, 2023

Page 25

Paragraph (d) – Contractual Arrangements with Third-Party Personnel

Proposed paragraph (d) would adopt certain of the provisions currently set forth in existing 

Article V, Section 1, Interpretation and Policy .05 and further provide for “third-party service 

providers” more generally, beyond the facilities management arrangements as currently described in 

OCC’s By-Laws and Rules, and require related arrangements to permit due diligence by OCC. 

Proposed paragraph (d) also would clarify that it applies to contractual arrangements with third-party 

service providers used to satisfy the requirements of Rule 302 and this Rule 303. Under proposed 

paragraph (d), any such arrangement must (1) clearly set forth the specific services to be performed 

by the third-party service providers on behalf of a Clearing Member and the respective duties and 

obligations of the third-party service provider and Clearing Member, (2) provide that the agreement 

will not be terminated until 30 days after written notice of such termination is provided by the 

Clearing Member to OCC and (3) provide OCC with the authority and ability to perform initial and 

ongoing due diligence on the service provider.

Paragraph (e) – Replacing Relevant Personnel and Other Arrangements

Proposed paragraph (e) would adopt certain of the provisions currently set forth in existing 

Rule 214, Interpretation and Policy .02 and clarify that it applies to the separation or termination of 

personnel and third-party service providers. In particular, proposed paragraph (e) would provide 

that upon a separation or termination of agreement with a third-party service provider between the 

only personnel or third-party service provider who meets the requirements of Rule 303(b) and the 

Clearing Member, then the Clearing Member is granted a grace period of three months to return to 

compliance with the Rule.

Proposed Rule 304 – Operational and Default Management Testing

Existing Rule 218 sets forth various requirements relating to business continuity and disaster 

recovery testing and default management testing. The proposed rule change would move the 

provisions in existing Rule 218 to new Rule 304 with only minor changes. Specifically, proposed 

Rule 304(a) would contain a new introductory sentence that clarifies that OCC will periodically 

designate Clearing Members required to participate in business continuity and disaster recovery 

testing. The remaining provisions contained in proposed Rule 304(a) would be substantively 

identical to the provisions contained in existing Rule 218(a) and (b). Similarly, the provisions 

contained in proposed Rule 304(b) would be substantively identical to the provisions currently set 

forth in existing Rule 218(c).

Proposed Rule 304(c) would set forth a new paragraph that provides that OCC may require 

Clearing Members to participate in other operational and connectivity testing and related reporting 

requirements (such as reporting the test results to OCC in a manner specified by OCC) that OCC

deems necessary to ensure the continuing operational capability of the Clearing Members and the 

continuing ability of OCC to perform its clearing, settlement, and risk management activities.
Christopher J. Kirkpatrick

April 27, 2023

Page 26

Proposed Rule 305 – Clearing Member Risk Management

Existing Rule 311 sets forth requirements pertaining to the risk management program 

obligations of Clearing Members. The proposed rule change would move the provisions in existing 

Rule 311 to new Rule 305 and modify the provisions consistent with CFTC Rule 39.13(h)(5)(ii).

28

 

More specifically, similar to existing Rule 311(a), proposed Rule 305(a) would require each 

Clearing Member to maintain current written risk management policies and procedures that address 

the risks the Clearing Member may pose to OCC. In addition, proposed Rule 305(a) would contain 

an additional provision that is not contained in existing Rule 311(a), which clarifies that OCC may 

review the risk management policies, procedures, and practices of each Clearing Member on a 

periodic basis and may take appropriate action to address concerns identified in such reviews, 

including but not limited to the imposition of protective measures pursuant to Rule 307. This 

additional provision would be added to better address the requirements applicable to registered 

derivatives clearing organizations under CFTC Rule 39.13(h)(5)(ii).

Proposed Rule 305(b) would require each Clearing Member to provide to OCC such 

information and documentation as may be requested by OCC from time to time regarding such 

Clearing Member’s risk management policies, procedures, and practices. As compared to existing 

Rule 311(b), the language in proposed Rule 305(b) would be streamlined to not include any 

examples of such information and documentation addressed by this paragraph.

Proposed Rule 305(c) would be identical to the provisions set forth in existing Rule 311(c).

Proposed Rule 306 – Notification and Reporting Requirements

OCC’s notification and reporting requirements currently are set forth in various provisions of 

the By-Laws and the Rules, including existing Article V, Section 1, Interpretations and Policies .03 

and .07 of the By-Laws and Rules 201(b), 215, 216, 217(b), 303, 306, 308 and 310(a)-(c). The 

proposed rule change would consolidate and modify these requirements in new Rules 306, 306A and 

306B.

Proposed Rule 306 would set forth a broad statement clarifying that each Clearing Member 

must provide to OCC such notices, reports, documentation, or other information required in the

Rules and any other requirements promulgated by OCC.

Proposed Rules 306A and 306B are described below.

Proposed Rule 306A – Event-Based Reporting

Proposed Rule 306A would set forth the event-based reporting requirements and incorporate 

and modify the provisions currently set forth in existing Article V, Section 1, Interpretations and 

28 17 CFR 39.13(h)(5(ii).
Christopher J. Kirkpatrick

April 27, 2023

Page 27

Policies .03 (clause (c)) and .07 of the By-Laws and existing Rules 201(b), 215, 217(b) and 303. 

Each paragraph in proposed Rule 306A is described below.

Paragraph (a) – Early Warning Notices

Proposed paragraph (a) would adopt many of the provisions in existing Rule 303 and set 

forth the early warning notice requirements for Clearing Members. Under proposed paragraph (a), a 

Clearing Member would be required to notify an officer of OCC promptly, and in any event, prior to 

3:00 P.M. Central Time (4:00 P.M. Eastern Time) of the next business day in writing, if any of the 

circumstances described in subparagraphs (a)(1) through (a)(6) are met, as applicable. As compared 

to existing Rule 303(a), proposed Rule 306A(a) would simplify the notification requirement by 

specifying that one (rather than two) notices must be provided to an officer of OCC prior to the 

applicable deadline.

Proposed subparagraph (a)(1) would apply broadly to all types of Clearing Members, 

whereas proposed subparagraphs (a)(2) through (a)(6) would apply to specific types of Clearing 

Members. Each proposed subparagraph is described in greater detail below.

All Clearing Members. Proposed subparagraph (a)(1) would apply to all Clearing Members 

and is mostly identical to existing Rule 303(a). Under proposed subparagraph (a)(1), the early 

warning notice requirement would be triggered if a Clearing Member notifies, is required to notify, 

or receives notice from, any regulatory organization (as currently defined in the Rule 303, 

Interpretation and Policy .01 and would be relocated to Chapter I of the Rules) of any financial 

difficulty affecting the Clearing Member or of any failure by the Clearing Member to be in 

compliance with the financial responsibility rules or capital requirements of any regulatory 

organization. The new rule would be revised to clarify that it would apply to operational 

difficulty/responsibilities in addition to financial. Further, proposed subparagraph (a)(1) would 

clarify that any notice, whether written or otherwise, from a regulatory organization informing a 

Clearing Member that it may fail to be in compliance with the financial responsibility rules or capital 

requirements of the regulatory organization unless it takes corrective action, or informing it that it 

has triggered any provision in the nature of an early warning provision contained in any such rule or 

regulation, constitutes a notice for purposes of this subparagraph. The early warning notification to 

OCC must include a copy of any written notice provided or received by the Clearing Member from 

the regulatory organization.

Fully Registered Broker-Dealers. Proposed subparagraph (a)(2) would apply to fully 

registered broker-dealer Clearing Members and adopt many of the provisions set forth in existing 

Rule 303(b). Under proposed subparagraph (a)(2)(A), the early warning notice requirement would 

be triggered if the Clearing Member’s net capital becomes less than the greater of (i) $12 million, (ii) 

in the case of a Clearing Member electing to operate pursuant to the aggregate indebtedness 

standard, 10 percent of its aggregate indebtedness (i.e., aggregate indebtedness exceeds 1000% of 

net capital), or (iii) in the case of a Clearing Member electing to operate pursuant to the alternative 

standard, 5% of its aggregate debit items. As compared to existing Rule 303(b)(1), proposed Rule 

306A(a)(2)(A)(i) would require early warning notification to the extent that net capital becomes less 
Christopher J. Kirkpatrick

April 27, 2023

Page 28

than $12 million (rather than $2.5 million) to reflect the change in net capital requirements as 

described in the description of proposed Rule 301 above.

Under proposed subparagraph (a)(2)(B), the early warning notice requirement would be 

triggered if the aggregate principal amount of such Clearing Member’s satisfactory subordination 

agreements (other than such agreements which qualify as equity capital under SEC Rule 15c3-1(d)) 

exceeds 70% of such Clearing Member’s debt-equity total. This new subparagraph (a)(2)(B) would 

be substantively identical to existing Rule 303(b)(2).

Under proposed subparagraph (a)(2)(C), the early warning notice requirement would be 

triggered if the Clearing Member carries accounts of listed options specialists in accordance with 

SEC Rule 15c3-1(c)(2)(x) or has elected to operate pursuant to SEC Rule 15c3-1(a)(6), and the sum 

of deductions and required equity, as applicable, exceeds 1000% of such Clearing Member’s net 

capital. This new subparagraph (a)(2)(C) would replace the provisions currently set forth in existing 

Rule 303(b)(3)-(4).

Under proposed subparagraph (a)(2)(E), the early warning notice requirement would be 

triggered if the Clearing Member’s Examining Authority has granted to such Clearing Member, 

pursuant to SEC Rule 15c3-1(c)(2)(v)(C), an extension of any time period provided for resolving 

short securities differences under SEC Rule 15c3-1(c)(2)(v)(A). This new subparagraph (a)(2)(E) 

would be substantively identical to existing Rule 303(b)(5).

Under proposed subparagraph (a)(2)(F), the early warning notice requirement would be 

triggered if the Clearing Member has provided any notice as required by SEC Rule 15c3-1(e)(1)(iv). 

Proposed subparagraph (a)(2)(F) also would require the Clearing Member to provide OCC with a 

copy of the notice so provided. This new subparagraph (a)(2)(F) would be substantively identical to 

existing Rule 303(b)(6).

Fully Registered FCMs. Proposed subparagraph (a)(3) would apply to fully registered FCM 

Clearing Members and replace the provisions set forth in existing Rule 303(c). Under proposed 

subparagraph (a)(3)(A), the early warning notice requirement would be triggered if the Clearing 

Member’s adjusted net capital becomes less than the greater of $12 million or the early warning 

adjusted net capital requirements established by CFTC Rule 1.12(b). Under proposed subparagraph 

(a)(3)(B), the early warning notice requirement would be triggered if the Clearing Member has 

provided any notice as required by CFTC Rule 1.12(c), (d), (f)(3), (f)(4), (g) or (m). Proposed 

subparagraph (a)(3)(B) also requires the Clearing Member to provide OCC with a copy of the notice 

so provided.

Canadian Investment Dealers. Proposed subparagraph (a)(4)(A) would apply to Canadian 

Investment Dealer Clearing Members and (together with proposed subparagraph (a)(4)(B)) replace 

the provisions set forth in existing Rule 303(d). Under proposed subparagraph (a)(4)(A), the early 

warning notice requirement would be triggered if the Clearing Member’s risk adjusted capital is less 

than $12 million or 5% of total margin required or if it subject to an early warning designation under 

the financial and operational rules established by IIROC.
Christopher J. Kirkpatrick

April 27, 2023

Page 29

Other Non-U.S. Securities Firms. Proposed subparagraph (a)(4)(B) would apply to all other 

Non-U.S. Securities Firm (i.e., non-Canadian Investment Dealer) Clearing Members and (together 

with proposed subparagraph (a)(4)(A)) replace the provisions set forth in existing Rule 303(d). 

Under proposed subparagraph (a)(4)(B)(i), the early warning notice requirement would be triggered 

if the Clearing Member’s net capital equivalent is less than the greater of (a) $12 million or (b) the 

early warning amount required by the firm’s applicable regulatory requirements established by the 

regulatory authority of that country’s government or an agency or instrumentality thereof.

Under proposed subparagraph (a)(4)(B)(ii), the early warning notice requirement would be 

triggered if the Clearing Member’s total equity is less than $30 million and the Risk Committee has 

prohibited the Clearing Member from using its non-U.S. jurisdiction’s regulatory minimum and 

early warning requirements or otherwise requires the Clearing Member to supplement its non-U.S. 

jurisdiction’s regulatory minimum or early warning requirements.

All Non-U.S. Securities Firms

Under proposed subparagraph (a)(4)(C), the early warning notice requirement would be 

triggered if the Clearing Member violates any rule or regulation relating to financial responsibility or 

protection of customer property of its Non-U.S. Regulatory Agency (or any other governmental 

agency or instrumentality or independent organization or exchange to whose authority it is subject).

Under proposed subparagraph (a)(4)(D), the early warning notice requirement would be 

triggered if the Clearing Member receives any notice (whether written or otherwise) from its NonU.S. Regulatory Agency (or any other agency, instrumentality, organization or exchange) (a) 

alleging a violation of any such rule or regulation, (b) informing it that it may violate any such rule 

or regulation unless it takes corrective action, or (c) informing it that it has triggered any provision in 

the nature of an early warning provision contained in any such rule or regulation. 

Finally, proposed subparagraph (a)(4)(D) would permit OCC to specify other events that 

may trigger an early warning notice requirement.

Banks. Proposed subparagraph (a)(5) would apply to all Clearing Members that are Banks. 

Under proposed subparagraph (a)(5)(A), the early warning notice requirement would be triggered if

the Clearing Member’s Tier 1 Capital is less than $600 million. Under proposed subparagraph 

(a)(5)(B), the early warning notice requirement would be triggered if the Clearing Member’s Tier 1 

Capital Ratio is less than the greater of (i) 7% or (ii) its Tier 1 Capital Ratio regulatory requirement 

plus 1%, or if the Clearing Member is deemed undercapitalized as calculated or defined pursuant to 

the regulatory capital rules of the applicable banking regulatory authority of its home country. 

Under proposed subparagraph (a)(5)(C), the early warning notice requirement would be triggered if 

the Clearing Member violates any rule or regulation relating to financial responsibility or protection 

of customer property of its regulatory agency (or any other governmental agency or instrumentality 

or independent organization or exchange to whose authority it is subject). Under proposed 

subparagraph (a)(5)(D), the early warning notice requirement would be triggered if the Clearing 

Member receives any notice (whether written or otherwise) from such agency (or any other agency, 
Christopher J. Kirkpatrick

April 27, 2023

Page 30

instrumentality, organization or exchange) (a) alleging a violation of any such rule or regulation, (b) 

informing it that it may violate any such rule or regulation unless it takes corrective action, or (c) 

informing it that it has triggered any provision in the nature of an early warning provision contained 

in any such rule or regulation. Finally, proposed subparagraph (a)(5)(E) would permit OCC to 

specify other events that may trigger an early warning notice requirement. In addition, the 

provisions of existing Rule 303, Interpretation and Policy .01 would be relocated to Chapter I of the 

Rules. Existing Rule 303, Interpretation and Policy .02 would be removed given that OCC no 

longer maintains different standards for exempt Non-U.S. Clearing Members.

Paragraph (b) – Notice of Material Changes and Information Requests 

Proposed paragraph (b) would adopt many of the provisions in existing Rule 215 and set 

forth the notice requirements for material changes and other information requests. New 

subparagraphs (b)(1) through (b)(6) are described in greater detail below.

Subparagraph (b)(1). Proposed subparagraph (b)(1) would adopt the provisions currently set 

forth in existing Rule 215(a) without any changes. Under proposed subparagraph (b)(1), each 

Clearing Member would be required to provide OCC with prompt prior written notice of any 

enumerated material change in its form of organization or ownership structure.

Subparagraph (b)(2). Proposed subparagraph (b)(2) would modify and expand on the 

provisions currently set forth in existing Rule 215(b). Specifically, proposed subparagraph (b)(2) 

would require each Clearing Member to give OCC prompt written notice29 of material operational or 

financial changes, including: (A) a change in location of clearing operations;30 (B) a change in 

location of its facilities or offices maintained pursuant to Rule 302;

31 (C) a change in any personnel 

of the Clearing Member responsible for ensuring that the Clearing Member is able to fulfill its 

obligations as a Clearing Member pursuant to Rule 303(c);32 (D) a new or revoked stock settlement 

29 As compared to existing Rule 215(b), proposed Rule 306A(b)(2) would require “prompt” written notice (rather 

than 30-day prior written notice). This change is intended to grant greater flexibility and reduce burdens 

associated with providing advance notice. Moreover, OCC believes certain changes that currently require prior 

notice (i.e., planned changes) generally are not planned so prior notice is not practical. 

30 As compared to existing Rule 215(b)(1), proposed Rule 306A(b)(2)(A) would not require advance notification 

of planned changes. This change is intended to grant greater flexibility and reduce burdens associated with 

providing advance notice. Also, in OCC’s experience, these changes are generally not planned so prior notice 

is not practical. 

31 As compared to existing Rule 215(b)(2), proposed Rule 306A(b)(2)(B) would not require advance notification 

of planned changes. This change is intended to grant greater flexibility and reduce burdens associated with 

providing advance notice. Also, in OCC’s experience, these changes are generally not planned so prior notice 

is not practical. Proposed Rule 306A(b)(2)(B) also would clarify that it applies to both facilities and offices, 

and therefore would replace existing Rule 201(b) and existing Rule 215(b)(2).

32 As compared to existing Rule 215(b)(3), proposed Rule 306A(b)(2)(C) would not require advance notification 

of planned changes. This change is intended to grant greater flexibility and reduce burdens associated with 

providing advance notice. Also, in OCC’s experience, these changes are generally not planned so prior notice 

is not practical. 
Christopher J. Kirkpatrick

April 27, 2023

Page 31

relationship with another Clearing Member or CDS; (E) a change in the Clearing Member’s 

independent public accountant; (F) a change in Non-U.S. Clearing Member’s regulatory capital 

standards; (G) experiencing operational difficulties or is non-compliant with operational capability 

requirements; (H) current or hindsight customer reserve or customer segregation deficiencies; (I) a 

change in registration status or regulatory authorization; (J) current or hindsight net capital 

deficiencies; (K) a change in date for its fiscal year-end; or (L) if a Canadian Clearing Member 

participating in the Stock Loan/Hedge Program knows or reasonably expects that CDS will cease, or 

if CDS has ceased, to act on behalf of the Canadian Clearing Member with respect to effecting 

delivery orders for stock loan and stock borrow transactions.33

Subparagraph (b)(3). Proposed subparagraph (b)(3) (together with proposed subparagraph 

(b)(4)) would replace existing Rule 215(c). Under proposed subparagraph (b)(3), each Clearing 

Member must give OCC prompt prior written notice of its intention to enter into, terminate, or alter 

its outsourcing activities.

Subparagraph (b)(4). Proposed subparagraph (b)(4) (together with proposed subparagraph 

(b)(3)) would replace existing Rule 215(c). Under proposed subparagraph (b)(4), each Clearing 

Member must give OCC prompt written notice if separation or termination of an agreement occurs 

between the only personnel, associated person, or third-party provider who performs activities 

necessary to meet the requirements of the Rules or is otherwise critical to ensuring that the Clearing

Member is able to clear and settle confirmed trades in account types for which it is approved.

Subparagraph (b)(5). Proposed subparagraph (b)(5) would add a new event-based reporting 

requirement that each Clearing Member notify OCC within 30 days (i) of its independent auditor 

issuing a qualified opinion of its financial statements or (ii) of notification by its independent auditor 

that the independent auditor has identified a material weakness in an internal control over financial 

reporting.

Subparagraph (b)(6). Proposed subparagraph (b)(6) would modify existing Rule 215(d) to 

provide that each Clearing Member must, within the time period reasonably prescribed by OCC, 

furnish to OCC such documents and information as OCC may from time to time require pursuant to 

Chapters II and III of the Rules.

Paragraph (c) – Statutory Disqualifications

Proposed paragraph (c) would adopt and modify the provisions in existing Rule 217(b) and 

set forth the statutory disqualification notification requirements for Clearing Members. Under 

proposed paragraph (c), a Clearing Member, or applicant for clearing membership, that is or 

becomes subject to a statutory disqualification must notify OCC in writing as soon as practicable 

upon learning of such statutory disqualification and in any event within 20 business days thereafter. 

33 Proposed Rule 306A(b)(2)(L) would modify and replace a portion of existing Article V, Section 1, 

Interpretation and Policy .07.
Christopher J. Kirkpatrick

April 27, 2023

Page 32

As compared to existing Rule 217(b), proposed Rule 306A(c) would require notification within 20 

business days (rather than 5 business days).

Proposed paragraph (c) also would require the Clearing Member to further accompany such 

notification with information and forms, including amendments thereto, related to the statutory 

disqualification received from or provided to the SEC, the CFTC or any self-regulatory organization

and clarify that this includes (i) a copy of the order, judgment, letter of acceptance, waiver and 

consent, or other document evidencing the event that gave rise to the statutory disqualification, and 

(ii) any amended Form BD, FINRA Form MC-400A, any written response to a National Futures 

Association (“NFA”) Rule 504 Notice of Intent or other written request for relief addressed to such 

self-regulatory organization. Clearing Members that are not members of FINRA or NFA are 

required to provide OCC with, at a minimum, the information contained in FINRA Form MC-400A 

in addition to any forms filed with any self-regulatory organization or regulatory agency with respect 

to a statutory disqualification or similar provision of the laws or regulations applicable to such

Clearing Member or applicant. OCC would eliminate the requirement that the member or applicant 

provide OCC notification of whether or not the Clearing Member is seeking to continue being a 

Clearing Member notwithstanding the statutory disqualification as this is assumed in most cases. 

Proposed Rule 306B – Periodic Reporting

Proposed Rule 306B would set forth the periodic reporting requirements and incorporate and 

modify the provisions presently set forth in existing Rules 216, 306, 308 and 310(a)-(c). Each 

paragraph in new Rule 306B is described below.

Paragraph (a) – Financial Reports

Proposed paragraph (a) would replace existing portions of Rules 306 and 310(a)-(c) with a 

more concise set of requirements applicable to each type of Clearing Member. Proposed paragraph 

(a) also would clarify that OCC has broad discretion in requiring each Clearing Member to submit 

statements of its financial condition at such times and in such manner as shall be prescribed by OCC. 

Below are the requirements applicable to each type of Clearing Member.

Fully Registered Broker-Dealers. Every Clearing Member that is a fully registered brokerdealer would be required to file with OCC a true and complete copy of Part II, IIA, or any other 

variation of SEC Form X-17A-5 within 20 business days after the end of each month (regardless of 

whether or not such Clearing Member is required to prepare or file such report on a monthly basis 

with another regulatory or self-regulatory organization). As compared to existing Rule 306, 

proposed Rule 306B(a) would include a 20-business-day filing deadline that is standardized for 

Clearing Members that are fully registered broker-dealers, FCMs or Canadian Investment Dealers.

Fully Registered FCMs. Every Clearing Member that is a fully registered FCM would be 

required to file with OCC a true and complete copy of CFTC Form 1-FR-FCM within 20 business 

days after the end of each month (regardless of whether or not such Clearing Member is required to 

prepare or file such report on a monthly basis with another regulatory or self-regulatory 
Christopher J. Kirkpatrick

April 27, 2023

Page 33

organization). As noted above, proposed Rule 306B(a) would include a 20-business-day filing 

deadline that is standardized for Clearing Members that are fully registered broker-dealers, FCMs or 

Canadian Investment Dealers.

Canadian Investment Dealers. Every Clearing Member that is a Canadian Investment Dealer 

would be required to file with OCC a true and complete copy of its Form 1 of the International 

Financial Reporting Standards within the later of (i) 20 business days after the end of each month or 

(ii) monthly deadlines established by IIROC. As noted above, proposed Rule 306B(a) would 

include a 20-business-day filing deadline that is standardized for Clearing Members that are fully 

registered broker-dealers, FCMs or Canadian Investment Dealers.

Other Non-U.S. Securities Firms. Every Clearing Member that is a Non-U.S. Securities Firm 

(excluding Canadian Investment Dealers) would be required to file with OCC true and complete 

copies of such financial reports specified by OCC at the same time such report is filed with a 

primary regulatory authority. The financial reports must be prepared in accordance with its non-U.S. 

regulatory requirement.

U.S. Banks. Every Clearing Member that is a U.S. national bank or state-chartered bank 

would be required to file with OCC a copy of its Consolidated Report of Condition and Income 

(“Call Report”) and (to the extent not contained within such Call Reports) information containing 

each of its capital levels, ratios, and requirements due at same time it is filed with primary regulatory 

authority. If the Clearing Member is not required to file a Call Report, then it must file with OCC a 

copy of its unaudited quarterly financial statements as provided to the state regulatory authority 

having jurisdiction over the participant, containing each of its capital levels, ratios, and 

requirements.

Non-U.S. Banks. Every Clearing Member that is a non-U.S. bank would be required to file 

with OCC true and complete copies of such financial reports specified by OCC at the same time 

such report is filed with a primary regulatory authority. The financial reports must be prepared in 

accordance with its non-U.S. regulatory requirements. OCC would also relocate Rule 306, 

Interpretation and Policy .03, which requires that OCC deliver to the CFTC upon request any 

financial report provided to OCC pursuant to Rule 306 by a Clearing Member that is not an FCM, to 

new Rule 306B(a)(8).

Paragraph (b) – Annual Audited Financial Statements

Proposed paragraph (b) would replace existing Rule 308 with an annual requirement that is 

standardized across types of Clearing Members. Specifically, proposed paragraph (b) would require 

each Clearing Member to provide to OCC a complete copy of its annual audited financial 

statements, including reports on material inadequacies and internal control, prepared in accordance 

with its regulatory requirements and with generally accepted auditing standards of the country in 

which such Clearing Member has its principal place of business within 60 calendar days of the end 

of its fiscal year.
Christopher J. Kirkpatrick

April 27, 2023

Page 34

Paragraph (c) – Early or More Frequent Reporting

Proposed paragraph (c) would replace portions of existing Rule 306 with standardized 

requirements relating to early and more frequent reporting. Specifically, if a Clearing Member is 

required to file a financial report on an earlier date or on a more frequent basis than is required under 

Rule 306B, then the Clearing Member is required to file with OCC a true and complete copy of each 

such report at the same time it is filed with its relevant regulatory authority. In addition, proposed 

paragraph (c) would provide that OCC may, in its discretion, require more frequent financial 

reporting in such form as OCC may specify or other financial statements in such form or detail as 

may be prescribed by OCC, including for purposes of assessing whether the Clearing Member is 

meeting the financial requirements for clearing membership on an ongoing basis.

Paragraph (d) – Extensions

Proposed paragraph (d) would replace a portion of existing Rule 308(e) with a standardized 

provision that permits OCC, in its discretion, to recognize an extension or later deadline granted by 

the Clearing Member’s relevant regulatory authority for financial reports required under Rule 306B, 

provided that such extension is not issued on a permanent basis and a copy of such extension is filed 

with OCC in a timely manner. 

Paragraph (e) – Large Trader Reports

Proposed paragraph (e) would adopt the provisions set forth in existing Rule 216 with no 

substantive changes.

Proposed Rule 307 – Protective Measures

Existing Rules 304 and 305 set forth certain restrictions on distributions, transactions, 

positions and activities. The proposed rule change would adopt a more comprehensive set of 

protective measures in proposed Rules 307, 307A, 307B and 307C and incorporate, as appropriate, 

the provisions presently set forth in existing Rules 304 and 305.

Proposed Rule 307 would grant broad authority to OCC to impose protective measures on 

any Clearing Member or applicant for clearing membership that (i) is approaching or does not meet 

OCC’s minimum membership standards or fails to provide information required under Chapters II 

and III of the Rules such that OCC is unable to determine whether it meets the minimum 

membership standards, (ii) presents increased credit or liquidity risk to OCC, (iii) is subject to 

enhanced monitoring and surveillance under OCC’s watch level reporting process, or (iv) whose 

financial condition, operational capability, or risk management capability otherwise makes it 

necessary or advisable, for the protection of OCC, other Clearing Members, or the general public.

Below is a description of proposed Rules 307A, 307B and 307C.
Christopher J. Kirkpatrick

April 27, 2023

Page 35

Rule 307A – Restrictions on Distributions

The provisions in existing Rule 304 have been moved to new Rule 307A and modified to 

clarify that it applies to all qualified regulatory capital and to eliminate separate distribution 

restriction requirements for Non-U.S. Clearing Members. Proposed Rule 307A(a) would prohibit a 

Clearing Member from withdrawing qualified regulatory capital (by dividend, distribution, or 

otherwise) without the prior written authorization of OCC if, after giving effect to such withdrawal, 

an early warning condition specified in Rule 306A(a)(2), through (6) would exist with respect to 

such Clearing Member, or such withdrawal would be inconsistent with a Clearing Member’s 

regulatory requirements. In turn, proposed Rule 307A(b) would provide that OCC may prohibit 

Clearing Members from withdrawing qualified regulatory capital (by dividend, distribution, or 

otherwise) if such Clearing Member is subject to enhanced monitoring and surveillance under 

OCC’s watch level reporting process or the distribution in question could result in increased credit 

or liquidity risk to OCC.

Existing Rule 304C(c) and Rule 304, Interpretations and Policies .01 through .03, which set 

forth provisions applicable to exempt Non-U.S. Clearing Members, have been removed given the 

broad applicability of new Rule 307B(a) and (b) to all Clearing Members and the elimination of the 

concept of “exempt Non-U.S. Clearing Members” in OCC’s Rules. OCC believes that proposed 

changes would simplify and clarify its Rules concerning restrictions on distributions and ensure that 

these protective measures are being applied consistently for all Clearing Members. 

Rule 307B – Restrictions on Certain Transactions, Positions and Activities

The provisions in existing Rule 305 would be moved to proposed Rule 307B and modified to 

improve general readability and to further clarify OCC’s broad authority to impose protective 

measures with respect to transactions, open positions and related activities. In particular, the 

provisions in existing Rule 305(a) and (b) would be combined in proposed Rule 307B(a) and 

streamlined to provide that if circumstances warrant the imposition of protective measures under 

Rule 307, then the CEO or COO (or if unavailable, a Designated Officer) may impose the following 

restrictions on a Clearing Member:

i. prohibit or impose limitations on clearing transactions that increase credit or liquidity 

risk; 

ii. require such Clearing Member to reduce, eliminate, or hedge any existing positions 

presenting increased credit, liquidity or operational risk to OCC; 

iii. require such Clearing Member to transfer any existing positions or accounts maintained 

or carried by such Clearing Member to another Clearing Member; and/or

iv. restrict such Clearing Member’s outsourced activities or activities as an Appointed 

Clearing Member or prohibit such Clearing Member from engaging in such activities or 
Christopher J. Kirkpatrick

April 27, 2023

Page 36

to impose such limitations on such activities as such officer deems necessary or 

appropriate in the circumstances. 

The provisions set forth in existing Rule 305(c) and (d) have been moved to new Rule 

307B(b) and (c) with no substantive changes. Separately, existing Rule 305, Interpretations and 

Policies .01 through .12, which provide a non-exhaustive list of examples of situations in which 

OCC may take protective measures under existing Rule 305, have been removed to improve general 

readability of the Rule and to further clarify the breadth of OCC’s authority to impose protective 

measures with respect to transactions, open positions and related activities.

Rule 307C – Additional Operational, Personnel, Financial Resource and Risk 

Management Requirements

The proposed rule change would adopt new Rule 307C to permit OCC to impose protective 

measures in the form of additional operational, personnel, financial resource or risk management 

requirements. Proposed Rule 307C also sets forth a non-exclusive list of such protective measures, 

including:

i. requiring Clearing Members to maintain higher minimum capital amounts than those 

required by Rule 301;

ii. requiring Clearing Members to adjust the amount or composition of margin or 

Clearing Fund deposits, including but not limited to requiring the deposit of 

additional margin or requiring Clearing Members to satisfy a specified portion of 

their margin or Clearing Fund requirements in cash or other assets with 

comparatively less risk;34

iii. requiring Clearing Members to add new personnel or provide additional training to 

existing personnel to enhance the capability, experience, and competence of 

operational, financial reporting, or risk management personnel;

iv. requiring Clearing Members to execute an agreement with a third-party service 

provider determined to be acceptable to OCC that will be in effect until such time that 

the Clearing Member is able to comply with OCC’s operational, personnel or risk 

management standards;

v. requiring Clearing Members to enhance its risk management policies, procedures and 

practices;

34 This proposed change would in part incorporate authority in existing Rule 604(g), which allows OCC to require 

Clearing Members to deposit a specified amount of cash to satisfy its margin requirements as a protective 

measure if such Clearing Member is determined to present increased credit risk and is subject to enhanced 

monitoring and surveillance under OCC’s watch level reporting process. As a result, Rule 604(g) would be 

deleted from OCC’s Rules.
Christopher J. Kirkpatrick

April 27, 2023

Page 37

vi. requiring alternate methods of electronic connection (e.g., lease line) due to 

operational risk concerns; and

vii. requiring additional reporting of its financial or operational condition at such 

intervals and in such detail as determined by OCC.

OCC believes the proposed protective measures are necessary and appropriate to ensure that 

OCC is able to manage the range of risks (including credit risk, liquidity risk, and operational risk) 

that may be presented by Clearing Members that do not comply, or are in danger of no longer 

complying, with OCC’s minimum membership standards, present increased credit or liquidity risk to 

OCC, or are otherwise experiencing difficulties in their financial condition, operational capability, or 

risk management capability.

Rule 308 – Statutory Disqualification

Existing Rule 217 sets forth OCC’s requirements with respect to Clearing Members (or their 

principals in the case of CFTC-registered FCMs) subject to a statutory disqualification. The 

proposed rule change would relocate or otherwise eliminate the provisions set forth in Rule 217 as 

follows:

• The provisions set forth in existing Rule 217(a) would be moved to proposed Rule 

308(a) and revised to further provide that in the event a Clearing Member is or 

becomes subject to a Statutory Disqualification,35 OCC may impose protective 

measures under Rule 307 or conduct a hearing or institute a disciplinary proceeding 

in accordance with Chapter XII of the Rules to determine whether to no longer permit 

such Clearing Member to continue its membership. Proposed paragraph (a) also 

would clarify that OCC will not permit such Clearing Member to continue its 

membership if so ordered by the SEC.

• As discussed in the description of proposed Rule 306A, the provisions in existing 

Rule 217(b) would be moved to proposed Rule 306A(c) with modifications.

• The provisions in existing Rule 217(f) would be moved to proposed Rule 308(b) and 

modified to clarify that OCC may “delay a final decision regarding a Clearing 

Member’s Statutory Disqualification” (rather than waiving provisions of existing 

Rule 217) until any proceeding before another self-regulatory organization is 

35 As noted above in the description of proposed Rule 204, Rule 101 has been revised to define the term 

“Statutory Disqualification” as (i) in the case of a fully registered broker-dealer, a statutory disqualification as 

defined in Section 3 of the Exchange Act, (ii) in the case of a fully registered FCM, the applicant or Clearing 

Member or a principal thereof, as defined in CEA Section 8a(2), is subject to statutory disqualification under 

CEA Section 8a(2)-(4), or (iii) in the case of a Non-U.S. Securities Firm or bank, any similar provision of the 

laws or regulations applicable to such applicant or Clearing Member.
Christopher J. Kirkpatrick

April 27, 2023

Page 38

concluded. The remaining portions of existing Rule 217(f) would remain unchanged 

(aside from relocating to proposed Rule 308(b)).

• The provisions in existing Rule 217(c)-(e) and (g) would be removed as unnecessary 

for two reasons: (1) proposed paragraph (a) provides broad authority to conduct a 

hearing or institute a disciplinary proceeding in accordance with Chapter XII of the 

Rules to determine whether to no longer permit such Clearing Member to continue its 

membership; and (2) OCC’s minor rule violation plan in proposed Rule 1203 would 

include any failure to timely notify OCC of any Statutory Disqualification under new 

Rule 306A(c).

Proposed Changes to Rule 609 – Intra-Day Margin

OCC proposes minor modifications to Rule 609, including conforming changes to clarify 

that OCC may require the deposit of intra-day margin in response to changes in a Clearing 

Member’s operational or risk management condition in addition to its financial condition. The 

proposed change is intended to reflect the more expansive protective measure rules proposed in new 

Rule 307C. OCC would also remove references to unspecified “officers” of OCC as these details 

are included in OCC’s internal policies and procedures. 

Proposed Rule 1203 – Minor Rule Violations

The rules applicable to minor rule violations currently are set forth primarily in existing Rule 

1201(b), Rule 215(f), and Interpretation and Policy .01 of Rule 215(f). Existing Rule 1201(b) sets 

forth OCC’s “plan” (within the meaning of Rule 19d-1(c)(2)) for the disposition of “minor rule 

violations” and generally provides that OCC may impose a fine of $2,500 or less for any violation 

designated in the By-Laws or the Rules as a minor rule violation. Any such fine for a minor rule 

violation would be in lieu of commencing a disciplinary proceeding pursuant to Rule 1201(a). 

Existing Rule 1201(b) also sets forth processes for imposing and contesting fines for minor rule 

violations. The proposed rule change would move the provisions set forth in existing Rule 1201(b) 

to new Rule 1203(a) with no substantive changes. 

The proposed rule change also would remove existing Rule 215, Interpretation and Policy 

.01 and replace it with new Rule 1203(b) and (c), which modify the list of violations that may 

constitute a minor rule violation to include the following:

• a violation of Rule 205 (relating to the filing of a certified list of authorized 

signatories);

• a violation of Rule 208 (relating to maintaining records of confirmed trade data);

• a violation of Rule 210 (relating to the payment of fees and charges);
Christopher J. Kirkpatrick

April 27, 2023

Page 39

• a violation of Rule 302(b) - (d) (relating to the operational capability to maintain 

offices, books and records and the ability to appropriately discharge responsibilities);

• a violation of Rule 303(c) (relating to the timely provision of information concerning 

personnel);

• a violation of Rule 306A(a)(2)(e) (relating to providing OCC with a copy of any 

notice required under paragraph (e)(1)(iv) of Rule 15c3-1);

• a violation of Rule 306A(b) (relating to providing notice of material changes and 

information requests);

• a violation of Rule 306A(c) (relating to providing notice of any statutory 

disqualification);

• a violation of Rule 306B (relating to the filing of periodic reports); and

• any failure to provide such other requested documents and information in connection 

with the requirements of Chapters II and III of the Rules, including, but not limited 

to, financial, regulatory and other information, as OCC may in its discretion require.

In addition, proposed Rule 1203(e) would stipulate that OCC may institute disciplinary 

proceedings against a Clearing Member pursuant to Chapter XII of the Rules for a violation of any 

of the requirements listed above.

The proposed rule change also would replace the existing fine schedule with a simplified fine 

schedule in new Rule 1203(c) that imposes $1,500 for the first minor rule violation and $2,500 for a 

second violation occurring within a rolling 24-month period. Additionally, three or more violations 

within a rolling 24-month period would result in a disciplinary proceeding in accordance with 

Chapter XII of the Rules. Proposed paragraph (d) also would clarify that fines will be levied for 

offenses within a rolling 24-month period beginning with the first occasion.

Proposed Rule 1204 – Discipline by Other Self-Regulatory Organizations

Under the proposed rule change, existing Rule 1203 would be renumbered as Rule 1204 with 

no other substantive changes.

Proposed Rule 2201 – Instructions to the Corporation

Portions of existing Article V, Section 1, Interpretation and Policy .07 currently set forth 

requirements applicable to Canadian Hedge Clearing Members on behalf of which CDS maintains 

an identifiable sub-account at DTC. The proposed rule change would move these provisions to new 

paragraphs (c) and (d) of Rule 2201 and eliminate references to “Canadian Hedge Clearing 
Christopher J. Kirkpatrick

April 27, 2023

Page 40

Member” given that term would no longer be defined. There are no other substantive changes to 

these provisions.

Additional Proposed Changes to Terms

The proposed rule change would move various defined terms from the By-Laws to Chapter I 

of the Rules, including Canadian Clearing Member, FATCA, FATCA Compliant, FFI Clearing 

Member, Non-U.S. Regulatory Agency, Non-U.S. Securities Firm, Qualified Intermediary 

Assuming Primary Withholding Responsibility, Qualified Derivatives Dealer. The defined terms 

Section 871(m) Effective Date and Section 871(m) Implementation Date would be removed because 

these dates have passed so the defined terms are no longer necessary.

The proposed rule change also would adopt a new definition for the term Statutory 

Disqualification.36

Finally, the proposed rule change would eliminate various distinct categories of Clearing 

Members and their respective definitions or other usage from the By-Laws, including, Canadian 

Hedge Clearing Member, Domestic Clearing Member, exempt Non-U.S. Clearing Member, futuresonly affiliated Clearing Member, Hedge Clearing Member, Managed Clearing Member, Managing 

Clearing Member and Market Loan Clearing Member. References to these terms in the text of the 

By-Laws or the Rules would be replaced with general references to “Clearing Member” and all 

Clearing Members would be subject to the consistent standards set forth in the proposed rule change. 

OCC would continue to maintain the concept of Appointing Clearing Members and 

Appointed Clearing Members; however, these members would no longer be subject to distinct or 

different membership standards. 

Additional Proposed Deletions

Existing Rule 204

The proposed rule change would remove existing Rule 204, which pertains to designating 

physical locations as clearing offices of the Clearing Member. As a practical matter, this Rule is no 

longer relevant to the operations of OCC or its Clearing Members given the migration of trading, 

clearance and settlement activities to electronic means.

Existing Rule 309

The proposed rule change would remove existing Rule 309, which sets forth certain 

requirements for Managed Clearing Members and Managing Clearing Members. More generally, 

the proposed rule change would remove references to facilities management agreements, Managing 

36 See supra discussion on proposed Rule 204.
Christopher J. Kirkpatrick

April 27, 2023

Page 41

Clearing Members and Managed Clearing Members. These rules would be replaced by the more 

general rules proposed for outsourcing to third-party service providers.37 

Existing Rule 309A

The proposed rule change would remove existing Rule 309A, which sets forth minimum 

capital and other requirements for Appointed Clearing Members. The concept of Appointing and 

Appointed Clearing Members would remain in OCC’s rules, but they would no longer be a distinct 

“membership type.” Any Clearing Member serving an Appointed Clearing Member capacity would 

be subject to the same minimum capital requirements as all other Clearing Members (as set forth in 

proposed Rule 301).38 OCC would also revise the definition of Appointed Clearing Member to 

clarify that an Appointed Clearing Member must be authorized to clear physically-settled equity 

options and stock futures to ensure they have the appropriate operational capability and expertise to 

settle such transactions on behalf of other Clearing Members. 

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:

Participant and Product Eligibility. OCC believes that the proposed changes are consistent 

with Core Principle C,

39 which requires, in part, that each DCO establish appropriate admission and 

continuing eligibility standards for clearing members of the DCO and establish and implement 

procedures to verify, on an ongoing basis, the compliance of each participation and membership 

requirement of the DCO.40 Core Principle C further requires that such participation and membership 

requirements be objective, publicly disclosed, and permit fair and open access.41 As discussed 

below, the purpose of the proposed rule change is to improve upon OCC’s existing financial and 

operational membership standards to continue to permit fair and open access and to further mitigate 

counterparty credit risk introduced by Clearing Members. 

With respect to fair and open access, CFTC Regulation 39.12(a)(1) provides, in part, that a 

DCO (i) must not have restrictive clearing member standards if less restrictive requirements would 

achieve the same objective and would not materially increase risk to the DCO or clearing members, 

(ii) allow all market participants who satisfy participation requirements to become clearing 

37 See supra discussion on proposed Rule 303.

38 See supra discussion on proposed Rule 301.

39 7 U.S.C. 7a-1(c)(2)(C). 

40 See id.

41 See id. 
Christopher J. Kirkpatrick

April 27, 2023

Page 42

members, and (iii) must not exclude or limit clearing membership of certain types of market 

participants unless the derivatives clearing organization can demonstrate that the restriction is 

necessary to address credit risk or deficiencies in the participants’ operational capability that would 

prevent them from fulfilling their obligations as clearing members.42 As described in greater detail 

above, the proposed rule change expands the list of types of entities eligible for clearing membership 

in proposed Rule 201 to include eligible banks. As described herein, the proposed rule change sets 

forth robust financial and operational membership standards applicable to eligible banks that are 

consistent with the financial and operational membership standards applicable to existing types of 

institutions that are eligible for clearing membership. As such, OCC believes that eligible banks that 

meet the membership standards do not pose additional risks relative to existing types of institutions 

that are eligible for clearing membership. Moreover, OCC believes that the prudent expansion of 

types of institutions that are eligible for clearing membership will broaden the clearing membership 

base and potentially mitigate counterparty concentration risk consistent with the risk-based approach 

to clearing membership standards prescribed in CFTC Regulation 39.12.

In addition, the proposed rule change consolidates and modifies the admission procedures 

and conditions to admission addressed in proposed Rules 203 and 204 to better assist OCC in 

reviewing, examining, verifying and ultimately approving or disapproving applications for clearing 

membership. Under the proposed rule change, OCC retains its authority to deny or otherwise 

condition the participation of any person that does not meet the applicable membership standards. 

The proposed rule change also adopts, where appropriate, uniform standards in Chapters II and III of 

the Rules that apply to each type of institution that is eligible for clearing membership. This 

consolidation and uniformity is intended to (among other things) help OCC to continue to promote 

fair and open access and non-discrimination among Clearing Members and applicants for clearing 

membership. Likewise, under proposed Rule 201, the proposed rule change seeks to maximize the 

types of products and other activities for which each type of Clearing Member may potentially be 

eligible. As such, OCC believes that the proposed rule change promotes the purposes of Core 

Principle C.43

OCC also believes the proposed changes are consistent with the financial resources 

requirements in CFTC Regulation 39.12(a)(2), which require, in part, that capital requirements are to 

be based on objective, transparent, and commonly accepted standards that appropriately match 

capital to risk, and the capital requirements should be scalable to the risks posed by clearing 

members.44 The proposed rule change sets forth in proposed Rule 201 a capital floor of at least $500 

million in Tier 1 Capital for eligible banks and at least $10 million for all other types of institutions 

eligible for clearing membership. With respect to eligible banks, this higher capital floor is intended 

to account for the larger capital base normally maintained by eligible banks as compared to other 

types of eligible institutions. Given the nature of the capital base normally maintained by eligible 

42 17 CFR 39.12 (a)(1)(i)-(iii).

43 7 U.S.C. 7a-1(c)(2)(C).

44 17 CFR 39.12 (a)(2)(ii). 
Christopher J. Kirkpatrick

April 27, 2023

Page 43

banks, OCC believes that the capital floor of at least $500 million in Tier 1 Capital for eligible banks 

is necessary to mitigate risks that could not otherwise be effectively managed by other measures in 

accordance with CFTC Regulation 39.12(a)(2).

45 In addition, OCC determined the proposed capital 

floor of at least $10 million for all other types of institutions eligible for clearing membership based 

on OCC’s clearance and risk management of non-linear products where volatility strongly influences 

margin and settlement obligation of Clearing Members. OCC selected an amount that provided 

greater security to ensure that Clearing Members have sufficient capital to meet margin, liquidity, 

and clearing fund obligations, but that also avoided creating an overly burdensome requirement on 

the vast majority of the existing OCC Clearing Member population. 

CFTC Regulation 39.12(a)(2) further provides that each DCO have participation 

requirements that require clearing members to have access to sufficient financial resources to meet 

obligations arising from participation in the DCO in extreme but plausible market conditions.46 

Proposed Rule 301 would continue to require Clearing Members to meet the financial resource 

requirements contemplated by CFTC Regulation 39.12(a)(2). For the reasons above, OCC believes 

the proposed changes to Clearing Member financial requirements are consistent with CFTC 

Regulation 39.12(a)(2).47

OCC also believes that the proposed changes are consistent with CFTC Regulation 

39.12(a)(3), which requires a DCO’s participant requirements to require clearing members to have 

adequate operational capacity to meet obligations arising from participation, including, but not 

limited to, the ability to process expected volumes and values of transactions cleared by a clearing 

member within required time frames, including at peak times and on peak days; the ability to fulfill 

collateral, payment, and delivery obligations imposed by the derivatives clearing organization; and 

the ability to participate in default management activities.48 The proposed changes would 

consolidate various operational requirements found throughout OCC’s By-Laws and Rules into 

proposed Rule 302, including existing provisions designed to satisfy CFTC Regulation 39.12(a)(3). 

The changes would further enhance OCC’s operational capability, experience, and competence 

standards and related resources for Clearing Members, including, among other things, requirements 

relating to facilities, personnel and third-party arrangements. Likewise, the proposed rule change 

adopts additional protective measures designed to provide OCC tools to address deficiencies that it 

may identify in a Clearing Member’s operational condition, under proposed Rules 307, 307A, 307B 

and 307C. Accordingly, OCC believes the proposed changes are consistent with CFTC Regulation 

39.12(a)(3).49

45 Id.

46 17 CFR 39.12 (a)(2)(i).

47 Id.

48 17 CFR 39.12(a)(3).

49 Id.
Christopher J. Kirkpatrick

April 27, 2023

Page 44

OCC also believes the proposed changes are consistent with CFTC Regulations concerning a 

DCO’s ongoing monitoring of its members’ compliance with membership requirements. 

Specifically, CFTC Regulation 39.12(a)(4), requires a DCO to maintain procedures to verify, on an 

ongoing basis, the compliance of each clearing member with each participation requirement.50 The 

proposed rule change amends the notification and reporting requirements in proposed Rules 306, 

306A and 306B to enhance the event-based reporting and periodic reporting obligations imposed on 

Clearing Members. OCC believes that these changes will better assist OCC in monitoring for 

compliance with its clearing membership requirements consistent with CFTC Regulation 

39.12(a)(4).51

Governance. OCC believes that the proposed changes are consistent with Core Principle 

O,

52 and CFTC Regulation 39.24 thereunder, which requires, in part, that each DCO establish 

governance arrangements that are written, clear and transparent, and place a high priority on the 

safety and efficiency of the DCO.53 The proposed rule change sets forth several changes intended to 

increase efficiency and effectiveness, including but not limited to the following: (i) the allowance of 

electronic, optical or similar signatures under proposed Rule 205; (ii) enhancements with respect to 

requirements applicable to submissions to and retrieval of items under proposed Rule 207; and (iii) 

the removal of authorization stamp references in proposed Rule 209. In these ways, OCC believes 

the proposed change is consistent with the requirements of Core Principle O.54

Risk Management. OCC believes that the proposed changes are consistent with Core 

Principle D.

55 CFTC Regulation 39.1356 requires, in part, that a DCO shall measure and monitor its 

credit exposure to each clearing member. The proposed rule change adopts new Rule 212 to address 

circumstances in which a Clearing Member voluntarily terminates its membership. Because 

proposed Rule 212 sets forth procedures for the closing out or transfer of all open positions and the 

treatment of the Clearing Member’s Clearing Fund contribution during the withdrawal period, OCC 

believes that proposed Rule 212 is consistent with its requirements to monitor its credit exposure 

under Core Principle D.57

Rule Enforcement. OCC believes that the proposed rule changes are consistent with Core 

Principle H.

58 CFTC Regulation 39.17 requires, in part, that a DCO have the authority and ability to 

50 17 CFR 39.12 (a)(4). 

51 Id.

52 7 U.S.C. 7a-1(c)(2)(O).

53 17 CFR 39.24(a)(1)(i)-(iii).

54 7 U.S.C. 7a-1(c)(2)(O).

55 7 U.S.C. 7a-1(c)(2)(D).

56 17 CFR 39.13(e)(1), (2). 

57 7 U.S.C. 7a-1(c)(2)(D).

58 7 U.S.C. 7a-1(c)(2)(H). 
Christopher J. Kirkpatrick

April 27, 2023

Page 45

discipline, limit, suspend, or terminate the activities of a clearing member due to a violation by the 

clearing member of any rule of the derivatives clearing organization.59 OCC believes the proposed 

rule change aligns with this requirement because the change amends OCC’s minor rule violation 

plan in proposed Rule 1203. The amended plan includes fines not to exceed $2,500 for violations of 

specified rules that may be deemed minor rule violations under the Rules. Through this proposed 

Rule, OCC has the ability to enforce this fine on Clearing Members, therefore, the proposed change

aligns with CFTC Regulation 39.17.60

Legal Risk. OCC believes that the proposed rule changes are consistent with Core Principle 

R,

61 which requires that each DCO have a well-founded, transparent, and enforceable legal 

framework for each aspect of the activities of the DCO. Because the proposed rule change makes 

certain organizational and other clarifying changes to the By-Laws and the Rules in order to prevent 

unnecessary regulatory burdens, to provide greater clarity and transparency, and to promote efficient 

administration of the By-Laws and the Rules, OCC believes these changes provide for an

enforceable legal framework and therefore align with Core Principle R.62 

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

On February 27, 2023 and March 3, 2023, OCC received an unsolicited draft comment letter 

and additional comments (Exhibit C and Exhibit D, respectively) from Broadridge Business Process 

Outsourcing LLC (“Broadridge”) on an initial version of the proposal. The draft letter expressed full 

support for OCC’s proposal and suggested certain clarifying word choice changes in connection 

with the initially proposed text for Rules 303(a), (b) and (c). OCC has addressed these written 

comments from Broadridge by incorporating them as part of the text of these proposed provisions. 

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.

59 17 CFR 39.17(a)(2). 

60 See id.

61 7 U.S.C. 7a-1(c)(2)(R). 

62 7 U.S.C. 7a-1(c)(2)(R). 
Christopher J. Kirkpatrick

April 27, 2023

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Certification

OCC hereby certifies that the rule set forth at Exhibit A and Exhibit B 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/ Megan Cahill

Megan Cahill

Assistant General Counsel

The Options Clearing Corporation

Enclosures: 

Exhibit A – OCC By-Laws 

Exhibit B – OCC Rules 

Exhibit C – Draft Comment Letter

Exhibit D – Additional Comments