December 4, 2023

VIA CFTC PORTAL

Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, DC 20581

Re: Rule Certification Concerning Updates to OCC’s Collateral Risk Management 

Policy and Margin Policy

Dear Secretary Kirkpatrick:

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

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

Corporation (“OCC”) hereby certifies changes to its Collateral Risk Management Policy (“CRM 

Policy”) and Margin Policy (collectively, “OCC Policies”). 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

The purpose of the certification is to amend the CRM Policy and the Margin Policy. The 

proposed changes are designed to update the OCC Policies to better align the descriptions therein 

with OCC’s current practices, delete extraneous information, and make other non-substantive 

clarifying, conforming and administrative changes. Proposed changes to the OCC Policies can be 

found in Exhibits A and B. Material proposed to be added to the OCC Policies as currently in effect 

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

terms not defined herein have the same meaning as set forth in the OCC By-Laws and Rules.1

1 OCC’s By-Laws and Rules can be found on OCC’s public website: https://

www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
Christopher J. Kirkpatrick

December 4, 2023

Page 2

Overview

OCC proposes to make certain changes to the CRM Policy and Margin Policy to better 

reflect current practices, remove extraneous information and make other non-substantive, clarifying 

and administrative changes to the text of those policies. 

The CRM Policy identifies OCC’s approach for managing the risks associated with accepting 

collateral deposits. Specifically, the CRM Policy sets the governance processes for establishing and 

maintaining standards used to determine acceptable forms of collateral, as well as the methodology 

for establishing the valuation practices, including applicable haircuts and concentration limits to 

effectively manage OCC’s credit exposure. In addition, the CRM Policy describes the requirements 

for periodically evaluating the forms of accepted collateral and the ongoing adequacy of the 

valuation processes. 

The Margin Policy describes OCC’s approach to managing credit exposure presented by its 

Clearing Members by requiring Clearing Members to deposit margin, which OCC would use to 

cover losses if a member defaults. The Margin Policy addresses positions considered for margin 

calculations, cross-margining, treatment of collateral included in margin calculations, key margin 

assumptions, OCC’s margin methodologies, protocols for margin calls and adjustments, and margin 

monitoring, including through daily backtesting and model validation that OCC conducts to assess 

the performance of its margin methodologies.

OCC and its Board reviews these risk management policies at least annually. Through these 

annual reviews, OCC has identified proposed revisions intended to revise certain descriptions to better 

reflect current practices, remove extraneous information and make other non-substantive, clarifying 

and administrative changes to the text of those policies. These changes are designed to enhance the 

clarity of OCC’s internal governance arrangements and are not expected to have any impact on OCC’s 

Clearing Members or other market participants.

1. CRM Policy

OCC proposes to add a statement in the Purpose section that the CRM Policy sets forth 

processes to establish and maintain standards used to “maintain a collateral system that is welldesigned and operationally flexible.” OCC’s Collateral Management system meets this standard today 

and no changes to its operations would be required. The proposed revision would merely clarify that 

OCC’s collateral system conforms to the standard established at Principle 5, Key Consideration 6 of 

the Principles for Financial Market Infrastructures.2

2 See Committee on Payment and Settlement Systems and Technical Committee of the 

International Organization of Securities Commissions (“CPSS-IOSCO”), Principles for 

financial market infrastructures (Apr. 16, 2012) (stating that “[a]n FMI should use a 

collateral management system that is well-designed and operationally flexible”), available at 
Christopher J. Kirkpatrick

December 4, 2023

Page 3

OCC proposes to insert an Applicability and Scope section that, consistent with other 

recently filed policies,3 would identify the primary OCC business units that support OCC’s approach 

to managing the risks associated with accepting collateral deposits, including but not limited to 

Pricing and Margins (“P&M”), Collateral Services, and Quantitative Risk Management (“QRM”).

OCC proposes to retitle the Policy Detail section as the Policy Content section to conform 

with current OCC titling conventions as reflected in other policies. OCC also proposes to amend a 

statement therein that Clearing Members must maintain sufficient collateral at OCC to meet their 

margin and clearing fund obligations “at all times.” OCC proposes to remove this phrase that could 

imply that a Clearing Member’s failure to maintain sufficient collateral would constitute a violation 

of OCC’s Rules (i.e., if the value of the collateral on deposit fell below the Clearing Member’s 

margin requirement). Such a reading would be inconsistent with OCC operations and the implicit 

intent behind OCC Rules 601 and 1001, which establish OCC’s ability to call for margin and 

Clearing Fund collateral as needed. The revised statement would better describe OCC’s longstanding requirements and practices. 

OCC proposes to remove lists of acceptable margin and Clearing Fund collateral types from 

the Margin and Clearing Fund sections. OCC Rules 604 and 610 describe asset types that OCC 

accepts as margin collateral and OCC Rule 1002 describes Clearing Fund collateral. Because the list 

of acceptable collateral to be removed is appropriately reflected in the Rulebook, it need not be 

duplicated in the CRM Policy. Similarly, OCC proposes to delete a statement regarding the current 

composition of sovereign debt accepted by OCC in the Sovereign Credit Risk section. This text 

provides background information regarding the current composition of OCC’s sovereign debt 

collateral and maintaining this description in the CRM Policy text raises the risk of inaccuracy 

should OCC’s collateral composition change over time. The statement does not establish a stated 

policy, practice or interpretation of OCC regarding the forms of Government securities acceptable to 

OCC, which are established by OCC Rules 604 and 1002. 

OCC proposes to restate Financial Risk Management’s (“FRM”) stated obligation in the 

Market Risk section to value collateral “continuously,” to “throughout regular market trading 

hours.” The modifier “continuously” could imply that FRM is required to value collateral on a 24/7 

basis. OCC’s policies and procedures are designed to set and enforce appropriately conservative 

haircuts for the collateral it accepts,4but OCC does not believe this would require it to adhere to a 

standard of continuous and ongoing revaluation of collateral. Accordingly, OCC proposes these 

http://www.bis.org/publ/cpss101a.pdf. In 2014, the CPSS became the Committee on 

Payments and Market Infrastructures (“CPMI”).

3 See Exchange Act Release No. 93916 (Jan. 6, 2022), 87 FR 1819, 1820 (Jan. 12, 2022) (SROCC-2021-014) (discussing the applicability and scope of OCC’s Cash and Investment 

Management Policy). 

4 See 17 CFR 240.17Ad-22(e)(5).
Christopher J. Kirkpatrick

December 4, 2023

Page 4

revisions to more clearly reflect its long-standing practices. Similarly, OCC proposes to restate the 

obligation in the Valuations section from requiring P&M to perform its collateral valuation 

processes “on a continuous basis” to “during regular market trading hours.” In each case the revised 

statements are fairly and reasonably implied by OCC’s rules.5

OCC proposes to amend the description of its approach to concentration risk in the 

Concentration Risk section. The current description focuses on OCC’s measures to mitigate 

concentration risk in relatively limited scenarios, including where appropriate to limit the 

aggregation or concentration of large positions in a single security or mitigate price dislocation when 

selling a large position into a thin market. This description does not address other relevant instances 

where OCC could face or seek to mitigate concentration risk. As such, OCC proposes to more 

broadly describe its approach to mitigating concentration risk, which consists of restrictions for 

certain assets intended to allow OCC to liquidate collateral quickly without adverse price effects. 

The proposed revisions would more fully describe OCC’s approach to mitigating concentration risk 

without altering the substance or requirements of the CRM Policy as they relate to OCC’s core risk 

management activities. 

The Systems and Processing section describes OCC’s collateral management system as 

highly automated yet flexible enough to accept a variety of collateral types. While this description 

of the system’s flexibility is accurate, it does not establish a rule, standard or interpretation with 

respect to OCC’s operation of the system. OCC proposes to replace the extraneous discussion of 

flexibility with a statement indicating that the system supports the maintenance and processing of 

various asset types, which more objectively conveys similar information. This section further 

provides that the collateral management system maintains the same performance, efficiency and 

effectiveness for each collateral type OCC accepts. OCC proposes to delete this provision because 

different processing methods for collateral types and associated timelines could render that statement 

inaccurate and the discussion of the collateral system’s capabilities likewise does not establish a 

stated policy, practice or interpretation and should not be considered a rule per se. The proposed 

revisions would clarify the description of OCC’s collateral management system in accordance with 

current OCC operations. 

In the Reconciliation section, OCC intends to clarify that the information it uses in the daily 

balancing of collateral against activity and inventory reports is not limited to end-of-day reports 

provided by custody banks and depositories. Accordingly, OCC proposes to remove the “end-ofday” modifier and include OCC’s internal systems within the description of potential sources of 

information and reports used for daily balancing activity. These revisions are intended to better 

reflect the sources of information OCC uses when conducting its daily balancing activity. 

5 For example, the CRM Policy explains that OCC’s approach to valuation includes that the 

maximum period between collateral revaluations is at least daily. See Exchange Act Release 

No. 82009 (Nov. 3, 2017), 82 FR 52079, 52080-81 (Nov. 9, 2017) (SR-OCC-2017-008).
Christopher J. Kirkpatrick

December 4, 2023

Page 5

The Reconciliation section also provides exceptions to the daily monitoring requirement 

concerning certain collateral for which OCC’s daily balancing activities previously were impractical. 

OCC believes these reviews and associated exceptions to the daily monitoring requirement are no 

longer necessary. Specifically, OCC would delete reference to the monthly reviews of collateral 

deposited pursuant to letters of credit or depository receipts and security agreements. With respect 

to letters of credit, the monthly reviews date to when documentation for such collateral was 

maintained in physical files. Currently, OCC verifies and electronically retains documentation for 

letters of credit on the date a letter of credit is processed consistent with the CRM Policy’s daily 

monitoring requirement, making the monthly review exception for letters of credit redundant and 

unnecessary. With respect to depository receipts and security agreements, the processing of 

Canadian Government securities, to which those monthly reviews apply, no longer rely on such 

documentation. In any event, Collateral Services conducts a daily inventory reconciliation of 

Canadian Government securities, which is reasonably and fairly implied by the generally applicable 

daily balancing requirement under the Reconciliation section, discussed above. Accordingly, OCC 

proposes to delete the reference to these monthly reviews from the CRM Policy because the monthly 

reviews no longer serve any practical purpose. 

Similarly, OCC proposes to remove the CRM Policy’s discussion of the requirement that 

Collateral Services regularly review escrow deposit banks to ensure acceptable and sufficient 

collateral is maintained. This review dates to a time when OCC did not have daily visibility into the 

actual collateral holdings held at the banks as supporting collateral.6 OCC would review a collateral 

listing supplied by the banks on a quarterly basis. Currently, all non-cash collateral is pledged to 

OCC through the Depository Trust Company (“DTC”), which not only provides OCC with visibility 

into the holdings but allows OCC to validate and value the collateral in an automated fashion prior 

to giving credit to such deposits.7 OCC reconciles the non-cash inventory daily and performs a daily 

audit of any cash collateral maintained at the escrow banks against what OCC maintains in its 

systems. These daily reconciliation activities are reasonably and fairly implied by the generally 

applicable daily balancing requirement under the Reconciliation section, discussed above.

The Reconciliation section also requires OCC’s Collateral Services team to “immediately 

address” any discrepancies identified during its activity reviews and inventory balancing. How 

Collateral Services addresses such discrepancies is addressed in procedures maintained by Collateral 

Services. OCC proposes to revise the text of this section to recognize that Collateral Services 

maintains procedures to satisfy this obligation. 

OCC proposes to remove the entirety of the Margin Offset section, which consists of a 

description of margin collateral assets that are permitted to directly offset cleared positions (i.e., 

deposits in lieu of margin) and a statement that cleared positions can be fully covered by such assets 

6 See Exchange Act Release No. 79094 (Oct. 13, 2016), 81 FR 72129 (Oct. 19, 2016) (SROCC-2016-009) (approving changes to OCC’s escrow deposit program).

7

Id. at 72129.
Christopher J. Kirkpatrick

December 4, 2023

Page 6

and thus excluded from margin calculations. OCC Rules 610 and 601(f)(2) authorize such offsets 

and describe the collateral assets permitted to be offset. As such, OCC believes it is unnecessary to 

duplicate this information in the CRM Policy. 

The Governance and Annual Review section provides that a recommendation to add a new 

collateral type for margin or clearing fund purposes must address whether the collateral should be 

subject to a haircut or modeled within the System for Theoretical Analysis and Numerical 

Simulation (“STANS”). OCC proposes to specify in the CRM Policy that when the collateral type 

will be subject to haircuts, such haircuts will be expressed as percentages, as is consistent with 

current OCC practice. 

In addition, OCC proposes to make clarifying, conforming and other non-substantive 

changes to the CRM Policy. The proposed changes discussed below would not substantively alter 

the meaning of the revised provisions or the substance or requirements of the CRM Policy as they 

relate to OCC’s core clearance, settlement, and risk management activities. The following 

conforming revisions are intended to align the text of the CRM Policy with existing provisions of the 

Rulebook, By-Laws or other documents, as applicable, and to update the titles of documents 

referenced in the CRM Policy: 

• In the section to be renamed as Policy Content, and again in the subsequent Margin section, 

OCC proposes to insert references to Rule 610. Rule 610 establishes the rules around 

deposits in lieu of margin, which are a form of margin collateral. These changes would 

ensure alignment between the text of the CRM Policy and the Rulebook with respect to 

acceptable forms of margin collateral. In the amended Policy Content section, OCC also 

proposes to add that Clearing Fund collateral can be used to meet OCC liquidity needs for 

settlement. This change is also consistent with existing practice, as codified in OCC Rule 

1006(f). 

• OCC would revise two references to chapter 2 of the “STANS Margin Methodology 

document” to instead refer to the “STANS Methodology Description,” which replaced the 

legacy STANS Margin Methodology as the description of the STANS Methodology that is 

filed.8 

The following clarifying revisions are intended to restate existing provisions for improved 

clarity and accuracy:

• In the Purpose section, OCC proposes to replace collateral that “OCC has determined 

exhibits low credit, market and liquidity risks” with collateral that “is of low risk based on 

credit, market, and liquidity characteristics.” These revisions would not alter currently 

existing standards or practices but more clearly state what OCC’s definition of high quality 

collateral is based on. 

8 See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR 9410 (Feb. 12, 2021) (SR-OCC2020-016) (approving the establishment of the STANS Methodology Description).
Christopher J. Kirkpatrick

December 4, 2023

Page 7

• In the Margin section, OCC proposes to replace “price” with “value” in reference to the 

liquidation of margin assets at a price that reasonably approximates the value given to the 

asset as a collateral deposit, which would be consistent with the term “value” that is used 

later in the sentence. 

• In the Risk Considerations section, OCC proposes to insert the word “collateral” after 

“margin” to align with the term “Clearing Fund collateral” used immediately thereafter. In 

light of this alignment, OCC also proposes to insert “or both” to make clear that the Credit 

and Liquidity Risk Working Group (“CLRWG”)9determines which assets are considered 

acceptable for each category of collateral, or both categories, as applicable. 

• In the Sovereign Credit Risk section, OCC proposes to delete “particular” as a qualifier 

preceding “foreign sovereign’s debt.” The qualifier is unnecessary as OCC reviews each 

form of collateral prior to accepting it as collateral, so the revision does not substantively 

alter the meaning of the provision. 

• In the Valuations section, OCC proposes to restate how the haircut determination and review 

process informs OCC’s approach to addressing procyclicality. The current policy states that 

such process also “protects against potential pro-cyclical concerns” by considering stressed 

market conditions. OCC proposes to delete “potential” and instead state that the process 

“shall also protect against pro-cyclical concerns” by considering stressed market conditions. 

The revisions would not substantively alter existing processes but make more definitive 

OCC’s intent to address pro-cyclicality through its existing haircut determination and review 

process. OCC proposes to remove “in order” from the same sentence as it is a redundant 

statement of OCC’s purpose, which is adequately reflected in the statement. 

• The Haircuts section provides that changes to applicable haircut rates shall be made in 

accordance with applicable authority under Rule 604. OCC proposes to delete “applicable 

authority under” Rule 604 as it is redundant in the context of this sentence. 

• The Collateral Re-hypothecation and Substitution section refers to “Clearing Fund 

securities.” OCC proposes to revise the reference to “Clearing Fund collateral” for greater 

consistency with the section header and discussion in the preceding sentence, which refers to 

rehypothecation of “margin collateral.” 

Finally, OCC proposes to make typographical and administrative changes to the CRM Policy 

intended to correct spelling, capitalization, punctuation and grammar, remove unnecessary verbiage, 

and conform the CRM Policy’s format to OCC’s latest policy template. 

9 CLRWG is a cross-functional group responsible for assisting OCC’s Management 

Committee in overseeing and governing OCC’s credit and liquidity risk management 

activities and currently consists of representatives from Financial Risk Management—

including Credit Risk Management and Stress Testing and Liquidity Risk Management—

Corporate Risk Management, Treasury, and Operations.
Christopher J. Kirkpatrick

December 4, 2023

Page 8

2. Margin Policy

OCC proposes the following changes to the Margin Policy identified through its annual 

reviews of the policy.

In the Purpose section of the Margin Policy, OCC proposes to delete “assure performance” 

of Clearing Members as a stated purpose for collecting margin. The act of collecting margin 

recognizes that no counterparty’s performance can be fully assured. The proposed revisions would 

merely clarify the discussion in the Margin Policy without any impact on the substance or 

requirements of OCC’s margin collection practices or Clearing Member obligations. 

OCC proposes to insert an Applicability and Scope section, which, similar to the change to 

the CRM Policy discussed above, would identify the primary OCC business units that support 

OCC’s approach to managing margin and credit exposure presented by its Clearing Members, 

including but not limited to P&M, Collateral Services, and QRM.

In the Net/Gross Margining Accounts section, OCC proposes to revise the discussion of net 

and gross margining to focus on OCC’s calculation of margin rather than OCC’s approach to 

liquidating positions in the event of a default. The current text provides that two approaches under 

applicable regulations to liquidating a Clearing Member’s positions include the immediate 

liquidation of positions that are margined on a net omnibus basis and the porting of customer 

positions that are margined on a gross basis. OCC believes it would be more appropriate to frame 

this discussion in the Margin Policy in terms of margin calculation considerations rather than 

position liquidation considerations, which are covered in other OCC policies and procedures.10 

Accordingly, OCC proposes to restate this section in terms of two approaches under applicable 

regulations for calculating margin, which include margining positions on a net omnibus basis and 

margining positions on a gross individual customer basis. The proposed revision would more 

accurately reflect the nature of the applicable regulatory provision while more clearly stating OCC’s 

approach to margin calculation in a manner that is consistent with its current operations and margin 

calculation processes. At the same time, OCC proposes to state in the Margin Policy that it 

calculates margin on a customer gross basis for select accounts, which facilitates the porting of 

futures Customer accounts in accordance with OCC’s Rules or By-Laws. The gross margin 

calculation is consistent with OCC’s current practice for customer segregated futures positions in 

accordance with CFTC Regulation 39.13(g)(8)(i)(A),11 which applies to OCC by virtue of its 

registration as a derivatives clearing organization (“DCO”). Lastly, OCC proposes to delete a 

statement from this section indicating that the methodology used to liquidate a customer account 

directly influences the manner in which OCC margins the account. Liquidation methodology is but 

10 OCC’s Default Management Policy outlines the steps that OCC may take in the event of a 

Clearing Member’s suspension, including the close-out of positions. See Exchange Act 

Release No. 82310 (Dec. 13, 2017), 82 FR 60265 (Dec. 19, 2017) (SR-OCC-2017-010).

11 See 17 CFR 39.13(g)(8)(i)(A). 
Christopher J. Kirkpatrick

December 4, 2023

Page 9

one of numerous factors (e.g., position risk, concentration of positions, correlations and offsets, and 

regulatory standards) influencing the manner in which an account is margined. Each of the above 

revisions would be consistent with OCC’s current operations and margin calculation processes. 

In the same section, OCC proposes to revise how it describes its approach to liquidating 

and/or porting a suspended Clearing Member’s accounts. The Margin Policy currently provides that 

OCC’s primary approach with respect to the positions of a suspended Clearing Member shall be 

immediate liquidation of net omnibus positions and porting of futures customer positions margined 

on a gross basis. The Margin Policy further specifies that accounts utilizing a net margining 

approach shall be liquidated on a net omnibus basis either through market transactions or an auction 

format. As above, OCC proposes to reframe the discussion in the Margin Policy to focus on the 

calculation of margin rather than considerations around liquidating positions, by noting instead that 

the calculation of margin on a net basis is consistent with OCC’s primary approach for liquidating a 

Clearing Member’s positions. In light of this revised focus on margin calculation rather than 

liquidation, OCC proposes to delete the statement regarding how net margin accounts will be 

liquidated. The proposed changes are intended to clarify the relationship between OCC’s margin 

calculation approach and its decisions to port or liquidate positions in a default scenario, in 

accordance with applicable regulations and OCC’s existing Rules.12 

The same section provides that gross margining of accounts “shall permit” OCC to port 

individual customer accounts and associated margin to a solvent futures commission merchant 

(“FCM”). This text could be read to imply that gross margining ensures that OCC will be able to 

port individual customer accounts and associated margin in all cases, which cannot be guaranteed in 

advance. Accordingly, OCC proposes to revise this statement to instead focus on the effect of gross 

margining on OCC’s decision-making by clarifying that gross margining permits OCC to “identify” 

individual customer positions and margin deposits, which facilitates porting along with associated 

margin deposits. As provided in OCC Rule 1106 and implied by the proposed revision to this 

statement, and to further ensure that OCC retains an appropriate and necessary degree of flexibility 

to manage risk arising from a Clearing Member default, OCC further proposes to state that utilizing 

gross margining would not preclude OCC from liquidating those positions on a net basis. Each of 

these proposed revisions would align the discussion in the Margin Policy to be consistent with 

OCC’s currently contemplated approach to porting considerations as reflected in the Rules, and 

other policies and procedures governing OCC’s default management process, and would not alter the 

substance or requirements of the Margin Policy as they relate to OCC’s core clearance, settlement, 

and risk management activities. 

In the Segregated Futures Customer Gross Margining section, the Margin Policy provides 

that OCC margins customer segregated futures accounts on a gross margin basis to facilitate the 

porting of futures customers in the event of an FCM default. As noted above, the requirement to 

collect gross margin for customer futures accounts is established at CFTC Regulation 

12 See OCC Rule 1106(c) (providing that OCC shall close open futures positions of a 

suspended Clearing Member in the most orderly manner practicable).
Christopher J. Kirkpatrick

December 4, 2023

Page 10

39.13(g)(8)(i)(A),13 which applies to OCC by virtue of its registration as a DCO. This is a 

requirement that applies to OCC by operation of law and does not need to be restated in the Margin 

Policy.14 Lastly, the statement could be interpreted to be contradictory to a later statement in the 

same section that OCC will require the larger of the gross or net margin requirement calculated for 

the account. For these reasons, OCC proposes to delete the statement in its entirety. 

In the Stock Loan Positions section, OCC proposes to revise its discussion of add-on charges 

for stock loan positions to enhance clarity. The Margin Policy currently provides that OCC will 

include add-on margin charges as needed based on pricing and corporate action conventions. 

Because there are not different conventions to how corporate actions are applied to stock loan 

contracts, OCC proposes to instead provide that add-on margin charges will be included based on 

pricing conventions and corporate action entitlements of the applicable stock loan program. OCC 

would remove the phrase “as needed” from the current text since the relevant add-on margin charges 

are driven by the pricing conventions and cash entitlements of the program, making that phrase 

redundant in the context. The proposed revisions would update and clarify the description of OCC’s 

approach to add-on charges in the Margin Policy without impacting current OCC operations. In 

addition, OCC would change an “i.e.,” to “e.g.,” in the same section because the subsequent list of 

risk calculations is non-exhaustive.

In the Cross-Margin section, OCC proposes to expressly state that margin requirements for 

cross-margin accounts shall be calculated in accordance with OCC’s margin methodology, while 

taking into account any provisions of the applicable cross-margin agreement. The revised text 

would conform with what is reflected in OCC Rule 704(a), which provides that margin in respect of 

cross-margin accounts shall be determined by OCC in accordance with that rule and the relevant 

cross-margin agreement. In a footnote to the same section, OCC notes that the establishment, 

implementation, maintenance and review of cross-margin agreements is governed by the rule-filed 

Third-Party Risk Management Framework15 and a list of underlying procedures that support that 

Framework. OCC proposes to streamline this footnote by instead cross-referencing the “Third-Party 

Risk Management Framework and underlying procedures.” Reference to each of the underlying 

procedures was not intended to be a rule per se, and eliminating this information from the Margin 

13 17 CFR 39.13(g)(8)(i)(A). 

14 Because this margin calculation requirement is codified in a regulation it would be 

potentially confusing to continue stating that OCC margins customer futures accounts on a 

gross basis “to facilitate the porting of customers.” While this may be the intended outcome 

of the gross margin minimum requirement, it is more accurate that OCC collects the required 

amount primarily to meet its risk management obligations in accordance with applicable 

regulations.

15 See Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR 86592, 86593 (Dec. 30, 2020) 

(SR-OCC-2020-014) (“The [Third-Party Risk Management Framework] describes OCC’s 

framework for managing risk throughout the relationship lifecycle (i.e., at on-boarding, 

monitoring and off-boarding) for Clearing Members, Financial Institutions, and vendors.”).
Christopher J. Kirkpatrick

December 4, 2023

Page 11

Policy would encourage OCC staff to use OCC’s internal system of record to identify the procedures 

that are related to the specific purpose or function that they are performing instead of relying on a 

list that may be outdated or underinclusive. 

In the Collateral section, the Margin Policy states that margin deposits are due on “the 

morning” following the trade date. OCC proposes to amend reference to the generally applicable 

deadline, which could vary in certain circumstances (e.g., with respect to trades that clear on dates 

preceding a weekend or a bank holiday or where OCC issues an intra-day margin call). The 

reference would be updated to the “morning of the business day” following the trade date, as 

provided by OCC Rule 601(a). The reference would be further updated to provide that with respect 

to intraday margin calls, margin deposits are due at such other time as provided by OCC Rule 609 

and the section of the CRM Policy that addresses intra-day margin calls. The proposed revisions 

would update and clarify the description of OCC’s practices in the Margin Policy to better reflect a 

wider range of circumstances than are currently contemplated therein, and would not entail any 

changes to current OCC operations or margin collection practices. 

The Collateral in Margins section provides that OCC shall promote incentives to hedge by 

including certain forms of margin within the STANS margin calculation. OCC proposes to delete 

extraneous information regarding the content of OCC’s rules, including that OCC’s rules include 

scenarios that could impact Clearing Member exposures as a result of the collateral deposited. This 

information is implied by the beginning of the sentence, which explains that OCC intends to achieve 

the desired result by including margin collateral as specified in the referenced documents, and need 

not be duplicated in the Margin Policy. 

The same section currently requires QRM to perform an analysis, in accordance with 

referenced procedures, to confirm that risk interactions between derivative and cash market positions 

are being appropriately recognized. OCC proposes to update the reference to conform to the current 

name of the referenced procedures. In addition, to remove potential ambiguity regarding the scope 

of the required analysis, OCC proposes to specify that the analyses performed by QRM in 

accordance with the referenced procedures should confirm that the STANS margin model is 

effectively modeling the risk interactions. This addition would clarify that the Margin Policy 

requires QRM’s analyses to confirm the effectiveness of STANS’ modeling of the risk interactions, 

but does not establish a requirement that QRM separately confirm the appropriate recognition of risk 

interactions between derivative and cash markets outside of the STANS margin model. The scope 

of QRM’s obligation to confirm that risk interactions are being appropriately recognized in STANS 

is reasonably and fairly implied in the context of the paragraph, which discusses collateral that is 

included in STANS margin calculations, but OCC proposes to add specificity to enhance clarity 

regarding QRM’s obligations. 

In the Risk Factors section, OCC proposes to change the description of its evaluation of the 

appropriateness of risk factors considered within its models to strike “on an ongoing basis” and 

replace it with “on a regular basis.” That section lists several types of periodic reviews designed to 

achieve this aim, including reviews of Exchange proposals to list new products pursuant to 
Christopher J. Kirkpatrick

December 4, 2023

Page 12

referenced procedures, FRM’s daily backtesting, monthly reporting of such backtesting results to the 

Model Risk Working Group (“MRWG”)16, and QRM’s review of OCC’s margin methodology in 

accordance with referenced procedures to reasonably ensure that the margin methodology 

incorporates all significant risk factors and supports the robustness of OCC’s margin resources, 

which QRM performs monthly or more frequently as required by regulations applicable to OCC.17 

In addition, as discussed elsewhere in the Margin Policy, OCC’s Model Risk Management business 

unit performs an annual review of the overall performance of the STANS margin methodology and 

its associated models. The periodicity of such reviews is discussed elsewhere in the Margin Policy. 

This revised text would be consistent with similar revisions noted above,18 as well as the timeline for 

periodic reviews of risk model performance conducted under applicable policies and procedures. 

The proposed rule change would not entail a change to current OCC operations. 

The same paragraph also provides that FRM shall continually evaluate the effectiveness of 

specified risk models. OCC proposes to delete the modifier “continually” as it could be read to 

create an expectation that OCC conducts 24/7 evaluations of its models. The revisions would only 

change the description of OCC’s practices in the Margin Policy to enhance consistency with regard 

to its current model performance review process and would not impact OCC operations. 

In the same section, OCC proposes to delete text indicating that QRM is responsible for 

reasonably ensuring that margin methodologies incentivize Clearing Members to be aware of their 

own risks and mitigate their exposures. One of QRM’s primary responsibilities, as discussed above, 

is to establish, implement, maintain and review margin methodologies to reasonably ensure that they 

incorporate all significant risk factors and support the robustness of OCC’s margin resources. The 

measure of any incentive effect from OCC’s margin methodology on Clearing Members’ awareness 

of risk or mitigation of exposures is inherently qualitative and falls outside of QRM’s ordinary remit. 

OCC further believes that well-designed margin methodologies would naturally support the creation 

of incentives at each Clearing Member to be aware of and mitigate their risks. Accordingly, OCC 

proposes to remove QRM’s responsibility to monitor indirect and qualitative effects of the 

methodology at third-party Clearing Members while retaining that team’s primary responsibilities 

16 The MRWG is a cross-functional group responsible for assisting OCC’s Management 

Committee in overseeing and governing OCC’s model-related risk issues and currently 

consists of representatives from FRM, including QRM, and from Corporate Risk 

Management, including Model Risk Management.

17 See 17 CFR 240.17Ad-22(e)(6)(vi)(C) (requiring a clearing agency to conduct sensitivity 

analysis of its margin model and a review of its parameters and assumptions for backtesting 

more frequently than monthly during periods of time when the products cleared or markets 

served display high volatility or become less liquid, or when the size or concentration of 

positions held by the covered clearing agency’s participants increases or decreases 

significantly).

18 See supra notes 4-5 and accompanying text.
Christopher J. Kirkpatrick

December 4, 2023

Page 13

with respect to quantitative aspects of margin model design, implementation, monitoring and review 

processes. 

The Market Data and Pricing Considerations section provides that P&M shall transmit 

pricing data to both OCC’s primary and back-up data centers, pursuant to a referenced procedure. 

OCC proposes to delete this operational detail with respect to OCC’s current data infrastructure from 

the Margin Policy. Changes in OCC’s data infrastructure could render that statement inaccurate and 

the reference to OCC’s current primary and back-up data centers is not intended to be a rule per se.19 

In any event, the statement about transmission of data is reasonably and fairly implied by the 

existing text of the section, which provides that P&M shall review the quality and completeness of 

market data “prior to distribution [to] downstream systems and external consumers.”

The same section also provides that OCC shall rely upon real-time market data in order to 

continually evaluate the value of Clearing Member portfolios. OCC proposes to remove the “realtime” qualifier for enhanced accuracy because other market data beyond real-time data is also 

relevant to OCC’s evaluation process. The proposed rule change would clarify that OCC may use 

intraday data. As above, the statement that OCC “continually” evaluates the value of portfolios 

could be read to imply that OCC values portfolios on a 24/7 basis. OCC proposes to revise this 

statement to say that it evaluates portfolios “during market hours,” which OCC believes to be 

consistent with its regulatory and risk management obligations. These revisions are for clarification 

only and would not entail any changes to current OCC operations. 

The following paragraph in the same section provides that P&M shall systemically process 

and manually validate referenced settlement values in accordance with a referenced procedure. 

OCC proposes to delete “systemically” with regard to processing and “manually” with regard to 

validations in order to provide OCC with an appropriate degree of flexibility in determining how it 

shall process and validate the referenced values. Operational details regarding the conduct of such 

processes and validations are contemplated in the referenced procedure. OCC believes it is 

unnecessary to duplicate those operational terms in the Margin Policy as doing so creates the risk of 

inaccuracy in the Margin Policy should the relevant processes be amended in the future in 

accordance with applicable governance requirements. The proposed revisions would remove from 

the Margin Policy constraints on the mechanical processes OCC could use to process and validate 

referenced settlement values, but would not significantly impact OCC’s core clearance, settlement or 

risk management activities. 

In the Recalibration section, OCC proposes to update the discussion of the recalibration 

process for STANS econometric models to reflect its automation. The revised text would provide 

that recalibrations are to be performed systemically as reflected in the current STANS Methodology 

19 See Exchange Act Release No. 96113 (Oct. 20, 2022), 87 FR 64824 (Oct. 26, 2022) (SROCC-2021-802) (SEC notice of no objection to OCC’s proposed adoption of cloud 

infrastructure for OCC’s new clearing, risk management, and data management 

applications). 
Christopher J. Kirkpatrick

December 4, 2023

Page 14

Description.20 P&M would retain responsibility for monitoring outputs of the process and escalating 

issues and the stated timeline for the processing would not need to change. The proposed revisions 

would update the description of OCC’s mechanical process for recalibrations to reflect the 

automation of certain components, but would not otherwise impact its overall method for 

recalibrations or OCC’s core clearance, settlement, and risk management activities. 

In the same section, OCC proposes to add a footnote to explain that synthetic futures 

represent an exception to the 10-year lookback period for univariate parameters. This revision does 

not impact OCC’s operations as it merely conforms the discussion in the Margin Policy to be 

consistent with what is reflected in the STANS Methodology Description.21

The Stress Test Components section of the Margin Policy currently provides that FRM is 

required to continually evaluate the portion of stress losses that are not collected as margin against 

the Clearing Member’s net capital, in accordance with referenced procedures, and require the

Clearing Member to deposit additional margin, in accordance with Rules 601 and 609, in an amount 

equal to the exposure in excess of its net capital where FRM determines that the uncollateralized 

exposure exceeds the Clearing Member’s ability to absorb the loss based on its current 

capitalization. For clarity, OCC proposes to add that OCC’s policy of calling for additional margin 

in such circumstances does not preclude OCC from taking other protective measures under OCC’s 

recently amended Rule 307 if FRM determines a Clearing Member’s uncollateralized exposure 

presents elevated risk to OCC, including restrictions on distributions under Rule 307A, restrictions 

on certain transactions, positions and activities under Rule 307B, and additional operational, 

personnel, financial resource and risk management requirements under Rule 307C.22

The SPAN section states that the System for Portfolio Analysis of Risk (“SPAN”)23 is used 

to assess risk for a wide variety of financial instruments, including futures, options, physicals, 

equities or any combination thereof. OCC proposes to delete such informational background on 

SPAN’s capabilities as it is irrelevant to the discussion of how OCC uses SPAN to calculate margin 

requirements, which is the focus of this section, and OCC does not use SPAN to assess risk for all 

the instruments listed in that sentence. OCC also proposes to relocate a statement regarding OCC’s 

use of SPAN to compute gross margin for all segregated futures customers’ accounts within the 

paragraph in order to enhance clarity. 

20 See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR 9410 (Feb. 12, 2021) (SR-OCC2020-016) (approving the establishment of the STANS Methodology Description).

21 See id. 

22 See Exchange Act Release No. 97439 (May 5, 2023), 88 FR 30373, 30376 (May 11, 2023) 

(SR-OCC-2023-002) (approving amendments to OCC’s membership standards).

23 SPAN is a methodology developed by the Chicago Mercantile Exchange and used by many 

clearinghouses and exchanges around the world to calculate margin requirements on futures 

and options on futures.
Christopher J. Kirkpatrick

December 4, 2023

Page 15

OCC also proposes to revise the Scan Ranges section of the Margin Policy, which details 

certain functions related to the SPAN methodology. While this section accurately describes OCC’s 

use of scan ranges to establish margin covered under SPAN, OCC also performs recalibration of 

spread rates and other parameters under the SPAN methodology. For completeness, OCC proposes 

to specify parameters in addition to scan ranges that are used to calculate SPAN margin 

requirements. These changes would align the text of the Margin Policy with existing practices. 

OCC also proposes to delete the Scan Ranges section header in light of the expanded scope of 

parameters addressed thereunder. In the same section, OCC proposes to extend P&M’s recalibration 

responsibilities beyond scan ranges to include the additional parameters. These changes are 

reasonably and fairly implied by the SPAN section of the Margin Policy, which requires OCC to 

compute gross margin for all segregated futures customers’ accounts using SPAN.

In the same section, OCC proposes to revise its description of maintenance and initial margin 

calculations. These proposed changes are descriptive only and would not substantively alter OCC’s 

margin calculation process or the ratio between the calculated amounts. This section currently 

provides that minimum scan ranges used to satisfy the initial speculator margin and spread rates 

shall exceed 110% of the 99% VaR of the daily historical observations. To enhance clarity around

its initial and maintenance margin calculations and the ratio between the two values and update 

terminology with the latest conventions, OCC proposes to provide that the scan ranges established 

for the calculation of maintenance margin shall exceed the 99% VaR of the daily historical 

observations, and further provide that the scan ranges established for heightened risk profile margin 

calculations shall be at least 110% of that maintenance margin amount. These revisions only change 

the description of the two rates and the ratio between them to enhance clarity and are consistent with 

OCC’s current calculation practices for maintenance and initial margin and the latest terminology 

used by the CFTC.24

In the same section, OCC proposes to add that inter-month spread charges, in addition to 

SPAN scan ranges, incorporate a long-run historical estimate or look to periods of heightened 

volatility to guard against pro-cyclicality. The added reference to “inter-month spread charges” is 

consistent with OCC’s current process for calculating margin requirements under SPAN. OCC also 

proposes to add that the standard historical data look-back period used to establish scan ranges shall 

be “at least” 500 business days, except as provided in a referenced procedure. The addition of “at 

least” would be clarifying and would not impact OCC’s current approach to the SPAN margin 

calculations. OCC also proposes to remove “volatility” from the phrase “long-run historical 

volatility estimate,” which is only a textual change and would not impact OCC’s current approach to 

SPAN margin calculations. 

In the same section, OCC also proposes to remove the parenthetical example of unique risk 

characteristics attributable to particular products. The single example provided is not exhaustive and 

24 See Final Rule, Derivatives Clearing Organization General Provisions and Core Principles 

(Dec. 20, 2019), 85 FR 4800 (Jan. 27, 2020) (amending CFTC Rule 39.13(g)(8)(ii)).
Christopher J. Kirkpatrick

December 4, 2023

Page 16

the referenced procedure includes additional detail regarding risk characteristics. Duplicating this 

information in the Margin Policy is unnecessary and creates the risk of inaccuracy in the Margin 

Policy should the relevant processes be amended in the future in accordance with applicable 

governance requirements.

In the Intraday Margin Calls section, OCC proposes to change references to a “window” for 

issuing margin calls to a “standard time for processing”, or similar term. This change would 

enhance the clarity of the discussion in the Margin Policy by adopting uniform, clear language to 

refer to margin calls issued during the standard processing timeline, without impacting OCC 

operations associated with issuing margin calls. 

In the Extended Trading Hours Margin Calls section, OCC proposes to insert a reference to a 

“standard time for processing” an extended trading hours margin call and provide that OCC will 

establish such standard time in the referenced procedure. The use of the “standard time for 

processing” term is intended to align with the adoption of similar language in the immediately 

preceding Intraday Margin Calls section, as discussed above. The establishment of the deadline in a 

referenced procedure is consistent with and reasonably and fairly implied by OCC Rule 601(a), 

which authorizes OCC to specify the time by which Clearing Members are required to deposit 

margin with the Corporation. The proposed revision would not impact the operations of OCC as it 

relates to OCC’s core clearance, settlement, and risk management activities. In the same section 

OCC proposes to remove a reference to the 9:00 AM CT deadline for OCC to issue an extended 

trading hours margin call. Rule 601(a) authorizes OCC to specify the time by which every Clearing 

Member shall be obligated to deposit margin assets. OCC believes that reflecting such operational 

terms in the Margin Policy creates the risk of inaccuracy in OCC’s Margin Policy, should the 

specified deadline be amended or extended in accordance with applicable governance requirements. 

Accordingly, OCC has determined to remove the specific reference within OCC’s internal Margin 

Policy and instead refer to applicable procedures to establish the relevant timeline by which the 

margin call must be issued. OCC’s authority to amend or extend the deadline to deposit margin is 

fairly and reasonably implied by the text of Rule 601(a), and the proposed revisions would better 

enable OCC to give effect to this authority. 

The Holiday Margin Calls section requires OCC to issue holiday margin calls in specified 

amounts and circumstances. Currently, that section provides that when an account is subject to both 

a holiday and position risk margin call on the same day, OCC applies the larger of the two. 

Subsequent to the addition of this provision to the Margin Policy, OCC amended its rules to reflect 

Clearing Fund margin calls—that is, margin calls for a Clearing Member Group when an estimate of 

its Clearing Fund Draw25 exceeds 75% of the amount of the current Clearing Fund.26 Pursuant to 

25 The term “Clearing Fund Draw” refers to an estimated stress loss exposure in excess of 

margin requirements.

26 See Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855 (Aug. 2, 2018) (SROCC-2018-008) (amending Rule 609 related to intra-day margin).
Christopher J. Kirkpatrick

December 4, 2023

Page 17

OCC’s authority under OCC Rules 601(c)27 and 609,28 it is OCC’s practice to issue a Clearing Fund 

margin call in situations where a Clearing Member is subject to these other types of margin calls and 

the Clearing Fund margin call is the largest of the three. OCC proposes to update the Margin Policy 

to reflect this practice. Specifying Clearing Fund calls as an additional category of margin call 

would align the discussion in the Margin Policy with the types of calls OCC issues today and would 

not entail a change to current OCC operations or margin collection processes. 

The Review of Margin Methodology section outlines Model Risk Management’s 

responsibilities for evaluating the overall performance of STANS at least annually, in accordance 

with referenced policies and procedures, and for reporting its findings to the Risk Committee, which 

is tasked with reviewing the adequacy of OCC’s margin and clearing fund methodology, including 

the STANS margin methodology, at least once every twelve months. OCC proposes to delete a 

duplicative reference in the Margin Policy regarding Model Risk Management’s obligation to 

produce an annual report of the STANS margin methodology, which is fairly and reasonably implied 

in the preceding sentence as well as the Risk Committee Charter.29 OCC also proposes to delete 

references to Model Risk Management’s obligations to present its validation findings and annual 

report of the STANS margin methodology to the Risk Committee. Model Risk Management is the 

primary group responsible for ensuring the completion of the annual validation, which it conducts in 

accordance with applicable procedures, and reporting of its findings. Because the requirement to 

validate STANS is established in OCC’s rules and applicable procedures establish how Model Risk

Management plans and conducts its validation and reports any findings to the Risk Committee, OCC 

believes it is unnecessary to duplicate such details in the Margin Policy as doing so creates the risk 

of inaccuracy in the Margin Policy should the relevant requirements or processes be amended in the 

future in accordance with applicable governance requirements.

Like the changes to the CRM Policy discussed above, OCC proposes to make clarifying, 

conforming and other non-substantive changes to the Margin Policy. The proposed changes 

discussed below would not substantively alter the meaning of the revised provisions or the substance 

or requirements of the Margin Policy as they relate to OCC’s core clearance, settlement, and risk 

management activities. The following conforming revisions are intended to align the text of the 

Margin Policy with existing provisions of the Rulebook, By-Laws or other documents, as applicable, 

and to update the titles of documents referenced in the Margin Policy: 

27 See OCC Rule 601(c) (“Notwithstanding any other provision of this Rule 601, [OCC] may 

fix the margin requirement for any account or any class of cleared contracts at such amount 

as it deems necessary or appropriate under the circumstances to protect the respective 

interests of Clearing Members, [OCC], and the public.”)

28 See OCC Rule 609 (“The Corporation may require the deposit of additional margin (‘intraday margin’) by any Clearing Member in any account at any time during any business day to 

. . . protect [OCC], other Clearing Members or the general public.”).

29 See OCC Risk Committee Charter, available at https://www.theocc.com/companyinformation/documents-and-archives/board-charters (last revised May 26, 2022). 
Christopher J. Kirkpatrick

December 4, 2023

Page 18

• The STANS section describes STANS as modeling the volatility of individual products and 

the correlation amongst products. OCC proposes to replace references to “products” in this 

sentence with references to “risk factors.” These proposed revisions would align references 

in the Margin Policy and the STANS Methodology Description without impacting OCC’s 

operations or risk management activities. 

• The Recalibration section provides that recalibrations will incorporate a long-run historical 

volatility estimate, which serves as a floor during periods of low market volatility to reduce 

pro-cyclicality in OCC’s margin estimates. OCC proposes to replace “reduce” with 

“control,” to more affirmatively state OCC’s intent in adopting volatility floors. 

• The Margin Policy currently contains references to certain related policies, procedures and 

other documents that OCC maintains in support of the Margin Policy. These documents are 

reviewed and updated on a periodic basis, which at times may result in the consolidation of 

certain related policies, procedures and documents or changes in their names. OCC proposes 

to revise the Margin Policy to update internal policy and procedure names to reflect any 

changes resulting from these periodic reviews to ensure the accuracy, consistency, and clarity 

of the Margin Policy. The proposed changes are administrative in nature and are not 

intended to change the substance of the Margin Policy. 

The following clarifying revisions are intended to restate existing provisions for improved 

clarity and accuracy:

• In the Segregated Futures Customer Gross Margining section, OCC proposes to insert “for 

these accounts” to clarify that OCC will effect gross margining for customer segregated 

futures accounts. The revision is only intended to clarify the applicability of the statement. 

• In the Collateral in Margins section, OCC proposes to revise “certain forms of margin” 

within the STANS margin calculation to “certain forms of collateral” instead. This change is 

to enhance clarity in the description of OCC’s operations but does not change the meaning of 

the provision or OCC’s operations. The same section provides that OCC’s Management 

Committee shall be ultimately responsible for determining which types of collateral are 

included in STANS margin calculations. OCC proposes to remove “ultimately” to enhance 

clarity, as the Management Committee’s authority to make such determinations derives from 

the Board, which implies that the Board has “ultimate” responsibility for such decisions. 

OCC also proposes to change a reference to “exchange traded fund[s]” in a parenthetical 

providing examples of deposits of collateral eligible for inclusion in STANS to “exchange 

traded product[s]” because collateral-in-margin treatment also extends to exchange traded 

notes.

• In the Market Data and Pricing Considerations section, the Margin Policy establishes that 

P&M shall reasonably ensure that measures are taken to review the quality and completeness 

of market data prior to its distribution. OCC proposes to remove the qualifying language and 

establish that P&M is responsible for reviewing the quality and completeness of market data, 

as opposed to reasonably ensuring that measures are taken to review the data, prior to its 

distribution. This deletion would clarify P&M’s obligation for reviewing market data quality 
Christopher J. Kirkpatrick

December 4, 2023

Page 19

and completeness before it is distributed to downstream systems and external consumers. 

The proposed revision would add clarity to the Margin Policy and better ensure the integrity 

of market data at the critical stage prior to its downstream or external consumption. 

• In the Recalibration section, the Margin Policy provides that where P&M has “reasonable 

grounds for believing (e.g., with a newly created passive ETF tracking a longstanding index) 

that a suitable proxy exists,” such proxy may be used in place of the default distribution 

pursuant to the referenced procedure. OCC proposes to restate this section for additional 

clarity. The revised text would state that where P&M has “reasonable grounds for assigning 

a suitable proxy (e.g., a newly created passive ETF tracking a longstanding index),” such 

proxy may be used in place of the default distribution pursuant to the referenced procedure. 

These revisions would more clearly state P&M’s obligations as well as the circumstances in 

which P&M may exercise its discretion. In addition, OCC would amend a reference to the 

Model Risk Management business unit (formerly known as the Model Validation Group or 

“MVG”) to reflect the current name of that department, consistent with changes that OCC 

made to other such references in a prior rule filing.30

• In the Add-on Charges section, the Margin Policy states that in some instances, exposures 

that may be modeled outside of STANS through the use of add-on charges may not require 

sophisticated models to be derived. OCC proposes to remove “in some instances” as it is 

implied by the beginning of the sentence, which states that these exposures “may” not 

require sophisticated models to be derived, as well as language in the next sentence referring 

to “other instances.” In addition, the Margin Policy states that consistent with the referenced 

procedure, MRWG has the discretion to recommend approval of add-on margin charges to 

the Management Committee. OCC proposes to delete the reference to MRWG’s discretion 

as it is implied by the language that MRWG “may” recommend approval. 

• In the Margin Monitoring section, OCC proposes to clarify that FRM conducts the backtests 

that are designed by QRM. This division of labor is implied in the preceding statements of 

that section and is appropriately reflected in the relevant procedures. 

Finally, OCC proposes to make typographical and administrative changes to the Margin 

Policy intended to correct spelling, punctuation and grammar and remove unnecessary verbiage in 

the Margin Policy.

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:

30 See Exchange Act Release No. 95842 (Sept. 20, 2022), 87 FR 58409, 58419 (Sept. 26, 2022) 

(SR-OCC-2022-010) (proposing conforming changes to OCC’s risk management policies 

regarding the name of OCC’s Model Risk Management business unit).
Christopher J. Kirkpatrick

December 4, 2023

Page 20

Risk Management. OCC believes that the proposed changes are consistent with Core 

Principle D31 and the CFTC Regulations thereunder, including CFTC Regulation 39.13, which, 

among other things, requires that a DCO implement written policies, procedures, and controls 

approved by its board of directors, that establish an appropriate risk management framework that is 

reviewed regularly and updated as necessary.32 As described above, the proposed changes would 

better reflect current practices, remove extraneous information and make other non-substantive, 

clarifying and administrative changes to the text of the OCC Policies. The OCC Policies, including 

descriptions of practices and processes therein, are subject to periodic review. The proposed 

changes would apply recommendations made as part of OCC’s annual review of the OCC Policies 

and which are intended to ensure the OCC Policies maintain accurate descriptions of OCC practices 

and operations. 

Governance. OCC believes that the proposed changes are consistent with Core Principle O33

and the CFTC Regulations thereunder, including CFTC Regulation 39.24, which, among other 

things, requires that a DCO have governance arrangements that include clear and direct lines of 

responsibility.34 The proposed changes would update descriptions of processes and governance 

requirements in the OCC Policies to align with current practices and requirements. OCC believes 

these proposed revisions would thus support clarity in OCC’s governance arrangements and better 

ensure that OCC’s lines of responsibility are clear and direct.

Legal Risk Considerations. OCC believes that the proposed changes are consistent with 

Core Principle R35 and the CFTC Regulations thereunder, which require a DCO to have a wellfounded, transparent, and enforceable legal framework for each aspect of the activities of the DCO. 

Specifically, CFTC Regulation 39.27(b) requires, among other things, that a DCO operate pursuant 

to a well-founded, transparent, and enforceable legal framework that addresses each aspect of the 

activities of the DCO.36 The proposed changes are designed to align the text of the OCC Policies 

with current practices and to otherwise enhance accuracy, clarity and consistency in the documents. 

By improving the clarity and transparency of the CRM Policy and the Margin Policy, these changes 

would help support OCC’s legal basis for its collateral risk management and margin practices.

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

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

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

32 17 CFR 39.13(b).

33 7 U.S.C. 7a-1(c)(2)(O).

34 17 CFR 39.24(b)(4).

35 7 U.S.C. 7a-1(c)(2)(R).

36 17 CFR 39.27(b).
Christopher J. Kirkpatrick

December 4, 2023

Page 21

Opposing Views

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

Board members, Clearing Members or market participants. 

Notice of Pending Rule Certification

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

OCC in compliance with Regulation 40.6(a)(2) by posting a copy of this certification on OCC’s 

website concurrently with the filing of this submission.

Certification

OCC hereby certifies that the rule set forth complies with the Act and the CFTC’s 

regulations thereunder. 

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

Sincerely,

/s/ Maria Alarcon 

Maria Alarcon

Assistant General Counsel

Enclosure: Exhibits A and B