[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Notices]
[Pages 33535-33542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11784]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94988; File No. SR-OCC-2022-002]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of Proposed Rule Change Concerning the Options 
Clearing Corporation's Governance Arrangements

May 26, 2022.

I. Introduction

    On February 7, 2022, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2022-002 (``Proposed Rule Change'') 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to amend certain 
of its governing documents by (1) clarifying that OCC's Public 
Directors (defined below) may not be affiliated with any designated 
contract market (``DCM'') or futures commission merchant (``FCM''); (2) 
allowing OCC's board of directors (the ``Board'') to delegate certain 
authorities to Board-level committees \3\ or officers; (3) amending 
OCC's by-laws (the ``By-Laws'') with regard to stockholder consent; and 
(4) applying additional housekeeping amendments to the charter of the 
Board (``Board Charter'') and Committee Charters (collectively, the 
``Charters'').\4\ The Proposed Rule Change was published for public 
comment in the Federal Register on February 25, 2022.\5\ The Commission 
received one comment regarding the Proposed Rule Change.\6\ This order 
approves the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Committees supporting OCC's Board include an Audit 
Committee (the ``AC''), a Compensation and Performance Committee 
(the ``CPC''), a Governance and Nominating Committee (the ``GNC''), 
a Risk Committee (the ``RC''), and a Technology Committee (the 
``TC'') (collectively, the ``Committees''). The purpose, form, and 
function of the Committees is governed by each Committee's 
respective charter (i.e., the ``AC Charter,'' the ``CPC Charter,'' 
the ``GNC Charter,'' the ``RC Charter,'' and the ``TC Charter'') 
(collectively, the ``Committee Charters'').
    \4\ See Notice of Filing infra note 5, 87 FR at 10881.
    \5\ Securities Exchange Act Release No. 94283 (Feb. 18, 2022), 
87 FR 10881 (Feb. 25, 2022) (File No. SR-OCC-2022-002) (``Notice of 
Filing'').
    \6\ The comment on the Proposed Rule Change is available at 
https://www.sec.gov/comments/sr-occ-2022-002/srocc2022002.htm.
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II. Background <SUP>7</SUP>
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    \7\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
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A. Public Director Qualifications

    The Proposed Rule Change would amend Sections 6A and 12 of Article 
III of the By-Laws, the Fitness Standards adopted by the Board 
thereunder,\8\ and the Board Charter to codify OCC's practice of 
nominating Public Directors who are, in addition to other 
qualifications, unaffiliated with DCMs and FCMs. Currently, OCC's By-
Laws and Fitness Standards define Public Directors as individuals who 
are not affiliated with a national securities exchange, national 
securities association, or a broker or dealer in securities.\9\ OCC 
notes that these restrictions were intended to broaden the mix of 
viewpoints and business expertise represented on the Board.\10\ 
Subsequent to implementing these restrictions, OCC added futures market 
clearing memberships and expanded its services to include clearance of 
futures and futures options.\11\ OCC's practice has been and is to 
nominate Public Directors who are independent from DCMs and FCMs, and 
it believes it is appropriate to codify this practice in its By-Laws, 
Fitness Standards, and Board Charter.\12\ Similar to the existing 
restrictions related to national securities exchanges, securities 
associations, and brokers and dealers, OCC believes that the proposal 
to exclude DCM- or FCM-affiliated Public Directors would broaden the 
mix of viewpoints and business expertise represented on the Board.\13\
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    \8\ See Fitness Standards for Directors, Clearing Members, and 
Others, available at https://www.theocc.com/getmedia/40ab0b06-5e8a-441e-97e3-fab85d3cfe0b/fitness_standards.pdf.
    \9\ See By-Laws Art. III Sec.  6A & Interpretation and Policy 
.01.
    \10\ See Securities Exchange Act No. 30328 (Jan. 31, 1992), 57 
FR 4784 (Feb. 7, 1992) (File No. SR-OCC-92-2).
    \11\ See Exchange Act Release No. 44434 (June 15, 2001), 66 FR 
33283 (June 21, 2001) (File No. SR-OCC-2001-05).
    \12\ See Notice of Filing supra note 5, 87 FR at 10882.
    \13\ Id.
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B. Delegated Authority

    OCC proposes to amend the Charters to delegate authority from the 
Board to the Committees to review and approve certain routine 
initiatives and policies. In addition, OCC proposes to amend its

[[Page 33536]]

By-Laws and Committee Charters to delegate authority to authorize 
certain regulatory filings to a Committee or, in limited cases, an OCC 
officer.\14\ However, as provided under the current Board Charter, in 
all instances, the Board would retain the obligation to oversee such 
delegated activity.\15\
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    \14\ Under OCC's By-Laws, the Board may elect one or more 
officers as it may from time to time determine are required for the 
effective management and operation of the Corporation. By-Laws Art. 
IV Sec.  1. In addition, the Chairman, Chief Executive Officer and 
Chief Operational Officer each may appoint such officers, in 
addition to those elected by the Board, and such agents as they each 
shall deem necessary or appropriate to carry out the functions 
assigned to them. By-Laws Art. IV Sec.  2.
    \15\ See Board Charter, available at https://www.theocc.com/about/corporate-information/board-charter (stating that ``[t]he 
Board may form and delegate authority to committees and may delegate 
authority to one or more of its members and to one or more 
designated officers of OCC. However, in all instances, the Board 
retains the obligation to oversee such delegated activity and to 
assure itself that delegation and reliance on the work of such 
delegates is reasonable.'').
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    Currently, the Charters delegate to the Committees the review of 
many routine initiatives or policies, but not usually the approval. 
Regulatory filings generally require approval by the full Board.\16\ 
OCC believes that its current governance processes have several 
disadvantages, including mandating that numerous matters that otherwise 
would not occupy the time and attention of the Board be brought to the 
full Board for approval.\17\ OCC also believes that requiring Board 
approval makes it more difficult to obtain authorization for regulatory 
filings between regularly scheduled Board meetings absent a special 
Board meeting.\18\ In practice, the Board routinely delegates authority 
to Committees to approve initiatives, policy changes, and rule filings 
on a case-by-case basis when proposed changes are expected to be ready 
for Board-level review between regular Board meetings, in part because 
the Board relies on the business expertise of the directors appointed 
to the Committees to review and approve proposed changes within the 
scope of each Committee's responsibilities.
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    \16\ The Board has delegated the approval of fee change-related 
filings to the CPC, and the Board may delegate authority for 
approving individual filings on a case-by-case basis.
    \17\ See Notice of Filing supra note 5, 87 FR at 10882.
    \18\ Id.
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    The Proposed Rule Change would delegate to the Committees authority 
for the review and approval of certain initiatives and policies, as 
well as approval of proposed rule changes for matters within the scope 
of authority of each Committee. Specifically, OCC proposes to amend the 
Charters to delegate authority to the Committees to review and approve 
the following initiatives and policies that currently require Board 
approval:

------------------------------------------------------------------------
               Committee                     Initiatives and Policies
------------------------------------------------------------------------
Audit..................................  evaluation and appointment of
Committee (``AC'').....................   an external auditor
Compensation and Performance Committee   review and approval of the:
 (``CPC'').
                                         <bullet> corporate performance
                                          report (formerly the
                                          ``Corporate Plan''); and
                                         <bullet> annual budget
Governance and Nominating Committee      review and approval of the:
 (``GNC'').
                                         <bullet> Director Code of
                                          Conduct
                                         <bullet> Related Party
                                          Transaction Policy
                                         <bullet> Board self-evaluation
                                          questionnaire
Risk Committee (``RC'')................  review and approval of:
                                         <bullet> risk appetites and
                                          risk tolerances
                                         <bullet> changes to existing
                                          models
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    For matters that are within the scope of the Committee's 
responsibilities, each Committee generally would have the authority to 
amend OCC policies filed with the Commission as rules pursuant to the 
Exchange Act.\19\ The Board would, however, retain sole approval 
authority for certain policies.\20\ The Board would also retain the 
authority to revoke delegated authority and limit or modify the scope 
of such delegated authority, either in whole or in part, by Board 
resolution. OCC would also amend Article XI, Section 2 of the By-Laws 
to allow the Board to delegate authority to Committees to authorize the 
filing of proposed amendments to OCC's rules. Board approval would 
continue to be required for filings related to amendments that require 
a supermajority vote pursuant to Article XI, Section 2 of the By-
Laws.\21\ OCC would amend the Committee Charters to include among each 
Committee's functions and responsibilities the authorization of 
regulatory submissions within the scope of the functions and 
responsibilities delegated to each Committee.\22\
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    \19\ For example, with respect to risk management-related 
policies, OCC would amend the RC Charter by deleting the provisions 
requiring the RC to recommend changes to certain risk-related 
policies to the Board for approval. Instead, the RC would be 
authorized to approve such regulatory filings. The Board would 
continue to review OCC's risk management policies, procedures, and 
systems annually, but would delegate authority to approve intra-year 
changes to such policies and procedures to the RC.
    \20\ These include policies for which the Board has determined 
to retain oversight. For example, the Board would remain the sole 
authority to approve policies addressing decision-making in crises 
and emergencies. See Board Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
    \21\ Amendments requiring a supermajority vote include 
amendments of the introduction to Chapter X of the Rules (involving 
Clearing Fund contributions), Rule 1002, Rule 1006, Rule 1009, and 
Rule 1010. By-Laws Art. XI Sec.  2.
    \22\ The RC Charter currently grants the RC authority to 
``authorize the filing of regulatory submissions pursuant to'' the 
performance of the responsibilities and functions that the Board 
shall delegate to the RC from time to time. See RC Charter, 
available at https://www.theocc.com/about/corporate-information/board-charter.
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    OCC also proposes to allow the Board to delegate authority to an 
OCC officer to make certain regulatory filings. OCC believes that such 
delegated authority would help OCC to more efficiently revise its rules 
to improve their clarity and ensure their consistency.\23\ Factors the 
Board would consider in delegating such authority to an officer 
include, but are not limited to, the responsibilities and expertise of 
the officer to whom authority would be delegated and any limitations on 
the scope of the delegated authority, including limitations to the 
subject matter, materiality of the changes, the regulatory approval 
process required to implement the amendments, and the manner in which 
the officer must notify the Board or a Committee about filings approved 
pursuant to such authority. Such delegation authority and related 
factors are described in OCC's proposed changes to the Board Charter 
and Section 2 of Article XI of the By-

[[Page 33537]]

Laws.\24\ Based on the factors identified above, OCC believes that the 
Chief Legal Officer and Chief Regulatory Officer have the appropriate 
responsibility and expertise to identify matters suitable for delegated 
approval based on the limits imposed with respect to the method of 
filing the proposed changes under the Exchange Act and the materiality 
of the proposed changes.\25\
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    \23\ See Notice of Filing supra note 5, 87 FR at 10883.
    \24\ OCC anticipates that if implemented, the Board would 
delegate authority to the Chief Legal Officer and Chief Regulatory 
Counsel to authorize regulatory filings that (1) may be filed for 
immediate effectiveness pursuant to Section 19(b)(3) of the Exchange 
Act, and (2) proposed rule changes that the Chief Legal Officer or 
Chief Regulatory Counsel determines in his or her discretion to 
constitute clarifications, corrections or minor changes, in each 
case other than filings that would amend OCC's By-Laws, Rules that 
require a supermajority vote of the Board to amend pursuant to 
Article XI, Section 2 of the By-Laws, or rule-filed policies for 
which the Board has retained oversight vis-[agrave]-vis the 
Committees. In addition, OCC anticipates that if implemented, the 
Board's delegation of authority would be conditioned on the officers 
notifying the Board of regulatory filings approved by delegated 
authority at the next regularly scheduled Board meeting. OCC expects 
to implement procedures to ensure the Board is so notified. See 
Notice of Filing supra note 5, 87 FR at 10883.
    \25\ Id.
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C. By-Law Article XI

    OCC proposes to amend Article XI of the By-Laws to remove the 
provision that allows OCC to treat an Exchange Director's vote as the 
consent of the stockholder who elected the Exchange Director for those 
amendments to the By-Laws that require stockholder consent. According 
to OCC, the provision codified a long-standing understanding between 
OCC and the stockholders to consider the affirmative vote of each 
Exchange Director as the approval of the stockholder.\26\ To avoid 
potential conflicts between an Exchange Director's fiduciary duty as a 
director of OCC and the Exchange Director's fiduciary duty to the 
stockholder, the By-Laws provide that an Exchange Director may disclaim 
such stockholder consent.\27\ It is OCC's current practice to obtain 
written consent from the stockholders for all matters that require such 
consent.\28\ OCC contends that the Proposed Rule Change would eliminate 
the outdated authority in OCC's By-Laws to impute an Exchange 
Director's vote to constitute stockholder consent and better reflect 
current practice.\29\ As a result, OCC's By-Laws would require written 
consent from the stockholders for all matters that require such 
consent.
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    \26\ See Exchange Act Release No. 43630 (Nov. 28, 2000), 65 FR 
75991, 75991 (Dec. 5, 2000) (File No. SR-OCC-00-05) (``Each of OCC's 
stockholders is a participant exchange of OCC, and each is entitled 
to elect one `exchange director' to OCC's board of directors. It has 
been the practice of OCC and the exchanges to consider the 
affirmative vote of each exchange director to be the required 
approval of the stockholder that elected that exchange director. OCC 
is proposing to amend Article XI, Section 1 to provide more explicit 
authorization for this procedure.'').
    \27\ Id.
    \28\ See Notice of Filing supra note 5, 87 FR at 10884. Such 
matters would include amendments to Sections 2, 3 and 5 of Article 
II (By-Laws pertaining to Stockholders, including those addressing 
Special Meetings, Quorum, and Voting), Article III (By-Laws 
pertaining to the Board), as well as other Articles listed in 
Article XI. By-Laws Art. XI Sec.  1.
    \29\ Id.
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D. Other Amendments to the Board Charter and Corporate Charters

    The Proposed Rule Change would make other amendments to the 
Charters arising from the annual review of OCC's governance 
arrangements. These proposed amendments are intended to increase 
consistency across OCC's governance arrangements and to make other 
conforming changes to improve their clarity and transparency. These 
changes are described and broadly categorized below.\30\
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    \30\ Many of the components of the Proposed Rule Change may 
serve more than one purpose and could, therefore, be discussed in 
more than one category herein. The categorization of changes is not 
designed to denote otherwise.
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(1) Clarity and Transparency
    The Proposed Rule Change would amend the Board Charter to provide 
for a minimum of four meetings per year, rather than five. This change 
would align the Board Charter with the Committee Charters, which 
generally require at least four meetings each year. The Proposed Rule 
Change would also modify the attendance guidelines to provide that 
attendance telephonically or by videoconference for meetings scheduled 
for in-person attendance is discouraged. This change conforms with the 
current Director Code of Conduct and would be applied to each of the 
Committee Charters.
    The Proposed Rule Change would also amend the discussion of the 
Board's mission to more accurately reflect that OCC's services to the 
industry are not limited to clearance and settlement.\31\ The 
amendments would also clarify that the Board approves ``material,'' 
rather than ``major,'' changes in auditing and accounting principles 
and practices. This proposed change would align the Board Charter with 
language in the AC Charter.
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    \31\ For example, OCC provides thought leadership and education 
to market participants and the public about the prudent use of 
products that OCC clears.
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    The Proposed Rule Change would also revise the description of the 
Conflict of Interest Policy within the Board Charter. The current 
Conflict of Interest Policy does not define ``conflict of interest,'' 
but rather refers variously throughout the policy to different types of 
conflicts, including potential conflicts and apparent conflicts, which 
are referred to as those that may ``be reasonably perceived by others 
to raise questions about potential conflicts of interest.'' OCC would 
streamline the policy by defining ``conflict of interest'' as ``actual, 
potential or apparent conflicts of interest'' and referring to the new 
defined term ``conflict of interest'' throughout the policy instead of 
identifying specific types of conflicts (i.e., potential or apparent) 
at various points throughout the policy. Accordingly, OCC would remove 
the current references to potential and apparent conflicts of interest 
scattered throughout the policy, including the references to apparent 
conflicts of interest described as matters that may ``be reasonably 
perceived by others to raise questions about potential conflicts of 
interest.'' These changes would align the Board Charter with the 
current Director Code of Conduct, which employs the same defined term. 
The Board Charter's discussion of ethics and conflicts of interest 
would also be amended to reflect the full title of the Director Code of 
Conduct and the corporate title for OCC's general counsel. In addition, 
the Board Charter would be updated to clarify that an Exchange 
Director's, Member Director's, or Public Director's qualification as 
independent for purposes of service on the AC is subject to the 
assessment of the Board and GNC, which includes other disqualifying 
material relationships, as provided by the current Board Charter.
    OCC is also proposing to update the cadence of certain AC reviews 
to reflect that the AC shall conduct such reviews at each regular 
meeting of the AC.\32\ The current AC Charter contemplates that the AC 
shall conduct certain reviews quarterly based on the assumption that 
regular meetings will occur quarterly. OCC believes that, while it is 
generally the case that regular meetings are scheduled each quarter, 
the proposed change would avoid the need to call special meetings to 
address items on a quarterly cadence if a regularly scheduled meeting 
happens to fall at the beginning of the next quarter or the end of the 
last quarter.\33\ The cadence of reviews for other reports described as 
``periodic'' or occurring ``regularly''

[[Page 33538]]

would also be amended to reflect that that the review would be 
conducted at each regular meeting of the AC. Similar changes would be 
made to the CPC Charter and TC Charter.
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    \32\ Such reviews include, but are not limited to, regulatory 
inspection reports and OCC's system of internal controls.
    \33\ See Notice of Filing supra note 5, 87 FR at 10885.
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    OCC would amend the CPC Charter by removing gendered pronouns that 
assume the Chairman and Chief Executive Officer necessarily will be 
individuals who identify as male. Similar changes would be applied to 
the Board Charter and AC Charter. The Proposed Rule Change would also 
provide for CPC oversight of OCC's succession planning for ``critical 
roles,'' in alignment with terminology in OCC's policies and procedures 
that address succession planning. In addition, references to the 
``Corporate Plan'' would be replaced with references to the ``corporate 
performance report,'' which better describes the initiative by which 
the CPC assesses OCC's performance against its corporate goals.
    OCC would amend the RC Charter by changing the minimum number of 
meetings from six to four to align with the other Committee Charters, 
which generally require at least four meetings each year.
    The Proposed Rule Change also includes administrative changes 
designed to enhance the clarity and conciseness of the Charters. For 
the Board Charter, OCC is proposing the following:
    <bullet> Under the ``Mission of the Board'' heading, in the tenth 
bulleted item describing the Board's oversight role, removing ``such 
officer'' from ``approving the compensation of each such officer'' so 
that the bullet would state ``[o]verseeing the development and design 
of employee compensation, incentive, and benefit programs and 
evaluating the performance of any Executive Chairman, the Chief 
Executive Officer, and the Chief Operating Officer and approving the 
compensation of each'';
    <bullet> under the ``Board Issues'' heading and ``Membership'' 
subheading: In the first paragraph of the ``Selection of Member Directs 
and Public Directors'' section, removing ``in order'' in ``retain a 
search firm in order to assist [the GNC] in these efforts'';
    <bullet> in the second paragraph of the same section, replacing 
``such annual meeting'' with ``the annual meeting,'' deleting ``as in 
effect from time to time'' from ``the Director Nomination Procedure as 
in effect from time to time,'' and deleting the introductory clause 
beginning the sentence, ``With respect to Member Directors'';
    <bullet> in the ``Member Directors Changing Their Employment'' 
paragraph of the ``Retirement'' section, deleting ``with respect 
thereto'' and ``requirements of the'' in ``the [GNC] . . . shall 
recommend to the Board any action to be taken with respect thereto, 
consistent with the requirements of the By-Laws concerning the 
continued eligibility of such person to remain a Member Director;''
    <bullet> under the ``Board Issues'' heading and ``Conduct'' 
subheading, the second paragraph of ``Distribution of Materials; Board 
Presentations'' in the ``Board Meetings'' section, replacing 
``summaries/slides of presentations'' with ``materials''; and
    <bullet> under the ``Management Structure, Evaluation and 
Succession'' heading and ``Management Structure'' section, deleting 
``what is in'' in the phrase ``the specific needs of the business and 
what is in the best interest of OCC and the market participants it 
serves.''
    OCC is also proposing certain administrative changes designed to 
enhance the clarity, conciseness, and consistency of the AC Charter. 
Specifically, OCC is proposing the following:
    <bullet> Changing the reference to the AC's review of the 
``Compliance Policy'' to the ``Compliance Risk Policy'' to align with 
the current title of that policy;
    <bullet> modifying reference to the General Counsel to reflect that 
the General Counsel is OCC's Chief Legal Officer;
    <bullet> clarifying that, in the section addressing competencies of 
AC members, ``working familiarity with basic finance and accounting 
practices'' means ``financial literacy'';
    <bullet> under the ``Membership and Organization'' section, (i) in 
the first paragraph of the ``Composition'' section, abbreviating 
``Board of Directors'' and removing extraneous references to the 
``full'' Board and ``full Committee membership,'' and (ii) in the first 
paragraph of the ``Meetings'' section, replacing ``The Committee will'' 
with ``The Committee shall'' for consistency with the language of 
similar requirements; and
    <bullet> under the ``Functions and Responsibilities'' section, in 
the ninth bulleted item concerning the AC's functions and 
responsibilities in discharging is oversight role, replacing ``at least 
once in a calendar year'' with ``at least once every calendar year.''
    For the CPC Charter, OCC is proposing the following:
    <bullet> In the ``Membership and Organization'' section, (i) in the 
first paragraph of the ``Composition'' section, replacing ``The 
Committee shall consist of'' with ``The Committee shall be comprised 
of''; and (ii) in the first paragraph of the ``Meetings'' section, 
replacing ``The Committee will'' with ``The Committee shall'' and 
deleting ``is'' in the phrase ``as is necessary'';
    <bullet> in the ``Authority'' section and ``Scope'' subsection, 
correcting a reference to ``employees of the OCC,'' which should be 
``employees of OCC;''
    <bullet> for the bulleted items discussing the CPC's functions and 
responsibilities in discharging its oversight role in the ``Functions 
and Responsibilities'' section: In the fifth bulleted item, deleting 
the phrase ``with respect thereto''; in the eighth bulleted item 
replacing ``For each calendar year'' with ``Each calendar year''; and 
fifteenth bulleted item, replacing ``every two years'' with ``every two 
calendar years.''
    For the GNC Charter, OCC is proposing the following:
    <bullet> Under the ``Membership and Organization'' section, in the 
first paragraph of the ``Composition'' section, (i) replacing ``The 
Committee will be composed'' with ``The Committee shall be comprised,'' 
(ii) inserting ``at least'' before the required number of Exchange 
Director and Member Director membership on the GNC, and (iii) replacing 
``The Committee Chair will be designated by the Board from among the 
Public Director Committee members'' with ``The Chair shall be a Public 
Director''; and
    <bullet> for the bulleted items discussing the GNC's functions and 
responsibilities in discharging its oversight role in the ``Functions 
and Responsibilities'' section: In the eleventh bulleted item, 
replacing ``For each calendar year'' with ``Each calendar year''; and 
in the thirteenth bulleted item, replacing ``the manner in which'' with 
``how.''
    OCC also proposes certain administrative changes to the RC Charter, 
including (i) to specify that the RC recommends changes to OCC's 
Recovery and Orderly Wind-Down Plan ``for approval,'' consistent with 
language used with respect to policies for which the Board has retained 
approval authority with respect to amendments; and (ii) to replace 
``examinations'' with ``audits'' in the description of the RC's 
oversight of internal or external audits of OCC's financial, 
collateral, risk model and third party risk management processes, 
consistent with the use of the term ``audit'' elsewhere in that 
description.
    The proposed changes also include a few administrative changes 
designed to enhance the clarity and concision in the TC Charter. These 
minor administrative changes remove unnecessary verbiage or otherwise 
modify the verbiage in certain provisions.

[[Page 33539]]

(2) Clear and Direct Lines of Responsibility
    The Proposed Rule Change would amend the Board Charter by 
clarifying that the Board has delegated to Committees the ``oversight'' 
of specific risks, not the ``management'' of those risks. OCC believes 
that this proposed change better aligns the Board Charter with the 
Committee Charters and better distinguishes responsibilities of the 
Board, Committees, and management.\34\ The Board Charter would also be 
amended to replace reference to ``senior management'' or management in 
instances where referring to OCC's Management Committee would more 
clearly delineate OCC's governance structure.
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    \34\ See Notice of Filing supra note 5, 87 FR at 10884.
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    The AC assists the Board in overseeing OCC's financial reporting 
process, OCC's system of internal control, OCC's auditing process, 
OCC's process for monitoring compliance with applicable laws and 
regulation, and OCC's compliance and legal risks.\35\ The Proposed Rule 
Change would amend the AC Charter, and specifically the discussion of 
the AC's functions and responsibilities, by adding the AC's oversight 
of management's responsibility to ``measure'' compliance and legal 
risks to conform with the Board Charter, which provides that the Board 
oversees OCC's processes and frameworks for comprehensively managing 
such risks. In addition, the proposed changes provide that the AC 
recommends material changes in accounting principles and practices for 
Board approval, which aligns with the Board Charter, which provides 
that the Board oversees OCC's financial reporting, internal and 
external auditing, and accounting and compliance processes, including 
the approval of such major (i.e., material) changes.
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    \35\ See AC Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
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    The Board established the CPC to assist in overseeing general 
business, regulatory capital, investment, corporate planning, and 
compensation and human capital risks, as well as executive management 
succession planning and performance assessment.\36\ Consistent with the 
proposed change to the AC Charter, OCC proposes to amend the CPC 
Charter by describing the CPC's oversight of management's 
responsibility to ``measure'' general business risks, including as they 
relate to OCC's corporate performance report (formerly the ``Corporate 
Plan'') and corporate budget, capital requirements, human capital, 
compensation and benefit programs, management succession planning, and 
management performance assessment processes, arising from OCC's 
business activities in light of OCC's role as a systemically important 
financial market utility, to conform with similar language in the Board 
Charter. With respect to oversight of OCC's human resources programs, 
the Proposed Rule Change would amend the CPC Charter to reflect the 
CPC's oversight of OCC's diversity, equity, and inclusion efforts.
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    \36\ See CPC Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
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    The Board established the GNC to assist the Board in overseeing 
OCC's corporate governance processes, including assessing the clarity 
and transparency of OCC's governance arrangements, establishing the 
qualifications necessary for Board service to ensure that the Board is 
able to discharge its duties and responsibilities, identifying and 
recommending to the Board candidates eligible for service as Public 
Directors and Member Directors, and resolving certain conflicts of 
interests.\37\ The proposed changes to the GNC Charter are designed to 
clarify the Board's expectation that the GNC assist the Board in 
reviewing and proposing changes to the Board Charter, by stating that 
the GNC would recommend to the Board, where appropriate, changes to the 
Board Charter and Corporate Governance Principles.
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    \37\ See GNC Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
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    The Board established the RC to assist the Board in overseeing 
OCC's financial, collateral, risk model and third-party risk management 
processes, among other responsibilities.\38\ Consistent with the 
foregoing Committee Charter changes, the Proposed Rule Change would 
amend the RC Charter by describing the committee's oversight of 
management's responsibility to ``measure'' these risks arising from 
OCC's business activities in light of OCC's role as a systemically 
important financial market utility, which conforms with similar 
language in the Board Charter. OCC would also amend the RC Charter to 
provide that the RC shall review, and have the authority to approve, 
OCC's risk appetites and risk tolerances at least once every twelve 
months. Such a change would be consistent with the proposed delegation 
of authority for such reviews and approvals, discussed above. In 
addition, the Proposed Rule Change would consolidate discussion of the 
RC's functions and responsibilities with respect to oversight and 
annual review of OCC's management of liquidity risks and the adequacy 
of OCC's committed liquidity facilities. This change would streamline 
the RC Charter's discussion of liquidity risks.
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    \38\ See RC Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
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    The Board established the TC to assist the Board in overseeing 
OCC's information technology (``IT'') strategy and other company-wide 
operational capabilities.\39\ Consistent with the foregoing Committee 
Charter changes, this proposed rule change would amend the TC Charter 
by describing the TC's oversight of management's responsibility to 
``measure'' IT and other operational risks arising from OCC's business 
activities in light of OCC's role as a systemically important financial 
market utility to conform with similar language in the Board Charter. 
The Proposed Rule Change would also amend the TC Charter to reflect the 
TC's current practice of overseeing all security risks, not just 
information security risks.
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    \39\ See TC Charter, available at https://www.theocc.com/about/corporate-information/board-charter.
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(3) Consideration of Participants' Objectives and Other Relevant 
Stakeholders' Interests
    The Proposed Rule Change would amend provisions governing the 
composition of the Board and the RC to reflect OCC's belief that strong 
and transparent governance with robust member input on relevant risk 
issues is necessary to provide effective risk management, consistent 
with OCC's current practice. Changes to the Board Charter and RC 
Charter would codify that one of the factors OCC considers when 
nominating Directors to the Board and RC is to obtain input from a 
broad array of market participants on risk management issues. OCC 
believes that this amendment would align the Board Charter and RC 
Charter with the By-Laws, which require significant Clearing Member 
representation on the Board.\40\ OCC believes the Proposed Rule Change 
is consistent with the recommendation made by certain market 
participants that central counterparties like OCC have governance 
practices in place that obtain and address input from a broader array 
of market participants on risk issues.\41\
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    \40\ See Notice of Filing supra note 5, 87 FR at 10884.
    \41\ Id.

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[[Page 33540]]

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to such organization.\42\ After carefully 
considering the Proposed Rule Change, the Commission finds that the 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to OCC. More 
specifically, the Commission finds that the proposal is consistent with 
Section 17A(b)(3)(F) of the Exchange Act,\43\ and Rule 17Ad-22(e)(2) 
\44\ thereunder, as described in detail below.
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    \42\ 15 U.S.C. 78s(b)(2)(C).
    \43\ 15 U.S.C. 78q-1(b)(3)(F).
    \44\ 17 CFR 240.17Ad-22(e)(2).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires, among other 
things, that a clearing agency's rules are designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivative agreements, contracts, and 
transactions; and the rules are designed, in general, to protect 
investors and the public interest.\45\ Based on its review of the 
record, and for the reasons described below, the Commission believes 
that the proposed changes to revise OCC's governance arrangements are 
consistent with being organized to facilitate the prompt and accurate 
clearance and settlement of securities transactions and derivative 
agreements, contracts, and transactions for which OCC is responsible, 
and protect investors and the public interest.
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    \45\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that OCC's proposed changes to codify its 
practice of nominating Public Directors who are unaffiliated with DCMs 
and FCMs are consistent with Section 17A(b)(3)(F). This amendment would 
likely preserve OCC's ability to enhance diversity of representation on 
the Board and aid the Board in exercising its oversight of OCC's 
clearance and settlement functions to ensure that they are not just 
prompt and accurate, but are also structured to protect investors and 
promote the public interest. The Commission believes that the changes 
to OCC's governing documents to facilitate inclusion of the 
perspectives provided by non-DCM- and non-FCM-affiliated Public 
Directors should support the protection of the public interest because 
such Public Directors are not affiliated with and therefore should not 
have conflicts obligating them to represent the views of any DCM or 
FCM, in addition to any national securities exchange, securities 
association, broker, or dealer.
    In response to the Notice of Filing,\46\ the Commission received a 
comment opposing the proposal on the basis that it does not consider 
the interests of Clearing Members' customers, and only benefits OCC's 
biggest shareholders by enabling OCC to increase systemic risk.\47\ The 
Commission disagrees with this assertion, as the proposed change to 
appoint non-DCM- and non-FCM-affiliated Public Directors would preserve 
OCC's ability to enhance Board diversity and improve stakeholder 
representation, rather than decrease it. By limiting the appointment of 
Public Directors to candidates unaffiliated with securities exchanges, 
securities associations, brokers, dealers, FCMs, and DCMs, OCC enhances 
rather than hinders its ability to consider and address the interests 
of stakeholders, including Clearing Members' customers and small 
shareholders.
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    \46\ See Notice of Filing supra note 5, 87 FR at 10881.
    \47\ The comment on the Proposed Rule Change is available at 
https://www.sec.gov/comments/sr-occ-2022-002/srocc2022002.htm.
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    OCC's proposed changes to establish a framework for delegated 
authority are also consistent with Section 17A(b)(3)(F). The Commission 
believes that the Proposed Rule Change would establish a clear and 
transparent framework for the delegation of authority from the Board to 
Committees and to officers to approve changes to certain rules. Such a 
framework would facilitate the efficient maintenance and administration 
of OCC's rules because it would allow the Board to delegate the 
approval of routine regulatory changes to Committees or officers, which 
would in turn leverage the specialized experience of the Committees or 
officers and expedite review and approval of routine matters. 
Facilitating the efficient maintenance and administration of OCC's 
rules would help to ensure that such rules promote the prompt and 
accurate clearance and settlement of securities transactions because 
the routine rule changes would not need to wait for Board approval. 
This would allow OCC to file such rule changes with the Commission more 
quickly and ensure that amendments to the clearance and settlement 
process are enacted promptly.
    The commenter opposing the proposal argues that the Proposed Rule 
Change would ``concentrate power and risk while reducing checks and 
balances'' by, in part, increasing executive control while reducing 
Board control.\48\ However, the Commission does not believe that the 
proposed changes would reduce Board control in practice, given that the 
Board would retain the obligation to oversee the delegated activity in 
all instances. Moreover, the Committees are comprised entirely of Board 
Directors, which means that any issues that are delegated to the 
Committees will be presented for Board Directors' consideration 
regardless.
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    \48\ Id.
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    The Commission further believes the proposed change to Article XI 
of OCC's By-Laws is consistent with Section 17A(b)(3)(F). Crucially, 
the Proposed Rule Change does not change the existing Article XI 
requirement that certain By-Law amendments cannot occur through the 
action of the Board without the approval of all of the stockholders. 
The proposed amendment to remove the language attributing an Exchange 
Director's vote to constitute stockholder consent is a reasonable step 
given OCC's current practice of obtaining written stockholder consents 
for all By-Law amendments that require them. The separation of the 
roles of individuals serving as both Board members and stockholder 
representatives would, in general, protect investors and the public 
interest.
    Additionally, the Commission believes that the other housekeeping 
amendments to the Charters arising from the annual review of OCC's 
governance arrangements are consistent with Section 17A(b)(3)(F). As 
described above, many of the housekeeping amendments would resolve 
small inconsistencies within and across OCC's rules. The proposed 
changes would also more clearly define the responsibilities of the 
Board and Committees as well as codify that OCC's Board seeks to obtain 
input from a broad array of market participants on risk management 
issues. These housekeeping amendments to the Board and Committee 
Charters would, in general, protect investors and the public interest.
    The Commission believes, therefore, that the proposal to (i) 
clarify that OCC's Public Directors may not be affiliated with any DCM 
or FCM; (ii) allow the Board to delegate authority to various 
Committees and officers to review and approve routine initiatives and 
policies and authorize certain regulatory filings; (iii) remove the 
portion of Article XI,

[[Page 33541]]

Section 1 of the By-Laws; and (iv) make certain housekeeping amendments 
to the Charters is consistent with the requirements of Section 
17A(b)(3)(F) of the Exchange Act.\49\
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    \49\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2) under the Exchange Act

    Rule 17Ad-22(e)(2) under the Exchange Act requires that a covered 
clearing agency establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that, among other things, are clear and transparent, 
support the public interest requirements in Section 17A of the Exchange 
Act applicable to clearing agencies and the objectives of owners and 
participants, specify clear and direct lines of responsibility, and 
consider the interests of participants' customers, securities issues 
and holders, and other relevant stakeholders of the covered clearing 
agency.\50\
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    \50\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), (v), and (vi).
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    The Commission believes the proposed changes to nominate Public 
Directors who are unaffiliated with DCMs and FCMs are consistent with 
Rule 17Ad-22(e)(2)(vi). The changes serve to enhance the diversity of 
the Board by requiring that OCC look beyond parties affiliated with 
exchanges, associations, and other such market participants when 
appointing Public Directors. This improved representation would in turn 
enable the Board to better consider the interests of participants' 
customers, securities issues and holders, and other relevant 
stakeholders of the covered clearing agency.
    OCC's proposed changes to delegate authority are consistent with 
Rule 17Ad-22(e)(2)(v). The Commission believes that by delegating 
approval of certain regulatory changes to Committees, the authority to 
review and approve certain initiatives and policies or to direct 
certain regulatory filings would reside with the Committee that has 
oversight authority over the relevant subject matter for such 
initiatives, policies, and proposed changes. Such delegations would 
allocate the limited time and attention of the Board more efficiently. 
The proposed changes to delegate authority aid in specifying clear and 
direct lines of responsibility.
    The Commission believes the proposed change to Article XI is 
consistent with Rule 17Ad-22(e)(2)(iii). By removing the provision that 
allows OCC to treat an Exchange Director's vote as the consent of the 
stockholder who elected the Exchange Director for those amendments to 
the By-Laws that require stockholder consent, the proposed change would 
resolve an Exchange Director's potential conflict of interest of acting 
with fiduciary duty as a director while also having a fiduciary duty to 
the stockholder. Given that OCC retains the requirement in Article XI 
for all stockholders to approve amendments to certain portions of the 
By-Laws, the proposed provision removal would not result in any 
negative impacts to the stockholder. Instead, the separation of the 
Exchange Director's roles as Board members and stockholder 
representatives would better support the public interest requirements 
of Section 17A.
    Moreover, the Commission believes that all of the proposed 
housekeeping changes to the Charters are consistent with specific 
subsections of Rule 17Ad-22(e)(2) as described below.
    Rule 17Ad-22(e)(2)(i) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent.\51\ The Commission believes that 
changes described above in Section II.D.1 are consistent with Rule 
17Ad-22(e)(2)(i), in that they either improve the alignment of the 
governance documents or correct minor inaccuracies, which in turn 
creates stronger clarity and transparency. For example, OCC proposed 
changes across the charter to require the Board and Committees each to 
hold at least four meetings per year.
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    \51\ 17 CFR 240.17Ad-22(e)(2)(i).
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    The commenter opposing the proposal argues that the Proposed Rule 
Change would ``concentrate power and risk while reducing checks and 
balances'' by, in part, reducing meeting frequency.\52\ However, the 
Commission does not believe that the proposed changes to the Board's 
meeting frequency will negatively affect the ability of the Board to 
address stockholder concerns. By amending the number of Board meetings 
per year from five to four to align with the meeting frequency 
specified in the Committee Charters, OCC will potentially increase 
administrative efficiency and better ensure the Board or the Committees 
address all isssues critical to stakeholders. Additionally, the 
Proposed Rule Change does not preclude the Board from holding 
additional meetings as needed.
---------------------------------------------------------------------------

    \52\ The comment on the Proposed Rule Change is available at 
https://www.sec.gov/comments/sr-occ-2022-002/srocc2022002.htm. The 
commenter also raised concerns abouit ``increasing roadblocks for 
potential new Board members.'' Id. However, the commenter does not 
specify what portions of the Proposed Rule Change would represent a 
``roadblock,'' if any. In contrast, the Commission believes that a 
significant portion of the Proposed Rule Change would in fact make 
OCC's governance arrangements clearer and more transparent and also 
specify clear and direct lines of responsibility as discussed below.
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    Rule 17A-22(e)(2)(v) requires that a covered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that specify clear and direct lines of responsibility.\53\ The 
Commission believes that the changes described above in Section II.D.2 
are consistent with Rule 17Ad-22(e)(2)(v), as they each serve to 
clarify the specific responsibilities of the Board, the Committees, and 
officers.
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    \53\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    Finally, Rule 17Ad-22(e)(2)(vi) requires that a covered clearing 
agency establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that consider the interests of participants' customers, securities 
issues and holders, and other relevant stakeholders of the covered 
clearing agency.\54\ The proposed changes to the Board Charter and RC 
Charter to codify input from a broad array of market participants as 
one of the factors considered for nominating Directors to the Board and 
Risk Committee are consistent with this Rule, as the diversity of 
opinions would better consider a broader array of interests among OCC's 
relevant stakeholders.
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    \54\ 17 CFR 240.17Ad-22(e)(2)(vi).
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    The Commission believes, therefore, that the proposal to (i) 
clarify that OCC's Public Directors may not be affiliated with any DCM 
or FCM; (ii) allow the Board to delegate authority to various 
Committees and officers to review and approve routine initiatives and 
policies and authorize certain regulatory filings; (iii) remove the 
portion of Article XI, Section 1 of the By-Laws; and (iv) apply 
additional housekeeping amendments is consistent with the requirements 
of Rule 17Ad-22(e)(2)(i), (iii), (v), and (vi) under the Exchange 
Act.\55\
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    \55\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), (v), and (vi).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the 
Exchange Act, and in particular, the requirements of Section 17A of the 
Exchange Act \56\ and the rules and regulations thereunder.
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    \56\ In approving this Proposed Rule Change, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).

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[[Page 33542]]

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\57\ that the Proposed Rule Change (SR-OCC-2022-002) be, 
and hereby is, approved.
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    \57\ 15 U.S.C. 78s(b)(2).
    \58\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11784 Filed 6-1-22; 8:45 am]
BILLING CODE 8011-01-P