[Federal Register Volume 87, Number 114 (Tuesday, June 14, 2022)]
[Notices]
[Pages 36023-36028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95068; File No. SR-OCC-2022-008]


Clearing Agency; The Options Clearing Corporation; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Concerning 
Adoption of a Cybersecurity Attestation Program

June 8, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 25, 2022, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared primarily by OCC. OCC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would amend the OCC's Rules to (1) define 
``Cybersecurity Confirmation'' as a signed, written representation that 
addresses the submitting firm's cybersecurity program; and (2) enhance 
the OCC application requirements and ongoing requirements for 
applicants for clearing membership (``Applicants'') and Clearing 
Members to require (a) each Applicant to provide a completed 
Cybersecurity Confirmation as part of its application materials, and 
(b) each Clearing Member to deliver to OCC a complete, updated 
Cybersecurity Confirmation at least every two years, as described in 
greater detail below. The proposed changes to OCC's Rules are included 
as Exhibit 5 of File No. SR-OCC-2022-008. Material proposed to be added 
to the Rules 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.\5\
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    \5\ 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.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(1) Purpose
Overview
    OCC is proposing to modify the Rules in order to (1) define 
``Cybersecurity Confirmation'' as a signed, written representation that 
addresses the submitting firm's cybersecurity program; and (2) enhance 
its existing practices to require that (a) all Applicants deliver a 
complete Cybersecurity Confirmation as part of their application 
materials, and (b) all Clearing Members to deliver a complete, updated 
Cybersecurity Confirmation at least every two years, on a date 
established by OCC.
    As described in more detail below, the Cybersecurity Confirmation 
would help OCC assess the cybersecurity risks that may be introduced to 
it by Clearing Members and Applicants that connect to OCC's networks 
and systems. The proposed Cybersecurity Confirmation would allow OCC to 
better assess its Clearing Members' and Applicants' cybersecurity 
programs and frameworks and identify possible cybersecurity risk 
exposures. Based on this information, OCC could take action to enhance 
its existing controls and mitigate identified risks and potential 
impacts to OCC's operations.
    OCC believes it is prudent to implement a standardized approach for 
due diligence of cybersecurity risks that it may face through its 
interconnections to Clearing Members. As a designated systemically 
important financial market utility (``SIFMU''),\6\ a failure or 
disruption to OCC could increase the risk of significant liquidity 
problems spreading among financial institutions or markets and thereby 
threaten the stability of the financial system in the United States. 
Given its designation as a SIFMU, OCC believes it is prudent to enhance 
its understanding of endpoint security frameworks so that its network 
and systems remain protected against cyberattacks.
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    \6\ OCC was designated as a SIFMU under Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010. 12 
U.S.C. 5465(e)(1).
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    OCC maintains a Third-Party Risk Management (``TPRM'') Framework 
that is designed to enable OCC to identify, measure and manage 
potential operational, information technology and security risks 
arising from third-parties, including Clearing Members and 
Applicants.\7\ Under the TPRM framework, OCC obtains information 
regarding the security of an Applicant's systems and cybersecurity 
program prior to admitting the firm as a Clearing Member and permitting 
it to connect directly to OCC or through another means, such as a 
through a third-party service provider, service bureau, network, or the 
internet. OCC obtains information regarding the security of a Clearing 
Member's systems and cybersecurity program on a periodic basis 
thereafter through risk

[[Page 36024]]

examinations that are conducted in accordance with the TPRM Framework.
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    \7\ See Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR 
86592, 86593 (Dec. 30, 2020) (File No. SR-OCC-2020-014).
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    OCC's existing process for assessing cybersecurity risks that may 
be presented by Clearing Members and Applicants uses a questionnaire 
format. Responses help OCC determine whether the submitting firm (i) 
has established a process to notify OCC regarding security incidents; 
(ii) has a formal incident communication procedure integrated with its 
security incident response and escalation process; (iii) uses 
encryption to protect data within and outside of its network; (iv) has 
established appropriate access controls, including with respect to OCC 
systems and data; and (v) validates controls using independent, third-
party auditors or information security professionals. OCC may require 
supporting information or documentation for any of these items. While 
the questionnaire is standardized, the form and content of supporting 
documentation requested by OCC is not. OCC's process for validating the 
submitting firm's information can be iterative and time-consuming. OCC 
proposes to adopt a more standardized approach for due diligence of 
Clearing Members' and Applicants' cybersecurity programs and 
frameworks. OCC believes the proposed rule change would enhance the 
consistency of information OCC receives from submitting firms, align 
with industry peers and improve process effectiveness and 
efficiency.\8\ The proposal would better enable OCC to understand which 
Clearing Members may present a heightened cybersecurity risk by 
requiring the firms to provide information in a standardized format, 
which OCC could better use to make decisions about potential network 
risks or threats. Additionally, the proposed rule change would 
harmonize OCC's cybersecurity due diligence requirements for Clearing 
Members and Applicants with requirements that were adopted by the 
National Securities Clearing Corporation, Fixed Income Clearing 
Corporation and Depository Trust Company (collectively, the ``DTCC 
Clearing Agencies'') and filed with the Commission.\9\ The content of 
OCC's proposed Cybersecurity Confirmation form, included at Exhibit 3, 
is substantively identical to the content of the cybersecurity 
confirmation form adopted by the DTCC Clearing Agencies. OCC believes 
an attestation-based format would be more efficient and effective than 
its current questionnaire-based format in ascertaining whether the 
submitting firm maintains appropriate policies, processes and programs 
with respect to cyber risk. OCC's proposed rule change would improve 
process effectiveness and efficiency for all submitting firms and OCC. 
As noted above, OCC's existing process for evaluating Clearing Members' 
cybersecurity programs uses a question-and-answer format that tends 
toward an iterative process for gathering responses and supporting 
documentation. OCC's proposal would enhance process efficiency for all 
submitting firms by standardizing the form of submissions and thereby 
reducing the time and effort required to demonstrate the existence of 
an acceptable cybersecurity framework. In addition, the large majority 
of OCC Clearing Members are required to make attestations regarding 
their cybersecurity programs that are substantively identical to OCC's 
proposal. OCC believes that aligning the format and content of OCC's 
cybersecurity attestation with that used by the DTCC Clearing Agencies 
would enhance process efficiency by eliminating the duplication of 
effort currently required for these common Clearing Members to submit 
different sets of materials to OCC and the DTCC Clearing Agencies 
regarding the firm's cybersecurity practices.\10\ These process 
efficiencies also support program effectiveness by filtering the 
requested information into standardized format, which better enables 
OCC to review and identify areas of interest or concern for a specific 
firm or groups of firms. The frequency of OCC reviews under the 
proposed framework would also increase from every three years to every 
two years, which OCC believes would further enhance process 
effectiveness.
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    \8\ See infra note 10.
    \9\ See Exchange Act Release No. 87696 (Dec. 9, 2019), 84 FR 
68243, 68244-68245 (Dec. 13, 2019) (File No. SR-NSCC-2019-003); 
Exchange Act Release No. 87697 (Dec. 9, 2019), 84 FR 68266, 68267-
68268 (Dec. 13, 2019) (File No. SR-FICC-2019-005); Exchange Act 
Release No. 87698 (Dec. 9, 2019), 84 FR 68269, 68270-68271 (Dec. 13, 
2019) (File No. SR-DTC-2019-008), respectively (collectively, 
``Orders Approving Program'').
    \10\ Approximately 90% of current OCC Clearing Members are also 
members or participants at one or more of the DTCC Clearing 
Agencies.
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    OCC Clearing Members may currently be subject to regulations that 
are designed, in part, to enhance the safeguards used by these entities 
to protect themselves against cyberattacks.\11\ In order to comply with 
such regulations, Clearing Members and Applicants would be required to 
follow standards established by national or international organizations 
focused on information security management, and would have already 
established protocols to allow their senior management to verify that 
they have sufficient cybersecurity programs in place to fulfill 
existing regulatory obligations. Other Clearing Members have 
established and follow substantially similar protocols because of 
evolving expectations by regulators or by institutional customers as to 
the sufficiency of their cyber safeguards. Additionally, approximately 
90% of OCC's Clearing Members are subject to requirements that are 
substantively identical to the proposed rule change by virtue of their 
membership or participation at one or more of the DTCC Clearing 
Agencies. The proposed rule change would establish a uniform approach 
for Clearing Members and Applicants to demonstrate the adequacy of 
their cyber and information security programs to OCC, while also 
aligning with the approach adopted by the DTCC Clearing Agencies and 
applicable to the large majority of OCC's Clearing Members already.\12\
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    \11\ For example, depending on the type of entity, Clearing 
Members or Applicants may be subject to one or more of the following 
regulations: (1) Regulation S-ID, which requires ``financial 
institutions'' or ``creditors'' under the rule to adopt programs to 
identify and address the risk of identity theft of individuals (17 
CFR 248.201-202); (2) Regulation S-P, which requires broker-dealers, 
investment companies, and investment advisers to adopt written 
policies and procedures that address administrative, technical, and 
physical safeguards for the protection of customer records and 
information (17 CFR 248.1-30); and (3) Rule 15c3-5 under the 
Securities Exchange Act of 1934 (``Act''), known as the ``Market 
Access Rule,'' which requires broker-dealers to establish, document, 
and maintain a system for regularly reviewing the effectiveness of 
its management controls and supervisory procedures (17 CFR 240.15c3-
5).
    \12\ See Orders Approving Program, supra note 9.
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Proposed Rule Changes
    OCC is proposing to modify its Rules to (1) define ``Cybersecurity 
Confirmation;'' and (2) require that firms deliver a completed 
Cybersecurity Confirmation (a) as part of their initial application 
with OCC, and (b) on an ongoing basis, at least every two years. Each 
of these proposed rule changes is described in greater detail below.
(a) Proposed Cybersecurity Confirmation
    OCC is proposing to adopt a definition of ``Cybersecurity 
Confirmation.'' Each Cybersecurity Confirmation would be required to be 
in writing on a form provided by OCC and signed by a designated senior 
executive of the submitting firm who is authorized to attest to these 
matters. Based on the form provided by OCC, each Cybersecurity 
Confirmation would contain representations regarding the submitting 
firm's cybersecurity program and framework. In addition, Clearing 
Members and Applicants would be

[[Page 36025]]

required to identify its designated control officer and the standards 
and/or frameworks it uses to guide and assess its cybersecurity 
program. While the proposed Cybersecurity Confirmation would identify 
certain standards and guidelines that would be appropriate, OCC would 
consider requests by Clearing Members and Applicants to allow other 
standards in accepting a Cybersecurity Confirmation.
    The initial representations made by Clearing Members and Applicants 
would be made as of the date of submission to OCC. Subsequent 
representations made by Clearing Members would cover the two years 
prior to the date of the most recently provided Cybersecurity 
Confirmation.
    OCC is proposing to require that the following representations be 
included in the form of Cybersecurity Confirmation:
    First, the Cybersecurity Confirmation would include a 
representation that the submitting firm has defined and maintains a 
comprehensive cybersecurity program and framework that considers 
potential cyber threats that impact its organization and protects the 
confidentiality, integrity, and availability requirements of its 
systems and information.
    Second, the Cybersecurity Confirmation would include a 
representation that the submitting firm has implemented and maintains a 
written enterprise cybersecurity policy or policies approved by senior 
management or the organization's board of directors, and the 
organization's cybersecurity framework is in alignment with standard 
industry best practices and guidelines, as indicated on the form of 
Cybersecurity Confirmation.\13\
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    \13\ Examples of recognized frameworks, guidelines and standards 
that OCC believes are adequate include the Financial Services Sector 
Coordinating Council Cybersecurity Profile, the National Institute 
of Standards and Technology Cybersecurity Framework (``NIST CSF''), 
International Organization for Standardization (``ISO'') standard 
27001/27002 (``ISO 27001''), Federal Financial Institutions 
Examination Council (``FFIEC'') Cybersecurity Assessment Tool, 
Critical Security Controls Top 20, and Control Objectives for 
Information and Related Technologies. OCC would identify recognized 
frameworks, guidelines and standards in the form of Cybersecurity 
Confirmation and in an Information Memorandum that OCC would issue 
from time to time. OCC would also consider accepting other standards 
upon request by a Clearing Member or Applicant.
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    Third, the Cybersecurity Confirmation would include a 
representation that, if the submitting firm is using a third-party 
service provider or service bureau(s) to connect or transact business 
or to manage the connection with OCC, the submitting firm has an 
appropriate program to (a) evaluate the cyber risks and impact of these 
third parties, and (b) review the third-party assurance reports.
    Fourth, the Cybersecurity Confirmation would include a 
representation that the submitting firm's cybersecurity program and 
framework protect the segment of its system that connects to and/or 
interacts with OCC.
    Fifth, the Cybersecurity Confirmation would include a 
representation that the submitting firm has in place an established 
process to remediate cyber issues identified to fulfill the submitting' 
firm's regulatory and/or statutory requirements.
    Sixth, the Cybersecurity Confirmation would include a 
representation that the submitting firm's cybersecurity programs and 
framework's risk processes are updated periodically based on a risk 
assessment or changes to technology, business, threat ecosystem, and/or 
regulatory environment.
    Lastly, the Cybersecurity Confirmation would include a 
representation that the review of the submitting firm's cybersecurity 
program and framework has been conducted by one of the following: (1) 
the submitting firm, if it has filed and maintains a current 
Certification of Compliance with the Superintendent of the New York 
State Department of Financial Services confirming compliance with its 
Cybersecurity Requirements for Financial Services Companies; \14\ (2) a 
regulator who assesses the program against an industry cybersecurity 
framework or industry standard, including those that are listed on the 
form of Cybersecurity Confirmation and in an Information Memorandum 
that is issued by OCC from time to time; \15\ (3) an independent 
external entity with cybersecurity domain expertise in relevant 
industry standards and practices, including those that are listed on 
the form of Cybersecurity Confirmation and in an Information Memorandum 
that is issued by OCC from time to time; \16\ or (4) an independent 
internal audit function reporting directly to the submitting firm's 
board of directors or designated board of directors committee, such 
that the findings of that review are shared with these governance 
bodies.
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    \14\ 23 N.Y. Comp. Codes R. & Regs. tit. 23, Sec.  500 (2017). 
This regulation requires firms to confirm that they have a 
comprehensive cybersecurity program, as described in the regulation, 
which OCC believes is sufficient to meet the objectives of the 
proposed Cybersecurity Confirmation.
    \15\ Industry cybersecurity frameworks and industry standards 
could include, for example, the Office of the Comptroller of the 
Currency or the FFIEC Cybersecurity Assessment Tool. OCC would 
identify acceptable industry cybersecurity frameworks and standards 
in the form of Cybersecurity Confirmation and in an Information 
Memorandum that OCC would issue from time to time. OCC would also 
consider accepting other industry cybersecurity frameworks and 
standards upon request by a Clearing Member or Applicant.
    \16\ A third party with cybersecurity domain expertise is one 
that follows and understands industry standards, practices and 
regulations that are relevant to the financial sector. Examples of 
such standards and practices include ISO 27001 certification or NIST 
CSF assessment. OCC would identify acceptable industry standards and 
practices in the form of Cybersecurity Confirmation and in an 
Information Memorandum that OCC would issue from time to time. OCC 
would also consider accepting other industry standards and practices 
upon request by a Clearing Member or Applicant.
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    Together, the required representations are designed to provide OCC 
with evidence of each Clearing Member's and Applicant's management of 
cybersecurity with respect to their connectivity to OCC. By requiring 
these representations from Clearing Members and Applicants the proposed 
Cybersecurity Confirmation would provide OCC with additional 
information that it could use to make decisions about risks or threats, 
perform additional monitoring, target potential vulnerabilities and 
protect the OCC network.
    OCC is proposing to amend the Rules to include a definition of 
``Cybersecurity Confirmation,'' as described above, in a new Rule 219 
(Cybersecurity Confirmation).
(b) Initial and Ongoing Requirement
    OCC is proposing to require that a Cybersecurity Confirmation be 
submitted by each Applicant, as part of its application materials, and 
at least every two years by each Clearing Member. With respect to the 
requirement to deliver a Cybersecurity Confirmation at least every two 
years, OCC would provide each Clearing Member with notice of the date 
on which the Cybersecurity Confirmation would be due. Each Clearing 
Member would have 180 calendar days after such notification to provide 
OCC with its completed Cybersecurity Confirmation.
    In order to implement these proposed changes, OCC would amend the 
Rules to include a new Rule 219 (Cybersecurity Confirmation) to require 
that (1) each Applicant completes and delivers a Cybersecurity 
Confirmation as part of its application materials; and (2) each 
Clearing Member completes and delivers a Cybersecurity Confirmation at 
least every two years, on a date that is 180 calendar days from the 
date that OCC notifies the Clearing Member of the requirement to submit 
a Cybersecurity Confirmation.

[[Page 36026]]

Implementation Timeframe
    OCC proposes the rule changes to be effective immediately upon 
filing. Notwithstanding their immediate effectiveness, OCC would not 
make the proposed rule changes operative until 30 days after the date 
of the filing, or such shorter time as the Commission may designate. 
Upon implementation, the proposed requirement that that [sic] all 
Applicants deliver a Cybersecurity Confirmation with their application 
materials would apply to applications that have been submitted at that 
time but have not yet been approved or rejected. Following the 
effective date of the proposed rule change, OCC would notify each 
Clearing Member of the date on which its Cybersecurity Confirmation 
would be due. Each Clearing Member would then have 180 calendar days 
after such notification to provide OCC with its completed Cybersecurity 
Confirmation.
(2) Statutory Basis
    OCC believes the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. In particular, OCC believes 
that the proposed rule changes are consistent with Section 17A(b)(3)(F) 
of the Act,\17\ and Rules 17Ad-22(e)(17)(i) and (e)(17)(ii), each 
promulgated under the Act,\18\ for the reasons described below.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(17)(i) and (e)(17)(ii).
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    Section 17A(b)(3)(F) of the Act requires that the rules of OCC be 
designed to, among other things, promote the prompt and accurate 
clearance and settlement of securities transactions and assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible.\19\ As 
described above, the proposed requirement that Clearing Members and 
Applicants provide a Cybersecurity Confirmation regarding their 
cybersecurity program which includes the representations described 
above would provide OCC with evidence of each Clearing Member's or 
Applicant's management of endpoint security and would enhance the 
protection of OCC against cyberattacks. The proposed Cybersecurity 
Confirmation would provide OCC with information that it could use to 
make decisions about risks or threats, perform additional monitoring, 
target potential vulnerabilities, and protect the OCC network. The 
proposed Cybersecurity Confirmation would enable OCC to further 
identify its exposure and enable it to take steps to mitigate risks. 
These requirements would help reduce risk to OCC's network with respect 
to its communications with Clearing Members and their submission of 
instructions and transactions to OCC by requiring all Clearing Members 
connecting to OCC to have appropriate cybersecurity programs in place. 
Risks, threats and potential vulnerabilities could impact OCC's ability 
to clear and settle securities transactions, or to safeguard the 
securities and funds which are in its custody or control, or for which 
it is responsible. Therefore, by enhancing its processes to mitigate 
these risks, OCC believes the proposal would promote the prompt and 
accurate clearance and settlement of securities transactions and assure 
the safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\20\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ Id.
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    Rule 17Ad-22(e)(17)(i) under the Act requires that each covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to manage the covered 
clearing agency's operational risks by identifying the plausible 
sources of operational risk, both internal and external, and mitigating 
their impact through the use of appropriate systems, policies, 
procedures, and controls.\21\ The proposed Cybersecurity Confirmation 
would reduce cybersecurity risks to OCC by requiring all Clearing 
Members and Applicants to confirm they have defined and maintain 
cybersecurity programs that meet standard industry best practices and 
guidelines. The proposed representations in the Cybersecurity 
Confirmations would help OCC to mitigate its exposure to cybersecurity 
risk and, thereby, decrease the operational risks to OCC. The proposed 
Cybersecurity Confirmations would identify to OCC potential sources of 
external operational risks and enable it to mitigate these risks and 
possible impacts to OCC's operations. As a result, OCC believes the 
proposal is consistent with the requirements of Rule 17Ad-22(e)(17)(i) 
under the Act.\22\
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    \21\ 17 CFR 240.17Ad-22(e)(17)(i).
    \22\ Id.
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    Rule 17Ad-22(e)(17)(ii) under the Act requires that each covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to manage the covered 
clearing agency's operational risks by ensuring, in part, that systems 
have a high degree of security, resiliency, and operational 
reliability.\23\ The proposed Cybersecurity Confirmation would enhance 
the security, resiliency, and operational reliability of the endpoint 
security with respect to OCC's network or other connectivity because, 
as noted above, by making the Cybersecurity Confirmation an application 
requirement and an ongoing membership requirement, OCC would be able to 
prevent the connection by any Applicant, and take action against any 
Clearing Member, that may pose an increased cyber risk to OCC by not 
having a defined and ongoing cybersecurity program that meets 
appropriate standards. Clearing Members and Applicants that are not in 
alignment with a recognized framework, guideline, or standard that OCC 
believes is adequate to guide and assess such organization's 
cybersecurity program \24\ may present increased risk to OCC. By better 
enabling OCC to identify these risks, the proposed rule change would 
allow OCC to more effectively secure its environment against potential 
vulnerabilities. OCC's controls are strengthened when OCC's Clearing 
Members have similar technology risk management controls and programs 
within their computing environment. Control weaknesses within a 
Clearing Member's environment could allow for malicious or unauthorized 
usage of the link between OCC and the Clearing Member. As a result, OCC 
believes the proposal would improve OCC's ability to ensure that its 
systems have a high degree of security, resiliency, and operational 
reliability, and, as such, is consistent with the requirements of Rule 
17Ad-22(e)(17)(ii) under the Act.\25\
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    \23\ 17 CFR 240.17Ad-22(e)(17)(ii).
    \24\ While the proposed Cybersecurity Confirmation would 
identify certain standards and guidelines that would be appropriate, 
OCC would consider requests by Clearing Members and Applicants to 
allow other standards in accepting a Cybersecurity Confirmation.
    \25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    OCC believes that the propose rule change could burden competition 
because it would require any Applicants that do not already have 
cybersecurity programs that meet the standards set out in the 
Cybersecurity Confirmation to incur additional costs including, but not 
limited to, establishing a cybersecurity program and framework, 
engaging an internal audit function or appropriate third party to 
review that program and framework, and remediating any findings from 
such review. In addition,

[[Page 36027]]

those Clearing Members and Applicants that do not connect directly to 
OCC's network, but connect through a third party service provider or 
service bureau, would have the additional burden of evaluating the 
cyber risks and impact of these third parties and reviewing the third 
party's assurance reports.
    As discussed above, all Clearing Members and Applicants are 
required to provide OCC with information concerning their program(s) 
for information security, encryption, incident notification, access 
controls, and control validations. OCC assesses this information prior 
to determining whether to permit the firm to access OCC's network and 
systems and on an ongoing basis thereafter. The proposed Cybersecurity 
Confirmation would establish new due diligence expectations with 
respect to firms' submission of required information. The set of 
standards against which OCC currently evaluates Clearing Member and 
Applicant cybersecurity programs is one of the acceptable standards 
and/or frameworks that OCC would recognize under the proposed 
attestation framework. OCC has completed security assessments for each 
of its Clearing Members and based on the firms' responses, OCC expects 
that all existing Clearing Members' cybersecurity programs currently 
align to at least one of the standards and/or frameworks that would be 
recognized under the proposed framework. Accordingly, OCC believes that 
any potential competitive burden would be limited to future Applicants 
that may have to implement process changes in order to meet the 
Cybersecurity Confirmation requirements.\26\ OCC believes that any 
burden on competition for future Applicants that could be created by 
the proposed changes would be both necessary and appropriate in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act, for the reasons described below.\27\
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    \26\ The proposed rule change would permit Clearing Members or 
Applicants to align their programs to one of several recognized 
standards and/or frameworks. OCC does not view this proposed 
optionality as burdening competition since it affords the Clearing 
Members and Applicants additional discretion they do not have today.
    \27\ 15 U.S.C. 78q-1(b)(3)(I).
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    First, OCC believes the proposed rule change would be necessary in 
furtherance of the Act, specifically Section 17A(b)(3)(F) of the Act, 
because the Rules must be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible.\28\ By 
requiring that Clearing Members and Applicants provide a Cybersecurity 
Confirmation, the proposed rule change would allow OCC to better 
understand, assess, and, therefore, mitigate the cyber risks that OCC 
could face through its connections to its Clearing Members. As 
described above, these risks could impact OCC's ability to clear and 
settle securities transactions, or to safeguard the securities and 
funds which are in OCC's custody or control, or for which it is 
responsible. Enhancing its processes as described above would help to 
mitigate these risks, and therefore OCC believes the proposal is 
necessary in furtherance of the requirements of Section 17A(b)(3)(F) of 
the Act.\29\
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    \28\ 15 U.S.C. 78q-1(b)(3)(F).
    \29\ Id.
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    The proposed changes are also necessary in furtherance of the 
purposes of Rules 17Ad-22(e)(17)(i) and (e)(17)(ii) under the Act.\30\ 
The proposed Cybersecurity Confirmations would better enable OCC to 
identify potential sources of external operational risks and establish 
appropriate controls that would mitigate these risks and their possible 
impacts to OCC's operations. The proposed changes would also improve 
OCC's ability to ensure that its systems have a high degree of 
security, by enabling OCC to better identify the cybersecurity risks 
that may be presented to it by Clearing Members.
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    \30\ 17 CFR 240.17Ad-22(e)(17)(i) and (e)(17)(ii).
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    Second, OCC believes that the proposed rule change would be 
appropriate in furtherance of the purposes of the Act. The proposed 
rule change would apply equally to all Clearing Members and Applicants. 
As described above, OCC believes that all of its current Clearing 
Members may already be subject to one or more regulatory requirements 
or clearing agency rules that include the implementation of a 
cybersecurity program, and these firms would already follow a widely 
recognized framework, guideline, or standard to guide and assess their 
organization's cybersecurity program to comply with these regulations. 
OCC has assessed its current Clearing Members' programs and believes 
that all of them align to at least one of the recognized standards and/
or frameworks listed in the Cybersecurity Confirmation. Therefore, OCC 
believes any burden that may be imposed by the proposed rule change 
would be appropriate.
    While the proposed Cybersecurity Confirmation would identify 
certain standards and guidelines that would be appropriate, OCC would 
consider requests by Clearing Members and Applicants to allow other 
standards in accepting a Cybersecurity Confirmation. Additionally, the 
proposed Cybersecurity Confirmation would provide differing options to 
conduct the review of the Clearing Member's or Applicant's 
cybersecurity program. As such, OCC has endeavored to design the 
Cybersecurity Confirmation in a way that is reasonable and does not 
require one approach for meeting its requirements, and which aligns 
with the due diligence requirements for cybersecurity programs and 
frameworks that were adopted by the DTCC Clearing Agencies.
    Finally, OCC is proposing to provide Clearing Members with 180 
calendar days' notice before the deadline to submit a completed 
Cybersecurity Confirmation. This notice period would allow Clearing 
Members to address any impact this change may have on their business. 
Applicants would be required to provide the Cybersecurity Confirmation 
as part of their application materials upon the effective date of this 
proposed rule change. The proposal is designed to provide all impacted 
Clearing Members with time to review their cybersecurity programs with 
respect to the required representations, and identify, if necessary, 
internal or third-party cybersecurity reviewers.
    For the reasons described above, OCC believes any burden on 
competition that may result from the proposed rule change would be both 
necessary and appropriate in furtherance of the purposes of the Act, as 
permitted by Section 17A(b)(3)(I) of the Act.\31\
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    \31\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission

[[Page 36028]]

may designate, it has become effective pursuant to Section 19(b)(3)(A) 
\32\ of the Act and Rule 19b-4(f)(6) \33\ thereunder.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8ffdfae3eaa2ece0e2e2eae1fbfccffceaeca1e8e0f9"><span class="__cf_email__" data-cfemail="deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8">[email protected]</span></a>. Please include 
File Number SR-OCC-2022-008 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2022-008. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Section, 100 F Street NE, Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.
    All submissions should refer to File Number SR-OCC-2022-008 and 
should be submitted on or before July 5, 2022.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12731 Filed 6-13-22; 8:45 am]
BILLING CODE 8011-01-P


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