Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices 29861 

designated by the Commission. The Exchange has 

satisfied this requirement. 

37 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Notice of Filing infra note 4, 86 FR at 12237. 

4Securities Exchange Act Release No. 91199 (Feb. 

24, 2021), 86 FR 12237 (Mar. 2, 2021) (File No. SR– 

OCC–2021–003) (‘‘Notice of Filing’’). OCC also filed 

a related advance notice (SR–OCC–2021–801) 

(‘‘Advance Notice’’) with the Commission pursuant 

to Section 806(e)(1) of Title VIII of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act, 

entitled the Payment, Clearing, and Settlement 

Supervision Act of 2010 and Rule 19b–4(n)(1)(i) 

under the Exchange Act. 12 U.S.C. 5465(e)(1). 15 

U.S.C. 78s(b)(1) and 17 CFR 240.19b–4, 

respectively. The Advance Notice was published in 

the Federal Register on March 1, 2021. Securities 

Exchange Act Release No. 91184 (Feb. 23, 2021), 86 

FR 12057 (Mar. 1, 2021) (File No. SR–OCC–2021– 

801). A Notice of No Objection to the Advance 

Notice was published in the Federal Register on 

April 12, 2021. See Securities Exchange Act Release 

No. 91491 (Apr. 7, 2021), 86 FR 19061 (Apr. 12, 

2021) (File No. SR–OCC–2021–801). 

5Comments on the Proposed Rule Change are 

available at https://www.sec.gov/comments/sr-occ2021-003/srocc2021003.htm. 

Since the proposal contained in the Proposed 

Rule Change was also filed as an advance notice, 

all public comments received on the proposal are 

considered regardless of whether the comments are 

submitted on the Proposed Rule Change or the 

Advance Notice. Comments on the Advance Notice 

are available at https://www.sec.gov/comments/srocc-2021-801/occ2021801.htm. 

6Capitalized terms used but not defined herein 

have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ 

publications/bylaws.jsp. 

7See Securities Exchange Act Release No. 78961 

(Sep. 28, 2016), 81 FR 70786, 70806 (Oct. 13, 2016) 

(S7–03–14) (‘‘Covered Clearing Agency Standards’’). 

8See Securities Exchange Release No. 88029 (Jan. 

24, 2020), 85 FR 5500, 5502 (Jan. 30, 2020) (File No. 

SR–OCC–2019–007) (‘‘CMP Approval Order’’). 

9See OCC Rule 1006(e), available at https://

www.theocc.com/getmedia/9d3854cd-b782-450fbcf7-33169b0576ce/occ_rules.pdf (last visited Mar. 

16, 2021). See also CMP Approval Order at 5502. 

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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

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 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BOX–2021–12 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BOX–2021–12. 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 Room, 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 the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–BOX–2021–12, and should 

be submitted on or before June 24, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to 

delegated authority.37

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11691 Filed 6–2–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92038; File No. SR–OCC– 

2021–003] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Approving Proposed Rule Change To 

Establish OCC’s Persistent Minimum 

Skin-In-The-Game 

May 27, 2021. 

I. Introduction 

On February 10, 2021, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2021– 

003, (‘‘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 establish a persistent 

minimum level of skin-in-the-game that 

OCC would contribute to cover default 

losses or liquidity shortfalls.3 The 

Proposed Rule Change was published 

for public comment in the Federal 

Register on March 2, 2021.4 The 

Commission has received comments 

regarding the proposal described in the 

Proposed Rule Change.5 This Order 

approves the Proposed Rule Change. 

II. Background 6

‘‘Skin-in-the-game,’’ as a component 

of financial risk management, entails a 

covered clearing agency choosing, upon 

the occurrence of a default or series of 

defaults and application of all available 

assets of the defaulting participant(s), to 

apply its own capital contribution to the 

relevant clearing or guaranty fund in 

full to satisfy any remaining losses prior 

to the application of any (a) 

contributions by non-defaulting 

members to the clearing or guaranty 

fund, or (b) assessments that the covered 

clearing agency require non-defaulting 

participants to contribute following the 

exhaustion of such participant’s funded 

contributions to the relevant clearing or 

guaranty fund.7

OCC’s skin-in-the-game component of 

its financial risk management regime is 

described in its current rules, which 

provide for the use of OCC’s own capital 

to mitigate losses arising out of a 

Clearing Member default.8 Specifically, 

OCC’s rules provide for the offsetting of 

default losses remaining after the 

application of a defaulted Clearing 

Member’s margin deposits and Clearing 

Fund contributions with OCC’s capital 

in excess of 110 percent of the Target 

Capital Requirement at the time of the 

default.9 OCC’s rules also provide for 

charging losses remaining after the 

application of OCC’s excess capital to 

OCC senior management’s deferred 


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10Such deferred compensation is in trust with 

respect to OCC’s Executive Deferred Compensation 

Plan (‘‘EDCP’’). See OCC Rule 101(e)(1), available at 

available at https://www.theocc.com/getmedia/ 

9d3854cd-b782-450f-bcf7-33169b0576ce/occ_

rules.pdf (last visited Mar. 16, 2021). The specific 

EDCP funds that comprise a portion of OCC’s skinin-the-game are referred to in OCC’s rules as the 

‘‘EDCP Unvested Balance.’’ See id. 

11See OCC Rule 1006(b), available at https://

www.theocc.com/getmedia/9d3854cd-b782-450fbcf7-33169b0576ce/occ_rules.pdf (last visited Mar. 

16, 2021). See also CMP Approval Order at 5502. 

The application the EDCP Unvested Balance in 

parallel with non-defaulting Clearing Members’ 

Clearing Fund contributions would necessarily 

occur before assessments related to the exhaustion 

of OCC’s Clearing Fund. 

12See Notice of Filing, 86 FR at 12238–39. For 

example, OCC is cognizant of the European Market 

Infrastructure Regulation’s expectation that skin-inthe-game be a minimum of 25 percent of the central 

counterparty’s regulatory capital requirement. See 

Notice of Filing, 86 FR at 12239. 

13See Notice of Filing, 86 FR at 12239. 

14OCC does not propose altering its rules 

regarding the use or sizing of the EDCP Unvested 

Balance. 

15 In addition to the Minimum Corporate 

Contribution, OCC would continue to commit its 

LNAFBE greater than 110 percent of its Target 

Capital Requirement prior to charging a loss to the 

Clearing Fund. As proposed, OCC would apply the 

Minimum Corporate Contribution to address default 

losses before applying its excess LNAFBE. 

16See Notice of Filing, 86 FR at 12239–40. 

17For example, if the Minimum Corporate 

Contribution were $100 million and OCC applied 

$25 million to address default losses, then the 

Minimum Corporate Contribution would be 

temporarily set at $75 million. 

18For example, if OCC were to contribute a 

portion of the Minimum Corporate Contribution on 

day 1 and another portion 100 days later, the 

Minimum Corporate Contribution would remain 

temporarily reduced until day 370. 

19See Notice of Filing, 86 FR at 12240. OCC 

stated that the analysis on which its belief is based 

is the same analysis on which OCC relied to set 

various thresholds related to OCC’s plan for 

replenishing its regulatory capital. See id. 

20 15 U.S.C. 78s(b)(2)(C). 

21 15 U.S.C. 78q–1(b)(3)(F). 

22 17 CFR 240.17Ad–22(e)(2). 

23See letter from Richard J. McDonald, SIG, dated 

March 30, 2021, to Vanessa Countryman, Secretary, 

Commission (‘‘SIG Letter’’), available at https://

www.sec.gov/comments/sr-occ-2021-003/ 

srocc2021003.htm. In its comment letter, SIG argues 

that the Proposed Rule Change is inconsistent with 

Sections 17A(b)(3)(D) and (F) of the Exchange Act. 

The Commission’s consideration of SIG’s concerns 

pertaining to Section 17A(b)(3)(F) is addressed in 

section III.A. below. 

24SIG Letter at 3–4. 

SIG also (i) expresses concern regarding OCC’s 

current retention of $325 million in capital; (ii) 

indicates that OCC should focus on reducing 

clearing fee rates; and (iii) suggests that the current 

organization of OCC’s shareholders as for profit 

entities creates a misalignment of interests. SIG 

Letter at 2. Because these issues do not bear on the 

grounds for approval or disapproval applicable to 

the Proposed Rule Change, the Commission does 

not address them in this order. 

25Another commenter read SIG’s comment to 

imply that the inclusion of fees as part of the 

proposed skin-in-the-game would incentivize OCC 

members to increase their charges for providing 

clearing services as a method of mitigating the risk 

of their actual skin-in-the-game. See comment 

submitted by CJ Chou (April 8, 2021), available at 

https://www.sec.gov/comments/sr-occ-2021-003/ 

compensation 10 as well as nondefaulting Clearing Members.11

OCC reviewed feedback received in 

connection with the initial filing of its 

current rules, relevant papers from 

industry participants and stakeholders 

concerning skin-in-the-game, and 

regulatory regimes in jurisdictions 

outside the United States.12 OCC’s 

current rules do not, however, dedicate 

OCC’s excess capital for use solely as 

skin-in-the-game, or guaranty that OCC 

maintain a minimum amount of skin-inthe-game.13

Establishing the Minimum Corporate 

Contribution. OCC proposes to establish 

a persistent minimum level of skin-inthe-game that OCC would contribute to 

cover default losses or liquidity 

shortfalls. Such skin-in-the-game would 

consist of a minimum amount of OCC’s 

own pre-funded resources that OCC 

would contribute prior to charging a 

loss to the Clearing Fund (the 

‘‘Minimum Corporate Contribution’’) 

and the EDCP Unvested Balance.14 As 

proposed, funds comprising the 

Minimum Corporate Contribution 

would be excluded from OCC’s liquid 

net assets funded by equity (‘‘LNAFBE’’) 

for purposes of meeting OCC’s Target 

Capital Requirement to ensure that OCC 

may maintain the Minimum Corporate 

Contribution exclusively for default 

management.15

OCC proposes to define the Minimum 

Corporate Contribution to mean the 

minimum level of OCC’s own funds 

maintained exclusively to cover credit 

losses or liquidity shortfalls, the level of 

which OCC’s Board of Directors (the 

‘‘Board’’) shall determine from time to 

time. To facilitate implementation of 

OCC’s proposal, the Board approved an 

initial Minimum Corporate Contribution 

at such a level that OCC’s total skin-inthe-game (i.e., the sum of the Minimum 

Corporate Contribution and OCC’s 

current EDCP Unvested Balance) would 

equal 25 percent of OCC’s Target Capital 

Requirement. OCC stated that, in setting 

the initial Minimum Corporate 

Contribution, the Board considered 

factors including, but not limited to, the 

regulatory requirements in each 

jurisdiction in which OCC is registered 

or in which OCC is actively seeking 

recognition, the amount similarly 

situated central counterparties commit 

of their own resources to address 

participant defaults, the EDCP Unvested 

Balance, OCC’s LNAFBE greater than 

110 percent of its Target Capital 

Requirement, projected revenue and 

expenses, and other projected capital 

needs.16

Replenishing the Minimum Corporate 

Contribution. OCC proposes that, in the 

event it were to apply a portion of the 

Minimum Corporate Contribution to 

address losses or shortfalls arising out of 

a Clearing Member default, the size of 

the Minimum Corporate Contribution 

would be temporarily reduced, for a 

period of 270 days, to the amount 

remaining after its application.17 Each 

application of the Minimum Corporate 

Contribution would trigger a new 270- 

day period.18 Under the proposal, OCC 

would be obligated to notify Clearing 

Members of any such reduction of the 

Minimum Corporate Contribution. OCC 

believes that 270 calendar days, or 

approximately nine months, is sufficient 

time for OCC to accumulate the funds 

necessary to reestablish the Minimum 

Corporate Contribution.19

OCC proposes change to its Rules, 

Capital Management Policy, Default 

Management Policy, Clearing Fund 

Methodology Policy, and Recovery and 

Orderly Wind-Down Plan to effectuate 

the changes described above. 

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 selfregulatory 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.20 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 21 and Rule17Ad–22(e)(2) 

thereunder.22

Before addressing the relevant 

portions of the Exchange Act and rules 

and regulations thereunder, however, 

we address a part of the comment 

submitted by Susquehanna International 

Group (‘‘SIG’’) not related to Section 

17A(b)(3)(F) of the Exchange Act or 

Rule17Ad–22(e)(2) thereunder.23 SIG 

argued, as one of its concerns, that 

OCC’s fees, dues, and other charges 

would be per se unreasonable, and 

therefore inconsistent with Section 

17A(b)(3)(D) of the Exchange Act, 

because funding the proposal with 

clearing fees would facilitate a 

shareholder windfall.24 We do not 

address these issues in this order 

because OCC has not proposed to 

change any fees, dues, or other charges 

in the Proposed Rule Change.25 The 


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srocc2021003.htm. As the Commission understands 

it, SIG’s argument pertains to the size and use of 

OCC’s fees, not changes in fees imposed on clients 

by the Clearing Members absent a fee increase by 

OCC. 

The commenter also expressed difficulty in 

obtaining quantitative data regarding clearing fee 

refunds and how much, proportionally, fees would 

contribute to the minimum skin-in-the-game under 

the Proposed Rule Change. Id. With regard to 

quantitative data describing clearing fee refunds, 

the audited financial statements that OCC posts 

annually include a line item for refundable clearing 

fees where applicable. See e.g., OCC’s 2020 

Financials at page 5, available at https://

www.theocc.com/getattachment/9f5d22ff-d810- 

4690-948d-f9a207df083d/attachment.aspx. With 

regard to how much, proportionally, fees would 

contribute to the minimum skin-in-the-game under 

the Proposed Rule Change, the Commission t notes 

that OCC has publically stated that its revenues 

primarily consist of clearing fee revenues. Id. at 7. 

26 15 U.S.C. 78q–1(b)(3)(F). 

27Covered Clearing Agency Standards, 81 FR at 

70805–06. 

28See Securities Exchange Act Release No. 87257 

(Oct. 8, 2019), 84 FR 55194, 55199 (Oct. 15, 2019) 

(File No. SR–OCC–2019–805). 

29SIG Letter at 4. 

30SIG Letter at 1. 

31SIG Letter at 2. 

32SIG Letter at 2. 

33 If OCC’s capital exceeds 110 percent of its 

Target Capital Requirement, rules authorize, but 

does not require, OCC’s Board to reduce the cost of 

clearing. See Securities Exchange Act Release No. 

88029 (Jan. 24, 2020), 85 FR 5500, 5502 (Jan. 30, 

2020) (File No. SR–OCC–2019–007). If the Board 

chooses to reduce the cost of clearing, it is 

authorized to do so by lowering fees or declaring 

a fee holiday as well as issuing refunds. See Id. 

34See Fourth Amended and Restated Certificate 

of Incorporation of OCC, Section III, available at 

https://www.theocc.com/getmedia/9d7754f6-99ca4d69-a934-a6fa996c9c16/OCC_Certificate_of_

Incorporation.pdf. 

35 17 CFR 240.17Ad–22(a)(15). 

36 12 U.S.C. 5464(a)(2). 

37 17 CFR 240.17Ad–22. See Securities Exchange 

Act Release No. 68080 (Oct. 22, 2012), 77 FR 66220 

(Nov. 2, 2012) (S7–08–11). See also Covered 

Clearing Agency Standards, 81 FR 70786. OCC is a 

‘‘covered clearing agency’’ as defined in Rule 

17Ad–22(a)(5). 

38See 17 CFR 240.17Ad–22(e)(4). 

39See 17 CFR 240.17Ad–22(e)(15). 

40SIG Letter at 3. 

41 15 U.S.C. 78q–1(b)(3)(F). 

reasonability of OCC’s existing fees, 

dues, or other charges pursuant to 

Section 17A(b)(3)(D) of the Exchange 

Act is therefore beyond the scope of this 

Proposed Rule Change. 

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 

the rules of a clearing agency be 

designed to assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible and, in 

general, to protect investors and the 

public interest.26 Based on its review of 

the record, the Commission finds the 

proposal is consistent with Section 

17A(b)(3)(F) of the Exchange Act. 

The Commission continues to regard 

skin-in-the-game as a potential tool to 

align the various incentives of a covered 

clearing agency’s stakeholders, 

including management and clearing 

members.27 OCC’s current rules provide 

for the application of excess capital as 

skin-in-the-game. The Commission 

believes that OCC’s proposal to set aside 

capital to maintain a minimum amount 

of skin-in-the-game strengthens OCC’s 

existing skin-in-the-game rules. OCC’s 

current rules align senior management’s 

personal economic incentives with 

OCC’s overall risk management 

incentives,28 but do not guaranty that an 

amount of OCC capital would be set 

aside to ensure a pre-determined 

minimum level of skin-in-the-game. 

The Commission believes that holding 

a defined Minimum Corporate 

Contribution, as opposed to an 

undefined amount of excess capital, 

would incentivize OCC further to 

maintain the appropriate amount of 

resources to manage a Clearing Member 

default because failure to do so would 

result in a direct cost to OCC. 

Incentivizing OCC to maintain an 

appropriate amount of resources, in 

turn, could reduce the potential losses 

charged to the Clearing Fund 

contributions of non-defaulting Clearing 

Members in the event of a Clearing 

Member default, which in turn would 

help assure the safeguarding of the 

Clearing Fund contributions of nondefaulting Clearing Members. 

In its comment letter, SIG argues that 

the Proposed Rule Change contravenes 

the protection of investors and the 

public interest.29 SIG states that OCC 

was established as a monopoly 

organization in order to serve as a 

market utility 30 and that it has always 

been recognized and accepted by 

concerned parties that monies held as 

excess OCC capital are excess fees not 

yet rebated, as opposed to retained 

earnings.31 In support of its argument 

that OCC should not retain earnings 

generated through clearing fees, SIG 

states that OCC has not previously had 

to draw on such funds to address a 

shortfall.32

The Commission is not persuaded by 

SIG’s arguments with regard to Section 

17A(b)(3)(F). As discussed above, the 

Commission believes that holding a 

defined Minimum Corporate 

Contribution would incentivize OCC 

further to maintain the appropriate 

amount of resources to manage a 

Clearing Member default. Aligning 

OCC’s incentives with risk management 

considerations, such as default 

management, supports the public 

interest because it supports OCC’s role 

as a utility for clearing and settling U.S. 

listed options. Further, OCC’s rules do 

not require OCC to distribute retained 

earnings in excess of expenses.33

In addition to providing those 

services customarily provided by 

clearing houses of national securities 

exchanges,34 OCC is a Covered Clearing 

Agency registered with the 

Commission.35 As a Covered Clearing 

Agency, OCC is obligated to comply 

with risk management standards that 

the Commission adopted under Section 

805(a)(2) of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 

2010 36 and Section 17A of the Exchange 

Act (the ‘‘Clearing Agency Rules’’).37

The Clearing Agency Rules address 

having policies and procedures 

regarding, inter alia, the maintenance of 

assets to address losses attributable to 

Clearing Member defaults 38 as well as 

general business risk losses.39

SIG argues further that OCC’s 

proposal puts only the public’s skin in 

the game. SIG states that market 

participants bear the risk imprudent 

decisions by the exchanges in their 

capacity as the OCC shareholders and of 

their designee board members because 

such participants would be denied a 

rebate of excess fees.40

The Commission is not persuaded by 

this argument either. SIG’s argument 

assumes that OCC’s Clearing Members 

have a right to clearing fee revenues not 

applied to operating costs in a given 

year, but, as noted above in this section, 

OCC’s rules, as approved by the 

Commission, do not require OCC to 

distribute retained earnings in excess of 

expenses. SIG’s argument also assumes, 

without support, that OCC’s five 

Exchange Directors would not only be 

willing to make ‘‘imprudent decisions to 

the detriment of OCC’s Clearing 

Members,’’ but that the Exchange 

Directors would be able to enlist 

sufficient support among OCC’s nine 

Member Directors to force such 

‘‘imprudent decisions’’ through the 

Board approval process. 

Based on the foregoing, the 

Commission believes that the Proposed 

Rule Change is consistent with the 

requirements of Section 17A(b)(3)(F) of 

the Exchange Act.41

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 


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42 17 CFR 240.17Ad–22(e)(2). 

43Covered Clearing Agency Standards, 81 FR at 

70805–06. 

44Covered Clearing Agency Standards, 81 FR at 

70806. 

45See CMP Approval Order at 5507. 

46 17 CFR 240.17Ad–22(e)(2). 

47 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). 

48 15 U.S.C. 78s(b)(2). 

49 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 91208 

(February 25, 2021), 86 FR 12503. 

4 In Amendment No. 1, the Exchange amended 

the proposal to: (1) Specify the dissemination of 

certain imbalance information before the LULD 

closing cross; (2) clarify the process for calculating 

the LULD closing cross price and the benchmark 

prices for the LULD closing cross; (3) specify the 

treatment of imbalance only orders for purposes of 

LULD closing cross price selection; (4) provide 

additional explanation to support the proposal; (5) 

specify the implementation date for the proposal; 

and (6) make other clarifying, technical, and 

conforming changes. Amendment No. 1 is available 

on the Commission’s website at: https://

www.sec.gov/comments/sr-nasdaq-2021-009/ 

srnasdaq2021009-8670132-235426.pdf. 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 91581, 

86 FR 20759 (April 21, 2021). The Commission 

designated June 1, 2021, as the date by which the 

Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change, as modified 

by Amendment No. 1. 

7See Rule 4754(a)(6) and (b)(4). See also Rule 

4754(b)(2) (describing the methodology for 

determining the Nasdaq closing cross price). 

8All times referenced are in Eastern Time. 

9See Rule 4754(b). If the Nasdaq closing cross 

price established pursuant to Rule 4754(b)(2)(A)– 

(D) is outside the benchmarks established by the 

Exchange by a threshold amount, the Nasdaq 

closing cross will occur at a price within the 

threshold amounts that best satisfies the conditions 

of Rule 4754(b)(2)(A)–(D). See Rule 4754(b)(2)(E). 

10See Amendment No. 1, supra note 4, at 6. 

Nasdaq management may set and modify the 

benchmarks and thresholds from time to time upon 

prior notice to market participants. See Rule 

4754(b)(2)(E). 

that, among other things, are clear and 

transparent; clearly prioritize the safety 

and efficiency of the covered clearing 

agency; and support the public interest 

requirements of the Exchange Act.42 In 

adopting Rule 17Ad–22(e)(2), the 

Commission discussed comments it 

received regarding the concept of skinin-the-game as a potential tool to align 

the various incentives of a covered 

clearing agency’s stakeholders, 

including management and clearing 

members.43 And, while the Commission 

declined to include a specific skin-inthe-game requirement in the rule, it 

stated its belief that ‘‘the proper 

alignment of incentives is an important 

element of a covered clearing agency’s 

risk management practices,’’ and noted 

that skin-in-the-game ‘‘may play a role 

in those risk management practices in 

many instances.’’ 44 OCC’s current rules 

require the application management 

compensation and excess capital as 

skin-in-the-game, which in turn should 

help further align the interests of OCC’s 

stakeholders, including OCC 

management and Clearing Members.45

As described above, OCC’s proposal 

would not reduce the resources OCC 

would apply to address default losses or 

remove the current skin-in-the-game 

component of OCC’s rules. Rather, OCC 

proposes to set aside a defined amount 

of capital for the sole purpose of 

absorbing losses and shortfalls arising 

out of a Clearing Member default. OCC 

has clearly stated the factors that the 

Board would consider when 

determining the amount of resources to 

hold as skin-in-the-game, a portion of 

which would comprise the Minimum 

Corporate Contribution. OCC also 

proposes to establish a clear process for 

addressing reductions in the Minimum 

Corporate Contribution arising out of a 

Clearing Member’s default. Accordingly, 

the Commission believes that the 

proposed changes to establish a 

persistent minimum level of skin-in-thegame are consistent with Rule 17Ad– 

22(e)(2) under the Exchange Act.46

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 47 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,48

that the Proposed Rule Change (SR– 

OCC–2021–003) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.49

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11606 Filed 6–2–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92068; File No. SR– 

NASDAQ–2021–009] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Amendment No. 1 and Order 

Granting Accelerated Approval of 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Amend Equity 4, 

Rule 4754 Relating to the Limit UpLimit Down Closing Cross 

May 28, 2021. 

I. Introduction 

On February 11, 2021, The Nasdaq 

Stock Market LLC (‘‘Exchange’’ or 

‘‘Nasdaq’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend Equity 

4, Rule (‘‘Rule’’) 4754 relating to the 

Limit Up-Limit Down (‘‘LULD’’) closing 

cross. The proposed rule change was 

published for comment in the Federal 

Register on March 3, 2021.3 On April 9, 

2021, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

which amended and superseded the 

proposed rule change as originally 

filed.4 On April 15, 2021, pursuant to 

Section 19(b)(2) of the Act,5 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change.6 The Commission 

has not received any comment letters on 

the proposed rule change. The 

Commission is publishing this notice to 

solicit comments on Amendment No. 1 

from interested persons, and is 

approving the proposed rule change, as 

modified by Amendment No. 1, on an 

accelerated basis. 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

No. 1 

The Nasdaq closing cross is the 

Exchange’s process for determining the 

price at which orders will be executed 

at the close and for executing those 

orders, and the price determined by the 

Nasdaq closing cross is the Nasdaq 

official closing price for securities that 

participate in the cross.7 The Nasdaq 

closing cross begins at 4:00 p.m.,8 and 

the Exchange applies a price range 

within which the Nasdaq closing cross 

must occur.9 Currently, the Exchange 

applies a threshold amount that is the 

greater of $0.50 or 10% of the midpoint 

of the Nasdaq best bid and offer, and 

that amount is then added to the Nasdaq 

best offer and subtracted from the 

Nasdaq best bid to establish the price 

range.10

The LULD closing cross is the 

Exchange’s process for executing closing 

trades in Nasdaq-listed securities when 

an LULD trading pause pursuant to Rule 

4120(a)(12) exists at or after 3:50 p.m. 


khammond on DSKJM1Z7X2PROD with NOTICES