[Federal Register Volume 79, Number 245 (Monday, December 22, 2014)]
[Notices]
[Pages 76417-76421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29820]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73853; File No. SR-OCC-2014-22]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change, and Amendment No. 1 
Thereto, To Establish Procedures Regarding the Monthly Resizing of its 
Clearing Fund and the Addition of Financial Resources

December 16, 2014.
    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 December 1, 2014, 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 by OCC. On December 16, 2014, OCC filed 
Amendment No. 1 to the proposed rule change.\3\ This Amendment No. 1 
amends and replaces in its entirety the proposed rule change as 
originally filed on December 1, 2014. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, OCC amended the filing to include the 
Monthly Clearing Fund Sizing Procedure and the Financial Resource 
Monitoring and Call Procedure as exhibits to the filing, both 
defined hereinafter, as Exhibits 5A and 5B, respectively.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to establish procedures regarding the monthly resizing 
of its Clearing Fund and the addition of financial resources through 
intra-day margin calls and/or an intra-month increase of the Clearing 
Fund to ensure that it maintains adequate financial resources in the 
event of a default of a Clearing Member or group of affiliated Clearing 
Members presenting the largest exposure to OCC.

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
    This Amendment No. 1 to SR-OCC-2014-22 (``Filing'') amends and 
replaces in its entirety the Filing as originally submitted on December 
1, 2014. The purpose of this Amendment No. 1 to the Filing is to 
include the procedures that support the processes described in Item 3 
of the Filing as Exhibit 5A, Monthly Clearing Fund Sizing Procedure, 
and Exhibit 5B, Financial Resources Monitoring and Call Procedure.
    The proposed rule change is intended to describe the situations in 
which OCC would exercise authority under its Rules to ensure that it 
maintains adequate Financial Resources \4\ in the event that stress 
tests reveal a default of the Clearing Member or Clearing Member Group 
\5\ presenting the largest exposure would threaten the then-current 
Financial Resources. This proposed rule change would establish 
procedures governing: (i) OCC's resizing of the Clearing Fund on a 
monthly basis pursuant to Rule 1001(a) (the ``Monthly Clearing Fund 
Sizing Procedure''); and (ii) the addition of Financial Resources 
through an intra-day margin call on one or more Clearing Members under 
Rule 609 and, if necessary, an intra-month increase of the Clearing 
Fund pursuant to Rule 1001(a) (the ``Financial Resource Monitoring and 
Call Procedure'').\6\ The Monthly Clearing Fund Sizing Procedure would 
permit OCC to determine the size of the Clearing Fund by relying on a 
broader range of sound risk management practices than those 
historically used under Rule 1001(a).\7\ The Financial Resource 
Monitoring and Call Procedure would require OCC to collect additional 
Financial Resources in certain circumstances, establish how OCC 
calculates and collects such resources and provide the timing by which 
such resources would be required to be deposited by Clearing Members.
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    \4\ ``Financial Resources'' means, with respect to a projected 
loss attributable to a particular Clearing Member, the sum of the 
margin deposits and deposits in lieu of margin in respect of such 
Clearing Member' accounts, and the value of OCC's Clearing Fund, 
including both the Base Amount, as defined below, and the prudential 
margin of safety, as discussed below.
    \5\ ``Clearing Member Group'' means a Clearing Member and any 
affiliated entities that control, are controlled by or are under 
common control with such Clearing Member. See OCC By-Laws, Article 
I, Sections 1.C.(15) and 1.M(11).
    \6\ This proposed rule filing has also been filed as an advance 
notice filing (SR-OCC-2014-811).
    \7\ The procedures described herein would be in effect until the 
development of a new standard Clearing Fund sizing methodology. 
Following such development, which will include a quantitative 
approach to calculating the ``prudential margin of safety,'' as 
discussed below, OCC will file a separate rule change and advance 
notice with the Commission that will include a description of the 
new methodology as well as a revised Monthly Clearing Fund Sizing 
Procedure.
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Background
    OCC monitors the sufficiency of the Clearing Fund on a daily basis 
but, prior to emergency action taken on October 15, 2014,\8\ OCC had no 
express authority to increase the size of the Clearing Fund on an 
intra-month basis.\9\ During ordinary course daily monitoring on 
October 15, 2014, and as a result of increased volatility in the 
financial markets in October 2014, OCC determined that the Financial 
Resources needed to cover the potential loss associated with a default 
of the Clearing Member or Clearing Member Group presenting the largest 
exposure could

[[Page 76418]]

have exceeded the Financial Resources then available to apply to such a 
default.
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    \8\ On October 15, 2014, OCC filed an emergency notice with the 
Commission to suspend the effectiveness of the second sentence of 
Rule 1001(a). See Securities Exchange Act Release No. 73579 
(November 12, 2014), 79 FR 68747 (November 18, 2014) (SR-OCC-2014-
807). On November 13, 2014, OCC filed SR-OCC-2014-21 with the 
Commission to delete the second sentence of Rule 1001(a), preserving 
the suspended effectiveness of that sentence until such time as the 
Commission approves or disapproves SR-OCC-2014-21. See Securities 
Exchange Act Release No. 73685 (November 25, 2014) (SR-OCC-2014-21). 
At the time of this filing, the referenced Securities Exchange Act 
Release had not yet been published in the Federal Register.
    \9\ See OCC Rule 1001(a).
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    To permit OCC to increase the size of its Clearing Fund prior to 
the next monthly resizing that was scheduled to take place on the first 
business day of November 2014, OCC's Executive Chairman, on October 15, 
2014, exercised certain emergency powers as set forth in Article IX, 
Section 14 of OCC's By-Laws\10\ to waive the effectiveness of the 
second sentence of Rule 1001(a), which states that OCC will adjust the 
size of the Clearing Fund monthly and that any resizing will be based 
on data from the preceding month. OCC then filed an emergency notice 
with the Commission pursuant to Section 806(e)(2) of the Payment, 
Clearing and Settlement Supervision Act of 2010\11\ and increased the 
Clearing Fund size for the remainder of October 2014 as otherwise 
provided for in the first sentence of Rule 1001(a).\12\
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    \10\ OCC also has submitted an advance notice that would provide 
greater detail concerning conditions under which OCC would increase 
the size of the Clearing Fund intra-month. The change would permit 
an intra-month increase in the event that the five-day rolling 
average of projected draws are 150% or more of the Clearing Fund's 
then current size. See Securities Exchange Act Release No. 72804 
(August 11, 2014), 79 FR 48276 (August 15, 2014) (SR-OCC-2014-804).
    \11\ 12 U.S.C. 5465(e)(2).
    \12\ See supra, note 6.
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    Clearing Members were informed of the action taken by the Executive 
Chairman\13\ and the amount of their additional Clearing Fund 
requirements, which were met without incident. As a result of these 
actions, OCC's Clearing Fund for October 2014 was increased by $1.8 
billion. In continued reliance on the emergency rule waiver and in 
accordance with the first sentence of Rule 1001(a), OCC set the 
November 2014 Clearing Fund size at $7.8 billion, which included an 
amount determined by OCC to be sufficient to protect OCC against loss 
under simulated default scenarios (i.e., $6 billion), plus a prudential 
margin of safety (the additional $1.8 billion collected in 
October).\14\ All required contributions to the November 2014 Clearing 
Fund were met by affected Clearing Members.
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    \13\ See Information Memorandum #35397, dated October 16, 2014, 
available on OCC's Web site, http://www.theocc.com/clearing/clearing-infomemos/infomemos1.jsp. Clearing members also were 
informed that a prudential margin of safety of $1.8 billion would be 
retained until a new Clearing Fund sizing formula has been approved 
and implemented.
    \14\ See Information Memorandum #35507, dated October 31, 2014, 
available on OCC's Web site, http://www.theocc.com/clearing/clearing-infomemos/infomemos1.jsp.
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    Under Article IX, Section 14(c), absent the submission of a 
proposed rule change to the Commission seeking approval of OCC's waiver 
of the provisions of the second sentence of Rule 1001(a), such waiver 
would not be permitted to continue for more than thirty calendar days 
from the date thereof.\15\ Accordingly, on November 13, 2014, OCC 
submitted SR-OCC-2014-21 to delete the second sentence of Rule 1001(a) 
and, by the terms of Article IX, Section 14(c), preserve the suspended 
effectiveness of the second sentence of Rule 1001(a) beyond thirty 
calendar days.\16\
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    \15\ See OCC By-Laws, Article IX, Section 14(c).
    \16\ See supra, note 6. OCC also submitted this proposed rule 
change to the Commodity Futures Trading Commission.
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    SR-OCC-2014-21 was submitted in part to permit OCC to determine the 
size of its Clearing Fund by relying on a broader range of sound risk 
management practices than considered in basing such size on the average 
daily calculations under Rule 1001(a) that are performed during the 
preceding calendar month. The Monthly Clearing Fund Sizing Procedure, 
as described below, is based on such broader risk management practices 
and establishes the procedures OCC would use to determine the size of 
the Clearing Fund on a monthly basis. Similarly, SR-OCC-2014-21 was 
submitted in part to permit OCC to resize the Clearing Fund more 
frequently than monthly when the circumstances warrant an increase of 
the Clearing Fund. The Financial Resource Monitoring and Call 
Procedure, as described below, establishes the procedures that OCC 
would use to add Financial Resources through an intra-day margin call 
on one or more Clearing Members under Rule 609 and, if necessary, an 
intra-month increase of the Clearing Fund pursuant to Rule 1001(a).\17\
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    \17\ As noted in SR-OCC-2014-21, OCC would use its intra-month 
resizing authority only to increase the size of the Clearing Fund 
where appropriate, not to decrease the size of the Clearing Fund.
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Monthly Clearing Fund Sizing Procedure

    Under the Monthly Clearing Fund Sizing Procedure, OCC would 
continue to calculate the size of the Clearing Fund based on its daily 
stress test exposures under simulated default scenarios as described in 
the first sentence of Rule 1001(a) and resize the Clearing Fund on the 
first business day of each month. However, instead of resizing the 
Clearing Fund based on the average of the daily calculations during the 
preceding calendar month, as stated in the suspended second sentence of 
Rule 1001, OCC would resize the Clearing Fund so that it is the sum of: 
(i) An amount equal to the peak five-day rolling average of Clearing 
Fund draws observed over the preceding three calendar months of daily 
idiosyncratic default and minor systemic default scenario calculations 
based on OCC's daily Monte Carlo simulations (``Base Amount'') and (ii) 
a prudential margin of safety determined by OCC and currently set at 
$1.8 billion.\18\
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    \18\ On a daily basis, OCC computes its exposure under the 
idiosyncratic and minor systemic events. The greater of these two 
exposures is that day's ``peak exposure.'' To calculate the 
``rolling five day average'' OCC computes the average of the peak 
exposure for each consecutive five-day period observed over the 
prior three-month period. To determine the Base Amount, OCC would 
use the largest five-day rolling average observed over the past 
three-months. This methodology was used to determine the Base Amount 
of the Clearing Fund for November 2014 and December 2014.
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    OCC believes that the proposed Monthly Clearing Fund Sizing 
Procedure provides a sound and prudent approach to ensure that the 
Financial Resources are adequate to protect against the largest risk of 
loss presented by the default of a Clearing Member or Clearing Member 
Group. By virtue of using only the peak five-day rolling average and by 
extending the look-back period, the proposed Monthly Clearing Fund 
Sizing Procedure is both more responsive to sudden increases in 
exposure and less susceptible to recently observed decreases in 
exposure that would reduce the overall sizing of the Clearing Fund, 
thus mitigating procyclicality.\19\ Furthermore, the prudential margin 
of safety provides an additional buffer to absorb potential future 
exposures not previously observed during the look-back period. The 
proposed Monthly Clearing Fund Sizing Procedure would be supplemented 
by the Financial Resource Monitoring and Call Procedure, described 
below, to provide further assurance that the Financial Resources are 
adequate to protect against such risk of loss.
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    \19\ Considering only the peak exposures is a more conservative 
methodology that gives greater weighting to sudden increases in 
exposure experienced by Clearing Members, thus enhancing the 
responsiveness of the procedure to such sudden increases. By using a 
longer look-back period, the methodology would respond more slowly 
to recently observed decreases in peak exposures.
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Financial Resource Monitoring and Call Procedure

    Under the Financial Resource Monitoring and Call Procedure, OCC 
would use the same daily idiosyncratic default calculation as under the 
Monthly Clearing Fund Sizing Procedure to monitor daily the adequacy of 
the Financial Resources to withstand a default by the Clearing Member 
or Clearing Member Group presenting the largest exposure under

[[Page 76419]]

extreme but plausible market conditions.\20\ If such a daily 
idiosyncratic default calculation projected a draw on the Clearing Fund 
(a ``Projected Draw'') that is at least 75% of the Clearing Fund 
maintained by OCC, OCC would be required to issue an intra-day margin 
call pursuant to Rule 609 against the Clearing Member or Clearing 
Member Group that caused such a draw (``Margin Call Event'').\21\ 
Subject to a limitation described below, the amount of the margin call 
would be the difference between the Projected Draw and the Base 
Clearing Fund (``Exceedance Above Base Amount''). In the case of a 
Clearing Member Group that causes the Exceedance Above Base Amount, the 
Exceedance Above Base Amount would be pro-rated among the individual 
Clearing Members that compose the Clearing Member Group based on each 
individual Clearing Member's proportionate share of the ``total risk'' 
for such Clearing Member Group as defined in Rule 1001(b), i.e., the 
margin requirement with respect to all accounts of the Clearing Member 
Group exclusive of the net asset value of the positions in such 
accounts aggregated across all such accounts. However, in the case of 
an individual Clearing Member or a Clearing Member Group, the margin 
call would be subject to a limitation under which it could not exceed 
the lower \22\ of: (a) $500 million, or (b) 100% of a Clearing Member's 
net capital, measured cumulatively with any other funds deposited with 
OCC by the same Clearing Member pursuant to a Margin Call Event within 
the same month (the ``500/100 Limitation'').\23\
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    \20\ Since the minor systemic default scenario contemplates two 
Clearing Members' simultaneously defaulting and OCC maintains 
Financial Resources sufficient to cover a default by a Clearing 
Member or Clearing Member Group representing the greatest exposure 
to OCC, OCC does not use the minor systemic default scenario to 
determine the adequacy of the Financial Resources under the 
Financial Resource Monitoring and Call Procedure.
    \21\ Rule 609 authorizes OCC to require the deposit of 
additional margin in any account at any time during any business day 
by any Clearing Member for, inter alia, the protection of OCC, other 
Clearing Members or the general public. Clearing Members must meet a 
required deposit of intra-day margin in immediately available funds 
at a time prescribed by OCC or within one hour of OCC's issuance of 
debit settlement instructions against the bank account(s) of the 
applicable Clearing Member(s), thereby ensuring the prompt deposit 
of additional Financial Resources.
    \22\ ``Capping'' the intra-day margin call avoids placing a 
``liquidity squeeze'' on the subject Clearing Member(s) based on 
exposures presented by a hypothetical stress test, which would have 
the potential for causing a default on the intra-day margin call. 
Back testing results determined that such calls would have been made 
against Clearing Members that are large, well-capitalized firms, 
with more than sufficient resources to satisfy the call for 
additional margin with the proposed limitations.
    \23\ The Risk Committee would be notified, and could take action 
to address potential Financial Resource deficiencies, in the event 
that a Projected Draw resulted in a Margin Call Event and as a 
result of the 500/100 Limitation the margin call was less than the 
Exceedance Above Base Amount, but the Projected Draw was not so 
large as to result in an increase in the Clearing Fund as discussed 
below.
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    Upon satisfaction of the margin call, OCC would use its authority 
under Rule 608 to preclude the withdrawal of such additional margin 
amount until the next monthly resizing of the Clearing Fund. Based on 
three years of back testing data, OCC determined that it would have had 
Margin Call Events in 10 of the months during this time period. For 
each of these months, the maximum call amount would have been equal to 
$500 million, with one exception in which the maximum call amount for 
the month was $7.7 million.\24\ After giving effect to the intra-day 
margin calls, i.e., by increasing the Financial Resources by $500 
million, there was only one Margin Call Event where there was an 
observed stress test exceedance of the Financial Resources.
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    \24\ The back testing analysis performed assumed a single 
Clearing Member caused the exceedance.
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    To address this one observed instance, the Financial Resource 
Monitoring and Call Procedure also would require OCC to increase the 
size of the Clearing Fund (``Clearing Fund Intra-month Increase 
Event'') if a Projected Draw exceeds 90% of the Clearing Fund, after 
applying any funds then on deposit with OCC from the applicable 
Clearing Member or Clearing Member Group pursuant to a Margin Call 
Event. The amount of such increase (``Clearing Fund Increase'') would 
be the greater of: (a) $1 billion; or (b) 125% of the difference 
between (i) the Projected Draw, as reduced by the deposits resulting 
from the Margin Call Event and (ii) the Clearing Fund. Each Clearing 
Member's proportionate share of the Clearing Fund Increase would equal 
its proportionate share of the variable portion of the Clearing Fund 
for the month in question as calculated pursuant to Rule 1001(b). OCC 
would notify the Risk Committee of the Board of Directors (the ``Risk 
Committee''), Clearing Members and appropriate regulatory authorities 
of the Clearing Fund Increase on the business day on which the Clearing 
Fund Intra-month Increase Event occurred. This ensures that OCC 
management maintains authority to address any potential Financial 
Resource deficiencies when compared to its Projected Draw estimates. 
The Risk Committee would then determine whether the Clearing Fund 
Increase was sufficient, and would retain authority to increase the 
Clearing Fund Increase or the margin call made pursuant to a Margin 
Call Event in its discretion. Clearing Members would be required to 
meet the call for additional Clearing Fund assets by 9:00 a.m. CT on 
the second business day following the Clearing Fund Intra-Month 
Increase Event. OCC believes that this collection process ensures 
additional Clearing Fund assets are promptly deposited by Clearing 
Members following notice of a Clearing Fund Increase, while also 
providing Clearing Members with a reasonable period of time to source 
such assets. Based on OCC's back testing results, after giving effect 
to the intra-day margin call in response to a Margin Call Event plus 
the prudential margin of safety, the Financial Resources would have 
been sufficient upon implementing the one instance of a Clearing Fund 
Intra-month Increase Event.
    OCC believes the Financial Resource Monitoring and Call Procedure 
strikes a prudent balance between mutualizing the burden of requiring 
additional Financial Resources and requiring the Clearing Member or 
Clearing Member Group causing the increased exposure to bear such 
burden. As noted above, in the event of a Margin Call Event, OCC limits 
the margin call to a monthly aggregate of $500 million, or 100% of a 
Clearing Member's net capital in order to avoid putting an undue 
liquidity strain on any one Clearing Member. However, where a Projected 
Draw exceeds 90% of OCC's Clearing Fund, OCC must act to ensure that it 
has sufficient Financial Resources, and determined that it should 
mutualize the burden of the additional Financial Resources at this 
threshold through a Clearing Fund Increase. OCC believes that this 
balance would provide OCC with sufficient Financial Resources without 
increasing the likelihood that its procedures would, based solely on 
stress testing results, cause a liquidity strain on any on Clearing 
Member that could result in such member's default.
    The following examples illustrate the manner in which the Financial 
Resource Monitoring and Call Procedure would be applied. All assume 
that the Clearing Fund size is $7.8 billion, $6 billion of which is the 
Base Amount and $1.8 billion of which is the prudential margin of 
safety. The 75% threshold in these examples is $5.85 billion.

    Example 1: Single CM Under OCC's stress testing the Projected 
Draw attributable to Clearing Member ABC, a Clearing Member with no 
affiliated Clearing Members and net capital of $500 million, is $6.4 
billion, or 82% of the Clearing Fund. OCC would make a margin call 
for $400 million, which

[[Page 76420]]

represents the Exceedance Above Base Amount. In this case the 500/
100 Limitation would not be applicable because the Exceedance Above 
Base Amount is less than $500 million and 100% of the Clearing 
Member's net capital. The Clearing Member would be required to meet 
the $400 million call within one hour unless OCC prescribed a 
different time, and OCC would retain the $400 million until the next 
monthly Clearing Fund sizing calculation.
    If, on a different day within the same month, CM ABC's Projected 
Draw minus the $400 million already deposited with OCC results in an 
Exceedance above Base Amount, another Margin Call Event would be 
triggered, with the amount currently deposited with OCC applying 
toward the 500/100 Limitation.
    Example 2: Clearing Member Group Under OCC's stress testing the 
Projected Draw attributable to Clearing Member Group DEF, comprised 
of two Clearing Members each with net capital of $800 million, is 
$6.2 billion, or 79% of OCC's Clearing Fund. OCC would initiate a 
margin call on Clearing Member Group DEF for $200 million. The call 
would be allocated to the two Clearing Members that compose the 
Clearing Member Group based on each Clearing Member's risk margin 
allocation. In this case the 500/100 Limitation would not be 
applicable because the Exceedance Above Base Amount is less than 
$500 million and 100% of net capital. The margin call would be 
required to be met within one hour of the call unless OCC prescribed 
a different time. For example, in the case where one Clearing Member 
accounts for 75% of the risk margin for the Clearing Member Group, 
that Clearing Member would be allocated $150 million of the call and 
the other Clearing Member, accounting for 25% of the risk margin for 
the Clearing Member Group, would be allocated $50 million of the 
call. The funds would remain deposited with OCC until the next 
monthly Clearing Fund sizing calculation.
    Example 3: Clearing Member Group with $500 Million Cap Under 
OCC's stress testing the Projected Draw attributable to Clearing 
Member Group GHI, comprised of two Clearing Members each with net 
capital of $800 million, is $6.8 billion, or 87% of the Clearing 
Fund. The Exceedance Above Base Amount would be $800 million, 
allocated to the two Clearing Members that compose the Clearing 
Member Group based on each Clearing Member's risk margin allocation. 
Using the 75/25 risk margin allocation from Example 2, one Clearing 
Member would be allocated $600 million and the other Clearing Member 
would be allocated $200 million. The first Clearing Member would be 
required to deposit $500 million with OCC, which is the lowest of 
$500 million, that member's net capital, or that member's share of 
the Exceedance Above Base Amount, and the other Clearing Member 
would be required to deposit $200 million with OCC. After collecting 
the additional margin, OCC would determine whether the Projected 
Draw would exceed 90% of the Clearing Fund after reducing the 
Projected Draw by the additional margin. This calculation would 
divide a Projected Draw of $6.1 billion, which is the original 
Projected Draw of $6.8 billion reduced by the additional margin, by 
the Clearing Fund of $7.8 billion. The resulting percentage of 78% 
would be below the 90% threshold, and accordingly there would not be 
a Clearing Fund Intra-month Increase Event.
    Example 4: Margin Call and Increase in Size of Clearing Fund 
Under OCC's stress testing the Projected Draw attributable to 
Clearing Member JKL, a Clearing Member with no affiliated Clearing 
Members and net capital of $600 million, is $10.0 billion, or 128% 
of the Clearing Fund. OCC would make a margin call for $500 million, 
which represents the lowest of the Exceedance Above Base Amount, 
$500 million and 100% of net capital. The Clearing Member would be 
required to meet the $500 million call within one hour unless OCC 
prescribed a different time, and OCC would retain the $500 million 
until the next monthly Clearing Fund sizing calculation.
    After collecting the additional margin, OCC would determine 
whether the Projected Draw would exceed 90% of the Clearing Fund 
after reducing the Projected Draw by the additional margin. This 
calculation would divide a Projected Draw of $9.5 billion, which is 
the original Projected Draw of $10 billion reduced by the additional 
margin, by the Clearing Fund of $7.8 billion. The resulting 
percentage of 122%, while lower, would still exceed the 90% 
threshold, and accordingly OCC would declare a Clearing Fund Intra-
month Increase Event. To calculate the Clearing Fund Increase, OCC 
would first determine the difference between the modified Projected 
Draw ($9.5 billion) and the Clearing Fund ($7.8 billion), which in 
this case would be $1.7 billion, OCC would then multiply this by 
1.25, resulting in $2.125 billion. Because this amount is greater 
than $1 billion, the Clearing Fund Increase would be $2.125 billion 
and a modified Clearing Fund of OCC totaling $9.925 billion ($425 
million in excess of the modified Projected Draw of $9.5 billion).
2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act,\25\ and the rules and regulations thereunder. 
By establishing sound procedures governing the monthly resizing of the 
Clearing Fund and how OCC would add Financial Resources in response to 
a Margin Call Event and a Clearing Fund Intra-month Increase Event, the 
proposed modifications would further ensure that OCC is capable of 
safeguarding securities and funds which are in the custody or control 
of OCC or for which it is responsible and protecting investors and the 
public interest. The development of the Monthly Clearing Fund Sizing 
Procedure and the Financial Resource Monitoring and Call Procedure also 
ensures that OCC has procedures designed to maintain sufficient 
financial resources to withstand, at a minimum, a default by the 
participant family to which it has the largest exposure in extreme but 
plausible market conditions, in compliance with Rule 17Ad-22(b)(3).\26\
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    \25\ 15 U.S.C. 78q-1(b)(3)(F).
    \26\ 17 CFR 240.17Ad-22(b)(3).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.\27\ OCC believes the proposed rule change would 
not unfairly inhibit access to OCC's services or disadvantage or favor 
any particular user in relationship to another user because OCC would 
establish the size of the Clearing Fund in accordance with the Monthly 
Clearing Fund Sizing Procedure and without regard to any particular 
user or Clearing Member that makes Clearing Fund contributions. 
Furthermore, OCC would respond to a Margin Call Event and Clearing Fund 
Intra-month Increase Event in accordance with the Financial Resource 
Monitoring and Call Procedure without regard to any particular user or 
Clearing Member.
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    \27\ 15 U.S.C. 78-q1(b)(3)(I).
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    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impose a burden on competition.

(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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and

[[Page 76421]]

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#9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb"><span class="__cf_email__" data-cfemail="483a3d242d652b2725252d263c3b083b2d2b662f273e">[email protected]</span></a>. Please include 
File Number SR-OCC-2014-22 on the subject line.

Paper Comments

    <bullet> 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-OCC-2014-22. 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 Web site (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 Web site 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 OCC and on OCC's 
Web site at http://www.theocc.com/about/publications/bylaws.jsp. 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-2014-22 and 
should be submitted on or before January 12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29820 Filed 12-19-14; 8:45 am]
BILLING CODE 8011-01-P


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