Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices 50719 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(3). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.17Ad–22(e)(3), (4), (16), (18), (19), 

and (20). 

4The Commission notes that Exhibit 5 is 

included in the filing, not in this Notice. 

5OCC’s By-Laws and Rules can be found on 

OCC’s public Web site: http://optionsclearing.com/ 

about/publications/bylaws.jsp. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Pursuant to Section 19(b)(3)(A) of the 

Act 8 and Rule 19b–4(f)(3) thereunder,9

the Exchange has designated this 

proposal as one that is concerned solely 

with the administration of the selfregulatory organization, and therefore 

has become effective. 

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 will institute proceedings 

to determine whether the proposed rule 

change 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– 

BatsEDGA–2017–28 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BatsEDGA–2017–28. 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 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–BatsEDGA–2017–28 and 

should be submitted on or before 

November 22, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–23737 Filed 10–31–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81949; File No. SR–OCC– 

2017–009] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Related to The Options Clearing 

Corporation’s Counterparty Credit Risk 

Management Policy 

October 26, 2017. 

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 October 

12, 2017, 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. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

This proposed rule change by OCC 

would formalize OCC’s Counterparty 

Credit Risk Management Policy (‘‘CCRM 

Policy’’ or ‘‘Policy’’), which promotes 

compliance with multiple requirements 

applicable to OCC under Rule 17Ad–22, 

including Rules 17Ad–22(e)(3) 

concerning frameworks for the 

comprehensive management of risks, 

(e)(4) concerning credit risk 

management, (e)(16) concerning the 

safeguarding of assets, (e)(18) 

concerning risk-based participation 

criteria, (e)(19) concerning risks form 

indirect participants, and (e)(20) 

concerning linkages.3 The CCRM Policy 

is included as confidential Exhibit 5.4

The proposed rule change does not 

require any changes to the text of OCC’s 

By-Laws or Rules. All terms with initial 

capitalization that are not otherwise 

defined herein have the same meaning 

as set forth in the OCC By-Laws and 

Rules.5

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 

Background 

As a central counterparty providing 

clearance, settlement, and risk 

management services, OCC is exposed 

to and must manage a range of risks, 

including credit risk. The purpose of the 

CCRM Policy is to outline OCC’s overall 

approach to identify, measure, monitor, 

and manage its exposures to direct and 

indirect participants, Liquidity 


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6Under the CCRM Policy, ‘‘Liquidity Provider’’ is 

defined as a Commercial Bank or a non-banking 

institution—generally a pension fund—that 

provides a committed liquidity facility to OCC. 

7Under the CCRM Policy, ‘‘Financial Market 

Utility’’ is defined as a derivatives clearing 

organization partnering with OCC to provide a 

cross-margin program; a clearing agency providing 

settlement services of securities arising from the 

exercise, assignment or maturity of options or 

futures; or the Depository providing book-entry 

securities transfers and asset custodian services. 

8 17 CFR 240.17Ad–22. 

9 15 U.S.C. 78q–1. 

10 12 U.S.C. 5461 et seq. 

11 17 CFR 240.17Ad–22(e)(3), (4), (16), (18), (19), 

and (20). 

12Pursuant to Article V, Section 2 of the By-Laws, 

the Executive Chairman, Chief Operating Officer 

and Chief Administrative Officer each have 

delegated authority to approve Clearing Member 

applicants provided that (1) there is no 

recommendation to impose additional membership 

criteria in accordance with Article V of the By-Laws 

and (2) the Risk Committee is given not less than 

five days to determine the application should be 

reviewed at a meeting of the Risk Committee. 

Pursuant to Interpretation and Policy .06 to Article 

V, Section 1 of the By-Laws, the Risk Committee 

has the authority to impose additional requirements 

on Clearing Member applicants, such as increased 

capital or margin requirements as well as 

restrictions on clearing activities. The Risk 

Committee also has the authority to approve 

waivers of certain clearing membership 

requirements under Article V, Section 1 of the ByLaws. Approvals of a Clearing Member business 

expansion by the Executive Chairman, Chief 

Operating Officer or Chief Administrative Officer 

are subsequently presented to the Risk Committee 

for ratification, except in limited circumstances 

detailed in Article V, Section 1.03(e) of the ByLaws. 

Providers,6 asset custodians, settlement 

banks, letter of credit issuers, 

investment counterparties, other 

clearing agencies, and financial market 

utilities (‘‘FMUs’’) 7 (each a 

‘‘Counterparty’’) arising from its 

payment, clearing, and settlement 

processes. OCC notes that the CCRM 

Policy is part of a broader framework 

used by OCC to manage credit risk, 

including OCC’s By-Laws, Rules, and 

other policies and procedures that are 

designed collectively to ensure that OCC 

appropriately manages counterparty 

credit risk and to promote compliance 

with Rule 17Ad–22.8

The CCRM Policy would be 

maintained by OCC to promote 

compliance with a number of rules 

adopted under Section 17A of the 

Securities Exchange Act of 1934, as 

amended (‘‘Act’’),9 and the Payment, 

Clearing, and Settlement Supervision 

Act of 2010 (‘‘Clearing Supervision 

Act’’).10 In particular, the Policy is 

designed to address certain aspects of 

Rules 17Ad–22(e)(3) concerning 

frameworks for the comprehensive 

management of risks, (e)(4) concerning 

credit risk management, (e)(16) 

concerning the safeguarding of assets, 

(e)(18) concerning risk-based 

participation criteria, (e)(19) concerning 

risks form indirect participants, and 

(e)(20) concerning linkages.11

Counterparty Credit Risk Management 

Policy 

OCC’s CCRM Policy outlines the key 

components of OCC’s framework for 

identifying, measuring, monitoring, and 

managing OCC’s exposures to its 

Counterparties. This framework 

includes: (1) The identification of credit 

risk, (2) Counterparty access and 

participation standards, (3) the 

measurement of its Counterparty 

exposures, (4) the monitoring and 

managing of Counterparty exposures, 

and (5) voluntary termination of 

Counterparty relationships. Each of 

these components is described in more 

detail below. 

Identification of Credit Risk 

The CCRM Policy identifies various 

ways in which credit risk originates 

from the failure of a Counterparty to 

perform. With respect to a Clearing 

Member, the CCRM Policy details a 

number of different ways in which OCC 

may be exposed to credit risk. This 

includes the potential failure of a 

Clearing Member to pay for purchased 

options, to meet expiration-related 

settlement obligations, or to make 

certain mark-to-market variation 

payments or initial margin deposits. It 

also includes the potential insufficiency 

of a defaulting Clearing Member’s 

margin and Clearing Fund deposits in a 

liquidation scenario. Other sources of 

credit risk identified in the CCRM 

Policy include the inability of OCC to 

access collateral (e.g., cash or securities) 

from a custodian or investment 

counterparty that is needed to facilitate 

a liquidation, or a failure by an issuer 

of a letter of credit to honor its 

corresponding obligations. The CCRM 

Policy also identifies that certain 

relationships with other FMUs, such as 

cross-margining programs and cash 

market settlement services, represent 

critical linkages that may present certain 

degrees of credit exposure based on the 

terms and design of the linkage. The 

CCRM Policy also notes that OCC may 

face additional risks from 

Counterparties, such as the potential 

failure of a Liquidity Provider to honor 

a borrowing request. 

Counterparty Access and Participation 

Standards 

Under the CCRM Policy, OCC’s 

management of Counterparty credit 

risks begins with an initial evaluation 

process intended to ascertain that 

Counterparties meet certain minimum 

financial and operational standards and 

are considered as having a low 

probability of defaulting on their 

obligations prior to engaging or effecting 

any new transactions or expansion of 

business with OCC. To accomplish this 

objective, OCC shall evaluate each 

Counterparty against established 

minimum standards of 

creditworthiness, overall financial 

condition, and operational capabilities. 

Pursuant to the Policy, the standards 

used to evaluate Counterparties shall be 

objective, risk-based, and publiclydisclosed in order to permit fair and 

open access. These standards shall be 

developed independently for Clearing 

Members, Commercial and Central 

Banks, investment counterparties, 

Liquidity Providers and FMUs, 

accounting for differences in their 

regulatory reporting and overall 

business operations. 

Clearing Membership Standards 

OCC’s minimum participation 

standards for Clearing Member are 

found in Article V of OCC’s By-Laws, 

Chapters II and III of OCC’s Rules, and 

other publicly-disclosed supplemental 

documentation (together, ‘‘Participation 

Standards Documentation’’). Under the 

Policy, OCC’s Credit Risk Management 

and Member Services departments shall 

evaluate each Clearing Member 

applicant against the minimum 

standards of creditworthiness and for its 

overall financial condition and 

operational capabilities as provided in 

the Participation Standards 

Documentation. Such evaluation shall 

also consider the Counterparty’s 

aggregation of exposure on an 

individual and related-entities level, as 

applicable, as well as any material 

exposure that may arise from tiered 

participation arrangements. The Credit 

Risk Management and Member Services 

departments shall document the results 

of this evaluation in a memorandum, 

including the Clearing Member 

applicant’s ability to meet relevant 

participation standards, and report 

those results to OCC’s Executive 

Chairman, Chief Operating Officer or 

Chief Administrative Officer for review 

and approval, where appropriate, or for 

recommendation to the Risk Committee 

or Board of Directors.12

Commercial and Central Banks 

OCC’s minimum standards for asset 

custodians, settlement banks, letter of 

credit issuers and investment 

counterparties are found in OCC Rule 

604 and relevant OCC procedures. The 

Credit Risk Management department 

shall coordinate with various 


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13Under the Policy, ‘‘Commercial Bank’’ is 

defined as a banking or depository institution that 

is not an operating arm of a Central Bank. 

Commercial bank relationships shall be governed 

by this Policy and all supporting bank-related 

procedures. Commercial Banks act as Liquidity 

Providers, asset custodians, settlement banks, letter 

of credit issuers, and investment counterparties on 

behalf of OCC. 

14Under the Policy, ‘‘Central Bank’’ is defined as 

a bank serving as a bank for both depository 

institutions and a government, a regulator for 

financial institutions, and/or a nation’s money 

manager. Central Banks act as asset custodians on 

behalf of OCC, and OCC uses access to accounts and 

services at a Central Bank, when available and 

where determined to be practical by the Board of 

Directors, to enhance its management of liquidity 

risk. Due to the inherently low credit risk presented 

by Central Banks, only limited monitoring activities 

would be performed pursuant to relevant OCC 

procedures. 

departments (such as Collateral Services 

or Treasury) to evaluate each bank 

against the minimum standards of 

creditworthiness and for its overall 

financial condition and operational 

capabilities as provided in OCC Rule 

604 and related OCC procedures. Such 

evaluation shall also consider the 

Counterparty’s aggregation of exposure 

on an individual and related-entities 

level, as applicable, as well as whether 

OCC would be able to structure its 

custodial relationships in a manner that 

allows prompt access to its own and its 

Clearing Members’ assets. The latter 

shall include holding assets at 

supervised and regulated institutions 

that adhere to generally accepted 

accounting practices, maintain 

safekeeping procedures, and have 

internal controls that fully protect these 

assets. Under the Policy, Credit Risk 

Management and either the Collateral 

Services or Treasury department, as 

applicable, shall document the results of 

its evaluation in a memorandum, 

including the bank’s ability to meet 

relevant participation standards, and 

report those results to OCC’s Executive 

Chairman, Chief Operating Officer or 

Chief Administrative Officer, each of 

which shall have the authority to 

approve new and expanded 

relationships with asset custodians, 

settlement banks, letter of credit issuers, 

investment counterparties, and 

Liquidity Providers. 

Liquidity Providers 

Under the Policy, OCC maintains 

internal procedures outlining the 

minimum standards for Commercial 

Banks 13 and non-bank institutions 

acting as Liquidity Providers. OCC’s 

Credit Risk Management and Treasury 

departments would be responsible for 

evaluating each Liquidity Provider 

against the minimum standards of 

creditworthiness and for its overall 

financial condition and operational 

capabilities as provided in the 

procedures. Because Liquidity Providers 

present both credit and liquidity risk to 

OCC, the due diligence around such 

institutions shall include a review of 

each lender’s ability to perform their 

commitments as well as understand and 

manage their liquidity risks. Pursuant to 

the Policy, Credit Risk Management and 

Treasury shall document the results of 

its evaluation in a memorandum, 

including the Liquidity Provider’s 

ability to meet relevant participation 

standards, and report those results to 

the Executive Chairman, Chief 

Operating Officer or Chief 

Administrative Officer, each of which 

shall have the authority to approve new 

and expanded relationships with 

Liquidity Providers. 

FMUs 

Under the Policy, OCC maintains 

internal procedures outlining minimum 

standards for FMUs. OCC’s Business 

Operations and Credit Risk Management 

departments shall evaluate each FMU 

for its overall financial condition and 

operational capabilities as provided in 

the procedure. Pursuant to the Policy, 

before entering into any link 

arrangement, the Legal department shall 

assist the aforementioned business units 

to identify legal risks relating to rights 

and interests, collateral arrangements, 

settlement finality and netting 

arrangements, and financial and custody 

risks. The Business Operations, Credit 

Risk Management and Legal 

departments shall document the results 

of its evaluation in a memorandum, 

including the FMU’s ability to meet 

relevant standards. All new and 

expanded FMU relationships shall be 

reviewed and approved by the Risk 

Committee and subsequently 

recommended for approval to the Board 

of Directors. 

Measuring Counterparty Credit Risk 

The CCRM Policy describes various 

ways in which OCC measures the credit 

risk posed by different Counterparties. 

With respect to Clearing Members, the 

CCRM Policy provides that OCC 

measures its credit exposures to 

Clearing Members under normal market 

conditions through the calculation of 

margin requirements and its credit 

exposures to Clearing Members under 

extreme but plausible conditions 

through stress testing and the 

calculation of Clearing Fund 

requirements, in accordance with 

applicable OCC policies. Margin, 

Clearing Fund and stress test results 

may be used by OCC’s Financial Risk 

Management department (‘‘FRM’’) to 

evaluate OCC’s counterparty credit risk 

framework and inform Clearing Member 

surveillance processes. 

With respect to Commercial Banks, 

Central Banks,14 Liquidity Providers, 

and investment counterparties, OCC 

shall measure its credit exposures to 

these Counterparties by the balances 

generated from the various activities 

provided by these institutions in 

accordance with relevant internal 

procedures. 

FMUs provide a range of services to 

OCC, including the Depository Trust 

Company (‘‘DTC’’) as collateral 

custodian and provider of book order 

entry of securities transfers, Chicago 

Mercantile Exchange Inc. (‘‘CME’’) and 

ICE Clear U.S. as cross-margin clearing 

organizations, and the National 

Securities Clearing Corporation 

(‘‘NSCC’’) as a provider of securities 

settlement. Under the Policy, DTC credit 

exposures shall be measured by the 

collateral balances held and the value of 

securities lending/borrowing 

transactions facilitated. CME and ICE 

Clear U.S. credit exposures shall be 

measured by the projected margin 

impact in the event of suspension of a 

cross-margin program and, therefore, the 

absence of risk reducing positions 

cleared away from OCC. NSCC exposure 

shall be measured by the value of 

securities and cash to be settled in 

connection with the delivery obligations 

settled through NSCC. 

Monitoring and Managing Counterparty 

Credit Risk 

The CCRM Policy also describes the 

manner in which OCC monitors and 

manages credit risk from its 

Counterparties. Under the Policy, OCC’s 

monitoring and management of such 

risks is comprised of ‘‘Watch Level 

Reporting’’ processes in conjunction 

with other tools including margin 

adjustments, internal credit ratings, risk 

examinations, and monitoring of tiered 

participation arrangements and dormant 

Counterparties. 

Watch Level Reporting Overview 

Under the Policy, Counterparties are 

monitored by OCC’s FRM, Business 

Operations, and Treasury departments 

for ongoing compliance with the 

minimum participation standards 

described above to identify any trends 

that might signal the deterioration of a 

Counterparty’s ability to timely meet its 

obligations. When these trends are 

identified, Credit Risk Management 

shall report on a Counterparty through 

OCC’s Watch Level Reporting processes, 

which are described in further detail 


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below. As a Counterparty approaches or 

no longer meets minimum standards, 

FRM’s monitoring heightens and, in the 

case of Commercial Banks and Clearing 

Members, increasingly rigorous 

protective measures may be imposed to 

limit or eliminate OCC’s credit 

exposure. 

Pursuant to the Policy, the Watch 

Level Reporting process shall be 

administered by OCC’s Management 

Committee, which maintains approval 

authority of Watch Level parameter 

changes. The Watch Level Reporting 

process provides each of the Executive 

Chairman, Chief Operating Officer and 

Chief Administrative Officer with 

authority to take action to protect OCC 

given the facts and circumstances of the 

exposure presented by a Clearing 

Member or Commercial Bank. Under the 

Policy, Credit Risk Management shall 

provide monthly internal reporting to 

FRM summarizing the circumstances 

relating to a violation, additional risks 

observed and any corrective measure 

taken by any Clearing Member, 

Commercial Bank, or FMU at or above 

Watch Level II (described below); and 

monthly reporting to OCC’s Credit and 

Liquidity Risk Working Group, 

Management Committee and the Risk 

Committee of any Clearing Member or 

Commercial Bank at or above Watch 

Level III (described below). 

Clearing Member Watch Level Reporting 

and Bank Watch Level Reporting 

Pursuant to the CCRM Policy, the 

Clearing Member Watch Level Reporting 

process and Bank Watch Level 

Reporting process shall support initial 

and on-going participation standards by 

allowing OCC’s Credit Risk Management 

department, with the support of other 

FRM business units, Business 

Operations and Treasury, to detect 

business-related concerns and/or 

financial or operational deterioration of 

a Counterparty in order to protect OCC 

and its Clearing Members against the 

potential default of a Clearing Member 

or Commercial Bank. Pursuant to the 

Policy, the Clearing Member Watch 

Level Reporting process and Bank 

Watch Level Reporting process shall be 

organized into four-tiered surveillance 

structures. 

1. Watch Level I. Watch Level I is the 

lowest tier of severity and shall be used 

to categorize Clearing Members and 

Commercial Banks presenting minimal 

to very low credit risk. This level of 

violation shall be identified but not 

reported. 

2. Watch Level II. This tier shall be 

used to categorize Clearing Members 

and Commercial Banks presenting low 

to lower moderate credit risk. This level 

of violation shall be identified and 

reported to internal personnel pursuant 

to FRM procedures. 

3. Watch Level III. This tier shall be 

used to categorize Clearing Members 

and Commercial Banks potentially 

presenting upper moderate to 

substantial credit risk. Violations in this 

tier may indicate a Clearing Member or 

Commercial Bank that is below early 

warning participation thresholds and 

may soon become non-compliant with 

OCC’s minimum participation 

standards, as specified in Article V of 

OCC’s By-Laws, Chapters II and III of 

OCC’s Rules, and internal OCC 

procedures. This level of violation shall 

be identified and reported to the 

Executive Chairman, Chief Operating 

Officer or Chief Administrative Officer, 

who shall have the authority to approve 

the imposition or waiver of protective 

measures. The Risk Committee shall be 

informed of these violations on a 

monthly basis. 

4. Watch Level IV. Watch Level IV is 

the highest tier of severity and shall be 

used to categorize Clearing Members 

and Commercial Banks potentially 

presenting high to very high credit risk 

with a heightened probability of default. 

Violations in this tier may indicate a 

Clearing Member or Commercial Bank 

may imminently become or has already 

become non-compliant with OCC’s 

minimum participation standards, as 

specified in Article V of OCC’s By-Laws, 

Chapters II and III of OCC’s Rules, and 

internal OCC procedures. This level of 

violation shall be identified and 

reported to OCC’s Credit and Liquidity 

Risk Working Group, with subsequent 

reporting to the Executive Chairman, 

Chief Operating Officer or Chief 

Administrative Officer, who shall have 

the authority to approve the imposition 

or waiver of protective measures, 

including the option to restrict business 

of or suspend the Clearing Member or 

Commercial Bank. The Risk Committee 

shall be promptly informed of these 

violations and a meeting of the Risk 

Committee may occur to discuss the 

event. 

In addition, under the Policy, a 

Clearing Member reporting (1) aggregate 

uncollateralized stress test exposure 

under normal market conditions less (2) 

the sum of base expected shortfall and 

stress test charges as computed under 

OCC’s margin methodology, exceeding 

75% of the Clearing Member’s excess 

net capital shall be identified and 

reported on Watch Level II. When this 

exposure exceeds 100% of net capital, a 

Clearing Member shall be identified and 

reported on Watch Level III and shall be 

subject to a margin call for the amount 

of exposure exceeding net capital. A 

margin call shall be the standard form 

of protective measures for position risk 

monitoring and shall not require officer 

approval or further prompt escalation. 

However, Clearing Members may be 

reported to the Executive Chairman, 

Chief Operating Officer or Chief 

Administrative officer for consideration 

of additional protective measures. 

FMU Watch Level Reporting 

The FMU Watch Level Reporting 

process allows Credit Risk Management, 

with the support of other FRM business 

units and Business Operations, to detect 

business-related concerns and/or 

financial or operational deterioration of 

a FMU. Pursuant to the CCRM Policy, 

the FMU Watch Level Reporting process 

is organized into a two-tiered 

surveillance structure. 

1. Watch Level I. Watch Level I is the 

lowest tier of severity and shall be used 

to categorize FMUs presenting minimal 

to very low credit risk. This level of 

violation shall be identified but not 

reported. 

2. Watch Level II. Watch Level II is the 

highest tier of severity and shall be used 

to categorize FMUs presenting low to 

lower moderate credit risk. This level of 

violation shall be identified and 

reported. 

Other Tools for Monitoring and 

Managing Credit Risk 

In addition to the Watch Level 

Reporting processes discussed above, 

the CCRM Policy discusses other tools 

and processes used by OCC to monitor 

and manage credit risks arising from its 

Counterparties. For example, in cases 

where ongoing monitoring of Clearing 

Members identifies circumstances 

impacting margin levels due to changing 

portfolio characteristics, market 

conditions, elevated Clearing Fund 

stress test results, upcoming holidays 

where trading is allowed but OCC is 

unable to call for additional margin 

deposits, and certain other situations, 

OCC shall have the authority to call for 

additional margin deposits or otherwise 

adjust margin requirements as further 

detailed in OCC’s margin and Clearing 

Fund-related policies. 

Under the Policy, OCC’s Credit Risk 

Management department also maintains 

Internal Credit Ratings (‘‘ICRs’’) which 

shall be incorporated into the Watch 

Level Reporting process and shall be 

designed to identify quarterly 

creditworthiness scores of Clearing 

Members and Commercial Banks. ICR 

reporting shall summarize the 

underlying cause of the ICR score, 

recent scoring trend and exposure 

introduced by a Clearing Member or 

Commercial Bank. 


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15 17 CFR 240.17Ad–22(e)(19). 

16 17 CFR 240.17Ad–22(e)(19). 

17 15 U.S.C. 78q–1(b)(3)(F). 

18These activities, in turn, help ensure that OCC 

remains capable of continuing its operations and 

services in a manner that promotes the prompt and 

accurate clearance and settlement of securities 

transactions. 

19 15 U.S.C. 78q–1(b)(3)(F). 

20 17 CFR 240.17Ad–22(e)(3) and (4). 

21 Id. 

22 17 CFR 240.17Ad–22(e)(16). 

23 Id. 

24 17 CFR 240.17Ad–22(e)(18). 

In addition, the Policy provides that 

Credit Risk Management shall perform 

examinations of the risk management 

frameworks, policies, procedures and 

practices of each Clearing Member no 

less than once in a three calendar year 

period focusing on the risks posed to 

OCC. For certain exams, Credit Risk 

Management may coordinate with 

external parties to realize operational 

efficiencies for both the Clearing 

Member and OCC. 

The CCRM Policy also provides that 

OCC’s Counterparty monitoring 

includes managing the material risks 

that arise from indirect participants 

through tiered participation 

arrangements. In particular, Credit Risk 

Management, supported by other FRM 

business units and Business Operations, 

shall monitor the material risks that 

arise from indirect participants through 

tiered participation arrangements. 

Credit Risk Management (or other FRM 

business units, as appropriate) shall 

identify these tiered participation 

arrangements through standard 

monitoring processes when they present 

elevated risk to the Clearing Member or 

OCC. Furthermore, Clearing Member 

risk examinations shall seek to 

understand how direct participants 

identify, measure and manage the risks 

posed to OCC from indirect participants. 

In this regard, the CCRM Policy is 

designed to promote compliance with 

Rule 17Ad–22(e)(19) by addressing the 

material risks that may arise from 

indirect participants.15

Additionally, under the CCRM Policy, 

OCC shall monitor Clearing Members, 

Commercial Banks and investment 

counterparties during prolonged periods 

of inactivity, and Clearing Members 

shall be allowed to voluntarily enter a 

dormant state in order to reduce credit 

risk originating from unexpected trading 

activity. A dormant Clearing Member 

shall continuously adhere to all 

operational and financial standards and 

may reactivate its membership after 

submitting to an operational and 

financial review. OCC shall maintain 

sole discretion to terminate inactive 

Commercial Banks and investment 

counterparties in order to reduce credit 

risk. 

Counterparty Credit Risk Termination 

Finally, the CCRM Policy addresses 

the voluntary off-boarding of 

Counterparties. Under the Policy, 

voluntary off-boarding shall be 

performed in a manner designed to 

wind down all credit exposures in an 

orderly fashion before a relationship is 

terminated.16

(2) Statutory Basis 

Section 17A(b)(3)(F) of the Act 17

requires, among other things, that the 

rules of a clearing agency be designed to 

assure the safeguarding of securities and 

funds which are in its custody or 

control or for which it is responsible 

and, in general, to protect investors and 

the public interest. Through each of its 

respective sections, the CCRM Policy 

provides a framework that is designed to 

enable OCC to identify, evaluate, 

measure, monitor and manage potential 

credit risks posed by its Counterparties. 

In identifying these credit risks, the 

CCRM Policy details various ways in 

which OCC may be exposed to such 

risks. In evaluating counterparty credit 

risks, the CCRM Policy states that OCC 

evaluates each Counterparty against 

objective and risk-based minimum 

standards of creditworthiness, overall 

financial condition and operational 

capabilities. The Policy also provides 

detail on how OCC structures its 

custodial relationship to ensure it has 

prompt access to its own assets and 

Clearing Members’ assets. In measuring 

counterparty credit risk, the CCRM 

Policy describes various ways in which 

OCC measures credit risk posed by 

different Counterparties, as well as the 

three main tools for managing credit risk 

posed by Clearing Members. In 

monitoring and managing counterparty 

credit risk, the CCRM Policy specifies 

the steps taken by OCC’s internal units 

to monitor Counterparties, including by 

conducting examinations of Clearing 

Members’ risk management frameworks 

and performing monthly Watch Level 

Reporting. The CCRM Policy’s 

promotion of each aforementioned 

activity ultimately inures to the 

protection of investors and the public 

interest, as well as the safeguarding of 

securities and funds in OCC’s custody 

or control 18 in a manner consistent with 

Section 17A(b)(3)(F) of the Act.19

OCC also believes that that the CCRM 

Policy is consistent with several 

requirements under Rule 17Ad–22. For 

example, Rules 17Ad–22(e)(3) and 

(e)(4) 20 require a covered clearing 

agency to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to, 

among other things, maintain a sound 

risk management framework for 

addressing credit risk, to effectively 

identify, measure, monitor, and manage 

credit risks that arise in or are borne by 

the covered clearing agency, including 

its credit exposures to participants and 

those arising from its payment, clearing, 

and settlement processes. OCC believes 

that the CCRM Policy is consistent with 

Rules 17Ad–22(e)(3) and (4) 21 because 

the CCRM Policy describes OCC’s 

framework for comprehensively 

managing its credit risks. Specifically, 

the CCRM Policy describes the various 

processes by which OCC identifies, 

measures, monitors, and manages its 

credit exposures to participants and 

exposures arising from its payment, 

clearing, and settlement processes, 

including the Counterparty access and 

participation standards used by OCC to 

evaluate potential Counterparties, OCC’s 

processes for measuring its 

Counterparty exposures, and OCC’s 

processes for monitoring and managing 

Counterparty exposures (particularly 

through the use of its Watch Level 

Reporting processes). 

In addition, Rule 17Ad–22(e)(16) 22

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to, among other 

things, safeguard the covered clearing 

agency’s own and its participants’ assets 

and minimize the risk of loss and delay 

in access to these assets. OCC believes 

that the access and participation 

requirements for Commercial and 

Central Banks outlined in the CCRM 

Policy enable it to appropriately 

evaluate each bank against relevant 

minimum standards of creditworthiness 

and for its overall financial condition 

and operational capabilities, and are 

therefore designed to minimize the risk 

of loss and delay in access to OCC’s 

assets and its participants’ assets in a 

manner consistent with Rule 17Ad– 

22(e)(16).23

Rule 17Ad–22(e)(18) 24 further 

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to, among other 

things, establish objective, risk-based, 

and publicly disclosed criteria for 

participation, which permit fair and 

open access and require participants to 

have sufficient financial resources and 

robust operational capacity to meet 

obligations arising from participation in 

the clearing agency, and monitor 


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50724 Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices 

25 Id. 

26 17 CFR 240.17Ad–22(e)(19). 

27 Id. 

28 17 CFR 240.17Ad–22(e)(20). 

29 Id. 30 15 U.S.C. 78q–1(b)(3)(I). 

compliance with such participation 

requirements on an ongoing basis. OCC 

believes the CCRM Policy promotes 

compliance with Rule 17Ad–22(e)(18) 25

by ensuring that OCC has objective, riskbased and publicly disclosed criteria for 

participation and requiring Clearing 

Members to have sufficient financial 

resources to meet their obligations to 

OCC. Moreover, the Policy outlines the 

Watch Level Reporting process used by 

OCC to monitor compliance with such 

participation requirements on an 

ongoing basis. 

Rule 17Ad–22(e)(19) 26 requires a 

covered clearing agency to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify, 

monitor, and manage the material risks 

to the covered clearing agency arising 

from arrangements in which firms that 

are indirect participants in the covered 

clearing agency rely on the services 

provided by direct participants to access 

the covered clearing agency’s payment, 

clearing, or settlement facilities. OCC 

believes the Policy is designed to 

comply with Rule 17Ad–22(e)(19) 27

because it outlines the process by which 

OCC identifies and monitors the 

material risks arising from indirect 

participants through tiered participation 

arrangements, including through the use 

of risk examinations of its Clearing 

Members. 

Finally, Rule 17Ad–22(e)(20) 28

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to, among other 

things, identify, monitor, and manage 

risks related to any link the covered 

clearing agency establishes with one or 

more other clearing agencies or FMUs. 

OCC believes that the Policy promotes 

compliance with Rule 17Ad–22(e)(20) 29

because it outlines the standards OCC 

uses to evaluate FMU Counterparties 

prior to entering into any link 

arrangement (including the evaluations 

OCC would perform relating to rights 

and interests, collateral arrangements, 

settlement finality and netting 

arrangements, and financial and custody 

risks that may arise due to such link 

arrangement) and the processes by 

which OCC measures and monitors the 

risks arising from such FMU 

Counterparties (including its FMU 

Watch Level Reporting process). 

The proposed rule change is not 

inconsistent with the existing rules of 

OCC, including any other rules 

proposed to be amended. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

Section 17A(b)(3)(I) of the Act 30

requires that the rules of a clearing 

agency not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. OCC does not 

believe that the proposed rule change 

would impact or impose any burden on 

competition. The proposed rule change 

addresses the framework by which OCC 

manages counterparty credit risk arising 

from its business, as set forth in the 

CCRM Policy. Because any individual 

Counterparty under the CCRM Policy is 

equally subject to the aspects of the 

counterparty credit risk framework that 

apply to it based on the type of 

Counterparty that it represents (i.e., 

direct and indirect participants, 

Liquidity Providers, asset custodians, 

settlement banks, letter of credit issuers, 

investment counterparties, clearing 

agencies and FMUs) and the related 

counterparty credit risks that are posed 

to OCC by that type of Counterparty, the 

proposed rule change would not 

provide any Counterparty with a 

competitive advantage over any other 

similar Counterparty. Further, the 

proposed rule change would not affect 

Clearing Members’ or other 

Counterparties’ existing access to OCC’s 

services or impose any new or different 

direct burdens on Clearing Members or 

other Counterparties. 

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 impact or 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 

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– 

OCC–2017–009 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–OCC–2017–009. 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 such 

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/components/ 

docs/legal/rules_and_bylaws/sr_occ_17_

009.pdf. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that the 

Commission does not redact or edit 

personal identifying information from 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices 50725 

31 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Section 242(b) of the General Corporation 

Law of the State of Delaware. 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

All submissions should refer to File 

Number SR–OCC–2017–009 and should 

be submitted on or before November 22, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

Authority.31

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–23731 Filed 10–31–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81952; File No. SR– 

BatsBYX–2017–27] 

Self-Regulatory Organizations; Bats 

BYX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Reflect in 

the Exchange’s Governing Documents, 

Rulebook and Fee Schedule, a NonSubstantive Corporate Branding 

Change, Including Changes to the 

Company’s Name, the Intermediate’s 

Name, and the Exchange’s Name 

October 26, 2017. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on October 

16, 2017, Bats BYX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BYX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes a proposed 

rule change with respect to amendments 

of the Second Amended and Restated 

Certificate of Incorporation (the 

‘‘Company’s Certificate’’) and Third 

Amended and Restated Bylaws (the 

‘‘Company’s Bylaws’’) of its parent 

corporation, CBOE Holdings, Inc. 

(‘‘CBOE Holdings’’ or the ‘‘Company’’) 

to change the name of the Company to 

Cboe Global Markets, Inc. With respect 

to CBOE V, LLC, an intermediate 

Holding Company of the Exchange (the 

‘‘Intermediate’’), the Exchange proposes 

to amend the Certificate of Formation 

and Limited Liability Company 

Operating Agreement of CBOE V, LLC 

(the ‘‘Operating Agreement’’), in 

connection with a related name change 

for the Intermediate. The Exchange also 

proposes to amend its Amended and 

Restated Certificate of Incorporation (the 

‘‘Exchange Certificate’’), Sixth Amended 

and Restated Bylaws of Bats BYX 

Exchange, Inc. (the ‘‘Exchange 

Bylaws’’), rulebook and fee schedule 

(collectively ‘‘operative documents’’) in 

connection with the name change of its 

parent Company, Intermediate, and the 

Exchange. 

The text of the proposed rule change 

is also available on the Exchange’s Web 

site (http://www.cboe.com/AboutCBOE/ 

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The purpose of this filing is to reflect 

in the Exchange’s governing documents 

(and the governing documents of its 

parent company, CBOE Holdings) and 

the Exchange’s rulebook and fees 

schedules, a non-substantive corporate 

branding change, including changes to 

the Company’s name, the Intermediate’s 

name, and the Exchange’s name. 

Particularly, references to Company’s, 

Intermediate’s and Exchange’s names 

will be deleted and revised to state the 

new names, as described more fully 

below. No other substantive changes are 

being proposed in this filing. The 

Exchange represents that these changes 

are concerned solely with the 

administration of the Exchange and do 

not affect the meaning, administration, 

or enforcement of any rules of the 

Exchange or the rights, obligations, or 

privileges of Exchange members or their 

associated persons is any way. 

Accordingly, this filing is being 

submitted under Rule 19b–4(f)(3). In 

lieu of providing a copy of the marked 

name changes, the Exchange represents 

that it will make the necessary nonsubstantive revisions described below to 

the Exchange’s corporate governance 

documents, rulebook, and fees 

schedules, and post updated versions of 

each on the Exchange’s Web site 

pursuant to Rule 19b–4(m)(2). 

The Company’s Name Change 

In connection with the corporate 

name change of its parent company, the 

Exchange is proposing to amend the 

Company’s Certificate and Bylaws. 

Specifically, the Company is changing 

its name from ‘‘CBOE Holdings, Inc.’’ to 

‘‘Cboe Global Markets, Inc.’’. 

Company’s Certificate 

The Exchange proposes to (i) delete 

the following language from Paragraph 

(1) of the introductory paragraph: ‘‘The 

name of the Corporation is CBOE 

Holdings, Inc.’’ and (ii) amend Article 

First of the Company’s Certificate to 

reflect the new name, ‘‘Cboe Global 

Markets, Inc.’’ The Exchange also 

proposes to add clarifying language and 

cite to the applicable provisions of the 

General Corporation Law of the State of 

Delaware in connection with the 

proposed name change. The Exchange 

notes that it is not amending the 

Company’s name in the title or signature 

line as the name changes will not be 

effective until the Company, as 

currently named, files the proposed 

changes in Delaware. Thereafter, the 

Exchange will amend the Certificate to 

reflect the new name in the title and 

signature line. The Exchange also notes 

that although the name of ‘‘Chicago 

Board Options Exchange, Incorporated’’ 

is changing to ‘‘Cboe Exchange Inc.’’, it 

is not amending the name of Chicago 

Board Options Exchange, Incorporated 

(‘‘CBOE’’) referenced in Article 

Fifth(a)(iii) at this time. Particularly, the 

Exchange notes that unlike the 

exception applicable to proposed 

changes to the Company’s name,3 a vote 

of stockholders is required to adopt an 

amendment to the reference of CBOE’s 

name. As such, the Exchange will 

submit a rule filing to amend the 

Certificate to reflect the new CBOE 

name at such time it is ready to obtain 

stockholder approval. 


sradovich on DSK3GMQ082PROD with NOTICES