Document ID: SEC-2018-0434-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2018-03-16T04:00Z

[Federal Register Volume 83, Number 52 (Friday, March 16, 2018)]
[Notices]
[Pages 11807-11808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05331]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82856; File No. SR-OCC-2018-001]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Related to The Options Clearing 
Corporation's Fee Policy

March 12, 2018.
    On January 18, 2018, The Options Clearing Corporation (``OCC'') 
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\ proposed rule change SR-
OCC-2018-001. The proposed rule change was published for comment in the 
Federal Register on January 30, 2018,\3\ and the Commission did not 
receive any comments. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82576 (January 24, 
2018), 83 FR 4324 (January 30, 2018) (SR-OOC-2018-001) (``Notice'').
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I. Description of the Proposed Rule Change

A. Background

    As stated in the Notice, OCC filed the proposed Fee Policy to 
reduce the permitted implementation time for proposed changes to its 
Schedule of Fees.\4\ Under the current Fee Policy, any change to the 
Schedule of Fees resulting from a review by OCC's Board of Directors 
(``Board'') \5\ will be implemented no sooner than 60 days after filing 
the revised Schedule of Fees with the Commission as a proposed rule 
change.
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    \4\ See Notice at 4324.
    \5\ See Notice at 4325 (stating that the authority to review and 
approve changes to OCC's fees pursuant to the Capital Plan has been 
delegated to the Compensation and Performance Committee of the 
Board). See also OCC Compensation and Performance Committee Charter, 
available at: http://www.optionsclearing.com/components/docs/about/corporate-information/performance_committee_charter.pdf.
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B. The Proposed Rule Change to OCC's Fee Policy

    OCC's By-Laws require OCC to set its fee structure so that it is 
sufficient to: (1) Cover OCC's operating expenses plus a Business Risk 
Buffer (``Buffer''); \6\ (2) maintain reserves deemed reasonably 
necessary by OCC's Board; and (3) accumulate an additional surplus 
deemed advisable by the Board to permit OCC to meet its obligations to 
its Clearing Members and the public.\7\ As part of the Fee Policy, OCC 
sets fees at a level that will cover its estimated operating expenses 
plus the additional 25% Buffer, with OCC conducting quarterly reviews 
to manage revenues as close to the Buffer as possible. OCC stated that 
the Board may rely on recommendations of OCC staff based on analyses of 
year-to-date revenue and operating expenses, as well as projected 
clearing volume and operating expenses to determine the proper level of 
fees to achieve the Buffer.\8\
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    \6\ The Buffer is an amount of fee revenue that OCC targets 
above its anticipated operating expenses to allow for unexpected 
fluctuations in operating expenses, business capital needs, and 
regulatory capital requirements.
    \7\ See OCC's By-Laws, Art. IX, Sec. 9. In the Notice at 4325, 
OCC noted that clauses two and three above would be invoked only at 
the discretion of OCC's Board and in extraordinary circumstances.
    \8\ See Notice at 4325.
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    As stated in the Notice, OCC believes that the current 60-day 
implementation period under the Fee Policy: (i) Increases the 
difficulty of projecting appropriate fee levels needed to cover its 
operating expenses and the Buffer because of the amount of time that 
passes between OCC's analysis of the data supporting the fee change and 
the subsequent implementation of the fee change; (ii) increases the 
risk that by the time the fee change is implemented, the extended delay 
in implementation may result in revenues that diverge (either higher or 
lower) further from the target Buffer; and (iii) increases the impact 
of fee changes on participants due to the delayed implementation 
timing.\9\ OCC states that the effects of delayed implementation 
described above may result in OCC needing to make more frequent and/or 
more dramatic changes to its Schedule of Fees in order to maintain its 
target Buffer, resulting in less stability in fees for OCC's 
participants.\10\ OCC states that reducing the 60-day implementation 
period to thirty days would allow for fee adjustments that are based on 
revenue and expense data that is more current, and therefore 
projections that are more accurate.\11\ OCC further states that it 
believes the proposed Fee Policy would improve its ability to set fees 
at the level required by the Fee Policy while still providing adequate 
notice to its participants of any proposed fee changes.\12\
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    \9\ See id. OCC further stated that, because it generally 
implements fee changes on the first of the month, the actual delay 
in implementing a proposed fee change may be significantly longer 
than 60 days depending on the timing of Board approval of any fee 
change and subsequent filing of the associated proposed rule change.
    \10\ See id.
    \11\ See id.
    \12\ See id.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \13\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission finds that the proposed Fee Policy 
is consistent with Section 17A(b)(3)(F) of the Act \14\ and Rule 17Ad-
22(e)(21) \15\ thereunder, as described in detail below.
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    \13\ 15 U.S.C. 78s(b)(2)(C).
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(21).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and the protection 
of investors and the public interest.\16\ As described above,

[[Page 11808]]

the Fee Policy requires OCC to set fees at a level sufficient to cover 
its operating expenses plus a Buffer. Conducting quarterly reviews 
allows OCC to monitor the fees collected and make any necessary 
adjustments to maintain the Buffer. However, delayed implementation of 
fee changes due to the 60-day waiting period and OCC's preference to 
introduce such changes at the beginning of the month increase the risk 
of an inaccurate fee calculation, which could in turn result in OCC 
collecting inadequate resources to cover its operating expenses and 
maintain the Buffer.
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that setting clearing fees based on more 
current information would allow OCC to more accurately set and collect 
fees necessary to support its operations, and promote the prompt and 
accurate clearance and settlement of securities transactions. The 
Commission further believes that accurate fee calculations supports the 
protection of investors and the public by protecting participants from 
large and unexpected swings in fee levels resulting from fee schedules 
based upon stale and outdated information. While the proposed Fee 
Policy would shorten the notice period for implementation, the 
Commission believes that thirty days still provides sufficient notice 
for Clearing Members to make adjustments to their activity as a result 
of any impending fee change. Accordingly, the Commission finds that the 
proposed Fee Policy promotes the prompt and accurate settlement of 
securities transactions and protection of investors and the public 
interest, consistent with Section 17A(b)(3)(F) of the Act.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(21)

    Rule 17Ad-22(e)(21) requires, in part, that a covered clearing 
agency establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to be efficient and effective 
in meeting the requirements of its participants and the markets it 
serves.\18\
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    \18\ 17 CFR 240.17Ad-22(e)(21).
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    The Fee Policy requires OCC to set fees at levels designed to cover 
its operating expenses and to maintain the Buffer. As discussed above, 
the proposed Fee Policy would reduce the implementation period for fee 
changes from sixty to thirty days. The Commission believes the proposed 
change would enhance the efficiency and effectiveness of OCC's fee 
calculations by using more current expense and revenue information, 
thereby leading to more accurate fee projections. Improving the 
efficiency and effectiveness of OCC's fee calculation process ensures 
that OCC is able to cover its operating expenses and maintain the 
Buffer, while also reducing the possibility of large and unexpected 
swings in fees that could result from using stale and outdated 
information. Accordingly, the Commission finds that the proposed Fee 
Policy would enhance OCC's efficiency and effectiveness in setting 
accurate fees necessary to cover its operating expenses and the Buffer, 
thereby enhancing its efficiency and effectiveness to meet the 
requirements of its participants and the markets it serves, consistent 
with Rule 17Ad-22(e)(21).\19\
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    \19\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed Fee Policy is consistent with the requirements of the Act, and 
in particular, with the requirements of Section 17A of the Act \20\ and 
Rule 17Ad-22(e)(21) \21\ thereunder.
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    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 17 CFR 240.17Ad-22(e)(21).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-OCC-2018-001) be, and it 
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated Authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05331 Filed 3-15-18; 8:45 am]
 BILLING CODE 8011-01-P