Document ID: SEC-2021-0117-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2021-01-27T05:00Z

[Federal Register Volume 86, Number 16 (Wednesday, January 27, 2021)]
[Notices]
[Pages 7317-7320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01729]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90960; File No. SR-OCC-2021-002]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Revisions to Part 39 of the Commodity Futures Trading 
Commission Regulations

January 21, 2021.
    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 January 13, 2021, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared primarily by OCC. OCC filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(ii) \3\ of the Act and Rule 
19b-4(f)(6) \4\ thereunder so that the proposal was effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by OCC would amend Interpretation and 
Policy (``I&P'') .01 to OCC Rule 602 (Customer-Level Margin 
Requirement), add I&P .02 to OCC Rule 602 (Customer-Level Margin 
Requirement) and add I&P .01 to OCC Rule 1103 (Notice of Suspension to 
Clearing Members) to achieve compliance with recent amendments to Part 
39 of the Commodity Futures Trading Commission (``CFTC'') \5\ 
regulations and facilitate no-action relief issued by CFTC staff.\6\ 
The proposed changes to OCC Rules are included in Exhibit 5 of File No. 
SR-OCC-2021-002. Material proposed to be added to OCC's Rules as 
currently in effect is underlined and material proposed to be deleted 
is marked in strikethrough text. All capitalized terms not defined 
herein have the same meaning as set forth in the OCC By-Laws and 
Rules.\7\
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    \5\ Derivatives Clearing Organizations General Provisions and 
Core Principles, 85 FR 4800 (January 27, 2020).
    \6\ CFTC Letter No. 19-17, Comm. Fut. L. Rep. ] 34,523 (July 10, 
2019). See also CFTC Letter No. 20-28, Comm. Fut. L. Rep. ] 34,798 
(September 15, 2020).
    \7\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

[[Page 7318]]

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

(1) Purpose
    The purpose of revised I&P .01 to OCC Rule 602 is to achieve 
compliance with recent amendments to CFTC Regulation 
39.13(g)(8)(ii).\8\ Departing from the historical practice of 
establishing distinct minimum initial margin requirements for hedge and 
speculative customer accounts,\9\ revised CFTC Regulation 
39.13(g)(8)(ii) provides that a derivatives clearing organization 
(``DCO'') shall establish a minimum initial margin requirement that 
clearing members must charge their customers with respect to each 
product and portfolio that is commensurate with the risk presented by 
each customer account.\10\ The revised regulation also provides DCOs 
reasonable discretion in establishing a higher minimum initial margin 
requirement that clearing members must collect for categories of 
customers determined by the clearing member to have heightened risk 
profiles.\11\ As amended, I&P .01 to Rule 602 will allow OCC to achieve 
compliance with CFTC Regulation 39.13(g)(8)(ii) by requiring Clearing 
Members to determine which futures customers or categories of futures 
customers have heightened risk profiles and to collect, at a minimum, 
the amount of initial margin established by OCC for such customers or 
categories of customers from time to time. The proposal also eliminates 
the existing language in I&P .01 to OCC Rule 602 contemplating distinct 
margin requirements for customer hedge and speculative positions.\12\
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    \8\ 85 FR at 4812 and 4856.
    \9\ See, e.g. 85 FR at 4812.
    \10\ 17 CFR 39.13(g)(8)(ii).
    \11\ Id.
    \12\ OCC plans to distribute information used to calculate the 
minimum initial margin requirement for futures customer accounts and 
futures customer accounts with heightened risk profiles through a 
daily theoretical pricing file that is distributed to Clearing 
Members. OCC currently uses a similar approach for information used 
to calculate the minimum initial margin requirement for hedge and 
speculative positions of futures customers.
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    OCC also proposes to adopt I&P .02 to OCC Rule 602 to facilitate 
no-action relief granted by the CFTC. By way of background, in 2011, 
the CFTC adopted Regulation 39.13(g)(8)(iii) requiring each DCO to 
prohibit the withdrawal of funds from a customer account unless the 
clearing member holds a sufficient amount of the customer's assets to 
cover its initial margin requirements with respect to products cleared 
by the DCO.\13\ In 2012, OCC adopted Rule 602(b) to satisfy this 
requirement.\14\ CFTC staff has issued time-limited no-action relief 
pursuant to which a DCO may allow a futures commission merchant 
(``FCM'') clearing member to treat the separate accounts of a customer 
as accounts of separate entities for purposes of CFTC Regulation 
39.13(g)(8)(iii), provided that the clearing member satisfies several 
conditions set forth in the letter.\15\ Proposed I&P .02 creates an 
exception to OCC Rule 602(b) that allows FCM Clearing Members that 
satisfy the conditions established by the CFTC to treat separate 
futures customer accounts as accounts of separate entities for purposes 
of OCC Rule 602(b).
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    \13\ Derivatives Clearing Organization General Provisions and 
Core Principles, 76 FR 69334, 69374 (November 8, 2011).
    \14\ See File No. SR-OCC-2012-006.
    \15\ CFTC Letter No. 19-17, Comm. Fut. L. Rep. ] 34,523 (July 
10, 2019) (granting time-limited no-action relief with respect to 
CFTC Regulation 39.13(g)(8)(iii) until June 30, 2021). See also CFTC 
Letter No. 20-28, Comm. Fut. L. Rep. ] 34,798 (September 15, 2020) 
(extending the time-limited no-action relief with respect to CFTC 
Regulation 39.13(g)(8)(iii) until December 31, 2021).
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    Finally, the proposed rule change adds I&P .01 to OCC Rule 1103, 
which specifies that OCC will publish a public notice of a decision to 
suspend a Clearing Member on its website as soon as reasonably 
practical. OCC is adopting this I&P to achieve compliance with CFTC 
Regulation 39.16(c)(2)(ii), which requires each DCO to adopt rules 
describing the actions a DCO will take upon a default,\16\ which must 
include posting a public notice of a declaration of default on the 
DCO's website.\17\
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    \16\ CFTC Regulation 39.16(c)(2)(ii) also requires DCOs to adopt 
rules providing for the prompt transfer, liquidation, or hedging of 
the customer or house positions of the defaulting clearing member, 
as applicable. Chapter XI of OCC's Rules addresses this portion of 
CFTC Regulation 39.16(c)(2)(ii).
    \17\ 17 CFR 39.16(c)(2)(ii). See also 85 FR at 4815-16 and 4857.
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    OCC proposes to make the revisions to the I&Ps to OCC Rules 602 and 
1103 described above effective on January 27, 2021. This effective date 
aligns to the compliance date for the revisions to Part 39 of the CFTC 
regulations.\18\
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    \18\ See 85 FR at 4800.
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(2) Statutory Basis
    Section 17A(b)(3)(F) \19\ of the Act requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities and derivatives 
transactions and protect investors and the public interest. OCC 
believes that the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act.\20\ As noted above, the proposed revision to 
I&P .01 to Rule 602 protects investors and the public interest by more 
clearly describing which accounts are subject to increased initial 
margin requirements. The addition of .02 to OCC Rule 602 will promote 
the prompt and accurate clearance and settlement of transactions by 
accommodating no-action relief that is intended to help Clearing 
Members and their customers realize operational efficiencies for 
separate accounts. The proposed addition of I&P .01 to OCC Rule 1103 
promotes the public interest by specifying that OCC will publish a 
public notice of a decision to suspend a Clearing Member on its 
website. The proposal also enables OCC to satisfy certain requirements 
set forth in Part 39 of the CFTC regulations and provides for a well-
founded, clear, transparent and enforceable legal basis for its 
activities in accordance with SEC Rule 17Ad-22(e)(1).\21\ The proposed 
rule change is not inconsistent with the existing rules of OCC, 
including any other rules proposed to be amended.
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(1).
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \22\ 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 have any impact or impose a 
burden on competition. Although this proposed rule change affects 
Clearing Members, their customers, and the markets that OCC serves, OCC 
believes that the proposed rule change would not disadvantage or favor 
any particular user of OCC's services in relationship to another user 
because the proposed amendments apply equally to all users of OCC. OCC 
also notes that two of the proposed revisions to OCC Rules are designed 
to achieve compliance with amendments to Part 39 of the CFTC 
Regulations, and, in adopting these amendments, the CFTC identified no 
anticompetitive effects.\23\ Given that the revisions to I&P .01 to OCC 
Rule 602 and I&P .01 to OCC Rule 1103 are narrowly tailored to achieve 
compliance with regulatory requirements for which no anticompetitive 
effects have been identified, OCC does not believe that these 
amendments would have any impact or impose a burden on competition. The 
addition of I&P .02 to

[[Page 7319]]

OCC Rule 602 is intended to facilitate no-action relief related to an 
existing market practice and is not expected to have any impact on the 
competitive landscape.
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    \22\ 15 U.S.C. 78q-1(b)(3)(I).
    \23\ See 85 FR at 4849-50.
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    While OCC does not believe that the proposal would have any impact 
or impose a burden on competition, if any such impact or burden to 
competition were to exist, the proposed amendments would still be 
necessary to achieve compliance with applicable regulatory requirements 
and accommodate no-action relief granted by the CFTC. The amendments 
are appropriate, because they are narrowly tailored to achieve 
compliance with CFTC Regulations and facilitate no-action relief. 
Accordingly, OCC does not believe that the proposed rule change would 
have any unnecessary or inappropriate impact or 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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \24\ and 
Rule 19b-4(f)(6) \25\ thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
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    OCC has requested that the Commission waive the 30-day operative 
delay under Rule 19b-4(f)(6)(iii) \26\ so that the proposed rule 
changes may become effective and operative effective on January 27, 
2021. OCC states that the proposal is intended to achieve compliance 
with amendments to Part 39 of the CFTC Regulations, which become 
effective on that date. Accordingly, OCC believes that the prompt 
implementation of these changes would be consistent with the public 
interest and the protection of investors.
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    \26\ 17 CFR 240.19b-4(f)(6)(iii).
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    In adopting CFTC Regulation 39.13(g)(8)(ii), the CFTC noted that 
the amendment was consistent with an existing interpretation permitting 
DCOs to establish initial margin requirements based on the type of 
customer account and by applying prudential standards that result in 
FCMs collecting initial margin commensurate with the risk presented by 
each customer account.\27\ OCC does not believe that the amendment to 
I&P .01 and addition of I&P .02 to Rule 602 would significantly affect 
the protection of investors or the public interest as these changes 
simply conform the language of OCC's Rules to the applicable CFTC 
Regulation and prior interpretive guidance and facilitate no-action 
relief that has been granted with respect to an existing practice. 
Finally, the addition of I&P .01 to OCC Rule 1103 would not 
significantly affect the protection of investors or the public interest 
as it codifies OCC's longstanding practice of posting a notice of a 
Clearing Member default to its website. The proposed rule change would 
not impose any significant burden on competition because, as described 
above, the requirements apply to all Clearing Members, do not 
disadvantage or favor any particular user of OCC's services in 
relationship to another user and achieve compliance with applicable 
regulatory requirements for which the CFTC identified no 
anticompetitive effects.
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    \27\ See 85 FR at 4812 citing CFTC Letter No. 12-08 (Sept. 14, 
2012). In the relevant section CFTC Letter No. 12-08 provided, ``[A] 
DCO may continue the practice of establishing customer initial 
margin requirements based on the type of customer account and by 
applying prudential standards that result in FCMs collecting 
customer initial margin at levels commensurate with the risk 
presented by each type of customer account. This is the case even if 
the differentiation between accounts is not stated specifically in 
terms of `hedge' and `non-hedge' accounts.'' See CFTC Letter 12-08 
at 8.
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    The Commission believes that delaying the operation of the proposed 
rule change for 30 days would impede OCC's ability to comply with the 
CFTC rules by January 27, 2021 because a 30-day delay from the date of 
filing would require that the proposed rule change not become operative 
until February 12, 2021. The Commission believes, therefore, that 
waiving the 30-day operative delay would facilitate OCC's ability to 
comply with the CFTC's rules in a timely manner. Moreover, the 
Commission believes that the proposed rule change would not 
significantly affect the protection of investors or the public interest 
or impose a significant burden on competition because the changes would 
conform OCC's rules to existing practices as described above. The 
Commission designates the proposed rule change as operative on January 
27, 2021.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     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-2021-002 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-2021-002. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying

[[Page 7320]]

information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2021-002 and 
should be submitted on or before February 17, 2021.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01729 Filed 1-26-21; 8:45 am]
BILLING CODE 8011-01-P