Document ID: SEC-2015-1706-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2015-10-22T04:00Z

[Federal Register Volume 80, Number 204 (Thursday, October 22, 2015)]
[Notices]
[Pages 64028-64030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26867]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76062; File No. SR-OCC-2015-803]

Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing of Advance Notice of and No Objection to the Options 
Clearing Corporation's Proposal To Enter a New Credit Facility 
Agreement

October 1, 2015.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities 
Exchange Act of 1934 (``Exchange Act''), notice is hereby given that, 
on September 10, 2015, The Options Clearing Corporation (``OCC'') filed 
an advance notice (SR-OCC-2015-803) with the Securities and Exchange 
Commission (``Commission''). The advance notice is described in Items I 
and II below, which Items have been prepared by OCC. The Commission is 
publishing this notice to solicit comments on the advance notice from 
interested persons, and to provide notice that the Commission does not 
object to the changes set forth in the advance notice and authorizes 
OCC to implement those changes earlier than 60 days after the filing of 
the advance notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice is filed by OCC in connection with a proposed 
change to its operations to replace an existing credit facility OCC 
maintains for the purposes of meeting obligations arising out of the 
default or suspension of a clearing member, in anticipation of a 
potential default by a clearing member, or the failure of a bank or 
securities or commodities clearing organization to perform its 
obligations due to its bankruptcy, insolvency, receivership or 
suspension of operations.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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 and B below, 
of the most significant aspects of these statements.

A. Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the advance notice and none have been received.

B. Advance Notice Filed Pursuant to Section 806(e) of the Clearing 
Supervision Act

(i) Description of Change
    This advance notice is being filed in connection with a proposed 
change in the form of the replacement of a revolving credit facility 
that OCC maintains for a 364-day term for the purpose of meeting 
obligations arising out of the default or suspension of a clearing 
member, in anticipation of a potential default by a clearing member, or 
the failure of a bank or securities or commodities clearing 
organization to perform its obligations due to its bankruptcy, 
insolvency, receivership or suspension of operations. OCC's existing 
credit facility (the ``Existing Facility'') was implemented on October 
7, 2014 through the execution of a Credit Agreement among OCC, JPMorgan 
Chase Bank, N.A. (``JP Morgan''), as administrative agent, and the 
lenders that are parties to the agreement from time to time. The 
Existing Facility provides short-term secured borrowings in an 
aggregate principal amount of $2 billion but may be increased to $3 
billion if OCC so requests and sufficient commitments from lenders are 
received and accepted. To obtain a loan under the Existing Facility, 
OCC must pledge as collateral U.S. dollars or certain securities issued 
or guaranteed by the U.S. Government or the Government of Canada. 
Certain mandatory prepayments or deposits of additional collateral are 
required depending on changes in the collateral's market value. In 
connection with OCC's past implementation of the Existing Facility, OCC 
filed an advance notice with the Commission on September 11, 2014, and 
the Commission published a notice of no objection on September 30, 
2014.\3\
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    \3\ See Securities Exchange Act Release No. 73257 (September 30, 
2014), 79 FR 60214 (October 6, 2014) (SR-OCC-2014-806).
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    The Existing Facility is set to expire on October 6, 2015, and OCC 
is therefore currently negotiating the terms of a new credit facility 
(the ``New Facility'') on substantially similar terms as the Existing 
Facility, except that a new administrative agent, Bank of America, N.A. 
(``Bank of America''), has been selected and OCC anticipates that U.S. 
Bank National Association (``U.S. Bank'') will act as collateral agent, 
joint lead arranger and joint book runner. Under the Existing Facility, 
both of these roles are performed by JP Morgan. OCC also anticipates 
that The Bank of Tokyo-Mitsubishi UFJ, Ltd. (``Bank of Tokyo 
Mitsubishi'') will act as a back-up administrative agent and collateral 
agent as well as joint lead arranger and joint book runner. On 
September 9, 2015, OCC, Bank of America, Merrill Lynch, Pierce, Fenner 
& Smith Incorporated (``MLPF&S''), a joint lead arranger and book 
runner, U.S. Bank and Bank of Tokyo Mitsubishi executed a Commitment 
Letter with regard to the New Facility.
    The terms and conditions applicable to the New Facility are set 
forth in the Summary of Terms and Conditions, which is not a public 
document.\4\ OCC has separately submitted a request for confidential 
treatment to the Commission regarding the Summary of Terms and 
Conditions, which is included in this filing as Exhibit 3. The 
conditions regarding the availability of the New Facility, which OCC 
anticipates will be satisfied on or before October 6, 2015, include the 
execution and delivery of (i) a credit agreement between OCC and the 
administrative agent, collateral agent and various lenders under the 
New Facility, (ii) a pledge agreement between OCC and the 
administrative agent or collateral agent, and (iii) such other 
documents as may be required by the parties. The definitive 
documentation concerning the New Facility is expected to be consistent 
with the Summary of Terms and Conditions and substantially similar to 
that concerning the Existing Facility, although it will include certain 
changes to accommodate the use of accounts at a new collateral agent 
and certain other changes as may be necessary regarding administrative 
and operational terms being finalized

[[Page 64029]]

between the parties. Mainly, and in order to effect a borrowing under 
the New Facility, OCC would pledge collateral to the collateral agent 
for the benefit of the administrative agent.
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    \4\ The Summary of Terms and Conditions for the New Facility 
clarifies certain terms regarding mandatory prepayments or deposits 
of additional collateral, which, as described above, are also 
features of the Existing Facility.
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    The New Facility involves a variety of customary fees payable by 
OCC, including: (1) An arrangement fee payable to the joint lead 
arrangers; (2) administrative and collateral agent fees payable to the 
administrative agent and collateral agent if the New Facility closes; 
(3) upfront commitment fees payable to the lenders based on the amount 
of their commitments; and (4) an ongoing quarterly commitment fee based 
on the unused amount of the New Facility.
(ii) Anticipated Effect on and Management of Risk
    Completing timely settlement is a key aspect of OCC's role as a 
clearing agency performing central counterparty services. Overall, the 
New Facility would continue to promote the reduction of risks to OCC, 
its clearing members and the options market in general because it would 
allow OCC to obtain short-term funds to address liquidity demands 
arising out of the default or suspension of a clearing member, in 
anticipation of a potential default or suspension of clearing members 
or the insolvency of a bank or another securities or commodities 
clearing organization. The existence of the New Facility would 
therefore help OCC minimize losses in the event of such a default, 
suspension or insolvency, by allowing it to obtain funds on extremely 
short notice to ensure clearance and settlement of transactions in 
options and other contracts without interruption. OCC believes that the 
reduced settlement risk presented by OCC resulting from the New 
Facility would correspondingly reduce systemic risk and promote the 
safety and soundness of the clearing system. By drawing on the New 
Facility, OCC would also be able to avoid liquidating margin or 
clearing fund assets in what would likely be volatile market 
conditions, which would preserve funds available to cover any losses 
resulting from the failure of a clearing member, bank or other clearing 
organization. Because the New Facility preserves substantially the same 
terms and conditions as the Existing Facility, OCC believes that the 
change would not otherwise affect or alter the management of risk at 
OCC.
(iii) Consistency With the Clearing Supervision Act
    OCC believes that the New Facility is consistent with Section 
805(b) of the Clearing Supervision Act \5\ because it promotes robust 
risk management by OCC of settlement and liquidity risk. The New 
Facility would promote robust risk management of these risks by 
providing OCC with timely access to a stable and reliable liquidity 
funding source to help it complete timely clearing and settlement.
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    \5\ 12 U.S.C. 5464(b).
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(iv) Accelerated Commission Action Requested
    Pursuant to Section 806(e)(1)(I) of the Clearing Supervision 
Act,\6\ OCC requests that the Commission notify OCC that it has no 
objection to the New Facility not later than Friday, October 2, which 
is four days prior to the October 6, 2015 effective date of the New 
Facility. OCC requests Commission action four days in advance of the 
effective date in order to ensure that there is no period of time that 
OCC operates without this essential liquidity resource, given its 
importance to OCC's borrowing capacity in connection with its 
management of liquidity and settlement risk and timely completion of 
clearance and settlement.
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    \6\ 12 U.S.C. 5465(e)(1)(I).
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III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. OCC shall not implement the proposed change if the Commission 
has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the OCC with prompt written notice of the 
extension. A proposed change may be implemented in less than 60 days 
from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies OCC in writing that it does not object to the proposed change 
and authorizes OCC to implement the proposed change on an earlier date, 
subject to any conditions imposed by the Commission.
    OCC shall post notice on its Web site of proposed changes that are 
implemented.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the advance 
notice is consistent with the Clearing Supervision 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-2015-803 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-OCC-2015-803. 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 of submission. 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 change that are 
filed with the Commission, and all written communications relating to 
the proposed 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 Section, 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_15_803.pdf.
    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-2015-803 
and should be submitted on or before November 12, 2015.

[[Page 64030]]

V. Commission's Findings and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive.\7\ 
The stated purpose is to mitigate systemic risk in the financial system 
and promote financial stability by, among other things, promoting 
uniform risk management standards for systemically important financial 
market utilities (``FMUs'') and strengthening the liquidity of 
systemically important FMUs.\8\ Section 805(a)(2) of the Clearing 
Supervision Act \9\ authorizes the Commission to prescribe risk 
management standards for the payment, clearing, and settlement 
activities of designated clearing entities and financial institutions 
engaged in designated activities for which it is the Supervisory Agency 
or the appropriate financial regulator. Section 805(b) of the Clearing 
Supervision Act \10\ states that the objectives and principles for the 
risk management standards prescribed under Section 805(a) shall be to:
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    \7\ See 12 U.S.C. 5461(b).
    \8\ Id.
    \9\ 12 U.S.C. 5464(a)(2).
    \10\ 12 U.S.C. 5464(b).
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     promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act \11\ and the Exchange Act 
(``Clearing Agency Standards'').\12\ The Clearing Agency Standards 
require registered clearing agencies to establish, implement, maintain, 
and enforce written policies and procedures that are reasonably 
designed to meet certain minimum requirements for their operations and 
risk management practices on an ongoing basis.\13\ Therefore, it is 
appropriate for the Commission to review advance notices against these 
Clearing Agency Standards and the objectives and principles of these 
risk management standards as described in Section 805(b) of the 
Clearing Supervision Act.\14\
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    \11\ 12 U.S.C. 5464(a)(2).
    \12\ See Exchange Act Rule 17Ad-22. 17 CFR 240.17Ad-22. 
Securities Exchange Act Release No. 68080 (October 22, 2012), 77 FR 
66220 (November 2, 2012) (S7-08-11).
    \13\ Id.
    \14\ 12 U.S.C. 5464(b).
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    The Commission believes that the proposal in the advance notice is 
consistent with the Clearing Agency Standards, in particular, Exchange 
Act Rule 17Ad-22(d)(11) and Exchange Act Rule 17Ad-22(b)(3). Exchange 
Act Rule 17Ad-22(d)(11) requires that registered clearing agencies 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable . . . establish 
default procedures that ensure that the clearing agency can take timely 
action to contain losses and liquidity pressures and to continue 
meeting its obligations in the event of a participant default.'' The 
Commission believes that the proposal is consistent with Exchange Act 
Rule 17Ad-22(d)(11) because the New Facility will allow OCC to obtain 
short-term funds to address liquidity demands arising out of the 
default or suspension of a clearing member, in anticipation of a 
potential default or suspension of clearing members or the insolvency 
of a bank or another securities or commodities clearing organization. 
Therefore, the New Facility should help OCC minimize losses in the 
event of such a default, suspension or insolvency, by allowing it to 
obtain funds on extremely short notice to ensure clearance and 
settlement of transactions in options and other contracts without 
interruption.
    Exchange Act Rule 17Ad-22(b)(3) requires a central counterparty 
(``CCP''), to ``establish, implement, maintain and enforce written 
policies and procedures reasonably designed to . . . [m]aintain 
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. . . .'' The Commission believes that 
the proposal is consistent with Exchange Act Rule 17Ad-22(b)(3) because 
OCC's proposal to enter into the New Facility, thereby ensuring 
continued access to a committed bank syndicated credit facility, will 
help OCC maintain sufficient financial resources to withstand, at a 
minimum, a default by an clearing member family to which it has the 
largest exposure.
    For these reasons, the Commission believes the proposal contained 
in the advance notice is consistent with the objectives and principles 
described in Section 805(b) of the Clearing Supervision Act, including 
that it reduces systemic risks and promote the safety and soundness of 
the broader financial system. As discussed above, the New Facility will 
continue to promote the reduction of risks to OCC, its clearing 
members, and the options market in general because it will allow OCC to 
obtain short-term funds to address liquidity demands, which should 
ensure clearance and settlement of transactions in options and other 
contracts without interruption. Given that OCC has been designated as a 
systemically important FMU, its ability to access financial resources 
to address short-term liquidity demands contributes to reducing 
systemic risks and supporting the stability of the broader financial 
system.
    For these reasons, stated above, the Commission does not object to 
the advance notice.

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\15\ that the Commission does not object to 
the proposed change, and authorizes OCC to implement the change in the 
advance notice (SR-OCC-2015-803) as of the date of this notice.
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    \15\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26867 Filed 10-21-15; 8:45 am]
BILLING CODE 8011-01-P