Document ID: SEC-2017-1893-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2017-11-17T05:00Z

[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54448-54453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24919]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82055; File No. SR-OCC-2017-805]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice Concerning the Use of the Society of 
Worldwide Interbank Financial Telecommunication Messaging Network in 
OCC's Cash Settlement Process

November 13, 2017.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) of the Securities Exchange Act of 1934 
(``Act''),\2\ notice is hereby given that on October 10, 2017, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') an advance notice as well as a 
proposed cash settlement agreement procedures agreement (``CSPA'') 
template as 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.
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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

    In accordance with Section 806(e)(1) of the Clearing Supervision 
Act \3\ and Rule 19b-4(n)(1)(i) \4\ of the Act,\5\ this advance notice 
is filed by OCC in connection with proposed changes to improve OCC's 
cash settlement process by implementing Society of Worldwide Interbank 
Financial Telecommunication (``SWIFT'') messaging as the primary means 
of transmitting daily cash settlement instructions between OCC and its 
Clearing Banks.\6\ The proposed change is designed to: (1) Increase the 
efficiency, accuracy, and resiliency of OCC's cash settlement process, 
(2) eliminate certain risks associated with the current use of OCC's 
proprietary online cash settlement system within the ENCORE clearing 
system (``OCS''), and (3) adopt communication procedures and standards 
that are internationally accepted and therefore

[[Page 54449]]

are consistent with the requirements in Rule 17Ad-22(e)(22).\7\
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    \3\ 12 U.S.C. 5465(e)(1).
    \4\ 17 CFR 240.19b-4(n)(1)(i).
    \5\ 15 U.S.C. 78a et seq.
    \6\ See OCC Rule 101.C.(1) (defining the term ``Clearing 
Bank'').
    \7\ 17 CFR 240.17Ad-22(e)(22).
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    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.\8\
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    \8\ OCC's By-Laws and Rules can be found on OCC's public Web 
site: http://optionsclearing.com/about/publications/bylaws.jsp.
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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

Communications With Clearing Banks
    There are currently eight banks or trust companies that act as OCC 
Clearing Banks.\9\ The Clearing Banks were first informed in early 2016 
via phone communications regarding OCC's initiative to utilize SWIFT 
messaging and the SWIFT network for cash settlement processing. This 
initiative was positively received by existing Clearing Banks since 
they utilize SWIFT-based messaging in other areas of their businesses. 
Moreover, several Clearing Banks have informally expressed their desire 
to OCC in the past for OCC to integrate use of the SWIFT messaging 
network in the cash settlement process.
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    \9\ OCC Rule 101.C.(1) defines the term ``Clearing Bank'' to 
mean ``a bank or trust company which has entered into an agreement 
with [OCC] in respect of settlement of confirmed trades on behalf of 
Clearing Members.''
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    Beginning in October 2016, OCC distributed a draft template cash 
settlement procedures agreement to all Clearing Banks that would 
implement SWIFT messaging as the primary means of transmitting daily 
cash settlement instructions between OCC and the Clearing Banks along 
with a request for feedback. In response, all of the existing Clearing 
Banks have expressed support for the transition to SWIFT. This is in 
part because the existing use of OCC's online cash settlement system is 
not integrated with the internal systems used by Clearing Banks for 
processing settlement instructions. Processing the settlement 
instructions therefore requires manual intervention by the Clearing 
Banks to enter the instructions into their own systems. According to 
comments from all Clearing Banks, this lack of integration elongates 
the timeframe to process and approve settlement instructions, which 
causes delays and increases the risk of errors in preparing, posting, 
transmitting, receiving, and executing timely settlement instructions.
    Following the receipt of questions and comments, OCC began 
negotiating the cash settlement procedures agreement with each Clearing 
Bank based on the standardized template. The definitive documentation 
between OCC and each Clearing Bank is expected to be consistent with 
the template agreement, however, areas of negotiation to date have 
generally included such matters as acceptable backup communication 
methods for transmitting settlement instructions (e.g., facsimile, 
email, or other means), standards of care associated with duties and 
potential liabilities under the agreement (e.g., negligence, gross 
negligence, or willful misconduct), certain defined terms (e.g., the 
meaning of a ``business day''), and allocations of responsibility 
regarding the detection of errors associated with settlement 
instructions.

(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing, and Settlement Supervision Act

Description of the Proposed Change
Background
The Existing Online Cash Settlement System
    In connection with OCC's performance of clearance and settlement 
services for cleared contracts \10\ and Stock Loans, OCC and Clearing 
Members are obligated under OCC's By-Laws and Rules to perform cash 
settlement of related obligations.\11\ This cash settlement process is 
facilitated by Clearing Banks, which are banks or trust companies that 
have entered agreements with OCC to settle on behalf of Clearing 
Members and at which OCC and Clearing Members each maintain 
accounts.\12\ Currently, there are eight Clearing Banks with which OCC 
effects cash settlements through OCS, which is a proprietary web-based 
system OCC developed in conjunction with the gradual phase-in of its 
ENCORE clearing system in the early- to-mid 2000's.\13\ OCS replaced 
OCC's previous cash settlement system, the Options Automated Settlement 
Instructions System, which required the use of dedicated terminals at 
each Clearing Bank. Because OCS is a web-based system, it provides 
greater flexibility to OCC and Clearing Banks because users are not 
limited to only using dedicated terminals to access the system.
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    \10\ See Article I., Section 1.C.(11).
    \11\ See, e.g., Article I, Section 1.S.(16) of OCC's By-Laws 
(defining the term ``settlement time''); Article VI, Sections 4 and 
6 of OCC's By-Laws (addressing obligations of Purchasing Clearing 
Members and obligations of OCC as a central counterparty); and 
Chapter V of OCC's Rules (regarding daily cash settlement).
    \12\ See OCC Rule 101.C.(1) (defining the term ``Clearing 
Bank'').
    \13\ See generally OCC Completes Second Major Installation of 
EncoreTM Clearing System(November 25, 2002), available at 
https://www.theocc.com/about/newsroom/releases/2002/11_25.jsp.
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    On a daily basis, OCC generates settlement instructions associated 
with Cleared Contracts and Stock Loans of Clearing Members by running 
specific predefined settlement profiles \14\ throughout the day. The 
resulting settlement instructions are generally transmitted by OCC to 
Clearing Banks by way of OCS, at which point the Clearing Banks are 
able to view batches of settlement instructions within OCS.\15\ 
Clearing Bank staff review the settlement instructions by logging into 
OCS and opening the settlement batch. Thereafter, the Clearing Bank 
either approves or rejects the settlement instructions in OCS. One of 
the Clearing Banks, however, currently does not utilize OCS as its 
primary means of effecting cash settlement. Instead, the Clearing Bank 
primarily receives settlement instructions from OCC via facsimile, 
reviews the settlement instructions, approves or rejects them, and then 
returns a facsimile confirmation to OCC. After receipt of the 
confirmation, OCC staff manually enters the approvals or rejections 
into OCS.
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    \14\ Predefined settlement profiles are programmed to track 
various types of obligations to pay or collect cash in connection 
with Cleared Contracts and Stock Loans that are in turn used to 
generate settlement instructions.
    \15\ A settlement batch is a set of individual debit or credit 
settlement instructions that may either instruct a Clearing Bank to 
move funds to or from an OCC settlement account or to or from a 
Clearing Member's account at the same Clearing Bank.
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    Cash settlement instructions that OCC transmits to Clearing Banks 
are generally categorized in two groups: Start-of-day and intra-day. 
Start-of-day settlement instructions are generated through OCC's 
nightly processing cycle and relate to cash settlement obligations that 
arise from Cleared Contracts and Stock Loans of Clearing Members, 
including, but not limited to, premium payments, margin requirements, 
mark-to-market activity, and cash settlement amounts for exercised 
options that are cash settled. Intra-day settlement

[[Page 54450]]

instructions represent any settlement instruction other than a start-
of-day instruction and may be transmitted by OCC to a Clearing Bank 
throughout the day. For example, intra-day settlement instructions may 
be generated to credit excess cash to a Clearing Member in connection 
with its margin requirement,\16\ to complete a cash substitution 
regarding a Clearing Member's margin deposit or to effect an intra-day 
margin call that OCC may issue to a Clearing Member pursuant to its 
authority under Rule 609.\17\ The settlement timeline for processing 
intra-day settlement instructions depends on the time at which the 
Clearing Bank receives the instructions, as discussed below.
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    \16\ See OCC Rule 608 (Withdrawals of Margin).
    \17\ See OCC Rule 609 (Intra-Day Margin).
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Existing Cash Settlement Procedures Agreements
    Each Clearing Bank entered into a CSPA with OCC that details the 
substantive rights and responsibilities of the parties and specifies 
operational procedures for which they are responsible regarding start-
of-day and intra-day settlement instructions. This includes prescribed 
communication methods and settlement procedures and generally 
contemplates the use of OCS as the primary means to facilitate the cash 
settlement process, with the exception of the one instance described 
above in which the primary means of communication between OCC and the 
Clearing Bank is facsimile.
    For start-of-day settlement instructions, the CSPA requires the 
Clearing Bank on the morning of each business day and by a standard 
time to access OCS and act upon the settlement instructions transmitted 
by OCC. Once the Clearing Bank reviews the settlement instructions, it 
either accepts or rejects each instruction through OCS.\18\ If an 
instruction is to be rejected, the Clearing Bank must immediately 
notify OCC in advance by telephone that it intends to reject the 
instruction and provide the reason. OCC then has an opportunity to 
submit a revised settlement instruction by telephone or other mutually 
agreed upon means. All settlement instructions must be acted upon by 
the Clearing Bank before a defined settlement time, which differs for 
credit instructions (i.e., transfers of funds from an OCC account to a 
Clearing Member account) and debit instructions (i.e., transfers of 
funds from a Clearing Member account to an OCC account). If a Clearing 
Bank does not expressly accept or reject a settlement instruction by 
the specified settlement time, the bank is deemed to have accepted the 
instruction.
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    \18\ In the event OCS is unavailable, the CSPA specifies backup 
procedures, which may include transmission by telephone or 
facsimile.
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    For intra-day settlement instructions, OCC transmits the 
instructions through OCS for the Clearing Bank to review and then 
notifies the Clearing Bank by telephone or other agreed upon means. 
With respect to Clearing Banks with access to OCS, the Clearing Bank 
must then use commercially reasonable efforts to access OCS immediately 
and act upon the settlement instruction by the earlier of either: (a) 
Thirty (30) minutes following the time the bank first views the 
settlement instruction in OCS or (b) sixty (60) minutes after OCC 
notifies the Clearing Bank that is has submitted settlement 
instructions via OCS. The same provisions related to backup procedures, 
acceptance, rejection, and implied acceptance for morning settlement 
also apply to such intra-day settlement instructions.
Proposed Changes
    Under the Proposed CSPA, OCC and all Clearing Banks would use the 
SWIFT network as the primary means of transmitting settlement 
instructions to each other, and Clearing Bank staff would no longer log 
in to OCS and accept or reject settlement instructions. OCC would, 
however, continue using OCS for more limited purposes to manage its 
settlement instruction processing, including with respect to the 
initiation, processing, and tracking of settlement instructions. Under 
the new process in which SWIFT would be the primary means of 
transmitting settlement instructions, OCC would integrate OCS with the 
SWIFT network, and SWIFT would be used to communicate settlement 
instructions to Clearing Banks and allow Clearing Banks to approve 
settlement instructions. OCC would also implement a new monitoring 
screen to complement OCS that would allow OCC to track the lifecycle of 
all SWIFT messages sent or received by OCC in connection with its cash 
settlement activities.
    SWIFT would not be a new communication channel for OCC even though 
the proposed change would increase the extent to which OCC utilizes the 
SWIFT messaging network in connection with its clearance and settlement 
activities. This is because Clearing Members may currently deposit 
letters of credit denominated in U.S. dollars issued by banks or trust 
companies approved by OCC as margin assets \19\ and the issuer of any 
such letter of credit submits amendments to OCC using the SWIFT 
network. OCC manages this process through a SWIFT system that 
interfaces with OCC's ENCORE clearing system so that OCC is able to 
track and process the amendment messages. Under the proposed change, 
OCC would also use the same SWIFT system to support cash settlement 
processing. Based upon settlement profiles created by OCC, settlement 
instructions in the form of SWIFT messages would be automatically 
transmitted to Clearing Banks over the SWIFT network. In response, OCC 
would then receive acceptances from Clearing Banks via the SWIFT 
network. If an acceptance is not provided, OCC would have discretion to 
treat a settlement instruction as rejected, and in any case would 
promptly contact the Clearing Bank to determine the reason and 
coordinate with the Clearing Bank to ensure that appropriate action is 
taken with respect to the instruction.
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    \19\ See OCC Rule 604(c).
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    OCC believes the proposed change would significantly increase the 
resiliency of OCC's cash settlement process by reducing manual 
processing steps that are more prone to error. For example, upon a 
Clearing Bank's acceptance of a settlement instruction sent by OCC 
using SWIFT, debits or credits, as appropriate, would be automatically 
made as between OCC's account at the Clearing Bank and the Clearing 
Member's account at the Clearing Bank. This means that Clearing Banks 
would no longer need to view settlement instructions in OCS and 
manually enter them into their systems to effect them as they do today. 
Moreover, use of the SWIFT network would eliminate facsimile, 
telephone, and email communications as primary communication methods 
for settlement processing. If SWIFT is unavailable, OCC and Clearing 
Banks would communicate by using contingency methods as specified in 
the applicable CSPA.
    The Proposed CSPA would also introduce significant efficiencies to 
OCC's cash settlement process by reducing manual processing steps that 
elongate the time frame for processing and approving settlement 
instructions. Notably, OCC expects significantly faster response times 
from Clearing Banks because the banks would be able to communicate with 
OCC using the same SWIFT transmission method that they already 
typically use to process funds transfer instructions. OCC believes that 
efficiencies and time savings would also be experienced by

[[Page 54451]]

significantly reducing manual steps associated with the processing of 
settlement instructions, such as manual data entry by Clearing Banks to 
enter settlement instruction information into their own systems based 
on computer printouts of instructions contained in OCS or instructions 
that are received by facsimile. In addition, the proposed change would 
allow Clearing Banks to forward SWIFT messages from OCC to internal 
staff at the Clearing Bank who have responsibility for the cash 
settlement process.
    The Proposed CSPA would also harmonize the primary process by which 
OCC performs cash settlement with Clearing Banks by having all Clearing 
Banks use the SWIFT messaging system. In addition to the efficiency and 
risk mitigation benefits described above, the Proposed CSPA would 
directly respond to the Clearing Bank requests for OCC to implement an 
enhanced process to mitigate the manual processing challenges that are 
associated with the existing cash settlement process.
    Finally, OCC believes that the Proposed CSPA would also promote 
compliance with Rule 17Ad-22(e)(22),\20\ which requires OCC as a 
covered clearing agency to establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to ``use, or at a 
minimum accommodate, relevant internationally accepted communication 
procedures and standards in order to facilitate efficient payment, 
clearing, and settlement.'' In adopting this requirement, the 
Commission stated that ``[r]elevant internationally accepted 
communication procedures and standards could include messaging 
standards such as SWIFT, FIX and FpML.'' [emphasis added].\21\ 
Accordingly, use of the SWIFT messaging network as the primary process 
to support daily cash settlement is consistent with Rule 17Ad-
22(e)(22).
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    \20\ 17 CFR 240.17Ad-22(e)(22).
    \21\ Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786, 70842 (October 13, 2016).
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New Cash Settlement Procedures Agreement
    As part of the transition to SWIFT, Clearing Banks would enter into 
the Proposed CSPA with OCC. The Proposed CSPA is based on a 
standardized template developed by OCC in collaboration with its 
Clearing Banks. The Proposed CSPA template agreement is not a public 
document, and OCC has separately submitted a request for confidential 
treatment regarding the Proposed CSPA template agreement, which is 
included in this filing as Exhibit 3. The definitive Proposed CSPA 
between OCC and each Clearing Bank is expected to be consistent with 
the template agreement, however, OCC and each Clearing Bank may 
negotiate certain modifications.
    As is the case today, the Proposed CSPA would continue to be the 
principal form of agreement that governs the rights and 
responsibilities of OCC and each Clearing Bank, details operational 
procedures (including backup procedures) and security protocols, and 
identifies individuals at OCC and at the Clearing Bank who are 
authorized to act on behalf of each party with respect to cash 
settlement instructions.
    Under the Proposed CSPA, the timelines for OCC and Clearing Banks 
to perform the actions needed to effect settlement would be bifurcated 
as they are under the current agreement into start-of-day settlement 
instructions and intra-day settlement instructions. Also as with the 
current CSPA, there would be defined deadlines by which OCC must submit 
settlement instructions and by which the Clearing Bank must accept and 
execute the settlement instructions. In the event the SWIFT network is 
unavailable during a time at which settlement instructions are to be 
communicated, each Proposed CSPA would detail backup procedures with 
corresponding security protocols by which OCC and the Clearing Bank 
could effect settlement. For example, such alternative communication 
methods may include secure email messages, telephone instructions with 
the use of personal identification codes, facsimile instructions, the 
Clearing Bank's proprietary online account system, or other methods 
agreed upon by OCC and the Clearing Bank.
    Under the Proposed CSPA, however, Clearing Banks would not be 
deemed to have accepted settlement instructions in the event the 
Clearing bank does not explicitly communicate acceptance or rejection 
to OCC. Instead, any acceptance would be required to be made by 
affirmative SWIFT confirmation message, and if a Clearing Bank did not 
respond OCC would have discretion to treat the failure to respond as a 
rejection and OCC would communicate with the Clearing Bank to 
understand the reason(s) why no response to the settlement instruction 
was provided and appropriate action is taken. These measures are 
intended to ensure that potentially erroneous instructions are 
identified and acted upon in a timely manner and to evidence settlement 
finality.
    The CSPAs currently in effect between OCC and its Clearing Banks 
were implemented incrementally over a number of years as OCC's 
operations expanded and it became appropriate to maintain service 
agreements with a range of Clearing Banks, and in many cases they have 
not been renegotiated in a significant amount of time. For these 
reasons, there is variation between the terms and conditions of the 
relevant CSPA and the corresponding practices with the Clearing Banks. 
In some cases the differences are relatively substantial, such as in 
the one case described above where the primary means of communication 
between the Clearing Bank and OCC to support the cash settlement 
process is facsimile. The Proposed CSPA would address these issues by 
increasing consistency in the respective rights and responsibilities of 
OCC and the Clearing Banks and in turn promoting harmonization across 
OCC's daily cash settlement process. Negotiation of the Proposed CSPA 
to adopt the SWIFT messaging network as the primary process to support 
daily cash settlement would also update the agreements to rely on 
current industry communication procedures and standards that the 
Commission has recognized as consistent with the requirements of Rule 
17Ad-22(e)(22).\22\
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    \22\ 17 CFR 240.17Ad-22(e)(22).
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Testing and Implementation
    Prior to implementation of the Proposed CSPA, the existing CSPA and 
current processes regarding daily cash settlement would continue in 
effect while OCC completes the development of the new SWIFT interface. 
OCC would also complete roundtrip certification testing of the proposed 
SWIFT network messaging operations. Upon execution of the Proposed CSPA 
by a Clearing Bank, an implementation date would be coordinated between 
OCC and the Clearing Bank and OCC would provide advance notice of the 
implementation to Clearing Members through an Information Memo. OCC 
generally expects a total timeframe of approximately 90 days would be 
necessary to migrate a Clearing Bank to SWIFT messaging-based cash 
settlement. Though OCC would be able to begin migration to SWIFT 
messaged-based cash settlement with each Clearing Bank on an individual 
basis, it would expect to complete the migration with all of its 
Clearing Banks by the end of Q1 2018.

[[Page 54452]]

Anticipated Effect on and Management of Risk
    OCC anticipates that the Proposed CSPA would reduce the nature and 
level of risk presented by OCC because, as described above, it would 
enhance the resiliency, efficiency and consistency of the cash 
settlement process and thereby reduce risks that are associated with 
the existing cash settlement process. Specifically, the Proposed CSPA 
would increase the resiliency of the cash settlement process by 
reducing manual processing steps that are more prone to risk of delay 
or error. Due to implementation of the SWIFT messaging network as the 
primary means of transmitting settlement instructions, a Clearing 
Bank's acceptance of settlement instructions would automatically result 
in debits or credits, as appropriate, and Clearing Banks would no 
longer manually enter settlement instructions in their own systems.
    OCC also anticipates the Proposed CSPA would enhance the efficiency 
of the cash settlement process by reducing manual processing steps that 
elongate the timeframe for processing and approving settlement 
instructions. In this regard, using SWIFT as the primary means of 
transmitting settlement instructions would reduce the risk of 
uncertainty in the cash settlement process by allowing OCC and the 
Clearing Banks to communicate using the same transmission method that 
is already typically used by the Clearing Banks to process funds 
transfer instructions with other institutions. OCC expects that this 
would lead to significantly faster response times from Clearing Banks 
to accept or reject instructions, which, in turn, would better manage 
the risk of untimely settlement by providing greater certainty 
concerning prompt settlement.
    In addition, the Proposed CSPA would enhance consistency in the 
agreements between OCC and the Clearing Banks and harmonize the use of 
SWIFT as the primary process used to conduct cash settlement. OCC 
anticipates that this greater consistency would reduce the risk of 
delay or error in the settlement process that might result from OCC's 
management of the greater inconsistency across practices with the 
Clearing Banks that exists today.
    Finally, OCC anticipates the Proposed CSPA would reduce regulatory 
risk to OCC by helping to ensure that the primary means of 
communicating settlement instructions uses relevant internationally 
accepted communications procedures and standards to facilitate 
efficient payment, clearing and settlement in a manner that is 
consistent with the requirements of Rule 17Ad-22(e)(22).\23\
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    \23\ 17 CFR 240.17Ad-22(e)(22).
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    For all of these reasons, OCC anticipates that the Proposed CSPA 
would reduce the nature and level of risk presented by OCC.
Consistency With the Payment, Clearing and Settlement Supervision Act
    The stated purpose of the Clearing Supervision Act 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 and strengthening the 
liquidity of systemically important financial market utilities.\24\ 
Section 805(a)(2) of the Clearing Supervision Act \25\ also authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like OCC, for which the Commission is the supervisory agency. Section 
805(b) of the Clearing Supervision Act \26\ states that the objectives 
and principles for risk management standards prescribed under Section 
805(a) shall be to:
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    \24\ 12 U.S.C. 5461(b).
    \25\ 12 U.S.C. 5464(a)(2).
    \26\ 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 and the Act in furtherance of 
these objectives and principles.\27\ In particular, Rule 17Ad-22(e)(22) 
\28\ requires that a covered clearing agency establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to ``use, or at a minimum accommodate, relevant 
internationally accepted communication procedures and standards in 
order to facilitate efficient payment, clearing, and settlement.''
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    \27\ 17 CFR 240. 17Ad-22. See Securities Exchange Act Release 
Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-
08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016), 
81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered 
Clearing Agencies''). The Standards for Covered Clearing Agencies 
became effective on December 12, 2016. As a ``covered clearing 
agency'' under Rule 17Ad-22(a)(5), OCC became obligated to comply 
with new section (e) of Rule 17Ad-22 as of the Commission's 
compliance date of April 11, 2017.
    \28\ 17 CFR 240.17Ad-22(e)(22).
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    OCC believes that the proposed change concerning cash settlement 
described above is consistent with Section 805(b)(2) of the Clearing 
Supervision Act \29\ because it would promote safety and soundness in 
OCC's daily cash settlement process by mitigating risks that arise in 
the existing process due to manual processing steps and inconsistent 
practices across OCC's Clearing Banks and thereby enhancing the 
resiliency, efficiency and consistency of the process. As described in 
detail above, the proposed change would promote safety and soundness by 
implementing the SWIFT messaging network as the primary means of 
transmitting daily cash settlement instructions between OCC and each 
Clearing Bank that performs cash settlement on behalf of Clearing 
Members. This represents the use of a primary communication procedure 
that would be integrated with the systems that are already typically 
used by the Clearing Banks to process funds transfer instructions with 
other institutions and that would cause the acceptance of settlement 
instructions by Clearing Banks to automatically result in debits or 
credits, as appropriate, in the accounts of OCC and Clearing Members at 
the Clearing Banks. OCC believes that these changes promote the safety 
and soundness of the cash settlement process by, among other things, 
reducing manual processing steps that are more prone to risk of delay 
or error and by facilitating faster response times regarding the 
acceptance or rejection of settlement instructions by Clearing Banks, 
which, in turn, would provide greater certainty regarding prompt 
settlement.
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    \29\ 12 U.S.C. 5464(b)(2).
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    OCC also believes that the proposed change to enhance the 
consistency of the CSPA between OCC and each Clearing Bank would 
promote safety and soundness by reducing the risk of settlement delay 
or error that may arise due to the existing degree of variability in 
the practices between Clearing Banks, including but not limited to the 
current use by one Clearing Bank of facsimile as a primary method for 
transmitting settlement instructions.
    OCC further believes that the proposed change would promote 
compliance with Rule 17Ad-22(e)(22),\30\ which requires OCC as a 
covered clearing agency to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to ``use, or at a 
minimum accommodate, relevant internationally accepted communication 
procedures and standards in order to facilitate efficient payment, 
clearing, and settlement.'' In

[[Page 54453]]

adopting this requirement, the Commission stated that ``[r]elevant 
internationally accepted communication procedures and standards could 
include messaging standards such as SWIFT, FIX and FpML.'' [emphasis 
added].\31\ Accordingly, use of the SWIFT messaging network as the 
primary process to support daily cash settlement is consistent with 
Rule 17Ad-22(e)(22).
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    \30\ 17 CFR 240.17Ad-22(e)(22).
    \31\ Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786, 70842 (October 13, 2016).
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    In these ways, OCC believes the proposed changes are consistent 
with Section 805(b)(2) of the Clearing Supervision Act \32\ and Rule 
17Ad-22(e)(22).\33\
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    \32\ 12 U.S.C. 5464(b)(2).
    \33\ 17 CFR 240.17Ad-22(e)(22).
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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 the proposed change was filed with the Commission or (ii) the date 
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 clearing agency 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 the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency 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 and 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 [email protected]. Please include 
File Number SR- OCC-2017-805 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-OCC-2017-805. 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 advance notice that are filed 
with the Commission, and all written communications relating to the 
advance notice between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's Web site at 
http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_805.pdf.
    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-OCC-2017-805 and should be 
submitted on or before December 8, 2017.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24919 Filed 11-16-17; 8:45 am]
 BILLING CODE 8011-01-P