Document ID: SEC-2023-0889-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2023-08-16T04:00Z

[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Notices]
[Pages 55804-55809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17531]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98107; File No. SR-OCC-2023-005]

Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing of Partial Amendment No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Partial 
Amendment No. 1, by the Options Clearing Corporation Concerning 
Amendment of Its Recovery and Orderly Wind-Down Plan

August 10, 2023.

I. Introduction

    On June 7, 2023, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2023-005 pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
\2\ thereunder. The proposed rule change would amend OCC's Recovery and 
Orderly Wind-Down Plan (``RWD Plan'') by: (i) removing certain 
supporting information; (ii) incorporating references to certain 
documents and materials; (iii) implementing updates and amendments to 
all six chapters of the proposed Plan; and (iv) updating and revising 
the hypothetical stress scenarios set forth in Appendix A of the 
proposed RWD Plan. The proposed rule change was published for public 
comment in the Federal Register on June 27, 2023.\3\ The Commission has 
received comments regarding the proposed rule change.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 97785 (June 21, 2023), 
88 FR 41695 (June 27, 2023) (File No. SR-OCC-2023-005) (``Notice of 
Filing'').
    \4\ Comments on the Proposed Rule Change are available at 
https://www.sec.gov/comments/sr-occ-2023-005/srocc2023005.htm. The 
commenters raised a concern regarding the confidentiality of certain 
exhibits. Id. OCC asserted that the exhibits to the filing were 
entitled to confidential treatment because they contained commercial 
and financial information that is not customarily released to the 
public and is treated as the private information of OCC. Under 
Section 23(a)(3) of the Exchange Act, the Commission is not required 
to make public statements filed with the Commission in connection 
with a proposed rule change of a self-regulatory organization if the 
Commission could withhold the statements from the public in 
accordance with the Freedom of Information Act (``FOIA''), 5 U.S.C. 
552. 15 U.S.C. 78w(a)(3). The Commission has reviewed the documents 
for which OCC requests confidential treatment and concludes that 
they could be withheld from the public under the FOIA. FOIA 
Exemption 4 protects confidential commercial or financial 
information. 5 U.S.C. 552(b)(4). Under Exemption 4, information is 
confidential if it ``is both customarily and actually treated as 
private by its owner and provided to government under an assurance 
of privacy.'' Food Marketing Institute v. Argus Leader Media, 139 S. 
Ct. 2356, 2366 (2019). In its requests for confidential treatment, 
OCC stated that it has not disclosed the confidential exhibits to 
the public, and the information is the type that would not 
customarily be disclosed to the public. In addition, by requesting 
confidential treatment, OCC had an assurance of privacy because the 
Commission generally protects information that can be withheld under 
Exemption 4. Thus, the Commission has determined to accord 
confidential treatment to the confidential exhibits.
---------------------------------------------------------------------------

    On July 28, 2023, OCC amended SR-OCC-2023-005 to correct an error 
in the narrative summary of proposed rule changes (``Partial Amendment 
No. 1''). Specifically, the narrative, as filed on June 7, 2023, stated 
that OCC proposed to remove a section of the RWD Plan describing OCC's 
Risk Management Framework. However, the relevant text was already 
removed from the RWD Plan as part of a recent filing.\5\ The amendment 
did not change the purpose or basis of the proposed rule change. The 
Commission is publishing this notice to solicit comments on Partial 
Amendment No. 1 from interested persons, and, for the reasons discussed 
below, is approving the proposed rule change, as modified by Partial 
Amendment No. 1 (hereinafter, the ``proposed rule change''), on an 
accelerated basis.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 96566 (Dec. 22, 2022), 
87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010).
---------------------------------------------------------------------------

II. Background

    OCC is a central counterparty (``CCP''), which means it interposes 
itself as the buyer to every seller and seller to every buyer for 
financial transactions. As the CCP for the listed options markets in 
the U.S., as well as for certain futures, OCC is exposed to certain 
risks arising from its relationships with its members as well as 
general business risk. OCC maintains various tools for managing such 
risks.\6\ OCC also maintains tools to manage the risk of liquidity 
shortfalls and credit losses that exceed its routine risk management 
tools.\7\ OCC describes such tools and the governance related to them 
in its RWD Plan.\8\
---------------------------------------------------------------------------

    \6\ See e.g., Securities Exchange Act Release No. 96566 (Dec. 
22, 2022), 87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010); 
Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR 
68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010); and Securities 
Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30, 
2020) (File No. SR-OCC-2019-007).
    \7\ See Securities Exchange Act Release No. 82351 (Dec. 19, 
2017), 82 FR 61107 (Dec. 26, 2017) (File No. SR-OCC-2017-020). 
Capitalized terms used but not defined herein have the meanings 
specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
    \8\ See Securities Exchange Act Release No. 83918 (Aug. 23, 
2018), 83 FR 44091 (Aug. 29, 2018) (File No. SR-OCC-2017-021) (Order 
approving the adoption of OCC's RWD Plan).
---------------------------------------------------------------------------

    Over the years, OCC has made substantive and non-substantive

[[Page 55805]]

changes to the RWD Plan.\9\ With regard to the substance of the RWD 
Plan, OCC proposes to change the trigger events defined in the RWD 
Plan. With regard to recovery, the changes would focus the trigger 
events on OCC's ability to meet future obligations (as opposed to a 
focus on current resources). With regard to wind-down, the changes 
would clarify the Board's role in starting the wind-down process and 
provide flexibility to avoid triggering a wind-down where recovery is 
still a viable option.
---------------------------------------------------------------------------

    \9\ See e.g., Securities Exchange Act Release No. 90712 (Dec. 
17, 2020), 85 FR 84050 (Dec. 23, 2020) (File No. SR-OCC-2020-013) 
(Order approving updates to OCCs RWD Plan to reflect changes to 
OCC's capital structure resulting from the disapproval of OCC's 
previously approved ``Capital Plan'' and the subsequent approval of 
OCC's ``Capital Management Policy'' and implementing changes 
identified during OCC's annual review of the RWD Plan).
---------------------------------------------------------------------------

    OCC also proposes to make a series of non-substantive changes, 
including changes to improving the accuracy and consistency of 
information in the RWD Plan by moving dynamic, contextual information 
(e.g., annual volume data) out of the RWD Plan to a supporting document 
that could more easily be maintained as such information changes from 
time to time. Similarly, OCC proposes to strike language found in other 
OCC sources from the RWD Plan to avoid potential future inconsistencies 
across OCC's internal documentation. Further, OCC would update 
information and references in the RWD Plan that are currently out of 
date. Lastly, OCC proposes to streamline the hypothetical stress 
scenarios describing how OCC would employ its recovery and wind-down 
tools without affecting the substance covered in the scenarios.\10\
---------------------------------------------------------------------------

    \10\ OCC also proposes conforming changes throughout the plan as 
required by the changes described here (e.g., renumbering sections, 
fixing grammar).
---------------------------------------------------------------------------

A. Trigger Events

    Recovery Triggers. In its RWD Plan, OCC has identified events that 
would indicate OCC is facing an extreme stress event that potentially 
threatens OCC's viability, the occurrence of which would signal that 
OCC has entered into recovery (the ``Recovery Trigger Events'').\11\ 
The RWD Plan currently defines a set of three such Recovery Trigger 
Events arising out of (i) credit losses, (ii) liquidity shortfalls, and 
(iii) operational losses and disruption. OCC proposes to revise the 
credit and liquidity triggers and to separate the third trigger out 
into two separate triggers based on operational disruptions and general 
business losses.
---------------------------------------------------------------------------

    \11\ Once in recovery, OCC would likely look to apply its 
recovery tools, which include the ability of OCC to (i) levy 
assessments against non-defaulting members; (ii) receive voluntary 
payments from its non-defaulting members; (iii) allow non-defaulting 
members and customers to voluntarily extinguish certain positions; 
(iv) tear-up a defaulter's open positions; and (v) charge members a 
fee to replenish OCC's capital in response to certain non-default 
losses.
---------------------------------------------------------------------------

    The credit loss-Recovery Trigger change is merely a rephrasing of 
the current trigger clarify that it would be based on a 100 percent 
depletion of the pre-funded Clearing Fund resources. OCC proposes to 
change the liquidity shortfall Recovery Trigger to better align with 
OCC's Liquidity Risk Management Framework. The current trigger focuses 
on the inability to complete settlement within the time required. In 
contrast, the proposed trigger would focus on the potential inability 
to address foreseeable shortfalls.
    For events not triggered by a member default, OCC proposes to 
replace the current trigger focused on loss and disruption into two 
separate triggers, one of which would be based on loss and the other on 
disruption. With regard to loss, OCC proposes to replace references to 
operational loss with references to broader general business losses. 
With regard to disruption, the trigger would continue to focus on the 
disruption of critical services. Both the general business loss and 
operational disruption triggers would focus on OCC having no reasonable 
expectation of timely return to business as usual (i.e., meeting 
minimum capital requirements or resumption of critical services).
    Wind-Down Triggers. Similar to the Recovery Trigger Events, OCC has 
identified events that could jeopardize the viability of OCC's ability 
to recover, the occurrence of which would signal the need for OCC to 
initiate its Wind-Down Plan (Wind-Down Trigger Events). The RWD Plan 
currently defines four Wind-Down Trigger Events that relate to (i) an 
inability to comply with regulatory financial resource requirements; 
(ii) a loss of confidence by members; (iii) the sustained disruption of 
critical services; and (iv) modification or recission of an emergency 
filed pursuant to Section 806(e)(2) of the Payment, Clearing, and 
Settlement Supervision Act.\12\ To reduce the chance of initiating a 
wind-down where a successful recovery would still be possible, OCC 
proposes to replace the four Wind-Down Trigger Events with a single, 
flexible trigger that grants discretion to OCC's Board of Directors. 
The proposed trigger would rest on the Board's determination that OCC's 
recovery efforts have not been or are unlikely to be successful in 
returning OCC to viability as a going concern. The revised approach 
would allow more flexible consideration of the facts and circumstances 
of a given event.
---------------------------------------------------------------------------

    \12\ See 12 U.S.C. 5465(e)(2).
---------------------------------------------------------------------------

B. Changes for Consistency and Accuracy

    As noted above, OCC is also proposing a set of non-substantive 
changes to the RWD Plan. Such changes (described further below) include 
the (i) relocation of context and background information from the Plan 
into a supplemental document; (ii) removal of duplicative information 
maintained elsewhere in OCC's documentation; (iii) updating of 
information in the plan that is out of date or inconsistent with 
current practices; and (iv) streamlining of hypothetical stress 
scenarios describing how OCC would employ its recovery and wind-down 
tools. OCC also proposes grammatical and technical edits throughout the 
entirety of the RWD Plan, such as modifying the use and location of 
certain defined terms for improved readability, using initial 
capitalization for term ``Clearing Member'' consistently throughout the 
document, deleting unnecessary words, and modifying tense for clarity.
1. RWD Plan Supporting Information
    OCC's RWD Plan currently includes information related to OCC's 
operations, management structure, personnel, support functions, banking 
relationships, vendors, and key agreements. This supporting information 
provides background and context for parties that are reviewing the RWD 
Plan or using it as part of an actual recovery or wind-down event. OCC 
is proposing to move supporting information from the RWD Plan to a 
separate document (the ``RWD Plan Supporting Information''). Placing 
such information in the RWD Plan Supporting Information would allow OCC 
to maintain the accuracy of such information without revising OCC's 
rules.\13\
---------------------------------------------------------------------------

    \13\ OCC intends to review and update the RWD Plan Supporting 
Information twice a year, or more frequently as needed. See Notice 
of Filing, 88 FR at 41696.
---------------------------------------------------------------------------

    The proposed rule change would move portions from the current RWD, 
such as significant portions of the existing ``Business Overview'' and 
``Management Structure'' sections into the RWD Plan Supporting 
Information document.\14\ OCC would also move

[[Page 55806]]

background information about OCC's 12 support functions from the RWD 
Plan to the RWD Plan Supporting Information.\15\ The proposed rule 
change would also move information and data subject to regular change 
from the RWD Plan's description of OCC's clearing services to a similar 
section of the RWD Plan Supporting Information. Lastly, OCC proposes to 
move information about OCC's current settlement banks, custodian banks, 
letter-of-credit banks, vendors needed to support recovery and wind-
down, and key agreements to be maintained, currently listed in several 
of the RWD Plan Appendices, to the RWD Plan Supporting Information 
document.\16\
---------------------------------------------------------------------------

    \14\ OCC proposes to move the details of OCC's business overview 
to Section 2.1 (``Business Overview'') of the RWD Plan Supporting 
Information, details of OCC's management structure and executives to 
Sections 2.2 (``Management Structure''), and details of its staffing 
to Section 2.3 (``People'').
    \15\ In the RWD Plan Supporting Information, Chapter 3, OCC 
would provide additional context on the Business Operations, 
Corporate Risk Management and Security Services Departments.
    \16\ Specifically, OCC proposes to move information from current 
Appendices E, F, G, H, and J to the new RWD Plan Supporting 
Information document. Current Appendix E of the RWD Plan is a list 
of OCC's current settlement banks; current Appendix F is a list of 
OCC's current custodian banks; current Appendix G is a list of OCC's 
current letter-of-credit banks; and current Appendix H is a list of 
OCC's current vendors needed to support recovery and wind-down. OCC 
also intends to provide additional information about its Tier 1 
vendors (i.e., vendors that involve or materially support critical 
processes) in the RWD Plan Supporting Information. The information 
in these RWD Plan Appendices would be moved to Chapter 4 
(``Interconnectedness'') of the RWD Plan Supporting Information. 
Current Appendix J of the RWD Plan includes information on OCC's key 
agreements to be maintained with third-party products and services. 
This would be moved to Chapter 5 (``Key Agreements to be 
Maintained'') of the RWD Plan Supporting Information. This new 
Chapter 5 itself does not list the agreements with the third-party 
products and services, but provides a link to OCC's internal 
SharePoint website.
---------------------------------------------------------------------------

2. Removal of Duplicative Information
    OCC proposes to remove information from the RWD Plan to the extent 
OCC already maintains such information elsewhere. The purpose of 
removing duplicative information is to reduce the complexity of 
maintaining information that could lead to inconsistencies across 
multiple documents. For example, OCC proposes to replace financial 
information currently set forth in the RWD Plan with a link to the 
section of OCC's website that displays OCC's Annual Reports, which 
include OCC's audited financial statements, and a link to OCC's fee 
schedule, which depicts the Target Capital Requirement.\17\
---------------------------------------------------------------------------

    \17\ Current Appendix D of the RWD Plan would be removed 
altogether. OCC proposes to add the link to OCC's annual reports and 
audited financial statements to current section 2.6 (``Financial 
Summary'').
---------------------------------------------------------------------------

3. Updating of Inaccurate or Outdated Information
    OCC also proposes to update text in the RWD Plan that was either 
inaccurate in its original form, or is no longer consistent with OCC's 
current practices. For example, in Chapter 1 of the Plan, OCC proposes 
to change the language related to expense assumptions during a 
resolution process, to convey the intended meaning of the assumption 
more accurately.\18\ OCC proposes to update outdated descriptions of 
its services and facilities in Chapter 2 of the RWD Plan.\19\ In 
Chapter 3 of the Plan, OCC proposes to update the descriptions of its 
pricing and valuation services by adding detail on the processes and 
eliminating specific data that become outdated quickly because it is 
subject to frequent changes (e.g., trading data from 2019, such as the 
average daily gross volume of options contracts cleared, the average 
daily gross value of premium exchanged, etc.). OCC also proposes 
removing a reference to letter of credit banks from Section 3.5 because 
letter of credit banks comprise less than 0.1 percent of margin pledged 
to OCC. Further, OCC proposes conforming changes describing critical 
support functions the document that would reflect OCC's internal 
employee reporting structure and to provide a more granular view into 
the departments that make up each support function. In Chapter 5 of the 
Plan, OCC proposes to update timing, cost, and employee assumptions to 
reflect the results an of internal review. OCC also proposes replacing 
a discussion of heightened capital requirements with discussion of 
increased financial reporting for members consistent with OCC's Rule 
306 and 307.
---------------------------------------------------------------------------

    \18\ The language would change from ``stay at historical normal 
levels during the wind-down period'' to ``generally follow the 
annual budget with timing and staffing considerations.''
    \19\ OCC also proposes adding links to the RWD Plan that would 
point a reader to up-to-date information more generally, which is 
consistent with the changes to remove duplicative information.
---------------------------------------------------------------------------

    Similar to the updates regarding current practice, OCC proposes to 
change how it describes its existing enhanced risk management tools 
(e.g., margin and Clearing Fund collateral) in the RWD Plan.\20\ For 
example, OCC proposes to clarify the inclusion of executive 
compensation as a component of its ``skin in the game'' consistent with 
current OCC Rule 1006(e)(i).\21\ OCC also proposes to expand the list 
of enhanced risk management tools described Section 4 of the Plan to 
include its existing assessment powers for managing a member default 
pursuant to OCC's Rule 1006, as well as several tools related to the 
management of risks other than a member's default: (i) insurance 
coverage, (ii) a working line of credit, (iii) authority to increase 
fees, and (iv) authority to extend settlement time pursuant to OCC rule 
505.\22\ The changes are intended to reflect a more complete list of 
tools that OCC may use to respond to extreme stress scenarios.\23\
---------------------------------------------------------------------------

    \20\ OCC is not proposing to remove or significantly change four 
of the five current enhanced risk management tools, but merely to 
align descriptions in the Plan with OCC's current thinking.
    \21\ OCC already has authority to use such executive 
compensation, and is now updating the Plan for consistency with its 
current rules. The proposed revisions would add detail to the 
description already provided in the Plan.
    \22\ The proposed changes include both addition of such tools to 
the list of enhanced risk management tools as well as the addition 
of more detailed description of tools and how they operate.
    \23\ OCC also proposes to conform the RWD discussion of minimum 
clearing fund cash to other sections discussing risk management 
tools by removing a paragraph discussing the expected impact and 
incentives related to the tool.
---------------------------------------------------------------------------

4. Hypothetical Scenarios
    Consistent with the revised risk management tool descriptions, OCC 
proposes to revise the hypothetical scenarios described in Chapter 7 of 
the RWD Plan. The hypothetical scenarios describe how OCC would deploy 
its risk management and recovery tools to respond to potential events 
such as a member default or settlement bank disruption. OCC is 
proposing updates to the hypothetical scenarios to reflect current data 
and operational procedures as well as to resolve grammatical issues. 
For example, OCC proposes to incorporate recent data regarding peak 
liquidity demands; the cash component of the Clearing Fund; and the two 
largest Clearing Fund contributions made by Clearing Members. OCC also 
proposes to remove references to energy futures and options and 
eliminate a related note indicating that the products reflected in this 
scenario may not be reflective of products cleared by OCC. Similarly, 
OCC would update references to settlement time for consistency with 
OCC's Rule 101.\24\
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 94950 (May 19, 
2022), 87 FR 31916 (May 25, 2022) (File No. SR-OCC-2022-004).
---------------------------------------------------------------------------

    OCC is also proposing to revise the hypothetical scenarios in which 
OCC would clarify current roles and responsibilities to ensure that the 
descriptions set forth in this scenario align with OCC's current 
practices and procedures. For example, the revised Plan would reflect 
the Head of Default Management's role in recommending an extension of 
settlement timing to OCC's Office of the CEO. Similarly, OCC

[[Page 55807]]

proposes various changes to expand the description of roles and 
responsibilities related to its stock loan program under a scenario in 
which the Depository Trust Company is inaccessible (e.g., describing 
the roles of the Collateral Services and Members Services teams with 
regard to notifications and escalations).
    Lastly, OCC proposes combining the fact patterns presented of two 
of its hypothetical scenarios. Specifically, OCC would combine 
scenarios focused on cyberattack and member default to describe how OCC 
would respond to such a combined set of stresses. The combination of 
scenarios would require certain changes in assumptions and data, but 
would not affect OCC's available risk management and recovery tools.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act 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 Exchange Act and the rules and regulations 
thereunder applicable to such organization.\25\ After carefully 
considering the proposed rule change, the Commission finds that the 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to OCC. More 
specifically, the Commission finds that the proposal is consistent with 
Section 17A(b)(3)(F) of the Exchange Act,\26\ and Rule 17Ad-
22(e)(3)(ii) \27\ thereunder as described in detail below.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(2)(C).
    \26\ 15 U.S.C. 78q-1(b)(3)(F).
    \27\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires, among other 
things, that a clearing agency's rules are designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions.\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As a central counterparty, it is important for OCC to have a plan 
in place to address extreme stresses or crises with the aim of 
maintaining OCC's viability and ability to provide critical services. 
In the event that OCC's recovery efforts are not successful, the RWD 
Plan would seek to increase the possibility that a resolution of OCC's 
operations could be conducted in an orderly manner. The Commission 
continues to believe that OCC specifying the steps that it would take 
in either a recovery or orderly wind-down would enhance OCC's ability 
to address circumstances specific to an extreme stress event.\29\ The 
Commission also continues to believe that, by increasing the likelihood 
that recovery would be orderly, efficient, and successful, the RWD Plan 
enhances OCC's ability to maintain the continuity of its critical 
services (including clearance and settlement services) during, through, 
and following periods of extreme stress giving rise to the need for 
recovery, thereby promoting the prompt and accurate clearance and 
settlement of securities transactions.\30\
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 90712 (Dec. 17, 
2020), 85 FR 84050, 84051 (Dec. 23, 2020) (File No. SR-OCC-2020-
013).
    \30\ See id. at 84052.
---------------------------------------------------------------------------

    As above, OCC proposes to make changes to the trigger events 
defined in the RWD Plan. With regard to recovery, the changes primarily 
shift focus to OCC's ability to meet future obligations in recovery. 
These changes continue to provide a roadmap for actions OCC may employ 
to monitor and manage its risks, and, as needed, to stabilize its 
financial condition in the event those risks materialize with a focus 
on its ability to continue providing critical services. Maintaining 
OCC's ability to continue providing clearance and settlement services 
would reduce the likelihood of disruption to the markets it service and 
is consistent with promoting the prompt and accurate clearance and 
settlement of securities transactions.
    With regard to wind-down, OCC proposes clarifying the role of the 
Board in making a wind-down determination and consolidating its current 
Wind-Down Trigger Events into a trigger based on a scenario's specific 
facts and circumstances. The propose changed would provide more 
flexibility and could potentially cover a wider variety of scenarios, 
including actual insolvency events, that could affect OCC. The 
clarification of the Board's role is consistent with prior Commission 
statements regarding the importance of governance in the design of 
recovery and wind-down plans.\31\ The changes would therefore increase 
the likelihood that OCC could continue providing critical services, 
thus promoting the prompt and accurate clearance and settlement of 
securities transactions.
---------------------------------------------------------------------------

    \31\ See e.g., Standards for Covered Clearing Agencies, 
Securities Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR 
70786, 70809 (Oct. 13, 2016) (File No. S7-03014) (``Covered Clearing 
Agency Standards Adopting Release'').
---------------------------------------------------------------------------

    Given the importance of a clearing agency's recovery and wind-down 
plan, such plans should be carefully and maintained to ensure that both 
the clearing agency and the relevant regulators have up-to-date 
information when such a plan is implemented. As described above, OCC 
proposes a number of changes designed to update the current plan and 
provide for the future maintenance of relevant information. 
Specifically, the proposal includes the (i) relocation of context and 
background information from the Plan into a supplemental document; (ii) 
removal of duplicative information maintained elsewhere in OCC's 
documentation; (iii) updating of information in the plan that is out of 
date or inconsistent with current practices; and (iv) streamlining of 
hypothetical stress scenarios describing how OCC would employ its 
recovery and wind-down tools.
    The Commission believes, therefore, that the proposal is consistent 
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\32\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act

    Rule 17Ad-22(e)(3)(ii) under the Exchange Act requires that a 
covered clearing agency establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to maintain a sound 
risk management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which includes plans for the recovery and orderly wind-down of the 
covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    The Commission stressed the importance of the context of the 
recovery plan and clearing agency as a whole when assessing the utility 
of a particular approach to establishing trigger criteria.\34\ As 
described above, OCC proposes changes that would focus its Recovery 
Trigger Events on OCC's ability to meet its future obligations in 
recovery. OCC also proposes separating out operational disruptions from 
general business losses, which would provide more granularity in 
describing its trigger events. With regard to wind-down, OCC proposes 
to replace four triggers with one flexible trigger. Such a change, 
while reducing granularity, may cover a

[[Page 55808]]

wider range of potential scenarios.\35\ Further, the revised Wind-Down 
Event Trigger would specify the Board's role in determining whether to 
trigger an orderly wind-down.
---------------------------------------------------------------------------

    \34\ Id.
    \35\ The Commission approved a similar single wind-down trigger 
event for the National Securities Clearing Corporation (``NSCC''). 
See Securities Exchange Act Release No. 83974 (Aug. 28, 2018), 83 FR 
44988 (Sept. 4, 2018). NSCC Rule 42 authorizes NSCC's Board to 
authorize initiation of NSCC's wind-down plan if it determines that 
application of NSCC's recovery tools either (i) has not restored or 
likely will not restore NSCC to viability or (ii) that implementing 
the wind-down plan is in the best interests of NSCC, its 
shareholders and creditors, members, and the U.S. financial markets.
---------------------------------------------------------------------------

    In adopting Rule 17Ad-22(e)(3)(ii), the Commission provided 
guidance, stating that a covered clearing agency generally should 
consider, among other things, whether it has provided relevant 
resolution authorities with the information needed for purposes of 
recovery and resolution planning.\36\ As described above, OCC proposes 
non-substantive updates focused primarily on keeping information 
accurate and up-to-date. To achieve this focus, OCC proposes (i) 
relocating of context and background information from the Plan into a 
supplemental document; (ii) removing of duplicative information 
maintained elsewhere in OCC's documentation; (iii) updating of 
information in the plan that is out of date or inconsistent with 
current practices; and (iv) streamlining of hypothetical stress 
scenarios describing how OCC would employ its recovery and wind-down 
tools., OCC proposes the removal of background and supporting 
information from the RWD Plan into a new and separate Supporting 
Information document. The Commission believes that, in moving such 
information to a separate document, resolution authorities will still 
be able to use the RWD Plan to identify the support functions that are 
necessary to maintain critical services and operations, yet also cross-
reference to additional detail in the RWD Plan Supporting Information 
as needed. OCC also proposes the removing duplicative information and 
providing links to other sources of information, such as the OCC's 
website, which would allow OCC to update any supporting information in 
only one place, thus reducing the risk of providing redundant 
information. OCC is also proposing to update outdated information and 
to streamline its hypothetical stress scenarios to reflect current OCC 
operations more accurately. The Commission believes that the proposed 
non-substantive updates will make the information provided in the RWD 
Plan more accurate and useful; provide a more accurate and usable 
playbook for OCC or source of information for a resolution authority; 
eliminate the risk that the RWD Plan may not contain current 
information; support OCC's ability to use risk management and recovery 
tools effectively to bring about a recovery by clarifying which tools 
may be most effective for different situations or needs; and eliminate 
redundancy across OCC's by-laws and rules. As such, the non-substantive 
changes would provide a more up-to-date set of information for the 
relevant authorities to carry out any needed recovery and resolution 
planning more expeditiously.
---------------------------------------------------------------------------

    \36\ See Covered Clearing Agency Standards Adopting Release, 81 
FR at 70810.
---------------------------------------------------------------------------

    The Commission believes, therefore, that the proposal is consistent 
with the requirements of Rule 17Ad-22(e)(3)(ii) under the Exchange 
Act.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Partial Amendment No. 1 to the Proposed 
Rule Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Partial Amendment No. 1, is consistent with the 
Exchange 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-2023-005 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-2023-005. 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 website (http://www.sec.gov/rules/sro.shtml). Comments are also 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 
a.m. and 3 p.m. Operating conditions may limit access to the 
Commission's Public Reference Room. Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-OCC-2023-005 and should be submitted on or 
before September 6, 2023.

V. Accelerated Approval of Proposed Rule Change, as Modified by Partial 
Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Exchange Act,\38\ to approve the proposed rule change prior to the 
30th day after the date of publication of notice of the filing of 
Partial Amendment No. 1 in the Federal Register. As discussed above, 
Partial Amendment No. 1 modified the original proposed rule change to 
correct an error in the narrative summary of proposed rule changes. 
Partial Amendment No. 1 does not change the purpose of or basis for the 
proposed changes.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For similar reasons as discussed above, the Commission finds that 
Partial Amendment No. 1 is consistent with the requirement that OCC's 
rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions under Section 17A(b)(3)(F) of the 
Exchange Act.\39\ Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Exchange Act, to approve the 
proposed rule change, as modified by Partial Amendment No. 1, on an 
accelerated basis, pursuant to Section 19(b)(2) of the Exchange 
Act.\40\
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78q-1(b)(3)(F).
    \40\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change, as modified by Partial Amendment No. 1, is 
consistent with the requirements of the Exchange Act, and in 
particular, the requirements of Section 17A of the Exchange Act \41\ 
and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \41\ In approving this proposed rule change, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\42\ that the proposed rule change (SR-OCC-2023-005), as 
modified by Partial

[[Page 55809]]

Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17531 Filed 8-15-23; 8:45 am]
BILLING CODE 8011-01-P