Document ID: SEC-2019-1773-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2019-11-26T05:00Z

[Federal Register Volume 84, Number 228 (Tuesday, November 26, 2019)]
[Notices]
[Pages 65202-65204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25587]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87577; File No. SR-OCC-2019-008]

Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Approving Proposed Rule Change To Establish a Regulatory 
Committee of the Options Clearing Corporation's Board of Directors

November 20, 2019.

I. Introduction

    On September 25, 2019, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2019-008 (``Proposed Rule Change'') 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to establish a new 
committee under OCC's Board of Directors.\3\ The Proposed Rule Change 
was published for public comment in the Federal Register on October 9, 
2019.\4\ The Commission has received no comments regarding the Proposed 
Rule Change. This order approves the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, at 84 FR 54240.
    \4\ Securities Exchange Act Release No. 87207 (Oct. 3, 2019), 84 
FR 54239 (Oct. 9, 2019) (SR-OCC-2019-008) (``Notice of Filing'').
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II. Background

    OCC proposes to establish the OCC Regulatory Committee 
(``Committee'') and adopt the OCC Regulatory Committee Charter 
(``Committee Charter''). The Committee would be composed solely of 
members of OCC's Board of Directors (``Board''). To facilitate the 
establishment of the Committee, OCC also proposes to amend Article III, 
Section 4 of the OCC By-Laws (``By-Laws'') and the OCC Board of 
Directors Charter and Corporate Governance Principles (``Board 
Charter'').
    Specifically, OCC proposes to amend the Board Charter and Article 
III, Section 4 of OCC's By-Laws to list the Committee alongside the 
other OCC Board committees. OCC also proposes to amend its By-Laws 
consistent with the Committee Charter regarding the delegation of 
authority from the Board to the Committee as well as the composition of 
the Committee. The Committee Charter would further define the scope of 
the Committee's authority. For example, the Committee Charter would 
authorize the Committee to access OCC's books, records, facilities and 
personnel and to hire specialists or rely upon other outside advisors.
    Consistent with the charters of OCC's other Board-level 
committees,\5\ the Committee Charter would define the purpose and 
functions of the Committee and would set out requirements related to 
the composition and meetings of the Committee, which would, in part, 
relate to the governance arrangements supporting OCC's compliance with 
its regulatory obligations. For example, in defining the Committee's 
purpose, the Committee Charter would state that the Board established 
the Committee to assist in overseeing OCC's efforts to demonstrate 
compliance with its regulatory obligations. The functions and 
responsibilities with which the Committee would be charged under the 
Committee Charter would include (1) overseeing OCC management's action 
plans to achieve compliance with any proposed new regulation; (2) 
meeting with regulators to discuss OCC's efforts to enhance its 
regulatory compliance posture; (3) reviewing annual regulatory 
compliance reports provided by OCC management; and (4) reviewing 
documents related to examinations conducted by OCC's regulators (e.g., 
examination report letters provided by regulators, responses to such 
letters from OCC). Regarding the composition and meetings of the 
Committee, the Committee would be composed of all OCC Public Directors, 
and the Committee would be obligated to meet at least quarterly and to 
maintain minutes of all Committee meetings.\6\
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    \5\ See Securities Exchange Act Release 84473 (Oct. 23, 2019), 
83 FR 54385 (Oct. 29, 2018) (SR-OCC-2018-012).
    \6\ The Committee Charter would permit the Committee's Chair to 
determine whether to record minutes of any executive session called 
by the Committee.
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    The proposed Committee Charter would also clearly describe direct 
lines of responsibility between the Committee and, as appropriate, 
either the Board or members of OCC's management team. For example, the 
Committee Charter would require that the Committee make such reports to 
the Board as deemed necessary or advisable. The Committee Charter would 
also require that OCC's Chief Compliance Officer (``CCO''), or one of 
his or her deputies if the CCO is unavailable, attend meetings of the 
Committee. Additionally, the Committee Charter would require the 
Committee to review its charter at least once every twelve months and 
submit the Committee Charter to the Board for approval.

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.\7\ 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

[[Page 65203]]

with Section 17A(b)(3)(F) of the Exchange Act \8\ and Rule 17Ad-
22(e)(2) thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(2).
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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 the rules of a clearing agency be designed to, in general, 
protect investors and the public interest.\10\ Based on its review of 
the record, the Commission believes that the proposed changes are 
designed to, in general, protect investors and the public interest for 
the reasons set forth below.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Committee, as described in the Proposed Rule Change, would be 
established to assist the Board in overseeing OCC's efforts to 
demonstrate compliance with its regulatory obligations. The Committee's 
responsibilities would include meeting with regulators as well as 
reviewing compliance reports and materials related to examinations 
conducted by OCC's regulators. Moreover, the Committee Charter and By-
Laws would require that the Committee be composed of OCC's Public 
Directors. The Commission believes that establishing a Board-level 
committee for the purpose of overseeing OCC's efforts to demonstrate 
compliance with its regulatory obligations would help ensure that such 
efforts are being reviewed and overseen at appropriately senior levels 
within the organization, which in turn should enhance OCC's efforts to 
demonstrate compliance with its regulatory obligations.
    Further, the proposed Committee Charter would clearly define the 
authority and function of the Committee. For example, the Committee 
Charter would provide the Committee with authority to (1) act on the 
behalf of the Board; (2) access OCC's books, records, facilitates and 
personnel; and (3) hire specialists or rely upon outside advisors. The 
authority described in the proposed Committee Charter would be 
consistent with the authority granted to OCC's other Board-level 
committees.\11\ The Committee Charter would also clearly describe the 
Committee's obligations regarding meeting frequency, minutes, and 
reporting. Further, the Committee would be obligated to review the 
Committee Charter at least once every twelve months. Formally defining 
the Committee's characteristics in this manner--consistent with the 
characteristics of OCC's other Board-level committees--should help 
ensure that the Committee is imbued with and sustains a level of 
attention and stature consistent with that of OCC's other Board-level 
committees, which in turn should enhance the Committee's ability to 
achieve its stated mission of supporting OCC's efforts to demonstrate 
compliance with its regulatory obligations.
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    \11\ See Securities Exchange Act Release 84473 (Oct. 23, 2019), 
83 FR 54385 (Oct. 29, 2018) (SR-OCC-2018-012).
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    The Commission believes generally that a clearing agency's 
compliance the applicable securities laws protects investors and the 
public interest. As discussed above, the Commission believes that the 
Proposed Rule Change is designed to ensure that the Committee's work 
will be reviewed, supervised, and supported at the Board level, which 
in turn should enhance the Committee's ability to achieve its stated 
goal of supporting OCC's efforts to demonstrate compliance with its 
regulatory obligations. The Commission believes, therefore, that OCC's 
proposal to establish a Board-level Regulatory Committee is consistent 
with, in general, protecting investors and the public interest 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Exchange Act.\12\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2) Under the Exchange Act

    Rule 17Ad-22(e)(2) under the Exchange Act requires that a covered 
clearing agency establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that address certain criteria.\13\ Rules 17Ad-22(e)(2)(i) 
and (v) under the Exchange Act require that such governance 
arrangements are clear and transparent and specify clear and direct 
lines of responsibility.\14\ Further, the Commission has expressed the 
belief that policies and procedures specifying clear and direct lines 
of responsibility should generally entail documenting the 
responsibilities of the board of directors and senior management.\15\
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    \13\ 17 CFR 240.17Ad-22(e)(2).
    \14\ 17 CFR 240.17Ad-22(e)(2)(i) and 17 CFR 240.17Ad-
22(e)(2)(v).
    \15\ See Securities Exchange Act Release No. 78961 (Sep. 28, 
2016), 81 FR 70786, 70804 (Oct. 13, 2016) (S7-03-14) (``Covered 
Clearing Agency Standards'').
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    As described above, OCC proposes amend its By-Laws and Board 
Charter to list the Committee among OCC's other Board-level committees 
and to specify the required composition of the Committee. Additionally, 
the Committee Charter would clearly define the authority and function 
of the Committee. For example, the Committee Charter would provide the 
Committee with authority to (1) act on the behalf of the Board; (2) 
access OCC's books, records, facilitates and personnel; and (3) hire 
specialists or rely upon outside advisors. The Committee Charter would 
also obligate OCC's CCO, or one of his or her deputies if the CCO is 
unavailable, to attend meetings of the Committee. Moreover, the 
Committee Charter would obligate the Committee to review its charter at 
least once every twelve months and submit the Committee Charter to the 
Board for approval. The Commission believes, therefore, that the 
changes to OCC's By-Laws and Board Charter as well as the 
organizational aspects of the proposed Committee Charter are consistent 
with Exchange Act Rule 17Ad-22(e)(2)(i) and (v).\16\
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    \16\ 17 CFR 240.17Ad-22(e)(2)(i) and 17 CFR 240.17Ad-
22(e)(2)(v).
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    Rule 17Ad-22(e)(2)(iii) under the Exchange Act requires, in part, 
that the governance arrangements required by Rule 17Ad-22(e)(2) support 
the public interest requirements in Section 17A of the Exchange Act 
applicable to clearing agencies.\17\
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    \17\ 17 CFR 240.17Ad-22(e)(2)(iii).
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    As described above, certain aspects of the Committee Charter relate 
to the governance of OCC's compliance with its regulatory obligations. 
For example, the Committee Charter would state that the Committee was 
established to assist the Board in overseeing OCC's efforts to 
demonstrate compliance with its regulatory obligations. The Committee's 
functions and responsibilities, as specified in the Committee Charter, 
would include meeting with regulators to discuss OCC's efforts to 
enhance it compliance posture and reviewing reports related to OCC's 
compliance posture (e.g., annual regulatory compliance reports provided 
by OCC management, final exam report letters from OCC's regulators, and 
OCC's response to regulatory examination letters). As discussed above, 
the Commission believes OCC's proposal to establish a Board-level 
Regulatory Committee is consistent with, in general, protecting 
investors and the public interest consistent with the requirements of 
Section 17A(b)(3)(F) of the Exchange Act.\18\ The Commission believes, 
therefore, that the establishment of the Committee through a detailed 
charter document is consistent with Exchange Act Rule 17Ad-
22(e)(2)(iii).\19\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(e)(2)(iii).

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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the 
Exchange Act, and in particular, the requirements of Section 17A of the 
Exchange Act \20\ and the rules and regulations thereunder.
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    \20\ 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).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\21\ that the Proposed Rule Change (SR-OCC-2019-008) be, 
and hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25587 Filed 11-25-19; 8:45 am]
BILLING CODE 8011-01-P