Document ID: SEC-2020-2053-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2020-12-23T05:00Z

[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 84050-84053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28317]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90712; File No. SR-OCC-2020-013]

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, To Update The Options Clearing Corporation's Recovery 
and Orderly Wind-Down Plan

December 17, 2020.

I. Introduction

    On October 20, 2020, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2020-013, (``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 make changes to 
OCC's Recovery and Orderly Wind-Down Plan (``RWD Plan'').\3\ The 
Proposed Rule Change was published for public comment in the Federal 
Register on November 9, 2020.\4\ The Commission has received no 
comments regarding the Proposed Rule Change.\5\ On October 20, 2020, 
OCC filed a partial amendment (``Partial Amendment No. 1'') to modify 
the Proposed Rule Change.\6\ The Commission is publishing this notice 
to solicit comments on Partial Amendment No. 1 from interested persons 
and is approving the proposed rule change, as modified by Partial 
Amendment No. 1, on an accelerated basis.\7\
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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, 85 FR at 71384.
    \4\ Securities Exchange Act Release No. 90315 (Nov. 3, 2020), 85 
FR 71384 (Nov. 9, 2020) (File No. SR-OCC-2020-013) (``Notice of 
Filing''). OCC also filed a related advance notice (SR-OCC-2020-806) 
(``Advance Notice'') with the Commission pursuant to Section 
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled the Payment, Clearing, and 
Settlement Supervision Act of 2010 and Rule 19b-4(n)(1)(i) under the 
Exchange Act. 12 U.S.C. 5465(e)(1). 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4, respectively. The Advance Notice was published in the 
Federal Register on November 18, 2020. Securities Exchange Act 
Release No. 90416 (Nov. 13, 2020), 85 FR 73553 (Nov. 18, 2020) (File 
No. SR-OCC-2020-806).
    \5\ Since the proposal contained in the Proposed Rule Change was 
also filed as an advance notice, all public comments received on the 
proposal are considered regardless of whether the comments are 
submitted on the Proposed Rule Change or the Advance Notice.
    \6\ In Partial Amendment No. 1, OCC corrects and updates a 
confidential Exhibit 5 to the materials filed on October 20, 2020 
regarding File No. SR-OCC-2020-013. Partial Amendment No. 1 corrects 
an error in the proposed rule text and updates the list of vendor 
agreements attached to the RWD Plan, but did not change the purpose 
of or basis for the Proposed Rule Change.
    \7\ References to the Proposed Rule Change from this point 
forward refer to the Proposed Rule Change as modified by Partial 
Amendment No. 1.
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II. Background \8\
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    \8\ 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.
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    The Proposed Rule Change concerns changes to OCC's RWD Plan. As 
described in greater detail below, OCC proposes to (1) update the RWD 
Plan to reflect changes to OCC's capital structure resulting from the 
disapproval of OCC's previously approved ``Capital Plan'' \9\ and the 
subsequent approval of OCC's ``Capital Management Policy,'' \10\ and 
(2) implement changes identified during OCC's annual review of the RWD 
Plan. The changes arise out of OCC's annual review of the RWD Plan and 
include factual updates (e.g., market share and contract volume data) 
and streamlined discussions in the RWD Plan (e.g., replacement of 
detailed overview of OCC's risk management program with a more concise 
summary).
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    \9\ See Securities Exchange Act Release No. 85121 (Feb. 13, 
2019), 84 FR 5157 (Feb. 20, 2019) (File No. SR-OCC-2015-02).
    \10\ See Securities Exchange Act Release No. 86725 (Aug. 21, 
2019), 84 FR 44952 (Aug. 27, 2019) (File No. SR-OCC-2019-007).
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    Capital Management Policy Updates. As a result of the 
implementation of the Capital Management Policy, OCC is proposing 
changes to Chapters 2, 5, and 6 of its RWD Plan. In Chapter 2, OCC is 
proposing to revise its discussion of fee management for consistency 
with the Capital Management Policy. In Chapter 5, OCC is proposing to 
(i) replace its discussion of the Replenishment Plan established under 
the disapproved Capital Plan with a discussion of the replenishment 
structure adopted under the Capital Management Policy; (ii) replace 
references to the discretionary use of OCC's current and/or retained 
earnings with references to the mandatory contribution--immediately 
following the use of margin, deposits in lieu of margin and the 
Clearing Fund deposits of the suspended Clearing Member--of OCC's 
current and retained earnings greater than 110% of OCC's annually-
established ``Target Capital Requirement;'' (iii) update the 
description of how OCC could increase the minimum required cash 
contribution to the Clearing Fund to reflect enhancements to OCC's 
liquidity risk management framework that the

[[Page 84051]]

Commission approved in 2020; \11\ and (iv) include a discussion of the 
mandatory contribution of any unvested portions of OCC's Executive 
Deferred Compensation Plan (``EDCP'') in proportion to any charges 
against the mutualized portion of OCC's Clearing Fund. OCC also 
proposes to revise the list of ``Recovery Trigger Events'' in Chapter 5 
to: (a) Delete one of the Recovery Trigger Events that was derived from 
a defined term in the Capital Plan; (b) consolidate two other Recovery 
Trigger Events into a single, operational loss-related recovery 
trigger; and (c) add a qualification onto an existing liquidity loss-
related recovery trigger. In Chapter 6, OCC is proposing to update 
discussion of the tools by which OCC could recapitalize in certain 
recovery and wind-down scenarios. Further, OCC is proposing to revise 
the list of Wind-Down Plan Trigger Events (``WDP Triggers''): 
Specifically, OCC proposes to consolidate two current WDP Triggers into 
a single WDP Trigger related to OCC's financial resource requirements 
and to consolidate two other WDP Triggers into a single WDP Trigger 
related to operational disruption. Similar to the changes OCC proposes 
in Chapter 5, the changes proposed in Chapter 6 would be designed to 
reflect OCC's current replenishment plan under the Capital Management 
Policy.
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    \11\ See Securities Exchange Act Release No. 89014 (Jun. 4, 
2020), 85 FR 35446 (Jun. 10, 2020) (File No. SR-OCC-2020-003).
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    Annual Review Updates. As a result of its annual review and update 
process, OCC is proposing changes to Chapters 2, 3, 5, 6, 7, and 8 of 
its RWD Plan. In Chapter 2, OCC is proposing to update (i) market share 
and contract volume data; (ii) lists of the securities options 
exchanges and other markets for which OCC provides clearing services; 
(iii) organizational charts, headcount numbers, discussions of OCC's 
management structure and descriptions of management roles and 
responsibilities; (iv) updated descriptions of OCC's Board's 
responsibilities and procedures, lists of Board members and 
descriptions of OCC's Board committees' roles and responsibilities; and 
(v) graphs of total monthly deposits to OCC's Clearing Fund. OCC is 
also proposing revisions to reflect certain program changes that have 
occurred at OCC since the initial approval of the RWD Plan in 2018 
(e.g., changes to cross-margining arrangements, credit facilities, 
investment counterparties, and vendors) as well as changes to OCC's 
retirement plan obligations. In Chapter 3, the RWD Plan lists OCC's 
internal support functions. OCC is proposing the addition of two new 
internal support functions to that list and the removal of the Office 
of the Corporate Executive from the list. The net result of the 
proposed changes would bring the total number of internal support 
functions listed from fourteen to sixteen. OCC also proposes to update 
the descriptions of all OCC's internal support functions so they align 
with OCC's internal descriptions of such functions.
    In Chapter 6, OCC is proposing to (i) update references to OCC's 
internal support functions; and (ii) certain references to headcount. 
In Chapter 7, OCC is proposing to update staff titles to reflect 
changes in related office titles. In Chapter 8, OCC is proposing to 
update lists of (i) Clearing Members; (ii) Board participation; (iii) 
settlement bank and letter of credit bank; (iv) OCC's vendors and 
service providers; (v) updates to the extreme hypothetical scenarios 
designed by OCC that, if such scenarios occurred, could cause OCC to 
activate the RWD Plan; and (vi) key agreements.
    Administrative and Streamlining Changes. In addition to the updates 
described above, OCC is also proposing several administrative and 
streamlining changes throughout the RWD Plan. OCC proposes to align the 
executive summary and overview section of the RWD Plan with the changes 
described above. OCC also proposes moving annual report excerpts from 
Chapter 2 to an appendix to the RWD Plan, replace the current overview 
of OCC's risk management program with a more concise summary, and 
update a summary description of OCC's interconnections with external 
vendors and a list of vendors that provide OCC critical technology and 
information reporting services. In Chapter 4, OCC proposes to update 
certain factual references and make other minor changes to reflect the 
use of a single term for Critical Services that are currently 
identified separately. OCC also proposes to revise the mapping of 
Critical Services to Support Functions in Chapter 4 to reflect the 
categorization of Support Functions as either ``primary,'' 
``secondary,'' or ``non-critical.'' In Chapter 5, OCC proposes to (i) 
clean up references to its by-laws that are now rules; (ii) consolidate 
two recovery triggers into a single, operational loss-related recovery 
trigger; and (iii) add qualifying language to an existing liquidity 
loss-related recovery trigger.

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.\12\ 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 \13\ and Rule17Ad-22(e)(3)(ii) 
thereunder.\14\
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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 promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible.\15\ 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. 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

[[Page 84052]]

securities transactions.\16\ Further, the Commission continues to 
believe that the RWD Plan is designed to assure the safeguarding of 
securities or funds in the custody or control of OCC by reducing the 
likelihood of a disorderly or unsuccessful recovery or wind-down, which 
could otherwise disrupt access to such securities or funds.\17\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ See Securities Exchange Act Release No. 83918 (Aug. 23, 
2018), 83 FR 44091, 44094 (Aug. 29, 2018) (File No. SR-OCC-2017-
021); Securities Exchange Release No. 83928 (Aug. 23, 2018), 83 FR 
44109, 44112 (Aug. 29, 2018) (File No. SR-OCC-2017-810).
    \17\ See Securities Exchange Act Release No. 83918 (Aug. 23, 
2018), 83 FR 44091, 44094 (Aug. 29, 2018) (File No. SR-OCC-2017-
021).
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    As described above, OCC proposes to (1) update the RWD Plan to 
reflect changes to OCC's capital structure resulting from the 
disapproval of OCC's previously approved ``Capital Plan'' \18\ and the 
subsequent approval of OCC's ``Capital Management Policy,'' \19\ and 
(2) implement changes identified during OCC's annual review of the RWD 
Plan. Consistent with the Commission's prior statements regarding 
disclosure of documents describing a covered clearing agency's recovery 
and wind-down plans, the Commission believes that such recovery and 
wind-down plans should be updated regularly or more frequently as 
necessary.\20\ OCC also proposes to update and streamline the data and 
descriptions provided in the RWD Plan.\21\ The Commission believes that 
keeping the RWD Plan updated with current information, and refining the 
descriptions to make it more concise, makes it a more accurate and 
useful document. As such, the Commission believes, therefore, that the 
Proposed Rule Change is consistent with the requirements of Section 
17A(b)(3)(F) of the Exchange Act.\22\
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    \18\ See Securities Exchange Act Release No. 85121 (Feb. 13, 
2019), 84 FR 5157 (Feb. 20, 2019) (File No. SR-OCC-2015-02).
    \19\ See Securities Exchange Act Release No. 86725 (Aug. 21, 
2019), 84 FR 44952 (Aug. 27, 2019) (File No. SR-OCC-2019-007).
    \20\ See Securities Exchange Act Release No. 34-78961 (Oct. 13, 
2016), 81 FR 70786, 70808 (Oct. 13, 2016) (File No. S7-03-14).
    \21\ For example, OCC is proposing to update its market share 
and contract volume data, lists of the securities options exchanges 
and other markets for which OCC provides clearing services, 
organizational charts, and headcount numbers. OCC also proposes to 
replace the detailed overview of OCC's risk management program with 
a more concise summary.
    \22\ 15 U.S.C. 78q-1(b)(3)(F).
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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.\23\
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    \23\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The Commission continues to believe that the RWD Plan (i) clearly 
describes OCC's recovery tools, which enhance OCC's ability to recover 
from credit losses, liquidity shortfalls, general business risk losses, 
or other losses, consistent with Rule 17Ad-22(e)(3)(ii); and (ii) 
supports OCC's ability to use risk management and recovery tools 
effectively to bring about a recovery by identifying in advance which 
tools may be most effective for different situations or needs, 
consistent with Rule 17Ad-22(e)(3)(ii).\24\ As described above, the RWD 
Plan sets forth OCC's plans to recover or wind-down its operations as a 
result of severe financial or operational stress in an orderly fashion. 
The proposed updates will make the information provided in the RWD Plan 
more accurate and useful. The revised RWD Plan would, in turn, provide 
a more accurate and usable playbook for OCC or source of information 
for a resolution authority. Accordingly, the Commission believes that 
the proposed changes to the RWD Plan are consistent with Rule 17Ad-
22(e)(3)(ii) under the Exchange Act.\25\
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    \24\ See Securities Exchange Act Release No. 83918 (Aug. 23, 
2018), 83 FR 44091, 44095 (Aug. 29, 2018) (File No. SR-OCC-2017-
021); Securities Exchange Release No. 83928 (Aug. 23, 2018), 83 FR 
44109, 44113 (Aug. 29, 2018) (File No. SR-OCC-2017-810).
    \25\ 17 CFR 240.17Ad-22(e)(3)(ii).
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IV. Solicitation of Comments

    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 rule-comments@sec.gov. Please include 
File Number SR-OCC-2020-013 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-2020-013. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying 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-2020-013 and 
should be submitted on or before January 13, 2021.

V. Accelerated Approval of the 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,\26\ to approve the proposed rule change prior to the 
30th day after the date of publication of Partial Amendment No. 1 in 
the Federal Register. As discussed above, Partial Amendment No. 1 
corrects an error in the proposed rule text and updates the list of 
vendor agreements attached to the RWD Plan. Correcting typographical 
errors Partial Amendment No. 1

[[Page 84053]]

improves the efficiency of the filing process by obviating the need for 
OCC to propose another change to its rules to resolve the error in the 
future while not changing the purpose of or basis for the Proposed Rule 
Change. Updating the list of vendor agreements as part of the immediate 
proposal would similarly reduce the need for future filings without 
changing the purpose of or basis for the Proposed Rule Change.
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    \26\ 15 U.S.C. 78s(b)(2).
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    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 and assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible under Section 
17A(b)(3)(F) of the Exchange Act.\27\ Accordingly, the Commission finds 
good cause for approving 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.\28\
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    \27\ 15 U.S.C. 78q-1(b)(3)(F).
    \28\ 15 U.S.C. 78s(b)(2).
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VI. 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 \29\ and the rules and regulations thereunder.
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    \29\ 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,\30\ that the Proposed Rule Change (SR-OCC-2020-013), as 
modified by Partial Amendment No. 1, be, and hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28317 Filed 12-22-20; 8:45 am]
BILLING CODE 8011-01-P