Document ID: SEC-2023-0690-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2023-06-27T04:00Z

[Federal Register Volume 88, Number 122 (Tuesday, June 27, 2023)]
[Notices]
[Pages 41695-41701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13560]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97785; File No. SR-OCC-2023-005]

Self-Regulatory Organizations; Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change by the Options Clearing 
Corporation Concerning Amendment of Its Recovery and Orderly Wind-Down 
Plan

June 21, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on June 7, 2023, the Options Clearing Corporation 
(``OCC'' or ``Corporation) filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule changes 
described in Items I, II and III below, which Items have been prepared 
by OCC. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would amend OCC's Recovery and Orderly 
Wind-Down Plan. The RWD Plan is included as confidential Exhibit 5 to 
SR-OCC-2023-005. Material proposed to be added is marked by 
underlining, and material proposed to be deleted is marked by 
strikethrough text.\3\ The proposed rule change does not require any 
changes to the text of OCC's By-Laws or Rules. All terms with initial 
capitalization that are not otherwise defined herein have the same 
meaning as set forth in the RWD Plan or OCC By-Laws and Rules, as 
applicable.\4\
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    \3\ OCC has also filed an advance notice with the Commission in 
connection with this proposal. See SR-OCC-2020-806.
    \4\ OCC's current By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. 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), 
(B),

[[Page 41696]]

and (C) below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(1) Purpose
    The RWD Plan was adopted on August 23, 2018 \5\ and is maintained 
by OCC in accordance with the requirements of Rule 17Ad-
22(e)(3)(ii).\6\ The Commission approved updates to the RWD Plan on 
December 17, 2020.\7\ The RWD Plan describes OCC's ability to provide 
critical services in the event of severe financial or operational 
stress. The Plan also describes OCC's approach to a wind-down in the 
unlikely event that it experiences a severe stress that causes it to 
exhaust its available tools and resources. OCC posts a Recovery and 
Orderly Wind-Down Plan Participant Guide on its public website that is 
available to Clearing Members, Participant Exchanges, and the 
public.\8\
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    \5\ Securities Exchange Act Release No. 83918 (Aug. 23, 2018), 
83 FR 44091 (Aug. 29, 2018) (SR-OCC-2017-021).
    \6\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \7\ Securities Exchange Act Release No. 90712 (Dec. 17, 2020), 
85 FR 84050 (Dec. 23, 2020) (SR-OCC-2020-013).
    \8\ See Recovery and Orderly Wind-Down Plan Participant Guide, 
available at https://www.theocc.com/getmedia/a2fdfeaa-9526-4f16-a4c3-c81b3c905f6a/OCC_PartGuide_Sept_2020.pdf.
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Proposed Changes
    The proposed rule change would amend the 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. A summary description of the proposed changes 
to the RWD Plan and the purpose of those changes is provided below.
Removal of Supporting Information
    The current version of OCC's RWD Plan 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 utilizing it as part of an actual 
recovery or wind-down event. This information does not constitute a 
stated policy, practice, or interpretation of OCC and is, by its 
nature, prone to change. OCC proposes to remove certain supporting 
information from the RWD Plan and maintain it in a separate document 
(the ``RWD Plan Supporting Information'').\9\ The purpose of this 
change is to allow OCC to update the supporting information so that it 
is current, accurate and most helpful to potential users of the RWD 
Plan. OCC will review and update the RWD Plan Supporting Information 
twice a year, or more frequently as needed.
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    \9\ OCC has included a draft of the RWD Plan Supporting 
Information as confidential Exhibit 3 to SR-OCC-2023-005.
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Incorporate References to Certain Documents and Materials
    The current version of OCC's RWD Plan restates certain information 
that is publicly available or separately maintained by OCC. Maintaining 
this information in multiple documents with distinct regulatory 
requirements creates a risk that the RWD Plan may not contain current 
information. To eliminate this risk, OCC proposes to incorporate 
references to certain materials rather than restating the information 
set forth in those materials in the RWD Plan. OCC proposes to move all 
of the RWD Plan Appendices to the RWD Plan Supporting Information 
document, with the exception of the current Appendix B (``Detailed 
Stress Scenarios''), which will become the new Appendix A. For example, 
references to current Appendix A and Appendix C of the RWD Plan, which 
currently include a list of Clearing Members and Members of OCC's Board 
of Directors as of a specific date, would be replaced by incorporating 
a link to the sections of OCC's website that maintain current 
information about OCC's Clearing Members and Board of Directors. 
Similarly, OCC proposes to replace certain financial information set 
forth in the RWD Plan, including the excerpts from OCC's audited 
financial statements provided in Appendix D and references to the 
amount of OCC's Target Capital Requirement, 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. Finally, OCC proposes to 
delete the excerpted portions of its rule-filed Risk Management 
Framework Policy from Section 2.9 of the RWD Plan and Appendix I. OCC 
believes that incorporating these materials by reference would allow 
the RWD Plan to better reflect current and accurate information. OCC 
intends to introduce the RWD Plan Supporting Information document to 
provide additional background and context on the RWD Plan in order to 
assist in reviewing or utilizing the Plan. Additionally, the RWD Plan 
Supporting Information document will allow OCC to more easily maintain 
and update information about the RWD Plan as quickly as possible.
Updates and Amendments to Each Chapter of the RWD Plan
    In addition to the changes described above, the proposed rule 
change includes updates and amendments to each of the six chapters of 
the proposed RWD Plan that were identified during the annual review of 
the Plan as required by OCC's internal governance. A summary 
description of the types of changes proposed to each chapter of the RWD 
Plan is provided below.
    Chapter 1: Executive Summary. Chapter 1 of the RWD Plan contains an 
executive summary that provides a broader overview of the contents and 
purpose for the RWD Plan. Chapter 1 includes higher level background 
information about OCC, its designation as a systemically important 
financial market utility, relevant regulations, and descriptions of 
topics covered in more detail later in the RWD Plan, e.g., recovery 
trigger events, stress scenarios, and wind-down plan trigger events. 
The proposed changes to Chapter 1 of the Plan include a change 
reflecting that the Committee on Payment and Settlement Systems was 
renamed the Committee on Payments and Market Infrastructures,\10\ the 
inclusion of additional sources that OCC considered in updating the RWD 
Plan, and other conforming changes related to remainder of the RWD 
Plan. The proposed changes also incorporate a reference to the RWD Plan 
Supporting Information document described above, along with a brief 
description of its contents. The proposed changes also replace the 
language related to expense assumptions during a resolution process 
from ``stay at historical normal levels during the wind-down period'' 
to ``generally follow the annual budget with timing and staffing 
considerations'' to better reflect the intended meaning of this 
assumption by relating it to OCC's budget. Finally, the proposal would 
incorporate several grammatical and non-substantive technical 
amendments to Chapter 1, including, but not limited to, modifying the 
use and location of certain defined terms for improved readability, 
using initial capitalization for the term ``Clearing Member'' 
consistently throughout the document, deleting unnecessary words, and 
modifying tense for clarity and readability.
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    \10\ See https://www.bis.org/cpmi/history.htm.

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[[Page 41697]]

    Chapter 2: OCC Overview. Chapter 2 of the RWD Plan provides a 
detailed description of OCC's business and provides the necessary 
context for the discussion and analysis of OCC's Critical Services and 
OCC's resolution process in the RWD Plan. Chapter 2 also provides 
information about OCC's regulatory oversight, legal entity and 
governance structure, the services that OCC provides, and OCC's 
financial and operational interconnections. The proposal would update 
any outdated information or practices set forth in Chapter 2, including 
the description of OCC's services and facilities (i.e., OCC's physical 
facilities as well as its credit and repurchase agreement liquidity 
facilities), and would add new references/links for users to access up-
to-date information. Specifically, OCC has included a link to OCC's 
Annual Report in lieu of including OCC's Income Statement or other 
extracts from the Annual Report to ensure that a user of the RWD Plan 
would have access to the most recent financial information. The 
proposal would also incorporate several grammatical and non-substantive 
technical amendments to Chapter 2, including, but not limited to, 
modifying the use and location of certain defined terms for improved 
readability, using initial capitalization for the term ``Clearing 
Member'' consistently throughout the document, and deleting references 
to the dollar size of OCC's credit and repo facilities that are subject 
to change. The proposal would move a significant portion of existing 
section 2.1 ``Business Overview'' and existing section 2.5 ``Management 
Structure'' into the RWD Plan Supporting Information document, which 
will supplement the RWD Plan by providing additional foundational 
information about the organization and operation of OCC to users of the 
RWD Plan. The RWD Plan Supporting Information would be available to 
users of the RWD Plan and includes background information about the RWD 
Plan, an overview of OCC's business, management structure, support 
functions, banking information, vendors, and key agreements related to 
supporting recovery and wind-down. This information is more readily 
subject to change and would be more easily maintained outside of the 
RWD Plan.
    Finally, OCC is removing the section related to the Risk Appetite 
Framework and Tolerance. The Commission recently approved OCC's 
adoption of a Risk Management Framework and Corporate Risk Management 
Policy.\11\ These risk-related policies are available to the public and 
also maintained internally at OCC, where they are available for 
reference as needed. Accordingly, OCC determined this section is no 
longer needed in the RWD Plan.
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    \11\ Securities Exchange Act Release No. 96566 (Dec. 22, 2022), 
87 FR 80207 (Dec. 29, 2022) (SR-OCC-2022-010).
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    Chapter 3: Critical Services and Critical Support Functions. 
Chapter 3 of the RWD Plan identifies OCC's (i) ``Critical Services,'' 
which, if interrupted or discontinued, could have a systemic impact on 
the financial system, and (ii) ``Critical Support Functions,'' which 
are functions within OCC that must continue in some capacity in order 
for OCC to be able to continue providing its Critical Services. As 
described above, the proposal would eliminate from the description of 
OCC's clearing services specific information and data that is subject 
to change regularly (e.g., volume information, number of Clearing 
Members, etc.).\12\ The RWD Plan Supporting Information document would 
replace Chapter 3 ``Support Functions'' of the existing RWD Plan, and 
provide additional context on the Business Operations, Corporate Risk 
Management and Security Services Departments at OCC. The proposal would 
also update OCC's Critical Support Functions and Department Ratings. 
The purpose of this change is to conform the RWD Plan to reflect 
changes to OCC's internal employee reporting structure and to provide a 
more granular view into the departments that make up each support 
function. The proposal would update the information and data set forth 
in Chapter 3, including the descriptions of OCC's pricing and valuation 
services by adding detail on the processes and eliminating specific 
data subject to frequent change that has a potential to become outdated 
quickly. The proposal would remove the reference to letter of credit 
banks from Section 3.5 because letter of credit banks are used for less 
than 0.1% of margin requirements and could readily be substituted. 
Finally, the proposal would incorporate several grammatical and non-
substantive technical amendments to Chapter 3, including but not 
limited to modifying the use and location of certain defined terms for 
improved readability, using initial capitalization for the term 
``Clearing Member'' consistently throughout the document, updating the 
names of internal support functions and departments and the related 
numbers of personnel.
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    \12\ This information is located at OCC's public website at 
https://www.theocc.com/.
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    Chapter 4: Recovery Plan. Chapter 4 of the RWD Plan constitutes 
OCC's Recovery Plan. The purpose of the Recovery Plan is to provide 
succinct information about OCC's Enhanced Risk Management and Recovery 
Tools, as defined in the RWD Plan, and to demonstrate the ways in which 
OCC's risk management tools, Enhanced Risk Management and Recovery 
Tools, as well as other available resources, can be applied in stylized 
hypothetical scenarios considering extreme stress events that could be 
sufficient to threaten OCC's viability as a going concern. The proposed 
changes to Chapter 4 include replacing a discussion of how OCC 
developed its original stress scenarios with a description of OCC's 
current approach for developing and refining stress scenarios. The RWD 
Plan currently describes five enhanced risk management tools that are 
designed to be deployed in response to heightened or extreme stress 
scenarios. Under the proposal, OCC would provide additional description 
of these five tools and also add five additional enhanced risk 
management tools to the inventory of tools set forth in Chapter 4 of 
the RWD Plan, including: assessment powers, insurance coverage, OCC's 
working capital line of credit, increased clearing fees, and OCC's 
ability to extend the settlement window. In addition to the 
descriptions of the enhanced risk management tools outlined in Chapter 
4, Section 4.2.1 of the proposed RWD Plan also introduces the ability 
for OCC to utilize the Executive Deferred Compensation Plan (``EDCP'') 
Unvested Balance to pay for a loss to the Clearing Fund pursuant to 
Rule 1006(e)(i). This is clarified under the first enhanced risk 
management tool--OCC's ability to make a form of ``skin in the game'' 
contribution in the event of a loss or deficiency to the Clearing Fund. 
The use of EDCP Unvested Balance would be deployed after utilizing 
OCC's Minimum Corporate Contribution and after use of Liquid Net Assets 
Funded by Equity (``LNAFBE'') greater than 110% of the Target Capital 
Requirement. The purpose of these changes is to refine and expand the 
list of available enhanced risk management tools so that it reflects a 
more complete list of potential tools that OCC could deploy in response 
to extreme stress scenarios. A detailed description of each additional 
Enhanced Risk Management Tool will be reflected in Chapter 4 of the RWD 
Plan.
    In addition, OCC proposes to make several changes to the Recovery 
Trigger

[[Page 41698]]

Events currently set forth in the RWD Plan. OCC proposes amendments to 
various Recovery Trigger Events. OCC is proposing that a credit loss 
Recovery Trigger would occur upon a 100% depletion of the pre-funded 
Clearing Fund resources, as opposed to the current standard of a 
significant depletion of Clearing Fund resources. The proposal would 
also amend the liquidity loss Recovery Trigger Event to more closely 
align with OCC's Liquidity Risk Management Framework by indicating 
that, instead of a recovery being triggered by a significant liquidity 
shortfall that requires OCC to utilize a majority of the capacity in 
its liquid resources with no apparent ability to complete settlement 
obligations within the required timeframe, a recovery would be 
triggered by a significant depletion of liquidity resources such that 
OCC may not be able to address foreseeable liquidity shortfalls to 
avoid unwinding, revoking, or delaying the same-day settlement of 
payment obligations. OCC believes that this proposed standard is more 
accurate, because OCC could exhaust a majority of its liquidity 
resources without triggering a recovery in certain circumstances. The 
proposed revisions would also separate the existing operational loss 
and disruption Recovery Trigger Event into two separate trigger events 
relating to either (i) an extended operational disruption to OCC's 
critical services (``operational disruption Recovery Trigger Event''), 
or (ii) an event arising from general business losses (``general 
business loss Recovery Trigger Event''). The current operational loss 
and disruption Recovery Trigger Event requires an operational loss, 
extended operational disruption of critical services (e.g. human 
capital, data center loss, cyber-attack), or decrease in OCC's 
profitability and cash flow (without a commensurate adjustment of 
expenses) that results in a breach of the minimum SEC capital 
requirements with no reasonable expectation that OCC will be able to 
timely return to satisfying the minimum SEC capital requirements or 
resume providing critical services. By contrast, the proposed 
operational disruption Recovery Trigger Event would include an extended 
operational disruption of critical services with no reasonable 
expectation that OCC will be able to timely resume providing critical 
services. The proposed general business loss Recovery Trigger Event 
would include a decrease in OCC's profitability and cash flow (without 
a commensurate adjustment of expenses) that results in a breach of the 
minimum SEC capital requirements with no reasonable expectation that 
OCC will be able to timely return to satisfying the minimum SEC capital 
requirements. OCC believes that separating these events is appropriate, 
because an operational disruption or general business losses could 
independently trigger a recovery.
    OCC proposes to remove the paragraph titled ``Expected Impact and 
Incentives'' from Section 4.2.1.2 to maintain consistency with the rest 
of the RWD Plan, i.e., the RWD Plan does not include a similar section 
for the remaining Enhanced Risk Management Tools in the RWD Plan.
    The proposal would also update the information and data set forth 
in Chapter 4, including several changes to conform the RWD Plan to the 
requirements of OCC Rules. OCC is proposing to clarify certain key 
risks identified in Section 4.2.2.1 of the RWD Plan. OCC amended this 
section to conform the language to Rule 1006(h)(B) and to clarify that 
the risk of Clearing Members terminating their memberships during the 
cooling-off period may reduce the amount of mandatory assessments that 
OCC may leverage during the cooling-off period. However, any subsequent 
increase in the Clearing Fund requirement would be allocated among the 
remaining Clearing Members. In addition, the proposed RWD Plan would 
update section 4.2.4.3 of the current Plan to include clarification on 
timing for when certain Enhanced Risk Management and Recovery Tools 
must be implemented. The proposed Plan states that this information is 
clearly defined in Rule 1006(h)(A), which requires that Clearing 
Members replenish any deficiencies in the Clearing Fund by the first 
Settlement Time following notification to the Clearing Member of such 
deficiency or such later time as provided by the Corporation.
    Finally, the proposal would incorporate several non-substantive 
technical amendments to Chapter 4, including, but not limited to, 
modifying the use and location of certain defined terms for improved 
readability and using initial capitalization for the term ``Clearing 
Member'' consistently throughout the document.
    Chapter 5: Wind-Down Plan. Chapter 5 of the proposed RWD Plan 
constitutes OCC's wind-down plan. The purpose of the Wind-Down Plan 
(``WDP'') is to establish the objectives for a resolution process 
whereby OCC seeks to continuously deliver its Critical Services, even 
though its viability as a going concern is threatened and to provide a 
menu of actions that OCC's Management, Board and Stockholder Exchanges 
can consider to effectuate the resolution process. OCC's current RWD 
Plan identifies several WDP Trigger Events, including the inability to 
comply with financial resource requirements, loss of Clearing Member 
confidence in OCC's continued viability, a sustained disruption in 
services and a substantial modification or rescission of an emergency 
action made by OCC pursuant to Section 806(e)(2) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act. Rather than rely on a few of 
many possible events that could trigger a wind-down, the proposed 
revisions to the RWD Plan would move to a single WDP Trigger Event 
based on a determination by OCC's Board of Directors that recovery 
efforts have not been or are unlikely to be successful in returning OCC 
to viability as a going concern. OCC is proposing this revised approach 
to avoid triggering a wind-down where OCC's recovery would still be 
viable, even if OCC were in technical breach of any of the current WDP 
Trigger Events. OCC believes that the proposed trigger is appropriate 
because it is broad and flexible enough to cover a variety of 
scenarios, and it would allow the Board of Directors to account for 
OCC's Recovery Tools and consider the facts and circumstances that 
would allow for a successful or unsuccessful recovery.
    The proposed revisions to Chapter 5 also include updates to OCC's 
timing, cost, and employee retention assumptions. These updates reflect 
the results of a review conducted by OCC's Recovery and Wind-Down 
Working Group. Consistent with the existing authority set forth in 
OCC's current Rules, OCC proposes to replace discussion of the 
potential for heightened capital requirements with a description of 
financial reporting requirements that OCC could impose on its Clearing 
Members to continually verify the financial position of Clearing 
Members. Under OCC Rule 306B, OCC may require any Clearing Member at 
any time to make more frequent net capital computations, filed reports, 
or financial statements for purposes of assessing whether the Clearing 
Member is meeting the financial requirements for Clearing Membership on 
an ongoing basis. The proposal would also provide further description 
of potential wind-down plan transaction structures and update the 
information and data set forth in Chapter 5. Furthermore, Chapter 5 of 
the proposed RWD Plan would eliminate reference to the ``Material 
Agreements Policy'' and replace it with the ``Agreement Review 
Policy.'' This

[[Page 41699]]

change solely reflects the updated title of the document and does not 
impact the contents of the policy. Finally, the proposal would 
incorporate several non-substantive technical amendments to Chapter 5, 
including, but not limited to, updating targeted reductions in force, 
modifying the use and location of certain defined terms for improved 
readability and using initial capitalization for the term ``Clearing 
Member'' consistently throughout the document.
    Chapter 6: RWD Plan Governance. Chapter 6 details the governance of 
OCC's RWD Plan. OCC developed the governance structure for approval of 
the RWD Plan as well as maintenance of the Plan on an on-going basis. 
The proposal would make non-substantive edits to the numbering set 
forth in Chapter 6.
Hypothetical Stress Scenarios
    OCC is proposing to move the Detailed Stress Scenarios in Appendix 
B into Appendix A. The RWD Plan currently identifies four hypothetical 
stress scenarios and describes how OCC would respond to each scenario. 
As described in more detail below, the proposed RWD Plan would 
generally retain the same hypothetical stress scenarios with several 
updates and amendments that were identified during OCC's annual review 
of the Plan. An overview of the updates and amendments to each scenario 
is included below. To remind potential users of the Plan of OCC's 
escalation procedures, each scenario has been revised to include a 
description of the escalation to OCC's business continuity team. The 
changes to the hypothetical stress scenarios would also incorporate 
certain grammatical and non-substantive technical amendments, including 
renumbering of the relevant sections and using initial capitalization 
for the term ``Clearing Member'' consistently throughout the document.
    Hypothetical Scenario 1. The proposed updates to the first 
hypothetical scenario would incorporate recent data for several areas, 
including: (i) the highest and second highest stressed Clearing Member 
liquidity demands; (ii) the size and cash component of the Clearing 
Fund; and (iii) the two largest Clearing Fund contributions made by 
Clearing Members. The proposed revisions to Hypothetical Scenario 1 
would also 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. OCC believes 
that these changes would better reflect its current operations. The 
proposal would also incorporate several grammatical and technical 
amendments, including adjusting the timing of several events so that 
the scenario more accurately reflects OCC's current processes and 
procedures and aligning the descriptions of the trigger events and 
enhanced risk management tools with the changes described above.
    Hypothetical Scenario 2. The proposed revisions to the second 
hypothetical scenario would clarify several roles and responsibilities 
to ensure that the descriptions set forth in this scenario align with 
OCC's current practices and procedures. These changes would clarify 
that OCC's Head of Default Management or a delegate makes a 
recommendation to the OCEO, which authorizes the enactment of 
alternative settlement procedures and an extension of settlement. The 
proposal would also note that OCC's Legal Department is responsible for 
drafting an information memo notifying Clearing Members of alternate 
settlement procedures. The proposed revisions to the second 
hypothetical scenario would also revise the assumptions in the scenario 
to contemplate further communications between OCC and the hypothetical 
settling bank involved in the scenario and to contemplate the potential 
stock loan activity of Clearing Members. In addition, the proposed RWD 
Plan would update the settlement time in hypothetical scenario 1 and 2 
of the existing Plan from 9:00 a.m. Central Time to 8:00 a.m. Central 
Time (9:00 a.m. Eastern Time) to comply with OCC's existing Rule 101 
definition of ``Settlement Time.'' Finally, the proposal would 
incorporate several grammatical and technical amendments, including 
aligning the descriptions of the trigger events and enhanced risk 
management tools with the changes described above.
    Hypothetical Scenario 3. The proposed amendments to the third 
scenario would amend the assumptions to clarify that the scenario 
includes stock loan activity and add assumptions specifying that OCC's 
ability to communicate with its Clearing Members would not be impacted 
and that OCC would engage in any necessary regulatory communications 
and required regulatory reporting. The proposed revisions would also 
clarify several roles and responsibilities to help ensure that the 
descriptions set forth in this scenario align with OCC's current 
practices and procedures. These changes would include clarifying that 
OCC's Collateral Services Department would be responsible for 
identifying and escalating issues with the normal processing of pledged 
collateral and stock loan activity. The description of Scenario 3 would 
also be expanded to describe several additional notifications and 
communications that OCC would expect to make in connection with this 
scenario (e.g., notices to Clearing Members, Depository and 
Correspondent Clearing Corporation). Finally, the proposal would also 
incorporate several grammatical and technical amendments, including 
aligning the description of the trigger events with the changes 
described above.
    Hypothetical Scenarios 4A and 4B Consolidated Into Scenario 4. 
Presently, the RWD Plan contemplates a hypothetical Scenario 4A and a 
separate hypothetical scenario 4B. Each Scenario contemplates general 
business and operational risks presented to OCC but with different 
assumptions. Namely, Scenario 4A involves assumptions related to a 
cyberattack, and Scenario 4B involves assumptions related to a Clearing 
Member default and decreased OCC clearing volumes. The proposed 
revisions would streamline this structure by consolidating Scenarios 4A 
and 4B into a single Scenario 4 and would create greater efficiencies. 
Like current Scenarios 4A and 4B, Scenario 4 would continue to 
contemplate default and general business risks to OCC. Specifically, it 
would merge aspects of the current scenarios to contemplate a Clearing 
Member default coupled with a cyberattack that occurs while OCC is 
carrying out its default management processes.
    In addition, the proposal would also make certain changes to the 
assumptions that are currently part of Scenarios 4A and 4B. For 
example, regarding certain of the assumptions in both Scenario 4A and 
4B, the changes to create Scenario 4 would make the assumptions less 
specific by deleting unnecessary details about the hypothetical event 
and the proposal would incorporate several grammatical and technical 
amendments, including aligning the description of the trigger events 
with the changes described above. Regarding what is currently Scenario 
4A, the proposal would modify the current assumptions to increase the 
amount of the hypothetical loss and to reference OCC's current Early 
Warning Threshold and Target Capital Requirements without using 
specific amounts that are subject to change. Regarding what is 
currently Scenario 4B, the proposed revisions would modify the 
assumptions in the scenario to contemplate the default of a mid-sized 
Clearing Member, assume that the collateral available to OCC from the 
Clearing Member would be less than the

[[Page 41700]]

settlement amount that gives rise to the Clearing Member default, and 
remove current assumptions related to substantial declines in OCC 
clearing volume and to cost-reducing measures taken by OCC. The changes 
would also update the accounting values described in the scenario to 
reflect current requirements and the effects of the Clearing Member 
default on those values and OCC's capital.
(2) Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act \13\ and the rules thereunder applicable to OCC. 
Section 17A(b)(3)(F) of the Act \14\ requires, in part, that the rules 
of a clearing agency be designed, in general, to protect investors and 
the public interest. The RWD Plan is designed to enhance OCC's ability 
to address extreme stresses or crises by establishing a framework that 
OCC could use to navigate its Enhanced Risk Management Tools and 
Recovery Tools, with the aim of maintaining OCC's viability as a going 
concern. In the event that OCC's recovery efforts are not successful, 
the RWD Plan would seek to improve the possibility that a resolution of 
OCC's operations can be conducted in an orderly manner, thereby 
minimizing the disruption to Clearing Members and market participants 
and improving the likelihood of minimizing the risk of contagion to the 
broader financial system. OCC seeks to add a safeguard against a 
premature wind-down by replacing the current WDP Trigger Events with 
one new WDP Trigger Event, i.e., a determination by the OCC Board of 
Directors that recovery efforts have not been, or are unlikely to be, 
successful in returning OCC to viability as a going concern. OCC 
believes this proposed change would eliminate the possibility of 
triggering a wind-down by meeting the technical requirements of an 
existing WDP Trigger Event, even in cases where recovery may still be 
possible. The RWD Plan also contains information that changes 
frequently, e.g., information related to OCC's internal departments, 
personnel, and operations that is intended to provide background and 
context for parties that are reviewing the RWD Plan, but that is not 
essential to the RWD Plan guidelines or technical functioning of the 
RWD Plan. Accordingly, OCC is proposing to remove this information from 
the RWD Plan and maintain a separate RWD Plan Supporting Information 
document outside of the RWD Plan. Lastly, OCC is seeking to streamline 
its detailed stress scenarios by consolidating Scenarios 4A and 4B into 
a single Scenario 4. The new proposed Scenario 4 would continue to 
contemplate default and general business risks to OCC, but offer 
efficiencies and streamline the process. OCC believes the updates to 
the RWD Plan would improve the possibility of OCC's ability to 
effectively address a variety of potential risks, thereby improving 
OCC's ability to ultimately maintain market and public confidence 
during a time of unprecedented stress. In this regard, OCC believes the 
proposed rule change ultimately would protect investors and the public 
interest in a manner consistent with Section 17A(b)(3)(F) of the 
Act.\15\
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    \13\ 15 U.S.C. 78q-1.
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC also believes that the proposed rule change is consistent with 
Exchange Act Rule 17Ad-22(e)(3)(ii), which requires each covered 
clearing agency to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to include 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.\16\ As stated above, the 
RWD Plan would describe OCC's plans to recover from, or wind-down its 
operations as a result of, severe stress brought about by credit 
losses, liquidity shortfalls, losses from general business risk or 
other losses.\17\ The proposed updates would improve the accuracy of 
the inventory of Enhanced Risk Management Tools set forth in the RWD 
Plan. Further, the proposed changes to the RWD Plan would update and 
improve the information that a resolution authority may reasonably 
anticipate as necessary for purposes of recovery and orderly wind-down 
planning.\18\ In this regard, OCC believes its proposed rule change is 
consistent with Rule 17Ad-22(e)(3)(ii).\19\
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    \16\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \17\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \18\ See 81 FR at 70810.
    \19\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The proposed rule change is not inconsistent with the existing 
rules of OCC, including any other rules proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \20\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC does not 
believe that the proposed rule change would impact or impose any burden 
on competition.\21\ The proposed updates to the RWD Plan are the result 
of OCC's annual review and update process. None of the proposed updates 
to the RWD Plan would affect Clearing Members' access to OCC's services 
or impose any new, direct, or indirect burdens on Clearing Members. 
Accordingly, the proposed rule change would not unfairly inhibit access 
to OCC's services or disadvantage or favor any particular existing or 
new user in relationship to another existing or new user.
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    \20\ 15 U.S.C. 78q-1(b)(3)(I).
    \21\ 15 U.S.C. 78q-1(b)(3)(I).
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    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impact or impose a burden on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    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 proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 41701]]

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. 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 a.m. and 3 
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-Rules48T.
    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 July 18, 2023.

    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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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13560 Filed 6-26-23; 8:45 am]
BILLING CODE 8011-01-P