Document ID: SEC-2019-1461-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2019-10-09T04:00Z

[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54239-54243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22025]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87207; File No. SR-OCC-2019-008]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Establish a Regulatory 
Committee of The Options Clearing Corporation's Board of Directors

October 3, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 54240]]

(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on September 25, 2019, the Options Clearing 
Corporation (``OCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as 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

    The proposed rule change would establish the OCC Regulatory 
Committee (``Committee'') and adopt the OCC Regulatory Committee 
Charter (``Committee Charter''). The Committee Charter is being 
submitted in its entirety as new rule text. A corresponding proposed 
change to OCC's Article III, Section 4 of the OCC By-Laws (``By-Laws'') 
and the OCC Board of Directors Charter and Corporate Governance 
Principles (``Board Charter'') would be adopted in to list the 
Committee among the other OCC Board of Directors (``Board'') 
committees. The proposed rule change does not require any changes to 
the text of OCC's Rules.
    The proposed rule change is available on OCC's website at https://www.theocc.com/about/publications/bylaws.jsp. All terms with initial 
capitalization that are not otherwise defined herein have the same 
meaning as set forth in the OCC By-Laws and Rules.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's public 
website: http://optionsclearing.com/about/publications/bylaws.jsp.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the 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), 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
Background
    OCC is filing this proposed rule change to establish a Board-level 
Regulatory Committee that would: (a) Operate separately from the 
current OCC Audit Committee; (b) complement the work done by 
independent consultants on regulatory compliance matters; (c) take over 
and continues the work done by the current OCC Regulatory Oversight 
Working Group (``ROWG''), including but not limited to OCC's efforts to 
demonstrate compliance with applicable laws and regulations; and (d) be 
solely comprised of OCC's Public Directors, as that term is defined in 
the Board Charter.\4\ For the avoidance of doubt, upon approval of the 
proposed Committee Charter, the ROWG will cease to exist.
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    \4\ OCC's Board Charter can be found on OCC's website: https://www.theocc.com/about/corporate-information/board-charter.jsp.
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    The contents of the proposed rule change are summarized as follows.
Regulatory Committee Charter
Committee Purpose
    The proposed Committee Charter would state that the OCC Board has 
established the Committee to assist the Board in overseeing OCC's 
efforts to demonstrate compliance with its regulatory obligations with 
particular attention to the OCC Regulatory Compliance Oversight Group 
(``RCOG''), a working group established by OCC management. The proposed 
Committee Charter would explain that given OCC's designation as a 
Systemically Important Financial Market Utility, the Board believes it 
is critical that OCC demonstrate its continued strong commitment to 
compliance with applicable regulations in the conduct of its core 
clearance and settlement activities. The proposed Committee Charter 
would also state that nothing in the Committee Charter alters the 
existing roles and responsibilities of other Board Committees.
Committee Membership and Organization
Composition
    The proposed Committee Charter would provide that the Committee 
will be comprised of all OCC Public Directors, as that term is defined 
in the Board Charter. The proposed Committee Charter would state that 
(i) unless a chair of the Committee (``Chair'') is elected by the 
Board, the members of the Committee will designate a Chair by majority 
vote of the full membership, and (ii) in the absence of the Chair at 
any meeting of the Committee, those members of the Committee present 
would designate a Committee member to serve as acting Chair. The 
proposed Committee Charter would explain that in the event of a vacancy 
on the Committee, the Committee would continue to undertake its 
responsibilities, so long as the remaining Committee members are 
capable of satisfying the quorum requirement.
Meetings
    The proposed Committee Charter would provide that the Committee 
will meet at least quarterly, or more frequently, as deemed necessary 
by the Committee in order to fulfill its purposes as described in the 
Committee Charter. The proposed Committee Charter would additionally 
provide that other meetings may be called by the Chair as circumstances 
dictate. The proposed Committee Charter would explain that the Chair or 
designee, in consultation with OCC management, as well as the OCC 
Corporate Secretary, would establish the agenda for Committee meetings. 
The proposed Committee Charter would state that members of the 
Committee may ask members of OCC management or others to attend the 
meeting and provide pertinent information as necessary. The proposed 
Committee Charter would provide that the OCC Chief Compliance Officer, 
or one of his or her deputies if the Chief Compliance Officer in unable 
to attend, shall attend all meetings of the Committee. The proposed 
Committee Charter would provide that the Committee may call executive 
sessions from which members of management and invited guests, and other 
Committee members to the extent the Chair determines there exists an 
actual or potential conflict of interest, may be excluded. The proposed 
Committee Charter would explain that the Chair or acting Chair, as 
applicable, would serve as Chair for the executive session. The 
proposed Committee Charter would explain that members of the Committee 
may participate in meetings by means of a conference telephone call or 
other means of communication that allows all participants in the 
meeting to hear each other.
Quorum
    The proposed Committee Charter would state that a simple majority 
of the

[[Page 54241]]

Committee members would constitute a quorum for the transaction of 
business.
Minutes and Reports
    The proposed Committee Charter would require that the Committee 
maintain minutes of all Committee meetings. The proposed Committee 
Charter would explain that the Chair or acting Chair, as applicable, 
would determine whether separate minutes of executive sessions are to 
be recorded as well as determined by the level of detail to be included 
in such minutes, taking into consideration the sensitivity of the 
matters to be discussed and the possibility that candor might be 
limited if detailed minutes are recorded. The proposed Committee 
Charter would provide that meeting minutes would reflect that an 
executive session was convened and broadly describe the topic(s) 
discussed. The proposed Committee Charter would require that minutes of 
Committee meetings are circulated to the Board.
    The proposed Committee Charter would provide that the Committee 
would make such reports to the Board as deemed necessary or advisable 
and that the Chair is responsible for ensuring that important issues 
discussed at Committee meetings are reported timely to the Board. The 
proposed Committee Charter would require that on an annual basis, the 
Committee would provide a report to the Board summarizing its 
activities during the previous year.
Committee Authority
    The proposed Committee Charter would provide that subject to the 
direction of the Board, the Committee is authorized to act on behalf of 
the Board with respect to any matter necessary or appropriate to the 
accomplishment of the purpose and responsibilities set forth in the 
Committee Charter. The proposed Committee Charter would further provide 
that in discharging its role, the Committee may inquire into any matter 
it considers appropriate to carry out its purpose and responsibilities, 
with access to all books, records, facilities and personnel of OCC and 
that the Committee may confer with management and other employees of 
OCC to the extent it may deem necessary or appropriate to fulfill its 
duties.
    The proposed Committee Charter would provide that the Committee 
would have the authority to hire specialists or rely upon other outside 
advisors, including legal advisors, to assist it in carrying out its 
activities. The proposed Committee Charter would also state that the 
Committee would have the authority to approve the fees and retention 
terms applicable to such advisors and specialists. The proposed 
Committee Charter would require that the Committee's annual report to 
the Board reference any engagement of specialists or outside advisors, 
including any fees and expenses associated therewith.
Committee Functions and Responsibilities
    The proposed Committee Charter would state that the Committee's 
role is one of oversight, and that it remains the responsibility of the 
RCOG to identify, manage, monitor, and report on OCC's activities that 
demonstrate compliance with regulatory obligations.
    The proposed Committee Charter would provide that the Committee 
would have the following functions and responsibilities in discharging 
its oversight role:
     The Committee would oversee, and assist the Board in 
evaluating, OCC's efforts to demonstrate compliance with applicable 
laws and regulations, including banking and securities laws and other 
applicable regulatory guidance and standards, through regular reporting 
to the Committee by the RCOG.
     The Committee would oversee OCC management's action plans 
to achieve compliance with any proposed new regulation to which OCC is 
subject.
     The Committee would oversee work performed by any 
independent compliance auditor(s) engaged by OCC and approved by the 
Board.
     The Committee would make recommendations to the Board as 
it deems appropriate, and as the Board may request.
     The Committee would meet with OCC's regulators, with or 
without OCC management, as the Committee deems necessary, in order to 
discuss OCC's efforts to enhance its regulatory compliance posture.
     The Committee would review any annual regulatory 
compliance reports provided by OCC management.
     The Committee would review any final exam report letter 
received from OCC's regulators. Additionally, the Committee would 
review any OCC response to an exam report letter received from OCC's 
regulators. The Committee would receive a briefing on OCC's action 
plans, if any, in response to items identified in any final exam report 
letter received from OCC's regulators.
     The Committee would perform such other activities 
consistent with the Board Charter and By-Laws and applicable legal and 
regulatory requirements, as the Committee deems necessary or 
appropriate.
Review Cycle
    The proposed Committee Charter would provide that the Committee 
review the Committee Charter at least once every twelve months and 
submit the Committee Charter to the Board for approval, with such 
changes, if any, as the Board deems advisable. The proposed Committee 
Charter would additionally provide that the Board would have the 
authority to diminish or eliminate the duties and obligations of the 
Committee as of the date of any final report of any independent 
compliance auditor, but in any case, no sooner than three years from 
the initial approval of the Committee Charter, subject to the approval 
of the Commission.
By-Laws
    The proposed rule change would also adopt an amendment to the OCC 
By-Laws to include reference to the Regulatory Committee in Article 
III, Section 4 to list the Committee among the other OCC Board 
committees. The proposed By-Law provision would state that the Board 
shall appoint the Committee, having the powers and duties set forth in 
the By-Laws and Rules and as delegated by the Board. The proposed By-
Law provision would state that the Committee members will be all OCC 
Public Directors. The proposed By-Law provision would state that the 
chairman of the Committee shall be designated by the Board or by a 
majority vote of the Committee membership from among the members of the 
Committee.
Board Charter
    The proposed rule change would also adopt an amendment to the 
Committees section of the Board Charter to include reference to the 
Committee among the other Board committees. The proposed Board Charter 
amendment would state that the Board has established Board-level 
committees including: Audit, Compensation and Performance, Governance 
and Nominating, Regulatory, Risk and Technology.
2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \5\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(A) of the Act \6\ requires, among other things, that a 
clearing agency be so organized and have the capacity to be able to 
facilitate the prompt and

[[Page 54242]]

accurate clearance and settlement of securities transactions and 
derivatives agreements, contracts, and transactions for which it is 
responsible. OCC believes the proposed rule change is consistent with 
this requirement because the change would help ensure OCC has 
governance arrangements that are organized to support its ability to 
promptly and accurately serve Clearing Members and the markets for 
which it clears. For example, the proposed Committee Charter would 
provide that, among other things, the Committee would oversee OCC 
management's action plans to achieve compliance with any proposed new 
regulation to which OCC is subject.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(A).
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    OCC believes the proposed rule change is also consistent with the 
requirements in Rule 17Ad-22(e)(2)(i) \7\ and (v) \8\ to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that are 
clear and transparent and that specify clear and direct lines of 
responsibility. The proposed rule change is also consistent with the 
requirement to have governance arrangements that specify clear and 
direct lines of responsibility because the Committee Charter would 
provide a clear statement of the functions and responsibilities of the 
Committee. For example, the proposed Committee Charter would provide 
that, among other things, the Committee would make recommendations to 
the Board as it deems appropriate, and as the Board may request. 
Additionally, the proposed Committee Charter would provide that nothing 
in the Committee Charter alters the existing roles and responsibilities 
of other Board Committees. Finally, including the Committee in the By-
Laws and Board Charter provides for consistency with how other 
committees of the Board are represented in the By-Laws and Board 
Charter.
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    \7\ 17 CFR 240.17Ad-22(e)(2)(i).
    \8\ 17 CFR 240.17Ad-22(e)(2)(v).
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    OCC also believes that the proposed rule change is consistent with 
the requirement in Rule 17Ad-22(e)(3)(i) \9\ to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to maintain a sound risk management framework for managing 
legal, credit, liquidity, operational, general business, investment, 
custody and other risks that arise in or are borne by OCC, including 
risk management policies, procedures, and systems that are designed to 
identify, measure, monitor, and manage such risks and that are subject 
to review on a periodic basis and approved annually by the Board. For 
example, the Committee Charter would provide that, among other things, 
the Committee would oversee, and assist the Board in evaluating, OCC's 
efforts to demonstrate compliance with applicable laws and regulations, 
including banking and securities laws and other applicable regulatory 
guidance and standards, through regular reporting to the Committee by 
the RCOG. Additionally, the Committee Charter would provide that the 
Committee will review the Committee Charter at least once every twelve 
months and submit the Committee Charter to the Board for approval, with 
such changes, if any, as the Committee deems advisable.
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    \9\ 17 CFR 240.17Ad-22(e)(3)(i).
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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

    OCC does not believe that the proposed rule change would impact or 
impose any burden on competition.\10\ The proposed rule change 
addresses one charter used in OCC's governance structure, and all 
Clearing Members would be equally subject to these governance 
arrangements. Consequently, the Committee Charter, By-Laws and Board 
Charter would not provide any Clearing Member with a competitive 
advantage over any other Clearing Member. Further, the proposed rule 
change would not affect Clearing Member's access to OCC's services or 
impose any direct burdens on Clearing Members. Accordingly, the 
proposed rule change would not unfairly inhibit access to OCC's 
services or disadvantage or favor any particular user in relationship 
to another user.
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    \10\ 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 on the proposed rule change 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 the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 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-2019-008 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-2019-008. 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

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inspection and copying at the principal office of OCC and on OCC's 
website at https://www.theocc.com/about/publications/bylaws.jsp.
    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-2019-008 and 
should be submitted on or before October 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jill M. Petersen,
Assistant Secretary.
[FR Doc. 2019-22025 Filed 10-8-19; 8:45 am]
 BILLING CODE 8011-01-P