Document ID: SEC-2018-0078-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2018-01-16T05:00Z

[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2271-2275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00530]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82473; File No. SR-OCC-2017-011]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Related to The Options 
Clearing Corporation's Model Risk Management Policy

January 9, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 28, 2017, 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 by OCC would formalize and update OCC's 
Model Risk Management Policy (``MRM Policy'' or ``Policy'') in 
connection with multiple requirements applicable to OCC under Rule 
17Ad-22, including Rules 17Ad-22(b)(2) concerning margin requirements 
and (b)(4) concerning model validation as well as Rules 17Ad-22(e)(2) 
concerning governance, (e)(3) concerning frameworks for the 
comprehensive management of risks, and (e)(4)(vii), (e)(6)(vii) and 
(e)(7)(vii) concerning model validation.\3\ The MRM Policy is included 
as confidential Exhibit 5 of the filing. The Policy is being is 
submitted without marking to improve readability as it is being 
submitted in its entirety as new rule text.
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    \3\ 17 CFR 240.17Ad-22(b)(2), (b)(4), (e)(2)-(4), and (e)(6)-
(7).
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    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 OCC By-Laws and Rules.\4\
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    \4\ 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's use of models inherently exposes OCC to model risk.\5\ To 
help manage this risk, OCC is proposing to formalize and update its MRM 
Policy, which sets forth the general framework for OCC's model risk 
management practices. The MRM Policy would apply to all Risk Models \6\ 
used by OCC to determine, quantify or measure actual or potential risk 
exposures or risk mitigating actions. The purpose of the MRM Policy is 
to ensure that OCC appropriately manages its model risks by clearly 
outlining the roles and responsibilities of OCC's (1) Quantitative Risk 
Management department (``QRM''), (2) Model Validation Group (``MVG''), 
and (3) Model Risk Working Group (``MRWG'') in model development, 
implementation, use, monitoring, and validation. The provisions of the 
MRM Policy addressing these core elements are described in greater 
detail below and are designed to ensure that OCC uses an appropriate 
approach to managing model risk. OCC notes that the MRM Policy is part 
of a broader framework regarding model risk management that is designed 
to further the appropriate

[[Page 2272]]

design, validation and operation of OCC's Risk Models.\7\
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    \5\ Under the proposed Policy, ``Model Risk'' would be defined 
as the potential for adverse consequences from decisions based on 
incorrect or misused model outputs.
    \6\ Under the proposed Policy, ``Risk Models'' would be defined 
as any quantitative method or approach that applies statistical, 
economic, financial, or mathematical theories, techniques, and/or 
assumptions to process inputs into quantitative estimates, 
forecasts, or projections. A Risk Model may also be a quantitative 
method with inputs that are qualitative or based on business 
judgment. Under the Policy, the term Risk Models would be used 
specifically in the context of credit risk models, margin system and 
related models, and liquidity risk models.
    \7\ For example, OCC's Margin Policy is also part of OCC's 
framework regarding model risk management in that it is designed to 
be consistent with the requirement in Rule 17Ad-22(e)(6)(vii) that 
OCC's policies and procedures provide for a risk-based margin system 
that requires a margin model validation not less than annually. See 
17 CFR 240.17Ad-22(e)(6)(vii). OCC recently filed a proposed rule 
change with the Commission concerning the formalizing and updating 
of its Margin Policy, which is currently pending Commission review. 
See Securities Exchange Act Release No. 82355 (December 19, 2017), 
82 FR 61060 (December 26, 2017) (SR-OCC-2017-007).
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Model Risk Management Policy
Introduction
    The MRM Policy would apply to all Risk Models used by OCC to 
determine, quantify or measure actual or potential risk exposures or 
risk mitigating actions. As noted above, Risk Models are defined under 
the Policy to be credit risk models (e.g., models concerning OCC's 
Clearing Fund), margin system and related models (e.g., OCC's System 
for Theoretical Analysis and Numerical Simulations or ``STANS''), and 
liquidity risk models.
    The MRM Policy also would clarify that OCC considers a Risk Model 
to be any quantitative method or approach that applies statistical, 
economic, financial, or mathematical theories, techniques, and/or 
assumptions to process inputs into quantitative estimates, forecasts, 
or projections. A Risk Model can also be a quantitative method with 
inputs that are qualitative or based on business judgment.\8\ The MRM 
Policy also would define ``Methodology'' to mean a collection of Risk 
Models used to estimate financial risk exposures.
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    \8\ See SR Letter 11-7, ``Guidance on Model Risk Management,'' 
Board of Governors of the Federal Reserve System (April 4, 2011), 
and OCC Bulletin 2011-12, ``Sound Practices for Model Risk 
Management,'' The Office of the Comptroller of the Currency (April 
4, 2011).
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    To guide activities in this part of OCC's model risk framework, OCC 
shall primarily follow the Supervisory Guidance on Model Risk 
Management issued by the Board of Governors of the Federal Reserve 
System and the Office of the Comptroller of the Currency (April 4, 
2011), as well as any applicable regulatory requirements.\9\
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    \9\ Id.
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    The MRM Policy sets forth a governance structure for the allocation 
of roles and responsibilities for Risk Model development, 
implementation, use, monitoring, and validation among different groups 
and individuals, including OCC's Board, the Risk Committee of the Board 
(``Risk Committee''), management, and other OCC staff. These roles and 
responsibilities are described in further detail below.
Quantitative Risk Management
    Under the proposed Policy, the Executive Vice President of OCC's 
Financial Risk Management department (``EVP-FRM'') would be responsible 
for (i) having staff with the requisite knowledge, skills, and 
expertise to perform model risk management activities necessary to the 
staffs' responsibilities and (ii) overseeing Risk Model development, 
implementation, monitoring, and use.
Risk Model Development
    Under the proposed Policy, Risk Model development and 
implementation shall be conducted by QRM unless a third-party is 
otherwise engaged by QRM to develop a Risk Model. Where QRM does not 
develop a Risk Model, it shall oversee the development, implementation, 
and monitoring in accordance with the Risk Model Development Procedure.
    The design, theory, and logic of each Risk Model used by OCC shall 
be described in a document maintained by QRM and shall take into 
consideration published literature and industry best practice, where it 
is available. The document shall include a description of the Risk 
Model, the intended purpose of the Risk Model, the motivation of the 
Risk Model assumptions, the test data supporting the Risk Model, the 
Risk Model limitations, and other details as outlined in OCC's 
Maintenance and Periodic Review of Methodology Procedure. QRM also 
would be responsible for describing each Risk Model Methodology in a 
Methodology document. Requirements for Methodology documentation shall 
be contained in the Maintenance and Periodic Review of Methodology 
Procedure. The EVP-FRM also shall review and, if appropriate, approve 
the Risk Model documentation. The EVP-FRM may delegate the 
responsibility for reviewing and approving such Risk Model 
documentation to the First Vice President, Quantitative Risk 
Management, who shall provide notice of any approval to the EVP-FRM.
Risk Model Implementation
    Under the proposed MRM Policy, QRM would review, evaluate, and 
propose model changes (to include Model Defects,\10\ enhancements, and/
or Decommissioning \11\ of a Risk Model) in accordance with the Model 
Implementation Procedure and OCC's Legal Services Policy (and related 
procedures). New products that are non-standard equity options/futures 
shall be reviewed by QRM according to the Model Implementation 
Procedure for determination as to whether or not a new Risk Model is 
required or if the use of an existing Risk Model is fit for purpose. 
QRM shall recommend approval to OCC's Model Risk Working Group 
(``MRWG'') \12\ in accordance with the Model Risk Working Group 
Procedure subsequent to effective challenge and approval by MVG.
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    \10\ Under the proposed Policy, ``Risk Model Defect'' would be 
defined as an error, flaw, failure, or fault in a computer program 
or system that causes a Risk Model to produce an incorrect or 
unexpected result, or to behave in unintended ways.
    \11\ Under the proposed Policy, ``Decommissioned Model'' would 
be defined as a Risk Model that has been approved by the Risk 
Committee to no longer be used to estimate margin or Clearing Fund 
exposures.
    \12\ The MRWG is responsible for assisting OCC's Management 
Committee in overseeing and governing OCC's model-related risk 
issues and consists of representatives from Financial Risk 
Management, QRM, MVG and Enterprise Risk Management.
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    Under the Policy, QRM shall seek Legal department (``Legal'') 
review to determine if a new Risk Model or change to an existing Risk 
Model requires regulatory filing prior to implementation and use in 
accordance with OCC's Legal Services Policy and related procedures. OCC 
shall not implement or use such Risk Model until Legal provides a 
written notice to QRM and MVG that the Risk Model does not require any 
additional regulatory action prior to implementation and use or, if a 
regulatory filing is required, that all requisite filing and approvals 
are complete.
    Under the proposed Policy, QRM shall implement new Risk Models and 
changes to existing Risk Models in accordance with the Risk Model 
Development Procedure and the Model Implementation Procedure. QRM shall 
be responsible for overseeing the quality assurance and related testing 
procedures required for implementation and/or Decommissioning of a Risk 
Model. Reporting and escalation to the MRWG shall be performed in 
accordance with the Model Risk Working Group Procedure. The MRWG shall 
review and, if appropriate, approve all new Risk Models, Material 
Changes \13\ to Risk

[[Page 2273]]

Models, and proposals for Decommissioning Risk Models prior to 
submitting to the Management Committee for approval.
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    \13\ Under the proposed Policy, ``Material Change'' would be 
defined as a change to a Risk Model that, as deemed by the MRWG, 
requires Risk Committee approval due to its anticipated effect on 
margin or Clearing Fund requirements, impact to Clearing Members, 
volume or open interest, backtesting performance, etc. Material 
Changes may be quantitative or qualitative in nature and take into 
account the likelihood, impact, and context of the change relative 
to Risk Model.
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    Under the Policy, the Management Committee would be responsible for 
reviewing and approving each new Risk Model and each Material Change to 
a Risk Model prior to implementation and use. The Management Committee 
also would review and approve each proposal for Decommissioning a Risk 
Model. Each approval shall constitute a recommendation and be reported 
to the Risk Committee for further review and approval. The Risk 
Committee shall review and, if appropriate, approve each new Risk Model 
and each Material Change prior to implementation and use, except that 
Material Changes to OCC's margin and Clearing Fund methodologies shall 
be referred to the Board for review and, if appropriate, final 
approval, upon a recommendation from the Risk Committee. The Risk 
Committee also shall review and, if appropriate, approve the 
Decommissioning of a Risk Model prior to removing it from the Model 
Inventory.\14\
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    \14\ Under the proposed Policy, ``Model Inventory'' would be 
defined as OCC's database of in-use Risk Models and Methodologies.
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Risk Model Monitoring
    Pursuant to the proposed Policy, QRM shall monitor the use and 
performance of Risk Models according to the Model Backtesting 
Procedure, the Business Backtesting Procedure, and the Margin Model 
Parameter Review and Sensitivity Analysis Procedure. Monitoring shall 
be reasonably designed to determine if the Risk Model is accurate, 
reliable and robust, and to identify limitations. The results of 
monitoring also shall be used to evaluate the behavior of a Risk Model 
over a range of input values. Risk tolerance and associated key risk 
indicators would be maintained by QRM to measure and monitor model 
risk. These risk measures, in addition to monthly Risk Model parameter 
reviews shall be reported to the MRWG and escalated to the Management 
Committee and/or Risk Committee as necessary in accordance with the 
Model Risk Working Group Procedure.
Model Validation Group
    Under the proposed Policy, the First Vice President of MVG shall 
have qualified staff with the requisite knowledge, skills, and 
expertise to perform validations in accordance with the Model 
Validation Procedure. MVG personnel responsible for validation shall be 
independent from, shall not report to, and shall otherwise be free from 
influence from OCC business areas involved in the development, 
implementation and operation of such Risk Models.
Annual Model Validation Plan
    The First Vice President of MVG shall develop and maintain an 
Annual Model Validation Plan (``Annual Plan''). The Annual Plan, as 
defined in the Annual Model Validation Plan Procedure, is a schedule of 
Risk Model validations performed for all Risk Models on the Model 
Inventory. MVG's Annual Plan shall require all Risk Models on the Model 
Inventory to be validated no less than annually (where annually is 
defined as 12 months, or 365 days).
    Pursuant to the proposed Policy, the Risk Committee shall review 
and approve the Annual Model Validation Plan and any removals or 
deferrals from the previously approved Annual Model Validation Plan 
based on recommendations from the Chief Risk Officer (``CRO''). In 
addition, the CRO shall provide a quarterly report to the Risk 
Committee that provides information on progress against the Annual 
Model Validation Plan.
Model Inventory
    Pursuant to the proposed Policy, MVG shall maintain a complete and 
accurate inventory of Risk Models according to the Model Inventory 
Procedure. To ensure the Model Inventory is complete and accurate, MVG 
shall perform a firm-wide assessment on an annual basis in accordance 
with the Model Identification Procedure.
Independent Model Validation
    Under the proposed Policy, MVG would be responsible for evaluating 
the performance of each Risk Model by performing Independent Model 
Validations \15\ in accordance with the Model Validation Procedure. 
Validations shall be performed according to the Model Validation 
Procedure, and shall include a review of Risk Model performance, 
parameters, and assumptions. Conclusions shall be formulated in the 
form of a ``Model Assessment Report'' and shall be reviewed by QRM upon 
conclusion of the report. MVG shall perform performance monitoring of 
Risk Models according to the Model Performance Monitoring Procedure. 
Findings from validations and performance monitoring shall be 
identified, monitored, remediated, and reported according to the Model 
Findings Management Procedure and presented to the Management Committee 
and Risk Committee in the form of a Model Risk Management Findings 
Dashboard.
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    \15\ Under the proposed Policy, ``Independent Model Validation'' 
would be defined as the evaluation of the performance of a Risk 
Model performed by a qualified person who is free from influence 
from the persons responsible for the development or operation of the 
models being validated.
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    Pursuant to the proposed Policy, MVG shall validate all Risks 
Models prior to implementation and use in accordance with the Model 
Validation Procedure. Additionally, MVG shall review Material Changes 
to Risk Models prior to implementation of the Material Change and in 
accordance with the Model Implementation Procedure. MVG shall assign a 
model rating and model risk level to each Risk Model on the Model 
Inventory. The effectiveness of each Risk Model shall be reported by 
the CRO to the Risk Committee on a quarterly basis.
    In the event a third-party validator is used to validate a Risk 
Model or in the event that OCC uses a third-party to develop a Risk 
Model, MVG shall oversee/perform the validation in accordance with the 
Model Validation Procedure. The CRO shall report results of third party 
validations of OCC's Risk Models and results of validations of third-
party Risk Models to the Management Committee and Risk Committee along 
with any recommended actions and remediation plans associated with such 
validations.
Model Risk Working Group
    Under the proposed Policy, the MRWG would be responsible for 
assisting OCC's Management Committee in overseeing and governing OCC's 
model-related risk issues. The MRWG consists of representatives from 
Financial Risk Management, QRM, MVG and Enterprise Risk Management as 
well as representatives from Legal to provide adequate support and 
Legal expertise as it relates to Model Risk. The MRWG shall serve as a 
resource by overseeing model risk, which includes, without limitation, 
ongoing model risk monitoring activities, approving, or recommending 
approval of new Risk Models and Material Changes to Risk Models, and 
tracking Model Defects and remediation activities as stipulated in the 
Model Risk Working Group Procedure.
Policy Updates Exceptions and Violations
    Finally, pursuant to the proposed Policy, OCC's Management 
Committee shall review and approve the Policy on an annual basis and 
recommend approval of the Policy to the Risk

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Committee. The Management Committee also shall review and approve any 
material changes to the Policy and recommend further approval to the 
Risk Committee.
    The MRM Policy also would contain OCC's standard policy language 
concerning the policy exception and violation processes. Specifically, 
any request for an exception to the Policy must be made in writing to a 
member of the Office of the Executive Chairman,\16\ who is then 
responsible for reviewing the exception request and providing a 
decision in writing to the person requesting the exception. OCC's CRO, 
Chief Compliance Officer, or Chief Audit Executive may also request an 
exception to the Policy directly to the Board. All requests for 
exceptions and their dispositions would be reported to the Board or 
Risk Committee as appropriate no later than its next regularly 
scheduled meeting, in a format approved by the Chair of the Board or 
Risk Committee. In addition, Policy violations shall be reported to 
OCC's Chief Compliance Officer, or, if the violation involves the 
Compliance Department, to the head of Internal Audit or a member of the 
Office of the Executive Chairman.
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    \16\ OCC's Office of the Executive Chairman currently consists 
of the Executive Chairman and Chief Executive Officer, President and 
Chief Operating Officer, and Chief Administrative Officer.
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(2) Statutory Basis
    Section 17A(b)(3)(F) of the Act \17\ requires, among other things, 
that the rules of a clearing agency be designed to assure the 
safeguarding of securities and funds in the custody or control of the 
clearing agency or for which it is responsible, and, in general, to 
protect investors and the public interest. As described in more detail 
above, OCC believes that formalizing the MRM Policy would help to 
ensure that OCC maintains policies and procedures that are reasonably 
designed to provide for a robust model risk management framework, which 
includes controls pertaining to the governance, development, 
implementation, use, monitoring, and Independent Model Validation of 
OCC's Risk Models. In this way, the Policy is intended to further the 
appropriate design, validation and operation of Risk Models within 
OCC's performance of clearance and settlement services. The MRM Policy 
thereby promotes, for example, the development, use and monitoring of 
appropriately conservative margin and Clearing Fund requirements. As a 
result, OCC believes the proposed rule change is designed to assure the 
safeguarding of securities and funds at OCC and, in general, protect 
investors and the public interest consistent with Section 17A(b)(3)(F) 
of the Act.\18\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ Id.
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    Rule 17Ad-22(e)(2) \19\ requires a covered clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that, among other things: (i) Are clear and transparent; (ii) clearly 
prioritize safety and efficiency of the covered clearing agency; (iii) 
support the public interest requirements in Section 17A of the Act \20\ 
applicable to clearing agencies, and the objectives of owners and 
participants; and (iv) specify clear and direct lines of 
responsibility. The proposed Policy would describe, in detail, OCC's 
overall framework for Risk Model governance. This includes establishing 
clear, transparent, and direct responsibilities for OCC's Board, Risk 
Committee, management, and other OCC staff in connection with OCC's 
model risk management framework and how the relevant groups and 
individuals interact. In particular, the proposed Policy is designed to 
establish appropriate governance arrangements for the development, 
implementation, use, monitoring, and Independent Model Validation of 
OCC's Risk Models. OCC believes that these governance arrangements 
prioritize the safety and efficiency of OCC and support the public 
interest requirements of the Act by describing specifies roles, 
responsibilities and requirements for OCC's model testing, monitoring, 
validation, and review processes, thereby helping to ensure that OCC 
maintains a robust framework for managing its model risk.
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    \19\ 17 CFR 240.17Ad-22(e)(2).
    \20\ 15 U.S.C. 78q-1. The public interest requirements in 
Section 17A of the Act include that the ``prompt and accurate 
clearance and settlement of securities transactions, including the 
transfer of record ownership and the safeguarding of securities and 
funds related thereto, are necessary for the protection of investors 
and persons facilitating and acting on behalf of investors.'' See 15 
U.S.C. 78q-1(a)(1)(A).
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    Rule 17Ad-22(e)(3)(i) \21\ requires a covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to, among other things, maintain a sound 
risk management framework for comprehensively managing its risks, which 
includes risk management policies, procedures, and systems designed to 
identify, measure, monitor, and manage such risks and that are subject 
to review on a specified periodic basis and approved by its Board 
annually. OCC believes the proposed Policy is consistent with Rule 
17Ad-22(e)(3)(i) \22\ because it is an essential component of OCC's 
overall framework for comprehensively managing its risks, which 
includes model risk. Specifically, OCC believes the proposed Policy is 
reasonably designed to identify, measure, monitor, and manage model 
risks by providing a sound framework for defining, developing, 
maintaining, and validating OCC's Risk Models and for making any 
changes necessary to ensure those Risk Models continue to address 
relevant risks appropriately. As noted above, the proposed Policy 
provides that OCC's QRM staff, as part of model risk management and 
model development, are responsible for monitoring model performance on 
a continuous basis. Specifically, QRM staff would monitor OCC's Risk 
Models to determine whether such models perform as intended and are 
accurate, reliable and robust and to identify any Risk Model 
limitations. The results of monitoring also shall be used to evaluate 
the behavior of a Risk Model over a range of input values. Moreover, 
the proposed Policy describes MVG's obligations for the independent 
validation of new Risk Models, Material Changes to Risk Models, and the 
annual validation of Risk Models.
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    \21\ 17 CFR 240.17Ad-22(e)(3)(i).
    \22\ Id.
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    Rules 17Ad-22(e)(4)(vii), (e)(6)(vii) and (e)(7)(vii) \23\ require 
a covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to perform 
independent model validations on its credit risk models, margin models, 
and liquidity risk models not less than annually or more frequently as 
may be contemplated by the clearing agency's risk management framework. 
OCC believes the proposed rule change is consistent with Rules 17Ad-
22(e)(4)(vii), (e)(6)(vii) and (e)(7)(vii) \24\ because the Policy 
would require OCC to perform an Independent Model Validation of its 
Risk Models on at least an annual basis, or more frequently as needed, 
and prior to the implementation of new Risk Models or Material Changes 
to Risk Models. OCC also believes that the proposed rule change is 
consistent with the requirement in Rule 17Ad-22(b)(4) \25\ that OCC's 
policies and procedures be reasonably designed to provide for an annual 
model validation of OCC's margin models, that evaluates their 
performance and the related

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parameters and assumptions, by a qualified person who is free from 
influence from the persons responsible for the development or operation 
of the models being validated. As noted above, the proposed Policy 
provides that OCC's model validation staff reviews each Risk Model in 
OCC's inventory, including margin models, at least annually and such 
staff is removed from the primary development path of a model to 
preserve its ability to provide an independent assessment.
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    \23\ 17 CFR 240.17Ad-22(e)(4)(vii), (e)(6)(vii) and (e)(7)(vii).
    \24\ Id.
    \25\ 17 CFR 240.17Ad-22(b)(4).
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    Finally, Rule 17Ad-22(b)(2) \26\ requires, in part, that a 
registered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to use risk-based 
models and parameters to set margin requirements. OCC believes that the 
proposed Policy would provide for clear identification of its risk-
based models and thereby promote compliance with the requirement in 
Rule 17Ad-22(b)(2) \27\ that OCC's policies and procedures be 
reasonably designed to use risk-based models and parameters to set 
margin requirements.
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    \26\ 17 CFR 240.17Ad-22(b)(2).
    \27\ Id.
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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 \28\ 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. The proposed rule change addresses OCC's internal 
framework surrounding the governance, development, implementation, use, 
monitoring, and validation of Risk Models. Under this framework, OCC's 
controls regarding the design, use, implementation and validation of 
models, as set forth in the proposed Policy, insofar as they affect 
margin or Clearing Fund requirements, would have an equal impact on all 
Clearing Members. Consequently, the proposed Policy does not provide 
any Clearing Member with a competitive advantage over any other 
Clearing Member. Further, the proposed rule change would not affect any 
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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    \28\ 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 Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2017-011 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-2017-011. 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/components/docs/legal/rules_and_bylaws/sr_occ_17_011.pdf.
    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-2017-011 and 
should be submitted on or before February 6, 2018.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00530 Filed 1-12-18; 8:45 am]
BILLING CODE 8011-01-P