Document ID: SEC-2019-0378-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2019-04-03T04:00Z

[Federal Register Volume 84, Number 64 (Wednesday, April 3, 2019)]
[Notices]
[Pages 13075-13081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06431]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85441; File No. SR-OCC-2019-003]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Require That an Actionable 
Identifier Be Included on Customer and Non-Customer Securities Options 
Trades Other Than Market Maker Trades

March 28, 2019.
    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 March 20, 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

    OCC proposes to amend Rule 401 to require that an ``Actionable 
Identifier'' be included on all customer and non-customer securities 
options trades submitted to OCC for processing, other than Market-Maker 
trades. OCC also proposes to make certain minor, non-substantive 
amendments to Rule 401 to fix an omission and certain references in the 
rule. The proposed changes to OCC's Rules can be found in Exhibit 5 to 
the filing. All terms with initial capitalization that are not 
otherwise defined herein have the same meaning as set forth in the 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.

[[Page 13076]]

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

(1) Purpose
    The Clearing Member Trade Assignment (``CMTA'') process at OCC 
allows a Clearing Member that executed a securities options trade 
(i.e., the Executing Clearing Member) to send the trade directly 
through OCC to another Clearing Member for clearance and settlement 
(i.e., the Carrying Clearing Member).\4\ In particular, under the CMTA 
process, an Executing Clearing Member and a Carrying Clearing Member 
can agree to have securities options trades for customers and non-
customers effected by the Executing Clearing Member sent directly 
through OCC to the Carrying Clearing Member's omnibus accounts at OCC 
for clearance and settlement.\5\ For some time, Clearing Members have 
been concerned with the risks they face in handling trades they cannot 
timely identify in connection with the CMTA process. Clearing Members 
have reached out to OCC to help them address these risks.
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    \4\ See OCC Rule 407. An ``Executing Clearing Member'' is 
defined in Article I, Section 1.E.(12) of the By-Laws as ``a 
Clearing Member, on its own behalf or as the Clearing Member of an 
Introducing Broker that has been authorized by a Carrying Clearing 
Member to direct confirmed trades to be transferred to a designated 
account of the Carrying Clearing Member pursuant to such Clearing 
Members' CMTA arrangement.'' A ``Carrying Clearing Member'' is 
defined in Article I, Section 1.C.(12) of the By-Laws as ``a 
Clearing Member that has authorized an Executing Clearing Member to 
direct the transfer of a confirmed trade to a designated account of 
such Carrying Clearing Member pursuant to a CMTA arrangement.''
    \5\ The term ``customer'' is defined in Article I, Section 1.C. 
(37) of the By-Laws with regard to listed options as ``a person 
having a securities account at a broker or dealer other than a non-
customer of such broker or dealer.'' The term ``non-customer'' is 
defined in Article I, Section 1.N.(1) of the By-Laws effectively as 
``a person that is not a customer of a broker or dealer as defined 
in Rules 8c-1 and 15c2-1 under the Securities Exchange Act of 
1934,'' including ``a Member Affiliate that has consented to having 
its securities account at a Clearing Member treated as a non-
customer account.'' OCC Clearing Members hold omnibus accounts at 
OCC for customer positions (i.e., a ``customers' account'' as 
defined in Article I, Section 1.C.(37) of the By-Laws) and non-
customer positions (i.e., a ``firm account'' as defined in Article 
I, Section 1.F.(6) of the By-Laws).
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    In response to these concerns, OCC proposes to amend Rule 401 to 
require that an ``Actionable Identifier,'' as described below, be 
included on all customer and non-customer securities options trades 
submitted to OCC for processing, other than Market-Makers trades.\6\ 
OCC believes that having an Actionable Identifier on customer and non-
customer trades (other than Market-Maker trades) will allow Clearing 
Members to more timely identify trades transmitted as part of a CMTA 
arrangement as well trades transmitted through the ``give-up'' process 
at exchanges, which is described below.
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    \6\ Rule 401 specifies the information that Clearing Members 
need to include in trades submitted to OCC. As described below, 
Market-Maker trades already include information that allows a 
Clearing Member that clears for Market-Makers to assign the trades 
to individual Market-Maker accounts.
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    OCC also proposes to make certain minor, non-substantive amendments 
to Rule 401 to fix an omission and certain references in the rule. 
These changes to the rule are described at the end of this section.
Background on CMTA and Give-Up Trade Processes
    Governed by Rule 407, the CMTA process was created to allow an 
Executing Clearing Member to seamlessly transfer trades to individual 
customer and non-customer accounts at a Carrying Clearing Member in a 
timely fashion.\7\ For instance, the process allows a customer to hold 
its positions with its preferred prime broker (i.e., Carrying Clearing 
Member), but provides the customer with flexibility to use specialized 
execution brokers (e.g., Executing Clearing Members) that offer cheaper 
or faster executions of trades. An example of such an arrangement is as 
follows:
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    \7\ Certain provisions related to the CMTA process were never 
implemented because they contemplated that the exchanges would adopt 
rules to implement them. In particular, Rule 401(a) provides that 
confirmed trade information submitted to OCC ``include a Customer 
CMTA Indicator, a CMTA Customer Identifier, and an IB Identifier to 
the extent required under applicable Exchange rules.'' Such rules 
were never adopted.

    Customer A maintains a prime brokerage account with Carrying 
Clearing Member that holds all the Customer's securities positions 
(equities, options, etc.). Customer A wishes to trade an option, but 
would prefer using Executing Clearing Member to execute the trade 
due to its trading expertise and cost. Customer A instructs 
Executing Clearing Member to buy the option and ``CMTA'' the trade 
to Customer A's prime brokerage account at Carrying Clearing Member. 
Carrying Clearing Member and Executing Clearing Member have a CMTA 
arrangement at OCC. When Executing Clearing Member executes the 
trade, it includes data on the trade which instructs OCC to settle 
the trade in Carrying Clearing Member's omnibus customer account at 
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OCC once the trade is received by OCC.

    The primary concern raised by Carrying Clearing Members is that 
they could receive customer trades through the CMTA process that they 
may not recognize in a timely manner because the trades do not include 
information that allows them to quickly identify the correct customer 
account at the Carrying Clearing Member or that the trade should have 
been sent to another Carrying Clearing Member. If the Carrying Clearing 
Member is unable to timely identify the correct customer account for 
the trade or that the trade should have been sent to another Carrying 
Clearing Member, it ends up holding the position overnight and is 
responsible for the margin for the position as well as possible 
assignment risk related to the position. Carrying Clearing Members are 
concerned about the potential risks they face in such a situation.
    Executing Clearing Members have expressed concern that they are not 
at fault in such a situation, noting that sometimes the orders they 
execute do not include individual customer or non-customer account 
information. They note that this could happen, for instance, when an 
order is sent to them by an Introducing Broker who wishes to keep the 
customer anonymous for fear of losing the customer business.\8\ This 
also could happen when a trading desk at a Clearing Member Group with 
multiple trading desks uses an Executing Clearing Member to execute a 
non-customer (i.e., proprietary) trade but does not include an account 
identifier on the trade that would allow staff at the Carrying Clearing 
Member within the Clearing Member Group to identify which trading desk 
executed the trade.\9\ Nonetheless, Executing Clearing Members 
recognize and acknowledge that the CMTA process could be further 
streamlined to make it more efficient.
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    \8\ The term ``Introducing Broker'' is defined in Article I, 
Section 1.I.(12) of the By-Laws as ``a broker-dealer or futures 
commission merchant that takes an order for a transaction in a 
cleared contract from a CMTA Customer, executes or arranges for 
another broker-dealer or futures commission merchant to execute such 
transaction and, in the case of an Introducing Broker that is not a 
Clearing Member, arranges for its Clearing Member or the executing 
broker-dealer's or futures commission merchant's Clearing Member to 
direct the resulting confirmed trade to be transferred to a 
designated account of a Carrying Clearing Member.''
    \9\ The term ``Clearing Member Group'' is defined in Article I, 
Section 1.C.(17) of the By-Laws as ``a Clearing Member and any 
Member Affiliates of such Clearing Member.''
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    In addition, OCC understands that Clearing Members are concerned 
about the length of time it can take them to process trades they 
receive through the ``give-up'' process at exchanges.\10\ For

[[Page 13077]]

customer trades under the give-up process, OCC understands that an 
executing broker (e.g., a floor broker) can execute a customer's trade 
on an exchange and give-up (i.e., assign) the trade automatically to 
the customer's clearing broker, which must be an OCC Clearing Member. 
The trade clears directly in the Clearing Member's omnibus customers' 
account at OCC with no reference to the individual customer account, 
which can make it difficult for the Clearing Member to promptly 
determine which customer account to assign the trade.
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    \10\ See, e.g., Nasdaq PHLX LLC (``Phlx'') Rules 1037 and 1052. 
Phlx recently amended its rules regarding give-ups at the exchange. 
See Release No. 34-85136 (February 14, 2019), 84 FR 5526 (February 
21, 2019) (order approving File No. SR-Phlx-2018-72). Under the rule 
change, Phlx clearing members will be allowed to ``opt in'' and 
request that the exchange systematically restrict use of one or more 
of its OCC clearing numbers (each a ``Restricted OCC Number''). Once 
restricted, Phlx member organizations will not be able to give up 
the Restricted OCC Number to clear a Phlx transaction unless the 
Phlx clearing member previously has submitted to the exchange 
written authorization permitting that member organization to give up 
that Restricted OCC Number.
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    Similarly, for non-customer trades under the give-up process, OCC 
understands that a trading desk at a Clearing Member Group with 
multiple trading desks can use an executing broker on an exchange to 
execute a non-customer (i.e., proprietary) trade. The executing broker 
can give-up the Clearing Member on the trade without including account 
identifying information on the trade and the trade clears directly into 
the Clearing Member's omnibus firm account at OCC. Because the trade 
does not include account identifying information, staff at the Clearing 
Member may not be immediately aware of which trading desk account at 
the firm executed the trade. Similarly, OCC also understands that this 
can occur in a joint back office (``JBO'') arrangement at a Clearing 
Member where one of the JBO Participants in such an arrangement uses an 
executing broker on an exchange to execute a non-customer (i.e., 
proprietary) trade.\11\ The executing broker can give-up the Clearing 
Member on the trade without including account identifying information 
on the trade and the trade clears directly into the Clearing Member's 
omnibus firm account at OCC. Because the trade does not include account 
identifying information, staff at the Clearing Member may not be 
immediately aware of which JBO Participant account originated the 
trade.
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    \11\ A ``JBO Participant'' is defined in Article I, Section 
1.J.(1) of the By-Laws as ``a broker-dealer registered with the 
Securities and Exchange Commission that: (i) Maintains a joint back 
office arrangement with a Clearing Member pursuant to the 
requirements of Regulation T promulgated by the Board of Governors 
of the Federal Reserve System; (ii) meets the requirements 
applicable to JBO Participants as specified in Exchange Rules; and 
(iii) consents to having his confirmed trades cleared and positions 
carried in a JBO Participants' account. A JBO Participant shall be 
considered a `Market-Maker' for purposes of these By-Laws and Rules, 
except for purposes of Chapter IV of the Rules, or where the context 
otherwise requires.''
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Actionable Identifier Requirement
    In response to these concerns, OCC proposes to amend Rule 401 to 
require that an Actionable Identifier be included in all customer and 
non-customer securities options trades submitted to OCC for processing, 
other than Market-Maker trades. Although Market-Makers are non-
customers under OCC's By-Laws and Rules and their trades are 
occasionally routed through CMTA arrangements, OCC is not proposing 
that an Actionable Identifier be included on Market-Maker trades 
because such trades already include an identifier that allows Clearing 
Members that clear trades for Market-Makers to identify the Market-
Maker account in which to clear a Market-Maker trade.\12\
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    \12\ Currently, all Market-Maker trades submitted to OCC include 
a three-character identifier that identifies the Market-Maker that 
executed the trade. OCC understands that exchange rules require that 
Market-Maker trades have identifiers on them. See, e.g., Cboe Rule 
6.51. Thus, Market-Maker trades already have their own form of 
identifier. These identifiers are used by Clearing Members and OCC 
to book Market-Maker trades in the correct Market-Maker accounts at 
the Clearing Members.
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    The requirement to include an Actionable Identifier would be added 
as new paragraph (a)(1)(iii) to Rule 401.\13\ Subject to the 
implementation plan for the Actionable Identifier requirement described 
in the Proposed Implementation Plan section below, the new paragraph 
would require the trade information submitted to OCC for a customer or 
non-customer transaction (other than a Market-Maker transaction) to 
include an Actionable Identifier from the Purchasing Clearing Member 
and an Actionable Identifier from the Writing Clearing Member.\14\ 
Because the Actionable Identifier is not necessary for OCC to direct 
trades to the correct omnibus account at Clearing Members, OCC is not 
mandating the information as a condition for acceptance of the trade at 
this point in time. This also will give the industry time to implement 
the requirement without resulting in trades being rejected by OCC if 
the Actionable Identifier were omitted from a trade. Thus, OCC has 
included language in new paragraph (a)(1)(iii) of Rule 401 to clarify 
that even though an Actionable Identifier is required on trades, it is 
not required as a condition for OCC to accept a trade.
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    \13\ Pursuant to a recent rule change, OCC amended Rule 401 to 
make certain clarifying changes to the rule. See Securities Exchange 
Act Release No. 83321 (May 24, 2018), 83 FR 25087 (May 31, 2018) 
(SR-OCC-2018-007) (Notice of Filing of Amendment No. 1 and Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, 
Related to The Options Clearing Corporation's Trade Acceptance and 
Novation Rules).
    \14\ A ``Purchasing Clearing Member'' is defined in Article I, 
Section 1.P.(16) of the By-Laws as ``the Clearing Member acting as, 
or on behalf of, the purchaser of a cleared contract.'' A ``Writing 
Clearing Member'' is defined in Article I, Section 1.W.(3) as ``the 
Clearing Member acting as, or on behalf of, the writer (as defined, 
in the case of, in this Article I, and in the case of BOUNDs, in 
Article XXIV of the By-Laws) of a cleared contract.''
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    An Actionable Identifier would be defined in Interpretation and 
Policy .06 to Rule 401 as either the name, series of numbers, or other 
identifying information assigned by a Purchasing Clearing Member or 
Writing Clearing Member to a customer or non-customer account (other 
than a Market-Maker account) at the Clearing Member that originated the 
options transaction. If the Clearing Member transmits the Actionable 
Identifier to another Clearing Member to clear the transaction as part 
of a CMTA arrangement, the Clearing Member transmitting the Actionable 
Identifier must establish and maintain policies and procedures 
reasonably designed to include sufficient information in the Actionable 
Identifier field regarding the account that originated the trade to 
allow that other Clearing Member to promptly clear the transaction.
    The Actionable Identifier definition is intended to give Clearing 
Members flexibility in determining what they include in the field by 
providing that Clearing Members can use either the name, series of 
numbers, or other identifying information assigned to the individual 
customer or non-customer account at the Clearing Member that originated 
the options transaction.\15\ For instance, with regard to customer 
trades in a CMTA arrangement, an Executing Clearing Member and Carrying 
Clearing Member in such an arrangement can work together to agree upon 
the type of account identifying information to be included in such 
trades to allow staff at the Carrying Clearing Member to promptly 
assign such trades to the correct individual customer accounts. 
Similarly, with regard to non-customer trades in a CMTA arrangement, a 
Carrying Clearing Member can work with trading desks at the Carrying 
Clearing Member and/or its affiliates within a Clearing Member Group to 
establish the type of account identifying information to be included in 
such

[[Page 13078]]

trades by the Executing Clearing Member to allow staff at the Carrying 
Clearing Member to promptly assign such trades to the correct 
individual non-customer accounts. In both of these situations, while 
the obligation to include the Actionable Identifier on a trade is with 
the Executing Clearing Member, coordination and agreement between the 
Executing Clearing Member and Carrying Clearing Member is needed in 
order to assure that the Carrying Clearing Member can use the 
Actionable Identifier on a trade to promptly clear the trade in the 
correct customer or non-customer account.
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    \15\ OCC currently provides Clearing Members with the 
functionality to designate sub-accounts within their omnibus 
customer and firm accounts held at OCC. See Interpretation and 
Policy .04 to Article VI, Section 3 of OCC's By-Laws. To the extent 
Clearing Members start to use sub-accounts to identify which 
individual customer or non-customer account at the Clearing Member 
to book a trade, OCC believes that such sub-account identifying 
information on the trade would satisfy the Actionable Identifier 
requirement in this proposed rule change.
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    The Actionable Identifier requirement also is intended to address 
concerns about give-up trades. As noted, OCC understands that an 
executing broker can execute a customer's trade on an exchange and 
give-up the trade automatically to the customer's OCC Clearing Member. 
The trade clears directly in the Clearing Member's omnibus customers' 
account at OCC, sometimes with no reference to the customer account 
that originated the trade. OCC understands that the requirement to 
include an Actionable Identifier on such a trade will enable the 
Clearing Member to timely identify the individual customer account 
associated with the trade. Also, Clearing Members that are part of 
Clearing Member Groups with multiple trading desks have indicated that 
an Actionable Identifier would help them timely identify which trading 
desk account at the firm initiated a non-customer trade received by the 
Clearing Member though the give-up process. Similarly, Clearing Members 
with JBO arrangements have indicated that an Actionable Identifier 
would help them timely identify which JBO Participant account initiated 
a non-customer trade received by the Clearing Member though the give-up 
process.\16\
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    \16\ As noted in the ``JBO Participant'' definition, a JBO 
Participant is treated as a Market-Maker for purposes of OCC's By-
Laws and Rules other than for purposes of Chapter IV of OCC's Rules. 
Thus, by the terms of this definition, even though proposed Rule 
401's Actionable Identifier requirement would exclude Market-Maker 
trades, it would not exclude JBO Participant trades.
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    The Actionable Identifier requirement is different than a 
traditional customer identification requirement in that it is solely 
designed to provide enough information to the Clearing Member receiving 
the trade to allow the Clearing Member to clear the trade for the 
account that originated the trade; it is not intended to provide any 
other information regarding the account that originated the trade. OCC 
does not anticipate that the Actionable Identifier will involve any 
personally identifiable information (``PII'') regarding the account 
that originated the trade. Rather, with regard to CMTA arrangements, 
OCC expects that the Actionable Identifier will consist of a series of 
numbers or institutional name that would allow the Executing Clearing 
Member and Carrying Clearing Member to identify the account that 
originated the trade, neither of which by itself is PII. Similarly, 
with regard to give-up arrangements, OCC expects that the Actionable 
Identifier will consist of a series of numbers or institutional name 
that would allow the Clearing Member clearing the give-up trade to 
identify the account that originated the trade.
    OCC worked very closely with Clearing Members in developing the 
proposed Actionable Identifier requirement. They requested flexibility 
in deciding what information to include in the Actionable Identifier 
field. Thus, the proposed rule change is designed to provide this 
flexibility by allowing Clearing Members to work together to agree on 
the way they will identify customers and non-customers subject to CMTA 
and give-up arrangements. This flexibility also would allow them to 
avoid including PII in the Actionable Identifier field.
    Consistent with this flexibility, OCC has determined to implement 
the obligation that Actionable Identifiers include sufficient 
information through a policies and procedures-based approach. Under 
Interpretation and Policy .06 to Rule 401, Clearing Members 
transmitting Actionable Identifiers to other Clearing Members to clear 
purchase or sale transactions would be required to establish and 
maintain policies and procedures reasonably designed to include 
sufficient information in the Actionable Identifier fields to allow the 
Clearing Members receiving such Actionable Identifiers to promptly 
clear the transactions. OCC believes that implementing the requirement 
in this manner will provide Clearing Members in CMTA arrangements with 
flexibility in how they operationalize the requirement, allowing 
Executing Clearing Members to work with Carrying Clearing Members to 
establish processes that they believe are reasonably designed to 
provide enough information in the Actionable Identifier fields to allow 
the Carrying Clearing Members to promptly direct CMTA transactions to 
the correct individual customer and non-customer accounts.
    OCC believes that having such an identifier on trades would allow 
Clearing Members to more timely identify trades transmitted as part of 
CMTA and give-up arrangements. As indicated, OCC has had extensive 
conversations over time with Clearing Members related to this proposed 
Actionable Identifier requirement. OCC's primary takeaway from these 
conversations is that the requirement should help further improve the 
CMTA process. Carrying Clearing Members believe the requirement will 
help them address above noted concerns they have about the CMTA process 
by immediately identifying to them the specific customer or non-
customer account on a CMTA trade sent to them by an Executing Clearing 
Member. Executing Clearing Members have expressed support for the 
requirement because they recognize that it should help streamline the 
CMTA process, requiring less back-and-forth communication between them 
and Carrying Clearing Members about which individual customer or non-
customer account originated a CMTA trade. OCC's other takeaway from 
these conversations is that Clearing Members believe the requirement 
will help them address above noted concerns they have about the give-up 
process by allowing them to timely identify which account to assign a 
trade received through the give-up process.
Proposed Implementation Plan
    With regard to CMTA trades, both the Executing Clearing Member and 
Carrying Clearing Member will need to work together to determine 
appropriate Actionable Identifiers for the accounts subject to their 
CMTA arrangement. Similarly, with regard to give-up trades, Clearing 
Members will need to coordinate on processes to include Actionable 
Identifiers on trades submitted through the give-up process. Since this 
will take some time, OCC plans to implement the Actionable Identifier 
requirement in a phased manner and to work with Clearing Members to 
make sure the requirement is implemented in a workable manner for them.
    OCC proposes to include the implementation plan for the requirement 
in new Interpretation and Policy .06 to the Rule. The plan sets forth 
the effective dates for the rule change, providing that (a) from the 
date on which the Actionable Identifier requirement is approved 
(``approval date'') to the end of the twelfth month from such approval 
date, OCC will not treat as a violation of Rule 401 the failure to 
include an Actionable Identifier or the failure of a Clearing Member's 
policies and procedures to provide that sufficient information is 
included in the Actionable Identifier field to allow the Clearing 
Member

[[Page 13079]]

receiving such Actionable Identifier to promptly clear the transaction, 
(b) from the thirteenth to the end of the eighteenth month from such 
approval date, an Actionable Identifier will be required but OCC will 
not treat as a violation of Rule 401 the failure of a Clearing Member's 
policies and procedures to provide that sufficient information is 
included in the Actionable Identifier field to allow the Clearing 
Member receiving such Actionable Identifier to promptly clear the 
transaction, and (c) from the nineteenth month after such approval date 
and thereafter, OCC will treat as a violation of Rule 401 the failure 
to include an Actionable Identifier or the failure of a Clearing 
Member's policies and procedures to provide that sufficient information 
is included in the Actionable Identifier field to allow the Clearing 
Member receiving such Actionable Identifier to promptly clear the 
transaction, subject to the manner in which OCC enforces violations of 
its rules in Rule 1201. OCC also has included rule text at the end of 
Interpretation and Policy .06 to Rule 401 to provide that the rule text 
that sets forth the proposed implementation plan described above will 
automatically be deleted at the end of the nineteenth month after the 
approval date. Nonetheless, OCC plans to continue to enforce the 
Actionable Identifier requirement in Rule 401 as set forth in (c) 
above, treating as a violation of Rule 401 the failure to include an 
Actionable Identifier or the failure of a Clearing Member's policies 
and procedures to provide that sufficient information is included in 
the Actionable Identifier field to allow the Clearing Member receiving 
such Actionable Identifier to promptly clear the transaction.
    Throughout this implementation period, OCC plans to create summary 
reports and statistics on Clearing Members that do not include 
Actionable Identifiers. This information will be shared periodically 
with firms individually throughout the implementation of the Actionable 
Identifier requirement to help foster compliance with the requirement. 
In addition, OCC notes that listed options trade reports to OCC 
currently include a field that is labelled at the exchange-level as the 
Account field. Once implemented, the Actionable Identifier information 
will be required to be populated in this field. Thus, Clearing Members 
will be able to see on OCC's trade screen, which allows Clearing 
Members to view trades in OCC's Encore system, and detect in OCC's 
trade messages whether this field is populated. OCC plans to enhance 
the trade screen to include additional filter criteria to allow 
Clearing Members to view trades with no Actionable Identifier.
    Once the Actionable Identifier requirement becomes fully effective 
eighteen months after the approval date of the requirement, OCC 
anticipates monitoring compliance with the requirement through an 
annual certification process in which OCC would require Clearing 
Members to certify, in a form and manner specified by OCC, that they 
have policies and procedures reasonably designed to provide that 
sufficient information is included in the Actionable Identifier fields 
to allow the Clearing Member(s) receiving such Actionable Identifiers 
to promptly clear the transactions. OCC also anticipates including a 
review of Clearing Members' Actionable Identifier policies and 
procedures when it conducts its periodic risk-based examinations.
    In addition to this oversight of the process by OCC, it is 
anticipated that if a Carrying Clearing Member believes that the 
Actionable Identifier transmitted to it does not provide sufficient 
information to allow it to identify the correct account, the Carrying 
Clearing Member would reach out to the Executing Clearing Member on the 
trading day when this happens to resolve the issue. It is also 
anticipated that if a Carrying Clearing Member experiences a pattern or 
practice in which Actionable Identifiers transmitted to it by an 
Executing Clearing Member do not provide sufficient information to 
allow it to identify the correct accounts, the Carrying Clearing Member 
could reach out to OCC to report such activity and/or terminate the 
CMTA arrangement. It is anticipated that a Clearing Member in a give-up 
arrangement would take similar courses of action if it believed 
Actionable Identifier(s) transmitted to it do(es) not provide 
sufficient information to allow it to identify the correct account(s).
Rule 401 Clean-Up Edits
    OCC proposes to amend the last sentence of first paragraph (a) of 
rule to add the phrase ``in this rule'' so that it would read, ``[t]he 
acceptance of every confirmed trade and the issuance of every cleared 
contract by the Corporation as provided in this rule shall be subject 
to the conditions that this reported trade information (i) passes the 
Corporation's trade validation process, (ii) is provided to the 
Corporation during such times as the Corporation shall prescribe, and 
(iii) satisfies certain criteria, as specified in paragraphs (a)(1) and 
(a)(2) of this Rule 401.'' This change is intended to include a phrase 
that was inadvertently omitted when the rule was updated and to further 
clarify the scope of the rule.
    OCC also proposes to change the references to ``the security type'' 
in paragraphs (a)(1)(i)(G) and (a)(2)(G) of the rule to ``the product 
type'' to more accurately reflect the information this trade field 
requires. In particular, the field mandates the inclusion of 
information indicating that the trade was for a security, a future, or 
an option on future. Since OCC now clears products that are securities 
and products that are commodity futures or options on such futures, OCC 
has determined to change these references in the rule to more 
accurately reflect the information mandated by the field.
    Finally, OCC proposes to change the references to ``the Give-Up 
Clearing Member'' in paragraphs (a)(1)(i)(P) and (a)(2)(N) of the rule 
to ``the Given-Up Clearing Member.'' The defined term in OCC's By-Laws 
is ``Given-Up Clearing Member'' rather than ``Give-up Clearing 
Member.'' The definition of Given-Up Clearing Member can be found in 
Article I, Section 1.G.(3) of the By-Laws.
(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 promote the prompt 
and accurate clearance and settlement of securities and derivatives 
transactions and to foster cooperation and coordination with persons 
engaged in clearance and settlement. OCC believes the proposed rule 
change will promote the prompt and accurate clearance and settlement of 
securities transactions and foster cooperation and coordination with 
persons engaged in clearance and settlement. In this regard, as noted 
above, the proposed rule change is designed to allow Clearing Members 
to more promptly and accurately clear and settle securities options 
trades that are subject to CMTA and give-up arrangements.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    With regard to CMTA arrangements, the proposed rule change furthers 
this statutory goal by requiring that an Actionable Identifier be 
included on all customer and non-customer trades, other than Market-
Maker trades, that would provide sufficient information regarding the 
account that originated the trade to allow a Carrying Clearing Member 
to promptly clear and settle the trade in the appropriate customer or 
non-customer account. While the vast

[[Page 13080]]

majority of trades allocated through the CMTA process flow through to 
the correct individual customer or non-customer account at a Carrying 
Clearing Member without issue, Clearing Members involved in such 
arrangements have observed that the Actionable Identifier requirement 
will provide additional information to them to allow them to more 
promptly and accurately clear and settle securities options trades that 
are subject to CMTA arrangements. The proposed rule change also 
furthers the statutory goal of fostering cooperation and coordination 
with persons engaged in clearance and settlement by implementing the 
obligation that Actionable Identifiers include sufficient information 
through a policies and procedures-based approach. Implementing the 
requirement in this manner will provide Clearing Members in CMTA 
arrangements with flexibility in how they operationalize the 
requirement, allowing them to establish processes that they believe are 
reasonably designed to provide enough information in the Actionable 
Identifier fields to allow the Clearing Members receiving such 
Actionable Identifiers to promptly direct CMTA transactions to the 
correct individual customer and non-customer accounts.
    Similarly, with regard to give-up arrangements, the proposed rule 
change furthers the statutory goal of prompt and accurate clearance and 
settlement by requiring that an Actionable Identifier be included in 
customer and non-customer trades received by Clearing Members through 
the give-up process. Clearing Members have indicated that the inclusion 
of an Actionable Identifier on such trades would allow them to more 
promptly and accurately clear and settle securities options trades that 
are subject to give-up arrangements. The proposed rule change also 
furthers the statutory goal of fostering cooperation and coordination 
with persons engaged in clearance and settlement by implementing the 
obligation that Actionable Identifiers include sufficient information 
through a policies and procedures-based approach. Such an approach 
would allow Clearing Members involved in give-up arrangements to 
establish processes that they believe are reasonably designed to 
provide enough information in the Actionable Identifier fields to 
provide for the prompt clearance and settlement of give-up 
transactions.
    In addition, the proposed rule change is not inconsistent with the 
existing By-Laws and Rules of OCC, including any rules proposed to be 
amended.

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

    Section 17A(b)(3)(I) of the Act \18\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the Act. OCC does not believe that the 
proposed rule change would impact or impose any burden on 
competition.\19\ The proposed rule change would not affect the 
competitive dynamics between clearing members in that it would apply to 
all Clearing Members equally. The proposed rule change also would not 
inhibit access to OCC's services or disadvantage or favor any 
particular user in relationship to another. In this regard, as 
described above, the proposed rule change is designed to further 
facilitate the prompt and accurate clearance and settlement of 
securities transaction. It would require that an Actionable Identifier 
be included on all customer and non-customer trades, other than Market-
Maker trades, to allow Clearing Members to more promptly and accurately 
clear and settle securities options trades in the appropriate account.
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    \18\ 15 U.S.C. 78q-1(b)(3)(I).
    \19\ 15 U.S.C. 78q-1(b)(3)(I).
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(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 [email protected]. Please include 
File Number SR-OCC-2019-003 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-2019-003. 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/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-2019-003 and 
should be submitted on or before April 24, 2019.

[[Page 13081]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06431 Filed 4-2-19; 8:45 am]
 BILLING CODE 8011-01-P