Document ID: SEC-2021-0751-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2021-05-24T04:00Z

[Federal Register Volume 86, Number 98 (Monday, May 24, 2021)]
[Notices]
[Pages 27916-27918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10841]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91920; File No. SR-OCC-2021-006]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Revise The Options Clearing Corporation's Schedule of Fees

May 18, 2021.
    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 May 5, 2021, 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 primarily by OCC. OCC 
filed the proposed rule change pursuant to Section 19(b)(3)(A)(ii) \3\ 
of the Act and Rule 19b-4(f)(2) \4\ thereunder so that the proposal was 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 revise OCC's schedule of fees 
effective June 1, 2021, to implement a decrease in clearing fees. 
Proposed changes to OCC's schedule of fees are attached as Exhibit 5 to 
File Number SR-OCC-2021-006. Material proposed to be added to OCC's 
schedule of fees as currently in effect is underlined and material 
proposed to be deleted is marked in strikethrough text. All capitalized 
terms not defined herein have the same meaning as set forth in the OCC 
By-Laws and Rules.\5\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.

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[[Page 27917]]

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
    The purpose of this proposed rule change is to revise OCC's 
schedule of fees effective June 1, 2021, to implement a decrease in 
clearing fees. OCC's Capital Management Policy (``Policy'') provides 
that OCC reviews its fee schedule on a periodic basis in consideration 
of factors including, but not limited to, projected operating expenses, 
projected volumes, anticipated cash flows, and capital needs.\6\ 
Provided that OCC's shareholders' equity (``Equity'') exceeds 110% of 
the Target Capital Requirement \7\ (``Early Warning'') \8\ plus the 
amount approved for capital expenditures, OCC's Board, or a Committee 
the Board has delegated, may use tools as it considers appropriate to 
lower costs for Clearing Members. Such tools for reducing the cost of 
clearing include lowering fees, declaring a fee holiday, or issuing 
refunds.\9\
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    \6\ See Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 
5500, 5502 (Jan. 30, 2020) (File No. SR-OCC-2019-007) (``Order 
Approving Policy''); Exchange Act Release No. 87257 (Oct. 8, 2019), 
84 FR 55194, 55196 (Oct. 15, 2019) (File No. SR-OCC-2019-805) 
(``Notice of No-Objection to Policy'').
    \7\ The Target Capital Requirement is the amount of Equity 
recommended by Management and approved by the Board of Directors 
(``Board'') to ensure compliance with regulatory capital 
requirements and to keep such additional amount the Board may 
approve for capital expenditures. See OCC Rule 101.
    \8\ The Early Warning is one of the thresholds under OCC's plan 
for replenishing capital in the event OCC's Equity falls close to or 
below OCC's regulatory capital requirements, as required by SEC Rule 
17Ad-22(e)(15)(iii). See 17 CFR 17Ad-22(e)(15)(iii).
    \9\ See Order Approving Policy, 85 FR at 5502; Notice of No-
Objection to Policy, 84 FR at 55196.
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    OCC experienced record volumes in 2020 while maintaining expenses 
at or around the budgeted amount. These strong financial results put 
OCC in a position to continue to invest resources in OCC's initiative 
to update and upgrade its technology infrastructure for critical 
clearing and settlement services, risk systems and data management,\10\ 
while at the same time lowering the cost of clearing for the users of 
the markets OCC serves. Accordingly, in August 2020, OCC announced 
several measures approved by OCC's Board and Compensation and 
Performance Committee (``CPC'') to lower the cost of clearing, 
including lowering its clearing fee from $0.055 per contract to $0.045 
per contract, an anticipated clearing fee refund to be announced at 
year-end, and the establishment of a persistent minimum level of OCC's 
own capital that OCC would contribute to cover default losses or 
liquidity shortfalls (commonly referred to as ``skin-in-the-game'')--
which will serve as a floor to OCC's current, variable amount of skin-
in-the-game funded by capital in excess of OCC's Early Warning.\11\
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    \10\ See OCC Technology Changes + Enhancements Reference Guide 
(Jan. 28, 2021), available at https://www.theocc.com/getmedia/2926b09d-5da5-4f00-85f2-09111bb2fcf8/OCC-Tech-Changes-Enhancements-RefGuide-012821-FNL.pdf;?ext=.pdf.
    \11\ See Letter to Clearing Member Firms--OCC To Lower Costs for 
Users of U.S. Equity Derivatives Markets (Aug. 3, 2020), available 
at https://www.theocc.com/Newsroom/Views/2020/08-03-Letter-to-Clearing-Member-Firms.
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    OCC implemented the announced clearing fee decrease on September 1, 
2020,\12\ and in December, OCC announced that its Board had approved a 
clearing fee refund of $156 million,\13\ which OCC paid on April 19, 
2021. The Commission issued a notice of no objection to the advance 
notice for OCC's skin-in-the-game proposal on April 7, 2021.\14\ 
Implementation of that proposal is currently pending approval of a 
proposed rule change pending with the Commission.\15\
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    \12\ See Exchange Act Release No. 89534 (Aug. 12, 2020), 85 FR 
50858 (Aug. 18, 2020) (File No. SR-OCC-2020-009).
    \13\ See Press Release, OCC to Provide Year-End Refund to 
Clearing Members (Dec. 17, 2020), available at https://www.theocc.com/Newsroom/Press-Releases/2020/12-17-OCC-to-Provide-Year-End-Refund-for-Clearing.
    \14\ See Exchange Act Release No. 91491 (Apr. 7, 2021), 86 FR 
19061 (Apr. 12, 2021) (File No. SR-OCC-2021-801).
    \15\ See Exchange Act Release No. 91483 (Apr. 6, 2021), 86 FR 
19066 (Apr. 12, 2021) (File No. SR-OCC-2021-003); Exchange Act 
Release No. 91199 (Feb. 24, 2021), 86 FR 12237 (Mar. 2, 2021) (File 
No. SR-OCC-2021-003).
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    As of December 31, 2020, OCC maintained Equity of approximately 
$557.6 million, or approximately $282.6 million more than the Early 
Warning.\16\ OCC continues to experience record volume in 2021 while 
maintaining expenses at or around the budgeted amount. Based on 
projections of contract volume and expenses, OCC believes that it can 
lower fees by 2.5 cents while maintaining sufficient revenue to support 
OCC's operations and capital needs, including 2021 cash needs related 
to OCC's technology infrastructure transformation.\17\ Accordingly, OCC 
proposes to modify its fee schedule to: (i) Decrease its per contract 
clearing fee from $0.045 to $0.02 per contract; and (ii) adjust the 
quantity of contracts at which the fixed, per trade clearing fee begins 
from trades with more than 1,222 contracts per trade to trades with 
more than 2,750 contracts per trade, as set forth in the schedule of 
fees depicted below.\18\
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    \16\ See OCC 2020 Financials, available at https://www.theocc.com/getattachment/9f5d22ff-d810-4690-948d-f9a207df083d/attachment.aspx.
    \17\ OCC has provided confidential data and analysis to the 
Commission in Exhibit 3 to File No. SR-OCC-2021-006.
    \18\ These changes are also reflected in Exhibit 5 to File No. 
SR-OCC-2021-006.

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Current fee schedule                             Proposed fee schedule
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Clearing fees                        Clearing fees
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Trades with contracts of 0-1222....  $0.045/contract.       Trades with contracts  $0.02/contract.
                                                             of 0-2750.
Trades with contracts of more than   $55/trade.             Trades with contracts  $55/trade.
 1222.                                                       of more than 2750.
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    OCC proposes to make the fee change effective June 1, 2021, because 
OCC believes that this date is the first date that the industry could 
be prepared to process the new fee without disruption based on 
consultations with market participants.\19\
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    \19\ OCC notes that a mid-month change to clearing fees could 
introduce operational disruption to Clearing Members due to the 
impact on their billing processes.

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[[Page 27918]]

(2) Statutory Basis
    Section 17A(b)(3)(D) of the Act \20\ requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges among its participants. OCC believes that 
the proposed fee change is reasonable because it is designed to 
decrease the cost of clearing while maintaining sufficient reserves in 
the form of liquid net assets to cover OCC's operating expenses and 
address potential business or operational losses so that OCC can 
continue to meet its obligations as a systemically important financial 
market utility to Clearing Members and the general public if such 
losses were to materialize (including through a recovery or orderly 
wind-down of critical operations and services) and thereby facilitate 
compliance with certain requirements of Rule 17Ad-22(e)(15)(ii).\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(D).
    \21\ 17 CFR 240.17Ad-22(e)(15)(ii).
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    In determining the appropriate level of the proposed fee decrease, 
the CPC considered a variety of factors, including projected average 
daily volume, operating income, and a scenario analysis modeling the 
sensitivity of operating income and margin, adjusting for different 
clearing fee levels.\22\ The CPC also considered OCC's cash needs 
through 2021 to support its technology transformation initiative. OCC 
believes that the proposed decrease in clearing fees is reasonable and 
consistent with its existing By-Laws and Rules. OCC also believes that 
the proposed fee change would result in an equitable allocation of fees 
among its participants because it would be equally applicable to all 
market participants transacting at a given level of contract volume. As 
a result, OCC believes that the proposed fee schedule provides for the 
equitable allocation of reasonable fees in accordance with Section 
17A(b)(3)(D) of the Act.\23\
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    \22\ A summary of the scenario and sensitivity analyses is 
included in confidential Exhibit 3 to File No. SR-OCC-2021-006.
    \23\ 15 U.S.C. 78q-1(b)(3)(D).
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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 \24\ 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 have any impact or impose a 
burden on competition. Although this proposed rule change affects 
clearing members, their customers, and the markets that OCC serves, OCC 
believes that the proposed rule change would not disadvantage or favor 
any particular user of OCC's services in relationship to another user 
because the proposed clearing fees apply equally to all users of OCC. 
Accordingly, OCC does not believe that the proposed rule change would 
have any impact or impose a burden on competition.
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    \24\ 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

    Pursuant to Section 19(b)(3)(A)(ii) \25\ of the Act, and Rule 19b-
4(f)(2) thereunder,\26\ the proposed rule change is filed for immediate 
effectiveness as it constitutes a change in fees charged to OCC 
clearing members. At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. The 
proposal shall not take effect until all regulatory actions required 
with respect to the proposal are completed.\27\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \26\ 17 CFR 240.19b-4(f)(2).
    \27\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation 40.6.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 rule-comments@sec.gov. Please include 
File Number SR-OCC-2021-006 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-2021-006. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2021-006 and 
should be submitted on or before June 14, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10841 Filed 5-21-21; 8:45 am]
BILLING CODE 8011-01-P