Document ID: SEC-2014-0159-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2014-01-29T05:00Z

[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Notices]
[Pages 4796-4798]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01660]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71376; File No. SR-OCC-2013-807]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of No Objection To Advance Notice Filing Concerning the 
Governance Committee Charter

January 23, 2014.
    On November 26, 2013, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
advance notice SR-OCC-2013-807 (``Advance Notice'') pursuant to Section 
806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 
2010 (``Clearing Supervision Act'' or ``Title VIII'') \1\ and Rule 19b-
4(n)(1)(i) under the Securities Exchange Act of 1934 (``Exchange 
Act'').\2\ The Advance Notice was published for comment in the Federal 
Register on December 20, 2013.\3\ The Commission did not receive any 
comments on the Advance Notice publication. This publication serves as 
a notice of no objection to the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i). OCC is a designated financial 
market utility and is required to file advance notices with the 
Commission. See 12 U.S.C. 5465(e). OCC also filed the proposal in 
this Advance Notice as a proposed rule change under Section 19(b)(1) 
of the Exchange Act and Rule 19b-4 thereunder, which was published 
for comment in the Federal Register on December 16, 2013. 15 U.S.C. 
78s(b)(1); 17 CFR 240.19b-4. See Release No. 34-71030 (Dec. 11, 
2013), 78 FR 76182 (Dec. 16, 2013) (SR-OCC-2013-18).
    \3\ Release No. 34-71803 (Dec. 16, 2013), 78 FR 77181 (Dec. 20, 
2013) (SR-OCC-2013-807) (``Notice'').
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I. Description of the Advance Notice

    This advance notice concerns the Board of Director's (``Board'') 
formation of a Governance Committee (``GC'') and its approval of the GC 
Charter. As set forth in the GC Charter, the purpose of the GC is to 
review the overall corporate governance of OCC and recommend 
improvements to OCC's Board. The GC Charter describes the role the GC 
plays

[[Page 4797]]

in assisting the Board in fulfilling its responsibilities, as described 
in OCC's By-Laws and Rules, as well as specifying the policies and 
procedures governing the membership and organization, scope of 
authority, and specific functions and responsibilities of the GC. In 
addition, the guidelines for the composition of the GC as well as the 
policies regarding its meeting schedule, quorum rules, minute-keeping 
and reporting requirements are set forth in the GC Charter and conform 
to applicable requirements specified in OCC's By-Laws and Rules.
    The GC is composed of not fewer than five Directors with at least 
one Public Director, one Exchange Director and one Member Director. 
Management Directors will not be members of the GC. The Board will 
designate a GC Chair and if the Chair is not present at a meeting, the 
members who are present will designate a member to serve as the Acting 
Chair. The GC will meet at least four times a year and a majority of 
the GC members constitutes a quorum. The GC is permitted to call 
executive sessions from which guests of the GC may be excluded, and GC 
members are permitted to participate in all meetings by conference 
telephone call or other means of communication that permit all meeting 
participants to hear each other. The GC Chair, or the Chair's designee, 
will report regularly to the Board on the GC's activities.
    The GC Charter sets forth certain functions and responsibilities 
for the GC including, but not limited to, the following: Review the 
composition of the Board as a whole, including the Board's balance of 
participant and non-participant directors, business specialization, 
technical skills, diversity and other desired qualifications; review 
the Board's Charter for consistency with regulatory requirements, 
transparency of the governance process and other sound governance 
practice and recommend changes to the Board, where appropriate; review 
the committee structure of the Board, including the GC, and recommend 
changes to the Board, where appropriate; review OCC's policies and 
procedures for identifying and reviewing Board nominee candidates, 
including the criteria for Board nominees; develop and recommend to the 
Board a periodic process of self-evaluation of the role and performance 
of the Board, its committees and management in the governance of OCC; 
review OCC's policies on conflicts of interest of directors, including 
the OCC Directors Code of Conduct and recommend changes, where 
appropriate; and, review OCC's new director orientation program as well 
as OCC's training and education programs for Board members and 
recommend changes, where appropriate. In addition to the foregoing, the 
GC may undertake other and different activities, as appropriate, or as 
may be delegated to it by the Board. In discharging its role, the GC 
shall confer with management and other employees of OCC to the extent 
the GC deems it necessary to do so to fulfill its duties.\4\
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    \4\ The GC, subject to the approval of the Board, is permitted 
to hire specialists or rely on outside advisors or specialists to 
assist it in carrying out the GC's activities. The GC has the 
authority to approve the fees and retention terms of such advisors 
and specialists.
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II. Discussion and Commission Findings

    Although Title VIII does not specify a standard of review for an 
advance notice, the Commission believes that the stated purpose of 
Title VIII is instructive.\5\ The stated purpose of Title VIII is to 
mitigate systemic risk in the financial system and promote financial 
stability by, among other things, promoting uniform risk management 
standards for systemically-important financial market utilities 
(``FMUs'') and strengthening the liquidity of systemically important 
FMUs.\6\
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    \5\ See 12 U.S.C. 5461(b).
    \6\ Id.
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    Section 805(a)(2) of the Clearing Supervision Act \7\ authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing, and settlement activities of designated clearing entities and 
financial institutions engaged in designated activities for which it is 
the supervisory agency or the appropriate financial regulator. Section 
805(b) of the Clearing Supervision Act \8\ states that the objectives 
and principles for the risk management standards prescribed under 
Section 805(a) shall be to:
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    \7\ 12 U.S.C. 5464(a)(2).
    \8\ 12 U.S.C. 5464(b).
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     Promote robust risk management;
     Promote safety and soundness;
     Reduce systemic risks; and
     Support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act \9\ (``Clearing Agency 
Standards'').\10\ The Clearing Agency Standards became effective on 
January 2, 2013 and require registered clearing agencies that perform 
central counterparty (``CCP'') services to establish, implement, 
maintain, and enforce written policies and procedures that are 
reasonably designed to meet certain minimum requirements for their 
operations and risk management practices on an ongoing basis.\11\ As 
such, it is appropriate for the Commission to review advance notices 
against these Clearing Agency Standards and the objectives and 
principles of these risk management standards as described in Section 
805(b) of the Clearing Supervision Act.\12\
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    \9\ 12 U.S.C. 5464(a)(2).
    \10\ Rule 17Ad-22, 17 CFR 240.17Ad-22. Exchange Act Release No. 
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
    \11\ The Clearing Agency Standards are substantially similar to 
the risk management standards established by the Board of Governors 
of the Federal Reserve System (``Federal Reserve'') governing the 
operations of designated DFMUs that are not clearing entities and 
financial institutions engaged in designated activities for which 
the Commission or the Commodity Futures Trading Commission is the 
Supervisory Agency. See Financial Market Utilities, 77 FR 45907 
(August 2, 2012).
    \12\ 12 U.S.C. 5464(b).
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    OCC's GC, as described above, is tasked with reviewing the overall 
corporate governance of OCC and making recommendations to the Board for 
improvements. Consistent with Section 805(b) of the Clearing 
Supervision Act,\13\ the Commission believes that OCC's GC should help 
promote robust risk management and mitigate systemic risk by enhancing 
the transparency of OCC's governance arrangements and providing a 
vehicle for the review of OCC's governance structure, policies and 
overall effectiveness and efficiency.
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    \13\ See 12 U.S.C. 5464(b).
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    Commission Rule 17Ad-22(d)(8),\14\ adopted as part of the Clearing 
Agency Standards,\15\ requires that a registered clearing agency 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to ''have governance arrangements that 
are clear and transparent to fulfill the public interest requirements 
in Section 17A of the Act applicable to clearing agencies, to support 
the objectives of owners and participants, and to promote the 
effectiveness of the clearing agency's risk management procedures.'' 
The Commission believes that the GC's review of OCC's governance 
structure and any related recommendations that clarify OCC's governance 
structure or further define governance responsibilities may help OCC 
fulfill these requirements. Moreover, the Commission believes that the 
GC may also aid in identifying any risks and inefficiencies in the 
current governance structure and making recommendations to the full 
Board to help mitigate those

[[Page 4798]]

risks and eliminate any such inefficiencies.
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    \14\ 17 CFR 240.17Ad-22(d)(8).
    \15\ See supra note 10. Release No. 34-68080 (Oct. 22, 2012), 77 
FR 66219 (November 2, 2012).
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III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\16\ that the Commission does not object to 
advance notice proposal (SR-OCC-2013-807) and that OCC is authorized to 
implement the proposal as of the date of this notice or the date of an 
order by the Commission approving a proposed rule change that reflects 
rule changes that are consistent with this advance notice proposal (SR-
OCC-2013-18), whichever is later.
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    \16\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-01660 Filed 1-28-14; 8:45 am]
BILLING CODE 8011-01-P