Document ID: SEC-2019-0628-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2019-05-10T04:00Z

[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
[Notices]
[Pages 20689-20690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09630]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85779; File No. SR-OCC-2019-003]

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

May 6, 2019.

I. Introduction

    On March 20, 2019, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2019-003 (``Proposed Rule Change'') 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to propose changes 
to amend OCC Rule 401 to require that an ``Actionable Identifier'' 
(described below) be included on certain securities options trades 
submitted to OCC for processing.\3\ The Proposed Rule Change was 
published for public comment in the Federal Register on April 3, 
2019,\4\ and the Commission received no comments regarding the Proposed 
Rule Change. This order approves the Proposed Rule Change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, 84 FR 13075.
    \4\ Securities Exchange Act Release No. 85441 (Mar. 28, 2019), 
84 FR 13075 (Apr. 3, 2019) (SR-OCC-2019-003) (``Notice of Filing'').
---------------------------------------------------------------------------

II. Background

    OCC facilitates several processes by which a broker may 
automatically transfer an executed trade into a Clearing Member's 
accounts. Such transferred positions could, in certain circumstances, 
affect the Clearing Member's margin requirements. Currently, such a 
transfer may occur without the provision of information regarding the 
person for whom such a trade was executed.
    First, OCC's Clearing Member Trade Assignment (``CMTA'') process 
allows a Clearing Member that executes 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).\5\ Under the CMTA process, an 
Executing Clearing Member may send options trades directly to a 
Carrying Clearing Member's omnibus accounts at OCC for clearance and 
settlement without providing information identifying the specific 
accounts to which the trade should be assigned. Second, in the ``give-
up'' process, a broker may execute a transaction on an exchange and 
then assign that transaction to a Clearing Member's omnibus account. 
Specifically, for customer transactions, a broker who is not an OCC 
Clearing Member may execute a customer's trade and then ``give-up'' the 
trade to the customer's clearing broker, which must be an OCC Clearing 
Member, without identifying the customer for whom the transaction was 
executed. Similarly, a trading desk within a Clearing Member Group may 
execute a non-customer trade and send it to a Clearing Member's omnibus 
firm account without clearly identifying the account to which the trade 
should be allocated.\6\ Finally, a broker-dealer who participates in a 
joint back office arrangement with a Clearing Member could execute a 
non-customer trade that then clears directly in a Clearing Member's 
omnibus firm account. Transactions executed in this way, as part of a 
joint back office arrangement with a Clearing Member, could result in a 
Clearing Member's receipt of a non-customer trade in its omnibus firm 
account without a clear indication of the account to which the Clearing 
Member should assign the trade.
---------------------------------------------------------------------------

    \5\ See OCC Rule 407. An ``Executing Clearing Member'' is 
defined in Article I, Section 1.E.(12) of OCC's 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 OCC's 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.''
    \6\ See Notice of Filing, 84 FR at 13077.
---------------------------------------------------------------------------

    According to OCC, Clearing Members have raised concerns regarding 
the timely account identification for trades that a Clearing Member 
receives through the CMTA, give-up, and joint back office processes.\7\ 
OCC proposes to require the inclusion of an ``Actionable Identifier'' 
for all transactions related to a customer account or a non-customer 
account,

[[Page 20690]]

other than Market-Maker transactions,\8\ which OCC believes would allow 
Clearing Members to more timely identify trades as attributable to a 
particular customer or non-customer account.\9\ As defined in the 
proposed amendment to Rule 401, the Actionable Identifier would consist 
of either a name, series of numbers, or other identifying information 
related to the account for which the transaction was executed. OCC 
would also require that each Clearing Member establish and maintain 
policies and procedures reasonably designed to include sufficient 
information in the Actionable Identifier regarding the account that 
originated the trade to allow the other Clearing Member to promptly 
clear the transaction.\10\ OCC would enforce the Actionable Identifier 
related requirements through: (1) an annual Clearing Member 
certification process; and (2) a review of Actionable Identifier 
policies and procedures during OCC's periodic Clearing Member 
examinations.
---------------------------------------------------------------------------

    \7\ See Notice of Filing, 84 FR at 13076-77.
    \8\ OCC is not proposing the inclusion of an Actionable 
Identifier for Market-Maker transactions because OCC understands 
that such trades already include information that allows a Clearing 
Member to assign the trades to individual Market-Maker accounts. See 
Notice of Filing, 84 FR at 13076, n. 6.
    \9\ See Notice of Filing, 84 FR at 13078.
    \10\ OCC does not, however, propose to make the inclusion of an 
Actionable Identifier a prerequisite for trade acceptance.
---------------------------------------------------------------------------

    In its proposal, OCC described a three-phase implementation 
schedule for changes pertaining to the Actionable Identifier.\11\ 
During the first 12 months after approval of the Proposed Rule Change, 
the following would not constitute a violation of OCC's rules: (i) 
Failure to include an Actionable Identifier for transactions, or (ii) 
failure to maintain policies and procedures to provide that sufficient 
information is included in the Actionable Identifier. Second, from 13 
months to 18 months after approval of the Proposed Rule Change, failure 
to maintain policies and procedures to provide that sufficient 
information is included in the Actionable Identifier would not 
constitute a violation of OCC's rules. Finally, beginning 19 months 
after approval of the Proposed Rule Change, failure to comply with any 
part of the rule would constitute a violation of OCC's rules, subject 
to the manner in which OCC enforces such violations pursuant to Rule 
1201.
---------------------------------------------------------------------------

    \11\ See Notice of Filing, 84 FR at 13078.
---------------------------------------------------------------------------

    OCC also proposes three changes to improve the language of its Rule 
401. First, OCC proposes to add the words ``in this rule'' to the last 
sentence of paragraph (a) of Rule 401 to clarify the scope of the 
sentence. Second, OCC proposes to replace the phrase ``the security 
type'' with the ``the product type'' in paragraphs (a)(1)(G) and 
(a)(2)(G) of Rule 401 to accurately describe the requirements of the 
rule. Finally, OCC proposes to replace the phrase ``the Give-Up 
Clearing Member'' with ``the Given-Up Clearing Member'' for consistency 
with the definition provided in Article I, Section 1.G.(3) of OCC's By-
Laws.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to such organization.\12\ After carefully 
considering the Proposed Rule Change, the Commission believes the 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to OCC. More 
specifically, the Commission believes that the proposal is consistent 
with Section 17A(b)(3)(F) of the Exchange Act.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires that the rules of 
a clearing agency be designed to, among other things, (i) promote the 
prompt and accurate clearance and settlement of securities 
transactions, and (ii) foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities transactions, and 
(iii) in general, to protect investors and the public interest.\14\ 
Based on its review of the record, the Commission believes that the 
proposed rule changes related to the Actionable Identifier are designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions and foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions for the reasons set forth below.
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

    The Actionable Identifier, as proposed, must include sufficient 
information regarding the account that originated a trade to allow a 
Clearing Member to promptly clear and settle the transaction in the 
appropriate account. Additionally, the Actionable Identifier would 
support the interactions between those firms executing transactions and 
those firms clearing transactions by providing information about the 
account to which such transactions are attributable. In this way, the 
proposed rule changes are designed to promote the prompt and accurate 
clearance and settlement of securities transactions and foster 
cooperation and coordination with persons engaged in the clearance and 
settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Exchange Act.
    Further, the Commission believes that the proposed changes to 
improve the language of its Rule 401 are designed to in general, to 
protect investors and the public interest for the following reasons. As 
a general matter, enhancing the clarity of a clearing agency's rules 
would be in the public interest because doing so could provide 
information that may facilitate public interaction with the clearing 
agency. OCC's rules describe, in part, certain obligations of an 
individual submitting a trade to OCC by defining, for example, the 
information necessary for acceptance of such a trade. As described 
above, OCC proposes to revise the language of its Rule 401 to clarify 
the scope of the rule, more accurately state the requirements of the 
rule, and ensure internal consistency across OCC's rules.
    Accordingly, and for the reasons stated above, the Commission 
believes that the Proposed Rule Change is consistent with Section 
17A(b)(3)(F) of the Exchange Act.\15\
---------------------------------------------------------------------------

    \15\ Id.
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the 
Exchange Act, and in particular, the requirements of Section 17A of the 
Exchange Act \16\ and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \16\ In approving this Proposed Rule Change, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\17\ that the Proposed Rule Change (SR-OCC-2019-003) be, 
and hereby is, approved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09630 Filed 5-9-19; 8:45 am]
 BILLING CODE 8011-01-P