Document ID: SEC-2014-0490-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2014-03-27T04:00Z

[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17214-17216]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06761]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71769; File No. SR-OCC-2014-05]

Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Reflect the Elimination of a Discount to OCC's Clearing Fee Schedule

March 21, 2014.
    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 March 21, 2014, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I and II below, which Items 
have been prepared primarily by OCC. OCC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) \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 rule change from interested parties.
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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).
    \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

    OCC proposes to amend its Schedule of Fees, effective April 1, 
2014, to reflect the elimination of a discount to OCC's clearing fee 
schedule.

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 amend OCC's Schedule 
of Fees to reinstate the permanent reduced fee schedule adopted, 
effective May 1, 2007, for securities options and securities 
futures.\5\ In conjunction with adopting this permanent reduced fee 
schedule, OCC simultaneously discounted the permanent schedule. 
Effective January 1, 2008, OCC replaced the May 1, 2007, discounted 
schedule \6\ with the discount remaining in effect until further action 
of by the Board. Implementation of this schedule was premised on the 
discounts not adversely affecting OCC's ability to meet its expenses 
and maintain an acceptable level of retained earnings. Article IX, 
Section 9 of OCC's By-Laws permits OCC to establish a fee structure to 
cover operating expenses, to maintain reserves as are deemed reasonably 
necessary by the Board to provide facilities for the conduct of OCC's 
business and to accumulate such additional surplus as the Board deems 
advisable to allow OCC to meet its obligations to clearing members and 
the general public.
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    \5\ See Exchange Act Release No. 34-55709 (May 4, 2007), 72 FR 
26669 (May 10, 2007) (SR-OCC-2007-05). This schedule is applied to 
futures and futures options as well.
    \6\ See Exchange Act Release No. 34-57192 (January 24, 2008), 73 
FR 5618 (January 30, 2008) (SR-OCC-2007-17).
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    OCC has determined to reinstate its permanent reduced fee schedule. 
OCC's revenues principally are derived from clearing fees charged to 
clearing members and OCC's current and projected operating expenses 
have increased due to current and anticipated regulatory 
requirements.\7\ These requirements include those proposed by the 
Commission at its meeting on March 12, 2014, requiring OCC to be in a 
position to cover potential general business losses so that it can 
continue operations if those losses materialize.\8\ OCC's current and 
anticipated operating expenses have also increased as a result of costs 
associated with the engagement of outside professionals to address 
various regulatory issues arising under the Dodd-Frank Act, notably 
additional expectations and requirements arising from OCC's status as a 
Systemically Important Financial Market Utility (``SIFMU''), and OCC's 
assessment of and compliance with international standards applicable to 
clearing agencies. Employee costs additionally are expected to rise 
further in 2014 as resources are enhanced to meet current and 
anticipated regulatory obligations, including increased requirements to 
produce data, analysis and information to the Commission in connection 
with its exercise of its supervisory authority over OCC.
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    \7\ See Statements of Income and Comprehensive Income in OCC's 
2013 Annual Report available on OCC's Web site, www.theocc.com. In 
2013, clearing fees represented over 90% of OCC's total revenues. 
Between 2012 and 2013, OCC annual expenses increased by 
approximately 9%. OCC's currently projects a greater increase in 
expenses in 2014.
    \8\ See Exchange Act Release No. 34-71699 (March 12, 2014). OCC 
anticipates that these requirements will need to be met by the end 
of 2014. The determination to reinstate the permanent reduced fee 
schedule was based on an analysis of such requirements and such 
reinstatement being effective April 1, 2014. Implementation 
thereafter potentially could have required an increase in the fees 
beyond the reinstatement of the permanent reduced fee schedule.
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    As noted above, the Board unanimously determined to reinstate the 
permanent reduced fee schedule to compensate for these increased 
expenses. In making this determination, the Board carefully considered 
the requirements of Article IX, Section 9 of OCC's By-Laws as well as 
the expectations and obligations imposed upon OCC as a SIFMU in the 
national system for clearance and settlement. The Board further 
evaluated the potential for a refund of clearing fees in 2014. While no 
affirmative decision has been made by the Board regarding such refund, 
the Board recognized that OCC's current funding, reserve and surplus 
needs might result in refunds, if any, which are significantly lower in 
2014 than in past years.\9\ OCC will monitor the impact of returning to 
the permanent reduced fee schedule as well as OCC's needs to evaluate 
whether additional action should be taken. For example, changes in 
revenues as a result of significant fluctuations in cleared volume 
(upwards or downwards) may

[[Page 17215]]

prompt a re-assessment of the fee schedule (downwards or upwards). 
Cleared volumes also will be evaluated in connection with considering 
potential refunds for 2014.
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    \9\ See OCC's 2013 Annual Report, Footnote 8 to the Notes to the 
Financial Statements for a description of recent past refunds. 
Footnote 8 further discusses that OCC's Board sets clearing fees and 
determines the amounts of refunds, fee reductions and discounts, if 
any, based upon OCC's current funding needs.
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    The impact of the costs to comply with the new regulatory 
requirements and reinstate the permanent reduced fee schedule and the 
potential effect on a 2014 refund, if any, was discussed with each of 
the clearing members that would be most affected by these changes, most 
of which are represented on the Board. The vote of the Board to approve 
this filing included the affirmative votes of the six Member Directors 
present at the meeting.
    The following chart sets forth the revised clearing fee schedule.

------------------------------------------------------------------------
                                    Current       Standard fee schedule
        Contracts/trade          discounted fee    (effective April 1,
                                    schedule              2014)
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1-500.........................  $0.03/contract.  $0.05/contract
501-1,000.....................  0.024/contract.  0.04/contract
1,001-2,000...................  18.00/trade....  0.03/contract
>2,000........................  18.00/trade....  55.00/trade
Market Maker/Specialist         0.01...........  0.02
 Scratch per side.
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    OCC published an Information Memo on March 10, 2014, to all of its 
clearing members and exchanges notifying them of the changes to the 
Schedule of Fees that would become effective as of April 1, 2014, \10\ 
and a second Information Memo on March 13, 2014, notifying them of the 
likely effects on the refunds for 2014. The Information Memos informed 
clearing members and exchanges that due to current and projected 
increases in operating expenses related to regulatory requirements, OCC 
would reinstate the permanent reduced clearing fee schedule adopted May 
1, 2007, and that refunds based on 2014 cleared volume are likely to be 
significantly lower in 2014 as a result of the new regulatory 
expectations and requirements, but that it was expected that such 
impacts should not extend beyond 2014 based on current projections.
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    \10\ OCC has represented that notwithstanding its immediate 
effectiveness, implementation of this rule change will be delayed 
until this rule change is deemed certified under CFTC Regulation 
Sec.  40.6.
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2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A(b)(3)(D) \11\ of the Act, because by eliminating a discount but 
otherwise leaving the current clearing fee schedule intact, OCC will 
continue to equitably allocate fees among its clearing members and 
other market participants. OCC also believes that the proposed rule 
change is consistent with Rule 17Ad-22(d)(9) \12\ because the fee 
schedule amended by this rule change is publicly available and 
therefore provides clearing members and other market participants with 
sufficient information to allow them to identify and evaluate the costs 
associated with OCC's services. The proposed rule change is not 
inconsistent with the existing rules of the OCC including any other 
rules proposed to be amended.
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    \11\ 15 U.S.C. 78q-1(b)(3)(D).
    \12\ 17 CFR 240.17Ad-22(d)(9).
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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 
impose a burden on competition that is unnecessary or inappropriate in 
furtherance of the purposes of the Act.

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

    OCC does not believe that the proposed rule change would impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(I).
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    Changes to the rules of a clearing agency may have an impact on the 
participants in a clearing agency, their customers, and the markets 
that the clearing agency serves. This proposed rule change primarily 
affects such users and OCC believes that the proposed modifications 
would not disadvantage or favor any particular user in relationship to 
another user because the discount is being eliminated for, and the 
clearing fees apply equally to, all users of OCC's services.
    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 
impose a burden on competition that is unnecessary or inappropriate in 
furtherance of the purposes of the Act.

(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) \14\ and Rule 19b-4(f)(2),\15\ the 
proposed rule change is filed for immediate effectiveness inasmuch as 
it pertains to fees charged to OCC clearing members. At any time within 
60 days of the filing of the proposed rule change, the Commission may 
summarily abrogate such rule 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
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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-2014-05 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-2014-05. This file 
number should be included on the

[[Page 17216]]

subject line if email is used. To help the Commission process and 
review your comments more efficiently, please use only one method of 
submission. The Commission will post all comments on the Commission's 
Internet Web site (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 Web site viewing and printing in the 
Commission's Public Reference Section, 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 Web site at 
http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_05.pdf.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-OCC-2014-05 
and should be submitted on or before April 17, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06761 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P