Document ID: SEC-2018-0189-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2018-01-30T05:00Z

[Federal Register Volume 83, Number 20 (Tuesday, January 30, 2018)]
[Notices]
[Pages 4324-4327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01676]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82576; File No. SR-OCC-2018-001]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Related to The Options 
Clearing Corporation's Fee Policy

January 24, 2018.
    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 January 18, 2018, 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

    The proposed rule change by OCC would make certain revisions to 
OCC's Fee Policy to reduce the permitted implementation time for 
proposed changes to its Schedule of Fees. Under the proposed rule 
change, the Fee Policy would provide that any change to the Schedule of 
Fees resulting from a review of OCC's fees by the Board of Directors 
(``Board'') as stipulated under the Fee Policy would be implemented no 
sooner than 30 days from the date of the filing of the proposed fee 
change with the Commission, rather than the minimum 60-day period 
provided for currently in the Fee Policy.
    The Fee Policy is included as confidential Exhibit 5 to the filing. 
Material proposed to be added to the Fee Policy as currently in effect 
is marked by underlining and material proposed to be deleted is marked 
in strikethrough text. 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

[[Page 4325]]

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 Fee 
Policy \4\ to provide that any change to OCC's Schedule of Fees 
resulting from a review of OCC's fees by the Board as stipulated under 
the Fee Policy \5\ would be implemented no sooner than 30 days 
following the filing of the revised Schedule of Fees as a proposed rule 
change with the Commission, rather than no sooner than 60 days after 
filing. Under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 
1934, as amended (``Act''),\6\ a proposed rule change takes effect upon 
filing with the Commission if it is designated by OCC as establishing 
or changing a due, fee or other charge on any person. This proposed 
rule change, however, specifically concerns the time frame in which OCC 
permits itself to implement any proposed fee change under its Fee 
Policy.
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    \4\ OCC's Fee Policy was adopted as part of OCC's plan for 
raising additional capital (``Capital Plan''), which was put in 
place in light of proposed regulatory capital requirements 
applicable to systemically important financial market utilities, 
such as OCC. See Exchange Act Release No. 34-74452 (March 6, 2015), 
80 FR 13058 (March 12, 2015) (SR-OCC-2015-02); Exchange Act Release 
No. 34-74387 (February 26, 2015), 80 FR 12215 (March 6, 2015) (SR-
OCC-2014-813) (``Approval Orders''). BATS Global Markets, Inc., BOX 
Options Exchange LLC, KCG Holdings, Inc., Miami International 
Securities Exchange, LLC, and Susquehanna International Group, LLP 
each filed petitions for review of the Approval Order, challenging 
the action taken by delegated authority. Following review of these 
petitions, on August 8, 2017, the U.S. Court of Appeals for the DC 
Circuit remanded the Approval Orders to the Commission to further 
analyze whether the Capital Plan is consistent with the Securities 
Exchange Act of 1934. Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 
442 (DC Cir. 2017). While the Commission further analyzes the 
Capital Plan, it remains in effect as originally approved by the 
Commission. See id.
    \5\ OCC notes that authority to review and approve changes to 
OCC's fees pursuant to the Capital Plan has been delegated to the 
Compensation and Performance Committee of the Board. See OCC 
Compensation and Performance Committee Charter, available at: http://www.optionsclearing.com/components/docs/about/corporate-information/performance_committee_charter.pdf.
    \6\ See 15 U.S.C. 78s(b)(3)(A)(ii). Regarding any such proposed 
rule change that becomes immediately effective, however, the 
Commission also has certain conditional authority to summarily 
temporarily suspend the change and institute proceedings to 
determine whether to approve or disapprove it. See 15 U.S.C. 
78s(b)(3)(C).
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    In General, Article IX, Section 9 of OCC's By-Laws requires that 
OCC's fee structure be designed to: (1) Cover OCC's operating expenses 
plus a business risk buffer; (2) maintain reserves deemed reasonably 
necessary by OCC's Board; and (3) accumulate an additional surplus 
deemed advisable by the Board to permit OCC to meet its obligations to 
its Clearing Members and the public.\7\ In connection with these 
requirements, OCC has adopted a Fee Policy under which the Board 
determines OCC's fee structure. As part of the Fee Policy, the Board 
reviews the existing Schedule of Fees on a quarterly basis to determine 
its appropriateness. Central to the Board's determination of the 
appropriate level of fees is the requirement to cover OCC's operating 
expenses plus an additional amount referred to as a ``Business Risk 
Buffer.'' The Business Risk Buffer is an amount of fee revenue that OCC 
targets above its anticipated operating expenses to allow for 
unexpected fluctuations in operating expenses, business capital needs, 
and regulatory capital requirements. Under the Fee Policy, OCC 
generally sets clearing fees at a level designed to cover operating 
expenses plus a Business Risk Buffer of 25%. In determining the proper 
level of fees to achieve this goal, the Board may rely on a 
recommendation of OCC staff that is based on an analysis of, among 
other things, year-to-date revenue and operating expenses and projected 
clearing volume and operating expenses.
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    \7\ OCC notes that clauses two and three above would be invoked 
only at the discretion of OCC's Board and in extraordinary 
circumstances.
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    OCC believes that the current 60-day implementation period under 
the Fee Policy (i) increases the difficulty of projecting appropriate 
fee levels needed to cover OCC's operating expenses plus the Business 
Risk Buffer given the amount of time that passes between OCC's analysis 
and the implementation of the fee change, (ii) increases the risk that 
by the time the fee change is implemented, the extended delay in 
implementation may result in revenues that diverge further from the 
target the Business Risk Buffer (either higher or lower), and (iii) 
increases the impact of a fee change due to the delayed implementation 
timing.\8\ As a result, OCC may need to make more frequent and/or more 
dramatic changes to its Schedule of Fees in order to maintain its 
target Business Risk Buffer, resulting in less stability in fees for 
OCC's participants. OCC believes that reducing the 60-day 
implementation period to 30 days would allow for fee adjustments that 
are based on revenue and expense data that is more current, and 
therefore projections that are more accurate. OCC believes the proposed 
rule change would therefore improve its ability to set fees at an 
appropriate level to meet its requirements under the Capital Plan while 
still providing adequate notice to its participants of any proposed fee 
changes.
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    \8\ OCC notes that, as a practical matter, it typically 
implements changes to its Schedule of Fees on the first of the 
month. As a result, the actual delay in implementing a proposed fee 
change may be significantly longer than 60 days depending on the 
timing of Board approval of any fee change and subsequent filing of 
the associated proposed rule change.
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(2) Statutory Basis
    Section 17A(b)(3)(D) of the Act \9\ requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges among its participants. In addition, Rule 
17Ad-22(e)(21) \10\ requires that a covered clearing agency establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to be efficient and effective in meeting the 
requirements of its participants and the markets it serves. OCC 
believes the proposed rule change is consistent with Section 
17A(b)(3)(D) of the Act \11\ and the rules thereunder because allowing 
earlier implementation of changes to OCC's Schedule of Fees would 
ensure that the fees charged to Clearing Members are based on based on 
revenue and expense data that is more current, and therefore 
projections that are more accurate. As a result, OCC believes it would 
be able to implement fee changes that are more accurately calibrated to 
meet the requirements of its Fee Policy and Capital Plan, which in turn 
would foster the equitable allocation of reasonable dues, fees and 
other charges among Clearing Members. OCC also believes that the 
proposed rule change is consistent with Rule 17Ad-22(e)(21) \12\ 
because the shortened implementation period would improve OCC's ability 
to implement a Schedule of Fees that is based on revenue and expense 
data that is more current and indicative of OCC's business, and 
therefore, the change would enhance OCC's ability to be cost-effective 
in meeting the requirements of its Clearing Members.
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    \9\ 15 U.S.C. 78q-1(b)(3)(D).
    \10\ 17 CFR 240.17Ad-22(e)(21).
    \11\ 15 U.S.C. 78q-1(b)(3)(D).
    \12\ 17 CFR 240.17Ad-22(e)(21).

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[[Page 4326]]

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

    Section 17A(b)(3)(I) of the Act \13\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the Act. OCC believes that the proposed 
rule change would not have any impact or impose a burden on 
competition. The proposed changes to the Fee Policy would not 
disadvantage or favor any particular user in relationship to another 
user because the potential for earlier implementation of changes to the 
Schedule of Fees would apply equally to all Clearing Members and market 
participants. Moreover, the proposed rule change would continue to 
allow for a notification period of at least 30 days following the 
filing of a revised Schedule of Fees with the Commission before such a 
proposed fee change could be implemented. As a result, OCC believes 
that the proposed rule change would not have any impact or impose a 
burden on competition.
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    \13\ 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.
    OCC respectfully requests that the Commission approve the proposed 
rule change on an accelerated basis pursuant to Section 
19(b)(2)(C)(iii) of the Act.\14\ OCC believes that good cause exists 
for the Commission to accelerate the effectiveness of the proposed rule 
change because the proposed changes to the Fee Policy would improve 
OCC's ability to implement fee changes that are more accurately 
calibrated to meet the requirements of its Fee Policy and Capital Plan. 
As describe above, OCC believes that the current 60-day implementation 
period under the Fee Policy (i) increases the difficulty of projecting 
appropriate fee levels needed to cover OCC's operating expenses plus 
the Business Risk Buffer given the amount of time that passes between 
OCC's analysis and the implementation of the fee change, (ii) increases 
the risk that by the time the fee change is implemented, the extended 
delay in implementation may result in revenues that diverge further 
from the target the Business Risk Buffer (either higher or lower), and 
(iii) increases the impact of a fee change due to the delayed 
implementation timing. As a result, OCC may need to make more frequent 
and/or more dramatic changes to its Schedule of Fees in order to 
maintain its target Business Risk Buffer, resulting in less stability 
in fees for OCC's participants. OCC believes that reducing the 60-day 
implementation period to 30 days would allow for fee adjustments that 
are based on revenue and expense data that is more current, and 
therefore projections that are more accurate and fee levels that are 
generally more stable. Accordingly, OCC believes the proposed rule 
change promotes OCC's ability to comply with its obligations under the 
Act to be efficient and effective in meeting the requirements of its 
participants and the markets it serves.
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    \14\ 15 U.S.C. 78s(b)(2)(C)(iii).
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    While the proposed rule change would reduce the 60-day notification 
period prior to implementing fee changes under the Fee Policy, any 
proposed fee change would still require at least a 30-day notification 
period prior to implementation and would continue to be subject to the 
Commission's rule filing process, including the notice and public 
comment period. OCC believes that the proposed 30-day implementation 
period, along with the Commission's rule filing process, would continue 
to provide Clearing Members and other market participants with 
appropriate and adequate notice of fee changes so that they are able to 
take any necessary action to prepare for the proposed fee change. 
Moreover, participants would continue to have an opportunity to comment 
on any fee changes prior to such fee change being implemented, and the 
Commission would continue to review all such fee changes as part of the 
proposed rule change process. OCC notes that the proposed rule change 
would not alter the manner in which OCC determines potential fee 
changes under its Fee Policy or the applicability of any such fee 
changes to its Clearing Members and market participants.
    For all of the reasons above, OCC requests that the Commission 
approve the proposed rule change on an accelerated basis because there 
is good cause consistent with the Act.

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 [email protected]. Please include 
File Number SR-OCC-2018-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2018-001. 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

[[Page 4327]]

that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2018-001 and 
should be submitted on or before February 14, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-01676 Filed 1-29-18; 8:45 am]
 BILLING CODE 8011-01-P