Document ID: SEC-2018-1364-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2018-08-29T04:00Z

[Federal Register Volume 83, Number 168 (Wednesday, August 29, 2018)]
[Notices]
[Pages 44076-44083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18672]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83916; File No. SR-OCC-2017-020]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change, as Modified by Amendment No. 2, 
Concerning Enhanced and New Tools for Recovery Scenarios

August 23, 2018.

I. Introduction

    On December 18, 2017, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2017-020 (``Proposed Rule Change'') 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-4 \2\ thereunder concerning 
enhanced and new tools for recovery scenarios.\3\ The Proposed Rule 
Change was published for comment in the Federal Register on December 
26, 2017.\4\ On January 25, 2018, the Commission designated a longer 
period of time for Commission action on the Proposed Rule Change.\5\ On 
March 22, 2018, the Commission published an order to institute 
proceedings to determine whether to approve or disapprove the Proposed 
Rule Change.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice infra note 4, 82 FR 61107.
    \4\ Securities Exchange Act Release No. 82531 (Dec. 19, 2017), 
82 FR 61107 (Dec. 26, 2017) (SR-OCC-2017-020) (``Notice''). On 
December 8, 2017, OCC also filed a related advance notice (SR-OCC-
2017-809) (``Advance Notice'') with the Commission pursuant to 
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, entitled the Payment, Clearing, and 
Settlement Supervision Act of 2010 and Rule 19b-4(n)(1)(i) under the 
Exchange Act. 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4(n)(1)(i), 
respectively. The Advance Notice was published in the Federal 
Register on January 23, 2018. Securities Exchange Act Release No. 
82513 (Jan. 17, 2017), 83 FR 3244 (Jan. 23, 2018) (SR-OCC-2017-809).
     The Financial Stability Oversight Council designated OCC a 
systemically important financial market utility on July 18, 2012. 
See Financial Stability Oversight Council 2012 Annual Report, 
Appendix A, available at http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is required to 
comply with the Payment, Clearing and Settlement Supervision Act and 
file advance notices with the Commission. See 12 U.S.C. 5465(e).
    \5\ Securities Exchange Act Release No. 82585 (Jan. 25, 2018), 
83 FR 4526 (Jan. 31, 2018) (File No. SR-OCC-2017-020).
    \6\ Securities Exchange Act Release No. 82926 (Mar. 22, 2018), 
83 FR 13171 (Mar. 27, 2018) (File No. SR-OCC-2017-020).
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    On July 11, 2018, OCC filed Amendment No. 1 to the Proposed Rule 
Change.\7\ On July 12, 2018, OCC filed Amendment No. 2 to the Proposed 
Rule Change.\8\ Therefore, the Proposed Rule Change, as modified by 
Amendment No. 2, reflects the changes proposed. Notice of Amendments 
No. 1 and 2 to the Proposed Rule Change was published for public 
comment in the Federal Register on August 2, 2018.\9\ Comments received 
on the Proposed Rule Change are discussed below.\10\ This order 
approves the Proposed Rule Change as modified by Amendment No. 2 
(``Amended Proposed Rule Change'').
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    \7\ In Amendment No. 1, OCC made certain changes to clarify the 
use of the recovery tools and to improve the overall transparency 
regarding the use of the recovery tools.
    \8\ Amendment No. 2 superseded and replaced Amendment No. 1 in 
its entirety, due to technical defects in Amendment No. 1.
    \9\ Securities Exchange Act Release No. 83725 (Jul. 27, 2018), 
83 FR 37839 (Aug. 2, 2018) (``Notice of Amendment'').
    \10\ The letters are available at: https://www.sec.gov/comments/sr-occ-2017-022/occ2017020.htm.
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II. Description of the Amended Proposed Rule Change \11\
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    \11\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
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    The Amended Proposed Rule Change concerns proposed changes to OCC's 
Rules and By-Laws to enhance OCC's existing tools to address the risks 
of liquidity shortfalls and credit losses and to establish new tools by 
which OCC could re-establish a matched book and, if necessary, allocate 
uncovered losses following the default of a Clearing Member as well as 
provide for additional financial resources. Each of the proposed tools 
is contemplated to be deployed by OCC in an extreme stress event that 
has placed OCC into a recovery or orderly wind-down scenario. The 
proposed changes include modifying OCC's powers of assessment, 
introducing a framework for requesting voluntary payments to the 
Clearing Fund, and establishing OCC's authority to extinguish open 
positons (i.e., conduct tear-ups) as well as authorizing OCC's Board of 
Directors (``Board'') to re-allocate losses from tear-ups.

A. Proposed Changes to OCC Powers of Assessment

    OCC maintains a Clearing Fund comprised of required contributions 
from Clearing Members, and OCC has authority to use the Clearing Fund, 
by a proportionate charge or otherwise, to cover certain losses 
suffered by OCC.\12\ When an amount is paid out of a Clearing Member's 
required contribution to the Clearing Fund, the Clearing Member is 
generally required to promptly make good any deficiency in its required 
contribution to the Clearing Fund from such payment.\13\ Generally, 
this requirement to promptly make good on any deficiency arising from 
the default of a Clearing Member has been referred to as an 
``assessment'' by OCC against a Clearing Member; however, as further 
described below, OCC is making clarifying changes to a Clearing 
Member's obligation to contribute to the Clearing Fund, including 
defining and delineating between a Clearing Member's obligation

[[Page 44077]]

to answer ``assessments'' charged by OCC under certain circumstances 
described further below and a Clearing Member's obligations where OCC 
seeks to effect a ``replenishment'' of the Clearing Fund.
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    \12\ See OCC By-Laws, Article VIII. For example, under Section 5 
of Article VIII of the OCC By-Laws, when a Clearing Member defaults, 
OCC will pay for the resulting losses or expenses by first applying 
other funds available to OCC in the accounts of the defaulting 
Clearing Member and then applying the defaulting Clearing Member's 
required contribution to the Clearing Fund. If the losses and 
expenses exceed those amounts, then OCC will charge the amount of 
the remaining deficiency on a proportionate basis against all non-
defaulting Clearing Members' required contributions to the Clearing 
Fund.
    \13\ See OCC By-Laws, Article VIII, Section 6.
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    Currently, a Clearing Member's obligation to make good its required 
contribution to the Clearing Fund is not subject to any pre-determined 
limit. However, a Clearing Member may limit the amount of its liability 
to contribute to the Clearing Fund by winding-down its clearing 
activities and terminating its membership. To do so, a Clearing Member 
must provide written notice to OCC that it is terminating its 
membership by no later than the fifth business day after application of 
the proportionate charge.\14\ This termination would limit the Clearing 
Member's obligation to meet a future assessment to an additional 100 
percent of the amount of its then-required Clearing Fund contribution. 
Thus, terminating clearing membership is the only means by which a 
Clearing Member can currently limit its liability for amounts due to 
the Clearing Fund. OCC proposed three changes to modify its existing 
authority to assess proportionate charges against Clearing Members' 
required contributions to the Clearing Fund: (1) A cooling-off period 
and cap on assessments; (2) termination of clearing membership during a 
cooling-off period; and (3) replenishment of resources following a 
cooling-off period.
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    \14\ In addition to providing the written notice, to effectively 
terminate membership, a Clearing Member must satisfy two other 
conditions. First, after submitting the written notice, the Clearing 
Member cannot submit for clearance any opening purchase transaction 
or opening written transaction or initiate a Stock Loan through any 
of the Clearing Member's accounts. Second, the Clearing Member has 
to close out or transfer all of its open positions with OCC, in each 
case as promptly as practicable after giving written notice. See OCC 
By-Laws, Article VIII, Section 6.
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1. Cooling-Off Period and Cap on Assessments
    The proposal would introduce a minimum fifteen calendar day 
``cooling-off'' period that automatically begins when OCC imposes a 
proportionate charge related to the default of a Clearing Member 
against non-defaulting Clearing Members' Clearing Fund contributions. 
During a cooling-off period, the aggregate liability for a Clearing 
Member would be capped at 200 percent of its then-required contribution 
to the Clearing Fund. The cooling-off period would be extended if one 
or more specific events related to the default of a Clearing Member (as 
set forth in OCC's By-laws) \15\ occur(s) during that fifteen calendar 
day period and results in one or more proportionate charges against the 
Clearing Fund. Such an extension would run until the earlier of (i) the 
fifteenth calendar day from the date of the most recent proportionate 
charge resulting from that subsequent event, or (ii) the twentieth day 
from the date of the proportionate charge that initiated the cooling-
off period.
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    \15\ Specifically, a cooling-off period would automatically 
begin after a proportionate charge arises in response to: (i) Any 
Clearing Member failure to discharge duly any obligation on or 
arising from any confirmed trade accepted by OCC, (ii) any Clearing 
Member (including any Appointed Clearing Member) failure to perform 
any obligations (including its obligations to the correspondent 
clearing corporation) under or arising from any exercised or 
assigned option contract or any other contract or obligation issued 
or guaranteed by OCC or in respect of which it is otherwise liable, 
(iii) any Clearing Member failure to perform any obligation to OCC 
in respect of the stock loan and borrow positions of such Clearing 
Member, or (iv) OCC suffered any loss or expense upon any 
liquidation of a Clearing Member's open positions. See OCC By-Laws, 
Article VIII, Section 5(a)(i) 09(iv).
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    Once the cooling-off period ends, each remaining Clearing Member 
would be required to replenish the Clearing Fund in the amount 
necessary to meet its then-required contribution. Any remaining losses 
or expenses suffered by OCC as a result of any events that occurred 
during that cooling-off period could not be charged against the amounts 
Clearing Members have contributed to replenish the Clearing Fund upon 
the expiration of the cooling-off period. However, after the end of a 
cooling-off period, the occurrence of another specified event that 
results in a proportionate charge against the Clearing Fund would 
trigger a new cooling-off period.
2. Membership Termination During a Cooling-Off Period
    As noted above, to limit its liability to replenish the Clearing 
Fund, a Clearing Member currently must provide written notice of its 
intent to terminate its clearing membership by no later than the fifth 
business day after a proportionate charge. OCC's proposal would extend 
the time frame for a Clearing Member to provide such notice of 
termination, which would allow the terminating Clearing Member to avoid 
liability to replenish the Clearing Fund after the cooling-off period. 
Specifically, to terminate its status as a Clearing Member and not be 
liable for replenishment at the end of a cooling-off period, a Clearing 
Member would be required to: (i) Notify OCC in writing of its intent to 
terminate by no later than the last day of the cooling-off period, (ii) 
not initiate any opening purchase or opening writing transaction, and, 
if the Clearing Member is a Market Loan Clearing Member or a Hedge 
Clearing Member, not initiate any Stock Loan transaction through any of 
its accounts, and (iii) close-out or transfer all open positions by no 
later than the last day of the cooling-off period. If a Clearing Member 
fails to satisfy all of these conditions by the end of a cooling-off 
period, it would not have completed all of the requirements necessary 
to terminate its status as a Clearing Member, and therefore, it would 
remain subject to its obligation to replenish the Clearing Fund after 
the cooling-off period ends.
    Given the products cleared by OCC and the composition of its 
clearing membership, OCC determined that a minimum 15-calendar day 
cooling-off period, rolling up to a maximum of 20 calendar days, is 
likely to be a sufficient amount of time for OCC to manage the ongoing 
default(s) and take necessary steps in furtherance of stabilizing the 
clearing system. Further, based on its conversations with Clearing 
Members, OCC believes that the proposed cooling-off period is likely to 
be a sufficient amount of time for Clearing Members (and their 
customers) to orderly reduce or rebalance their positions, in an 
attempt to mitigate stress losses and exposure to potential initial 
margin increases during the stress event.\16\ OCC also believes the 
proposed cooling-off period, coupled with the other proposed changes to 
OCC's assessment powers, is likely to provide Clearing Members with an 
adequate measure of stability and predictability as to the potential 
use of Clearing Fund resources, which would, according to OCC, remove 
the existing incentive for Clearing Members to withdraw following a 
proportionate charge (i.e., to avoid facing potentially unlimited 
liability for replenishing the Clearing Fund).
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    \16\ See Notice of Amendment, 83 FR at 37847.
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3. Replenishment and Assessment
    The proposal would clarify the distinction between 
``replenishment'' of the Clearing Fund and a Clearing Member's 
obligation to answer ``assessments'' charged by OCC. In this context, 
the term ``replenish'' (and its variations) would refer to a Clearing 
Member's standing duty, following any proportionate charge against the 
Clearing Fund, to return its Clearing Fund contribution to the amount 
required from such Clearing Member for the month in question. The term 
``assessment'' (and its variations) would refer to the amount, during 
any cooling-off period, that a Clearing Member

[[Page 44078]]

would be required to contribute to the Clearing Fund in excess of the 
amount of the Clearing Member's pre-funded required Clearing Fund 
contribution.

B. Proposed Authority To Request Voluntary Payments

    OCC proposed new Rule 1011 to provide a framework for receipt of 
voluntary payments in a circumstance where a Clearing Member has 
defaulted and OCC has determined that it may not have sufficient 
resources to satisfy its obligations and liabilities resulting from 
such default.\17\ OCC would initiate a call for voluntary payments by 
issuing a notice inviting all non-defaulting Clearing Members to make 
payments to the Clearing Fund in addition to any amounts they are 
otherwise required to contribute pursuant to Rule 1001 (``Voluntary 
Payment Notice''). The Voluntary Payment Notice would specify the terms 
applicable to any voluntary payment, including but not limited to, that 
any voluntary payment may not be withdrawn once made, that no Clearing 
Member shall be obligated to make a voluntary payment, and that OCC 
shall retain full discretion to accept or reject any voluntary payment.
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    \17\ OCC's determination would be made notwithstanding 
availability of remaining resources under Rules 707 (addressing the 
treatment of funds in a Clearing Member's X-M accounts); 1001 
(addressing the size of OCC's Clearing Fund and the amount of a 
Clearing Member's contribution); 1104-1107 (concerning the treatment 
of the portfolio of a defaulted Clearing Member); and 2210 and 2211 
(concerning the treatment of Stock Loan positions of a defaulted 
Clearing Member).
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    In the event that OCC eventually obtains additional financial 
resources from the defaulting Clearing Member, OCC would give priority 
to repayment of Clearing Members that made Voluntary Payments. 
Specifically, if OCC subsequently recovers from the defaulted Clearing 
Member or the estate of the defaulted Clearing Member, OCC would seek 
to first compensate all non-defaulting Clearing Members that made 
voluntary payments.\18\ If the amount recovered from the defaulted 
Clearing Member were less than the aggregate amount of voluntary 
payments, non-defaulting Clearing Members that made voluntary payments 
each would receive a percentage of the amount recovered that 
corresponds to that Clearing Member's percentage of the total amount of 
voluntary payments received.
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    \18\ As discussed further in Section II.C.1 below, OCC's 
proposed authority with respect to Voluntary Payments and Voluntary 
Payments would work together to establish a hierarchy of repayment 
in the event that OCC subsequently recovers from the defaulted 
Clearing Member. Under proposed rules 1011(b) and 1111(a)(ii), OCC 
would first seek to compensate those non-defaulting Clearing Members 
who had submitted Voluntary Payments and, thereafter, to the extent 
funds remained, OCC would then seek to compensation those non-
defaulting Clearing Members who had participated in the Voluntary 
Tear-Up.
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C. Proposed Authority to Conduct Voluntary Tear-Ups and Partial Tear-
Ups

    OCC proposed new Rule 1111 to establish a framework to extinguish 
positions of a suspended or defaulted Clearing Member on a voluntary 
basis (``Voluntary Tear-Up'') or on a mandatory basis (``Partial-Tear 
Up'') and, in certain extreme circumstances, to allocate any uncovered 
losses in the event that OCC does not have sufficient financial 
resources to conduct the tear-up. A Voluntary Tear-Up, if provided, 
would precede a Partial-Tear Up, and any Partial Tear-Up would take 
into account any positions extinguished as part of a Voluntary Tear-Up. 
Further, Rule 1111(h) would provide that no action or omission by OCC 
pursuant to, and in accordance with, Rule 1111 shall constitute a 
default by OCC, provided that Rule 1111(h) would not apply where OCC 
pays Clearing Members a pro rata amount of the applicable Tear-Up price 
because OCC does not have adequate resources to pay the full Tear-Up 
price.
    OCC's use of both Voluntary and Partial Tear-Up would be subject to 
certain prerequisites. First, any tear-up would occur after one or more 
failed auctions pursuant to Rule 1104 or 1106. Second, any tear-up 
would occur after OCC has determined that it may not have sufficient 
resources to satisfy its obligations and liabilities resulting from 
such default.\19\
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    \19\ As with Voluntary Payments, this determination would be 
made notwithstanding availability of remaining resources under Rules 
707, 1001, 1104-1107, 2210, and 2211. See note 17 supra.
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    OCC represented that it would initiate its tear-up process on a 
date sufficiently in advance of the exhaustion of its financial 
resources such that OCC would expect to have adequate remaining 
resources to cover the amount it must pay to extinguish the positions 
of Clearing Members and customers.\20\ The holders of torn-up positions 
would be assigned a price, and OCC would draw on its remaining 
financial resources to extinguish the torn-up positions at the assigned 
price. Although OCC does not intend, in the first instance, for its 
tear-up process to serve as a means of loss allocation, OCC recognizes 
that circumstances may arise such that, despite its best efforts, OCC 
may not have adequate remaining financial resources to extinguish torn-
up positions at the full assigned price, resulting in the allocation of 
uncovered losses by the tear-up process. As further described below, a 
Clearing Member allocated an uncovered loss would then have an 
unsecured claim against OCC for the value of the difference between the 
pro rata amount paid to the Clearing Member and the full amount the 
Clearing Member should have received.
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    \20\ Specifically, OCC stated that it anticipated that it would 
determine the date on which to initiate Partial Tear-Ups by 
monitoring its remaining financial resources against the potential 
exposure of the remaining unauctioned positions from the 
portfolio(s) of the defaulted Clearing Member(s).
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1. Voluntary Tear-Up
    As noted above, a Voluntary Tear-Up would provide an opportunity to 
holders of certain positions opposite a defaulting Clearing Member to 
voluntarily extinguish those positions. Although the Risk Committee of 
OCC's Board of Directors (``Risk Committee'') approval is not necessary 
to commence a Voluntary Tear-Up, the Risk Committee would be 
responsible for determining the scope of a Voluntary Tear-Up. Proposed 
Rule 1111(c) would provide discretion to the Risk Committee when 
determining the appropriate scope, but the discretion would be subject 
to, and limited by, certain conditions, i.e., that the determination 
should be (i) based on then-existing facts and circumstances, (ii) be 
in furtherance of the integrity of OCC and the stability of the 
financial system, and (iii) take into consideration the legitimate 
interests of Clearing Members and market participants.
    Once the Risk Committee has determined the scope, OCC would 
initiate the call for Voluntary Tear-Ups by issuing a notice 
(``Voluntary Tear-Up Notice'') to inform all non-defaulting Clearing 
Members of the opportunity to participate in a Voluntary Tear-Up.\21\ 
The Voluntary Tear-Up Notice would specify the terms applicable to any 
Voluntary Tear-Up, including, but not limited to, that no Clearing 
Member or customers of a Clearing Member shall be obligated to 
participate in a Voluntary Tear-Up, and that OCC shall retain full 
discretion to accept or reject any Voluntary Tear-Up.
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    \21\ Because OCC does not know the identities of Clearing 
Members' customers, OCC would depend on each Clearing Member to 
notify its customers with positions in scope of the Voluntary Tear-
Up of the opportunity to participate in such tear-up.
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    Clearing Members and their customers that participated in a 
Voluntary Tear-Up and incurred losses would have a claim to amounts 
subsequently recovered from a defaulted Clearing Member (or the estate 
of the defaulted Clearing Member). The claim would be junior to 
Clearing Members who made a voluntary payment to the

[[Page 44079]]

Clearing Fund, and OCC would satisfy the claims on a pro-rata basis.
2. Partial Tear-Up
    Under proposed Rule 1111(b), OCC's Board would be responsible for 
the decision to conduct a mandatory Partial Tear-Up. The Risk Committee 
would then be responsible for determining the appropriate scope of the 
Partial Tear-Up, subject to the conditions in Rule 1111(c) discussed 
above.
    The proposed rule would also provide the Board with the discretion 
to conduct a mandatory Partial Tear-Up to extinguish the remaining open 
positions of any defaulted Clearing Member or customer of such 
defaulted Clearing Member(s) (``Remaining Open Positions'') and/or any 
related open positions necessary to mitigate further disruptions to the 
markets affected by the Remaining Open Positions (``Related Open 
Positions''). The open positions subject to tear-up opposite to the 
Remaining Open Positions and the Related Open Positions would be 
designated in accordance with the methodology in Rule 1111(e). 
Specifically, for Remaining Open Positions, the aggregate amount in the 
identical Cleared Contracts and Cleared Securities would be designated 
on a pro-rata basis to non-defaulting Clearing Members that have an 
open position in such Cleared Contract or Cleared Security. For 
Remaining Open Positions, all open positions in Cleared Contracts and 
Cleared Securities identified in the scope of the Partial Tear-Up would 
be extinguished.
    After the scope of the Partial Tear-Up is determined, OCC would 
initiate the Partial Tear-Up process by issuing a notice (``Partial 
Tear-Up Notice''). The Partial Tear-Up Notice would: (i) Identify the 
Remaining Open Positions and Related Open Positions designated for 
tear-up, (ii) identify the Tear-Up Positions, (iii) specify the 
termination price (``Partial Tear-Up Price'') for each position to be 
torn-up, and (iv) list the date and time, as determined by the Risk 
Committee, that the Partial Tear-Up will occur (``Partial Tear-Up 
Time'').
    Rule 1111(f) would provide that, to determine the Partial Tear-Up 
Price, OCC would use its discretion, acting in good faith and in a 
commercially reasonable manner, to adopt methods of valuation expected 
to produce reasonably accurate substitutes for the values that would 
have been obtained from the relevant market if it were operating 
normally, including but not limited to the use of pricing models that 
use the market price of the underlying interest or the market prices of 
its components. Rule 1111(f) further specifies that OCC may consider 
the same information set forth in subpart (c) of Section 27, Article VI 
of OCC's By-Laws.\22\ OCC stated that it is likely to use the last 
established end-of-day settlement price, in accordance with its 
existing practices concerning pricing and valuation. However, given 
that it is not possible to know in advance the precise circumstances 
that would cause OCC to conduct a tear-up, Rule 1111(f) would allow OCC 
to exercise reasonable discretion, if necessary, in establishing the 
Partial Tear-Up Price by some means other than its existing practices 
concerning pricing and valuation. For example, OCC represented that it 
has observed certain rare circumstances in which a closing price for an 
underlying security of an option may be stale or unavailable. A stale 
or unavailable closing price could be the result of a halt on trading 
in the underlying security, a corporate action resulting in a cash-out 
or conversion of the underlying security (but that has not yet been 
finalized), or the result of an ADR whose underlying security is being 
impacted by certain provisions under foreign laws. OCC stated it would 
consider these circumstances in determining whether use of the 
discretion that would be afforded under proposed Rule 1111(f) might be 
warranted.\23\
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    \22\ Section 27, Article VI addresses the valuation of positions 
that may be subject to close-out netting in the event of OCC's 
insolvency or default. Specifically, it states that in determining a 
close-out amount, OCC may consider any information that it deems 
relevant, including, but not limited to, any of the following 
factors: (i) Prices for underlying interests in recent transactions, 
as reported by the market or markets for such interests; (ii) 
quotations from leading dealers in the underlying interest, setting 
forth the price (which may be a dealing price or an indicative 
price) that the quoting dealer would charge or pay for a specified 
quantity of the underlying interest; (iii) relevant historical and 
current market data for the relevant market, provided by reputable 
outside sources or generated internally; and (iv) values derived 
from theoretical pricing models using available prices for the 
underlying interest or a related interest and other relevant data.
    \23\ See Letter from Joseph P. Kamnik, Sr. Vice President and 
CRO, OCC, to Brent Fields, Secretary, Commission, at 5 (Jul. 9, 
2018) (``OCC Letter'').
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    Every Partial Tear-Up position would be automatically terminated at 
the Partial Tear-Up Time, without the need for any further step by any 
party to the position. Upon termination, either OCC or the relevant 
Clearing Member would be obligated to pay to the other party the 
applicable Partial Tear-Up Price. The corresponding open position would 
be deemed terminated at the Partial Tear-Up Price. In the event that, 
given the amount of remaining resources, OCC would not be able to pay 
the full Partial Tear-Up Price, OCC would pay each torn-up Clearing 
Member a pro-rata amount of the applicable Partial Tear-Up Price based 
on the amounts of such resources remaining. Those Clearing Members 
would then have an unsecured claim against OCC for the value of the 
difference between the pro rata amount and the Partial Tear-Up Price.
3. Re-Allocating Losses From Tear-Up
    The proposed changes would provide OCC with means to re-allocate 
losses, costs, and expenses associated with the tear-up process. First, 
the proposal would amend Article VIII of the By-Laws to provide OCC 
discretion to use remaining Clearing Fund contributions to re-allocate 
losses imposed on non-defaulting Clearing Members and customers from 
tear-up. Second, in connection with a Partial Tear-Up, proposed Rule 
1111(g) would provide the Board with discretion to re-allocate losses, 
costs, and fees imposed upon non-defaulting Clearing Members and their 
customers among all non-defaulting Clearing Members to the extent that 
such losses, costs, and fees can be reasonably determined by OCC 
(``Special Charge''). The Special Charge would correspond to each non-
defaulting Clearing Member's proportionate share of the variable amount 
of the Clearing Fund at the time of the Partial Tear-Up. The Special 
Charge would be distinct and separate from a Clearing Member's 
obligation to satisfy Clearing Fund assessments during a cooling-off 
period and, therefore, not subject to the cap on assessments.

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.\24\ After carefully 
considering the Amended 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 finds that the Amended Proposed Rule 
Change is consistent with Section 17A(b)(3)(F) of the Exchange Act \25\ 
and Rules 17Ad-22(e)(2)(i), (iii), and (v), (e)(4)(viii) and

[[Page 44080]]

(ix), (e)(13), and (e)(23)(i) and (ii) thereunder.\26\
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    \24\ 15 U.S.C. 78s(b)(2)(C).
    \25\ 15 U.S.C. 78q-1(b)(3)(F).
    \26\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v), (e)(4)(viii) 
and (ix), (e)(13), and (e)(23)(i) and (ii).
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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, promote the 
prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of the clearing agency or for which it is 
responsible, and, in general, to protect investors and the public 
interest.\27\
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    \27\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC is the sole registered clearing agency for the U.S. listed 
options markets. In general, OCC maintains equal and opposite 
obligations on cleared positions (commonly referred to as a matched 
book). In an extreme loss event caused by a Clearing Member default, 
re-establishing a matched book as quickly as possible is essential 
because it would allow OCC to continue clearing and settling securities 
transactions as a central counterparty. In addition, allocating 
uncovered losses is important in such an event because it would allow 
OCC to provide further certainty to Clearing Members, their customers, 
and other stakeholders about how it addresses such losses and avoid a 
disorderly resolution to such an event. Thus, taken together, the 
Commission believes that the new and amended authority granted to OCC 
specific to the context of extreme loss events and described in the 
Amended Proposed Rule Change should provide OCC with the ability to re-
establish a matched book, allocate uncovered losses if necessary, and 
limit OCC's potential exposure to losses from such an event, all of 
which would be essential to OCC's ability to continue promptly and 
accurately clearing securities transactions in the event that an 
extreme market event places OCC in a recovery scenario.
    Further, the Commission believes that the proposed changes would 
provide a reasonable amount of clarity and specificity to Clearing 
Members, their customers, and other stakeholders about the potential 
tools that would be expected to be available to OCC if such an event 
occurred, and the consequences that might arise from OCC's application 
of such tools. Because of this increased clarity and specificity, OCC's 
Clearing Members, their customers, and other stakeholders should have 
more information regarding their potential exposure and liability to 
OCC in an extreme loss event. Accordingly, the Commission believes that 
the proposed changes should allow Clearing Members, their customers, 
and other stakeholders to better evaluate the risks and benefits of 
clearing transactions at OCC because the proposed changes result in 
those parties having more information and specificity regarding the 
actions that OCC could take in response to an extreme loss event. To 
the extent that Clearing Members, their customers, and other 
stakeholders are able to use this increased clarity and specificity to 
better manage their potential exposure and liability in clearing 
transactions at OCC, such parties should be able to mitigate the 
likelihood that such tools could surprise or otherwise destabilize 
them. For these reasons, the Commission believes that the proposed 
rules providing for such clarity and specificity are designed, in 
general, to protect investors and the public interest.
    It is important for OCC to implement measures, including measures 
designed to facilitate OCC's ability to address risks and obligations 
arising in the specific context of extreme loss events, that enhance 
OCC's ability to address losses and to avoid threatening its ability to 
safeguard securities and funds within OCC's custody or control. OCC's 
proposed modified assessment powers would impose a cap on a Clearing 
Member's potential liability to replenish the Clearing Fund following a 
particular default event and extend the timeframe during which a 
Clearing Member must determine whether to terminate its membership and 
avoid further losses. Taken together, the Commission believes that 
these tools are reasonably designed to provide OCC with sufficient 
financial resources to cover default losses and ensure that OCC can 
take timely actions to contain losses and continue meeting its 
obligations in the event of a Clearing Member default. Similarly, the 
Commission believes that these changes would provide Clearing Members 
and their customers with greater certainty and predictability regarding 
the amount of losses they must bear as a result of a Clearing Member 
default. For these reasons, the Commission believes that the Amended 
Proposed Rule Change is designed to assure the safeguarding of 
securities and funds in OCC's custody or control.
    Additionally, OCC's proposed authority to conduct tear-ups would 
provide OCC with a mechanism for restoring a matched book and, in the 
event that OCC did not have sufficient financial resources to pay the 
full Partial Tear-Up Price, allocate losses to the non-defaulting 
Clearing Members. The Commission recognizes that a tear-up would result 
in termination of positions of non-defaulting Clearing Members. 
However, because under the proposed rules OCC would only be able to use 
its tear-up authority after it has conducted an auction pursuant to its 
Rules and when OCC has determined that it may not have sufficient 
financial resources to meet its obligations, a tear-up would only arise 
in an extreme stress scenario. Use of tear-up in such circumstances 
could potentially return OCC to a matched book quickly, thereby 
containing its losses and avoiding OCC's and its Clearing Members' 
exposure to additional losses. OCC's proposal would also address the 
determination of the Partial Tear-Up Price. Specifically, OCC would 
determine a Partial Tear-Up Price by using its discretion, acting in 
good faith and in a commercially reasonable manner, to adopt methods of 
valuation expected to produce reasonably accurate substitutes for the 
values that would have been obtained from the relevant market if it 
were operating normally, including but not limited to the use of 
pricing models that use the market price of the underlying interest or 
the market prices of its components. The Commission believes that OCC's 
proposed authority to conduct tear-ups could facilitate its ability to 
return to a matched book quickly and, in an extreme event, allocate 
losses. This, in turn, could help ensure that OCC is able to continue 
providing its critical clearing functions by facilitating the timely 
containment of default losses and liquidity pressures, thereby helping 
to prevent OCC from failing in such an event, and is therefore 
consistent with promoting the prompt and accurate clearance and 
settlement of securities transactions.
    One commenter states that the Partial Tear-Up Price should be 
determined objectively and not on a discretionary basis.\28\ In the OCC 
Letter, OCC states that, in the event that it has to determine a 
Partial Tear-Up Price, OCC anticipates that it is likely to use the 
last established end-of-day settlement price, in accordance with its 
existing practices concerning pricing and valuation, but notes that 
discretion may be necessary in the circumstances likely to be 
associated with an extreme loss event necessitating a tear-up where the 
end-of-day closing price may be stale or

[[Page 44081]]

unavailable.\29\ Further, the Commission notes that, under OCC's 
proposed rule, OCC would not have unfettered discretion to determine 
the appropriate price. Rather, OCC's discretion would be limited by two 
conditions. Specifically, in the event that OCC uses its discretion to 
determine a Partial Tear-Up Price, it will be required under OCC's 
proposed rule to do so (i) in good faith and (ii) in a commercially 
reasonable manner.\30\ The Commission believes that this discretion, as 
limited by the two specified conditions, is appropriate given that it 
is not possible to know the precise circumstances likely to be 
associated with an extreme loss event necessitating a tear-up, and, 
therefore, the limited discretion provided for in the proposed rule may 
be appropriate in such circumstances. The Commission also notes that, 
in the event that OCC is using its authority to conduct a Partial Tear-
Up, OCC would provide notification to the Commission and other 
regulators.\31\ Accordingly, the Commission does not believe that this 
aspect of the proposal is inconsistent with the Exchange Act.
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    \28\ See Letter from Jacqueline H. Mesa, Sr. Vice President of 
Global Policy, Futures Industry Association, to Brent Fields, 
Secretary, Commission, at 2; available at https://www.sec.gov/comments/sr-occ-2017-022/occ2017020.htm (Jan. 16, 2018) (``FIA 
Letter'').
    \29\ See OCC Letter at 5. According to OCC, a stale or 
unavailable closing price could be the result of a halt on trading 
in the underlying security, a corporate action resulting in a cash-
out or conversion of the underlying security (but that has not yet 
been finalized), or the result of an ADR whose underlying security 
is being impacted by certain provisions under foreign laws. See id.
    \30\ See also id. at 5.
    \31\ See Securities Exchange Act Release No. 83918 (Aug. 23, 
2018) at note 19 (SR-OCC-2017-021).
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    Finally, OCC's proposal would also introduce methods of re-
allocating losses after a tear-up. First, the revised By-Laws would 
allow OCC discretion to use remaining Clearing Fund contributions to 
re-allocate losses imposed on non-defaulting Clearing Members and their 
customers from a tear-up. Second, the revised Rules would provide the 
Board with the discretion to re-allocate losses among all non-
defaulting members via a Special Charge, to the extent that such losses 
can be reasonably determined. As such, the Commission believes that 
these tools, and the associated governance, are designed to give OCC 
the ability to re-allocate the losses in a fair and equitable manner 
after an extreme market event, and, in general, to protect investors 
and the public interest.
    One commenter states that the power to impose the Special Charge in 
connection with a Partial Tear-Up potentially could impose costs onto 
non-defaulting Clearing Members that did not have an opposing position 
from a defaulting Clearing Member. According to the commenter, the 
Special Charge could, in effect, be another assessment against all 
Clearing Members, which could create unquantifiable and unmanageable 
risks to Clearing Members. Moreover, the commenter states that the 
discretion afforded the Board may result in the Special Charge being 
capriciously applied. For these reasons, the commenter believes that 
the costs associated with a Partial Tear-Up should not be transferrable 
to unaffected Clearing Members.\32\
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    \32\ See FIA Letter at 2.
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    Under the terms of the proposed rule, the Special Charge could only 
be used when the losses, costs, and fees imposed upon non-defaulting 
Clearing Members and their customers directly resulting from a Partial 
Tear-Up reasonably can be determined by OCC. Further, if it were used, 
the Special Charge would correspond to each non-defaulting Clearing 
Member's proportionate share of the Clearing Fund at the time of the 
Partial Tear-Up. Thus, the Commission does not believe that OCC would 
be permitted under the proposed rule to engage in unlimited assessments 
because the amount of the Special Charge must be subject to a 
reasonable determination, and the Special Charge would then correspond 
to the non-defaulting Clearing Member's proportionate share of the 
Clearing Fund. These aspects of the Special Charge should help ensure 
that OCC does not apply the tool capriciously and that the Board would 
use the Special Charge in these delineated circumstances, i.e., when 
the amount of the losses was reasonably determinable. For these 
reasons, the Commission does not believe that the Special Charge is 
inconsistent with the Exchange Act.
    Therefore, the Commission believes that the proposed rule changes 
would promote the prompt and accurate clearance and settlement of 
securities transactions, assure the safeguarding of securities and 
funds in OCC's custody and control, and, in general, protect investors 
and the public interest, consistent with Section 17A(b)(3)(F) of the 
Exchange Act.\33\
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    \33\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i), (iii), and (v), Rule 17Ad-
22(e)(4)(viii) and (ix), Rule 17Ad-22(e)(13), and Rule 17Ad-
22(e)(23)(i) and (ii) Under the Exchange Act

1. Governance
    Rule 17Ad-22(e)(2) requires, in relevant part, that OCC establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that are 
clear and transparent; support the public interest requirements of 
Section 17A of the Exchange Act applicable to clearing agencies, and 
the objectives of owners and participants; and specify clear and direct 
lines of responsibility.\34\
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    \34\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
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    The proposal, taken together with existing OCC Rules, specifies the 
governance that would apply to use of each of the recovery tools. 
Specifically, with respect to the modified powers of assessment, the 
cooling-off period would commence automatically upon a number of events 
specified in the By-Laws. The use of Voluntary Payments and either 
Voluntary or Partial Tear-Up cannot occur unless OCC has determined 
that it may not have sufficient resources available to satisfy its 
obligations after a default. In addition, the proposal specifies the 
applicable decision-making body that would be responsible for 
determining whether to conduct a tear-up. Specifically, for a Voluntary 
Tear-Up, OCC would be able to make that determination, and for a 
Partial Tear-Up, which is mandatory, Board action is required. The Risk 
Committee would be responsible for determining the scope of the tear-
ups, and any such determinations must take into account certain 
considerations. Only the Board may elect to impose a Special Charge to 
reallocate losses, costs, and fees from a Partial Tear-Up.
    Thus, key decisions by OCC in connection with the use of its 
proposed recovery tools are subject to specific governance processes. 
These requirements include the involvement of the Risk Committee in 
determining the scope and pricing for any Partial Tear-up and 
specifically require Board approval with respect to instituting Partial 
Tear-Up and authorizing the Special Charge. Accordingly, the Commission 
believes that the governance process for using the recovery tools is 
clear and transparent and provides clear and direct lines of 
responsibility by addressing decision making in the use of recovery 
tools, thereby supporting the public interest requirements of Section 
17A of the Exchange Act applicable to clearing agencies, and the 
objectives of owners and participants, and therefore the Commission 
believes that the proposed rule change is consistent with Rule 17Ad-
22(e)(2)(i), (iii), and (v).\35\
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    \35\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).

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[[Page 44082]]

2. Allocation of Credit Losses Exceeding Available Resources
    Rule 17Ad-22(e)(4)(viii) requires, in relevant part, that OCC 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to address allocation of credit losses 
OCC may face if its collateral and other resources are insufficient to 
fully cover its credit exposures.\36\ OCC's proposal includes three new 
recovery tools addressing the allocation of credit losses in the event 
that OCC determined that, notwithstanding the availability of any 
remaining resources under the other resource rules, OCC may not have 
sufficient resources to satisfy its obligations and liabilities 
following a default. First, Rule 1009 would provide a framework for OCC 
to receive Voluntary Payments in addition to their required 
contribution to the Clearing Fund to address a shortfall. Second, Rule 
1111 would provide a framework for Clearing Members and their customers 
to participate in a Voluntary Tear-Up. Third, Rule 1111 would provide 
the Board with the discretion to conduct a mandatory Partial Tear-Up. 
This tool could be used, if necessary in the event that OCC determines 
that its resources are inadequate to pay the applicable Partial Tear-Up 
Price, to allocate losses by allowing OCC to pay each relevant Clearing 
Member a pro rata amount of the applicable Partial Tear-Up Price based 
on the amount of such resources remaining. In addition, the modified 
powers of assessment would continue to allow OCC to use the Clearing 
Fund to address credit losses in the event of a member default.
---------------------------------------------------------------------------

    \36\ 17 CFR 240.17Ad-22(e)(4)(viii).
---------------------------------------------------------------------------

    Thus, the Commission believes that these additional recovery tools 
are reasonably designed to provide OCC with means to address allocation 
of credit losses that it may face if its collateral and other resources 
are insufficient to fully cover its credit exposures. Further, the 
Commission believes that these tools should address fully any credit 
losses that OCC may face as a result of any individual or combined 
default among its Clearing Members. Therefore, the Commission believes 
that these aspects of the proposed changes are consistent with Rule 
17Ad-22(e)(4)(viii).\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 240.17Ad-22(e)(4)(viii).
---------------------------------------------------------------------------

3. Replenishment of Financial Resources Following a Default
    Rule 17Ad-22(e)(4)(ix) requires, in relevant part, that OCC 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to describe OCC's process to replenish 
any financial resources it may use following a default or other event 
in which use of resources is contemplated.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(4)(ix).
---------------------------------------------------------------------------

    The proposed changes to OCC's assessment powers would include the 
addition of a minimum fifteen-day cooling-off period that would be 
automatically triggered by a proportionate charge to the Clearing Fund 
arising from a Clearing Member default. At the end of the cooling-off 
period, a remaining Clearing Member (i.e., a Clearing Member that did 
not choose to terminate its membership during the cooling-off period) 
would be obligated to replenish the Clearing Fund.
    The Commission recognizes that by placing a cap on its assessment 
power during the cooling-off period, these revisions would effectively 
limit the amount of financial resources available to OCC from its 
Clearing Fund during that period. However, the Commission believes that 
these proposals would provide greater certainty and predictability 
regarding Clearing Members' maximum liability to the Clearing Fund. 
Moreover, in light of the proposed cap on OCC's assessment powers 
during the cooling-off period, OCC has authority under Rule 603 to call 
for additional initial margin from Clearing Members to ensure that OCC 
maintains sufficient financial resources to meet its requirements under 
Rule 17Ad-22(e)(4)(iii). Finally, at the end of a cooling-off period, a 
Clearing Member would be required to replenish the Clearing Fund in the 
amount necessary to meet its then-required contribution.
    In light of the foregoing discussion, the Commission believes that 
the provisions related to OCC's assessment powers, taken together with 
the other components of OCC's default management procedures and 
recovery rules, which are reasonably designed to allow OCC to replenish 
its financial resources following a default or other event in which use 
of such resources is contemplated, are consistent with Rule 17Ad-
22(e)(4)(ix).\39\
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    \39\ 17 CFR 240.17Ad-22(e)(4)(ix).
---------------------------------------------------------------------------

    One commenter states that OCC should provide an explanation of its 
determination to set the cap on the powers of assessment at 200 percent 
during a cooling-off period.\40\ In the OCC Letter, OCC provided an 
explanation of the internal analysis that it conducted to reach the 200 
percent determination.\41\ Specifically, OCC stated that it considered 
its ability to have sufficient financial resources inclusive of its 
proposed assessment powers to withstand extreme market conditions on a 
``Cover-2'' basis under various scenarios, and that OCC determined 
that, under such scenarios, it would be able to meet its clearing 
obligations so long as it was able to use (1) the financial resources 
on hand in the Clearing Fund, and (2) the full funding of two 
assessments (i.e., 200 percent) from non-defaulting Clearing 
Members.\42\ Moreover, OCC stated that it reviewed the caps that other 
CCPs impose upon their own assessment powers and determined that the 
200 percent cap is generally aligned with other assessment caps.\43\ 
Based on review of the analysis provided by OCC and the caps of other 
CCPs,\44\ the Commission believes that the 200 percent cap in the 
proposed changes is consistent with Rule 17Ad-22(e)(4)(ix).
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    \40\ See FIA Letter at 1-2.
    \41\ See OCC Letter at 2-3.
    \42\ See id.
    \43\ See id. at 3.
    \44\ See, e.g., Self-Regulatory Organizations; ICE Clear Credit 
LLC; Notice of Filing Amendment No. 1 and Order Granting Accelerated 
Approval of Proposed Rule Change to Amend the ICE Clear Credit 
Clearing Rules, as Modified by Amendment No. 1, Relating to Default 
Management, Clearing House Recovery and Wind-Down, Exchange Act 
Release No. 79750 (Jan. 6, 2017), 82 FR 3831 (Jan. 12, 2017) (SR-
ICC-2016-013) (approving a proposed rule change including, among 
other things, a 300 percent cap on non-defaulting participants' 
liability during a cooling-off period).
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4. Authority To Take Timely Action To Contain Losses and Liquidity 
Demands and Continue To Meet Obligations
    Rule 17Ad-22(e)(13) requires, in relevant part, that OCC establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to ensure that it has the authority and operational 
capacity to take timely action to contain losses and liquidity demands 
and continue to meet its obligations.\45\ As described above, OCC's 
proposal would provide OCC with modified assessment powers and new 
tools of Voluntary Payments, Voluntary Tear-Ups, and Partial Tear-Ups.
---------------------------------------------------------------------------

    \45\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

    As discussed above, the Commission recognizes that a tear-up would 
result in termination of positions of non-defaulting Clearing Members. 
However, because OCC would only be able to use its tear-up authority 
after it has conducted an auction pursuant to its Rules and when OCC 
has determined that it may not have sufficient financial resources to 
meet its obligations, a tear-up would only arise in an extreme stress 
scenario. Further, use of tear-up in such circumstances could 
potentially return

[[Page 44083]]

OCC to a matched book quickly, thereby containing its losses.
    The Commission believes that these tools are designed to provide 
greater certainty to Clearing Members seeking to estimate the potential 
risks and losses arising from their use of OCC, while enabling OCC to 
promptly return to a matched book. The Commission believes that 
returning to a matched book pursuant to these provisions in the context 
of OCC's default management and recovery facilitates OCC's operational 
capacity to timely contain losses and liquidity demands while 
continuing to meet its obligations. Thus, the Commission believes that 
the proposed changes are consistent with Rule 17Ad-22(e)(13).\46\
---------------------------------------------------------------------------

    \46\ Id.
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5. Public Disclosure of Key Aspects of Default Rules
    Rules 17Ad-22(e)(23)(i) and (ii) require, in relevant part, that 
OCC establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for the public disclosure of 
all relevant rules and material procedures, including key aspects of 
default rules and procedures, as well as sufficient information to 
enable participants to identify and evaluate the risks, fees and other 
material costs they incur by participating in OCC.\47\ The Commission 
believes that the proposed changes address key aspects of OCC's default 
rules and procedures, thereby providing Clearing Members with a better 
understanding of the potential risks and costs they might face in an 
extreme event where OCC may use its proposed recovery tools, including 
the potential use of the Special Charge. Accordingly, the Commission 
believes that OCC has disclosed these key aspects of its default rules 
and procedures, consistent with Rule 17Ad-22(e)(23)(i) and (ii).\48\
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    \47\ 17 CFR 240.17Ad-22(e)(23)(i) and (ii).
    \48\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Amended Proposed Rule Change is consistent with the requirements of the 
Exchange Act, and in particular, with the requirements of Section 17A 
of the Exchange Act \49\ and the rules and regulations thereunder.
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    \49\ In approving this Amended Proposed Rule Change, the 
Commission has considered the proposed rule's 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,\50\ that the Proposed Rule Change (SR-OCC-2017-020), as 
modified by Amendment No. 2, be, and it hereby is, approved.
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    \50\ 15 U.S.C. 78s(b)(2).
    \51\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18672 Filed 8-28-18; 8:45 am]
 BILLING CODE 8011-01-P