Notice2021-17088
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning The Options Clearing Corporation's Governance Arrangements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 152 (Wednesday, August 11, 2021)</title>
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[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44105-44110]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17088]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92584; File No. SR-OCC-2021-007]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Concerning The Options
Clearing Corporation's Governance Arrangements
August 5, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on July 30, 2021, 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 primarily 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
This proposed rule change by OCC would provide OCC's Board of
Directors (``Board'') with the discretion to elect either an Executive
Chairman or a Non-Executive Chairman to preside over the Board, provide
OCC's Board and stockholders with the discretion to elect a Management
Director, clarify the respective authority and responsibility of any
Executive Chairman or Non-Executive Chairman, and make other
clarifying, conforming, and administrative changes to OCC's rules.
The proposed changes to OCC's By-Laws, Rules, Board of Directors
Charter and Corporate Governance Principles (``Board Charter''), Audit
Committee Charter, Compensation and Performance Committee Charter,
Governance and Nominating Committee Charter, Risk Committee Charter,
Technology Committee Charter (such committee charters collectively
being the ``Board Committee Charters''), and Amended and Restated
Stockholders Agreement (``Stockholders Agreement'') (all collectively,
the ``OCC Governing Documents'') have been provided as Exhibits 5A-5I
of OCC filing SR-OCC-2021-007. Material proposed to be added to the OCC
Governing Documents is marked by underlining. Material proposed to be
deleted from the OCC Governing Documents is marked by strikethrough.
All terms with initial capitalization that are not otherwise defined
herein have the same meaning as set forth in OCC's By-Laws and
Rules.\3\
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\3\ OCC's By-Laws and Rules can be found on OCC's public website
at <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>. OCC's Board and Board Committee Charters
are also available on OCC's public website: <a href="https://www.theocc.com/about/corporate-information/board-charter">https://www.theocc.com/about/corporate-information/board-charter</a>.
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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 proposed rule change and
discussed any comments it received on the proposed
[[Page 44106]]
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
Background
Generally speaking, the board of directors of a company is
responsible for its own structure and processes and applies its
business judgment to board leadership decisions. A board's leadership
structure is determined based on several factors, including the board's
culture and practices and the capabilities, leadership styles,
expectations, personal characteristics, and relationships of its
potential leaders. Board leadership roles are context dependent and
evolve depending on the circumstances of the company and the board.
Specifically, the board of directors generally has discretion to
determine whether, for example, the chairman of the board should also
be an employee of the company. An ``Executive Chairman'' is typically
employed by the company and may work for the company on a full-time or
part-time basis. An Executive Chairman fulfills responsibilities to
manage the board while also being more involved with management
decisions and ``day-to-day'' aspects of the company. A ``Non-Executive
Chairman'' is typically not an employee of the company and focuses on
leading and supporting the board. Self-regulatory organizations
(``SROs'') registered with the Commission, including registered
clearing agencies, employ a variety of board of director and management
structures, with both Executive and Non-Executive Chairmen presiding
over the board of directors of SROs.\4\
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\4\ For example, the National Securities Clearing Corporation
and Fixed Income Clearing Corporation have a Non-Executive Chairman
presiding over each of their respective boards of directors. See By-
Laws of National Securities Clearing Corporation, Article II,
Section 2.8 and By-Laws of Fixed Income Clearing Corporation,
Article II, Section 2.8 (available at <a href="http://www.dtcc.com/legal/rules-and-procedures">http://www.dtcc.com/legal/rules-and-procedures</a>). Alternatively, The Financial Industry
Regulatory Authority, Inc. (``FINRA'') and Cboe Exchange, Inc. each
retain flexibility in their By-Laws to elect an Executive or Non-
Executive Chairman. See FINRA, By-Laws of the Corporation, Article
VII, Section 4 (available at <a href="https://www.finra.org/rules-guidance/rulebooks/corporate-organization/laws-corporation">https://www.finra.org/rules-guidance/rulebooks/corporate-organization/laws-corporation</a>) and Eleventh
Amended and Restated Bylaws of Cboe Exchange, Inc., Section 3.6
(available at: <a href="https://markets.cboe.com/us/options/regulation/">https://markets.cboe.com/us/options/regulation/</a>).
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Article III, Section I of OCC's By-Laws currently requires that the
Board be composed of nine Member Directors,\5\ five Exchange Directors,
five Public Directors,\6\ and an Executive Chairman (who also serves as
a Management Director \7\). The Board is generally responsible for
advising management and overseeing the management of the business and
affairs of OCC. The Board performs its oversight role, either directly
or indirectly, through delegating certain authority to its committees
to ensure that OCC is managed and operated in a manner consistent with
the discharge of OCC's regulatory responsibilities as a systemically
important financial market utility and that OCC has the critical
capabilities necessary to achieve its objectives and obligations in a
safe and efficient manner. The Board is also responsible for electing
OCC's Executive Chairman and appointing certain key officers of OCC,
including but not limited to, OCC's Chief Executive Officer (``CEO'')
and Chief Operating Officer (``COO'').\8\ Each member of OCC's
executive management team is ultimately responsible for the day-to-day
operations and performance of his or her applicable business area. For
example, OCC's Executive Chairman is responsible for certain control
functions of the Corporation, including internal audit and public
affairs and government relations,\9\ and its CEO is responsible for all
aspects of the Corporation's business and of its day-to-day affairs,
including enterprise risk management and compliance, and all other
aspects of the business of the Corporation that do not report directly
to the Executive Chairman.\10\
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\5\ Member Directors include Clearing Members or representatives
of a Clearing Member who are selected based on, among other things:
(i) Consideration of balanced representation among all Clearing
Members; (ii) balanced representation of all business activities of
Clearing Members; (iii) the nature of the firm with which each
prospective Director is associated; (iv) industry affiliations; (v)
assuring that not all Member Directors are representatives of the
largest Clearing Members based on the prior year's volume; and (vi)
developing a mix of Member Directors that includes representatives
of Clearing Members that are primarily engaged in agency trading on
behalf of retail customers or individual investors.
\6\ Public Directors are independent directors who are not
affiliated with any national securities exchange or national
securities association or with any broker or dealer.
\7\ Management Directors also serve as employees of the
Corporation. See Article III, Section 7 of the OCC By-Laws.
\8\ See Article IV, Sections 1 and 2 of the OCC By-Laws. The
Executive Chairman, CEO, and COO may also delegate authority for
certain responsibilities to other senior executives and officers.
\9\ See Article IV, Section 6 of the OCC By-Laws.
\10\ OCC's COO supports the operations of the Corporation in
accordance with the directions and under the oversight of the Chief
Executive Officer. See Article IV, Section 8 of the OCC By-Laws.
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OCC's Board continually evaluates OCC's governance arrangements,
including the composition of the Board and OCC's senior management
team. OCC's Board and management structure have evolved over time in
response to changing business conditions and regulatory obligations as
well as to changes in personnel and the knowledge, skills, and
experience of its various Board members and senior officers.\11\ OCC's
By-Laws currently require the Board to elect an Executive Chairman from
among the employees of OCC.\12\ While OCC's By-Laws also contemplate
discretion for the Board and stockholders to elect a Management
Director,\13\ the Executive Chairman, by virtue of being elected to his
or her office, serves as the Management Director.\14\
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\11\ For example, at the end of 2013, OCC's then Chairman and
CEO retired, and the Board changed OCC's governance structure by
separating the roles of Chairman and CEO and creating the new
Executive Chairman position. See Securities Exchange Act. Release
No. 34-70076 (July 30, 2013), 78 FR 47449 (August 5, 2013) (SR-OCC-
2013-09). In 2014, upon the resignation of the then President and
CEO, the Board composition was changed to include only one
Management Director (the Executive Chairman). See Securities
Exchange Act. Release No. 34-73785 (December 8, 2014), 79 FR 73915
(December 12, 2014) (SR-OCC-2014-18). In 2017, the roles of
Executive Chairman and CEO were temporarily combined and then
subsequently separated in 2018. See Securities Exchange Act Release
No. 80531 (April 26, 2017), 82 FR 20502 (May 2, 2017) (SR-OCC-2017-
002) and Securities Exchange Act Release No. 34-85129 (February 13,
2019), 84 FR 5129 (February 20, 2019) (SR-OCC-2018-015).
\12\ See Article IV, Section 1 of the OCC By-Laws.
\13\ See, e.g., Article III, Sections 1 and 7 of the OCC By-
Laws.
\14\ See e.g., Article IV, Section 1 of the OCC By-Laws.
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Proposed Changes
OCC proposes to revise the OCC Governing Documents to give the
Board discretion to elect either an Executive or Non-Executive Chairman
to preside over the Board. In addition, the proposed rule change would
provide OCC's Board and stockholders discretion to elect Management
Directors from OCC's management, which would be necessary if OCC does
not have an Executive Chairman. The proposed rule change would also
provide clarity around the authority and responsibilities of an
Executive Chairman versus a Non-Executive Chairman. OCC also proposes
to make additional clarifying, conforming, and administrative changes
to the OCC Governing Documents. OCC believes the proposed changes would
provide appropriate flexibility to the Board to evaluate OCC's
governance arrangements, including whether OCC should have an Executive
or Non-Executive Chairman, and more quickly
[[Page 44107]]
adjust the composition of OCC's Board and leadership structure in
response to changing business conditions and personnel and the
knowledge, skills, and experience of its various Board members and
senior officers. The proposed changes are discussed in detail below.
Proposed Changes to OCC's By-Laws
OCC proposes to revise Article III, Section 9 and Article IV,
Sections 1 and 6 of its By-Laws to give its Board the discretion to
elect either an Executive or Non-Executive Chairman. Under OCC's
current By-Laws, OCC's Chairman is described as an ``Executive
Chairman.'' As a result of this specificity, even though there is no
legal or regulatory requirement that OCC have either an Executive or
Non-Executive Chairman, and the Board's desire to cast as wide a net as
possible for qualified candidates for an important leadership role, the
Board likely would not consider Non-Executive Chairman candidates if
the ability to do so were not already in the By-Laws. OCC believes that
revising its By-Laws to allow the Board the option to elect either an
Executive or Non-Executive Chairman would dramatically increase the
potential pool of qualified candidates for the position and enable the
Board to select the best Chairman for the company at any given time.
Newly proposed Article III, Section 9 (currently Reserved) would
provide that, upon the nomination of the Governance and Nominating
Committee, the Board shall elect from among its members a Chairman of
the Board (as opposed to an Executive Chairman), and if the Chairman is
elected from among the employees of OCC, such Chairman would be an
``Executive Chairman'' for purposes of OCC's By-Laws and Rules. OCC
also proposes to revise Article I of its By-Laws to add a definition
for the term ``Chairman,'' which would be defined to mean the
individual elected by the Board as the Chairman of the Board pursuant
to Article III, Section 9 of the By-Laws and that may be, but would not
be required to be, an Executive Chairman. In addition, OCC would revise
Article III, Section I of the By-Laws to provide that the Board may
have no less than five Public Directors. The proposed change would
allow OCC to have a sixth Public Director serving on its Board if there
is a Public Director serving as Chairman.\15\
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\15\ OCC notes that the proposed change, along with the
potential election of a Management Director that is not an Executive
Chairman (discussed below), could result in the Board having up to
21 total directors as opposed to its current 20 directors. OCC also
notes that if the Board elects a Non-Executive Chairman that is
determined to be an independent Public Director, such a Chairman
would be eligible to serve as the chair of any of OCC's Board
Committees pursuant to the requirements of each Board Committee
Charter. OCC does not believe that the potential addition of a
Public Director to its Board, increasing the overall Board size by
one director, would materially impact the composition,
representation, or decision-making process of the Board.
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Pursuant to proposed Article III, Section 9 of the By-Laws, the
Chairman would preside at all meetings of the Board of Directors, be
responsible for carrying out the policies of the Board, have general
supervision over the Board and its activities, and provide overall
leadership to the Board of Directors. Additionally, the By-Laws would
be revised to provide OCC's Board with additional flexibility to define
the role of the Chairman. Article IV, Section 6 of the By-Laws
currently states that the Executive Chairman is responsible for certain
control functions of OCC, including internal audit and public affairs
and government relations, and has supervision of the officers and
agents appointed by him. This By-Law requirement would be replaced by a
more general statement in proposed Article III, Section 9 that the
Chairman would have those powers and perform such duties as the Board
may designate. The proposed change would provide appropriate
flexibility for the Board to assign or remove responsibilities of the
Chairman based on whether such Chairman is an Executive or Non-
Executive Chairman and based upon the needs of OCC at a given point in
time, as discussed in further detail below. OCC would also make
conforming changes to Article IV, Section 8 to clarify that the CEO
would be responsible for all aspects of OCC's business and for its day-
to-day affairs, except for those that may report directly to the
Chairman, as determined by the Board.
OCC also proposes to revise the following sections of its By-Laws
so that any Chairman (whether Executive or Non-Executive) retains the
authority and responsibility currently given to the Executive Chairman
and which OCC believes relate to governance matters appropriately
assigned to any Chairman of the Board. This includes the following
sections of the By-Laws.
<bullet> Article II, Sections 2 and 4 concerning the authority to
call and provide notice of meetings of OCC's stockholders;
<bullet> Article III, Section 10 concerning the authority to
receive notice of resignation of a member of the Board;
<bullet> Article III, Section 14 concerning the authority to call
special meetings of the Board;
<bullet> Article III, Section 15 concerning the authority to
exercise emergency powers and call special meetings of the Board during
such an emergency;
<bullet> Article IV, Sections 2, 3, 9 and 13 concerning the
authority to appoint officers, fix the salaries of any appointed
officers, and remove such officers;
<bullet> Article VIIB, Section 1, Interpretation and Policy .01
concerning the responsibility to promptly provide Non-Equity Exchanges
with information the Chairman considers to be of competitive
significance to such Non-Equity Exchanges that was disclosed to
Exchange Directors at or in connection with any meeting or action of
the Board or one of its committees;
<bullet> Article IX, Section 12 concerning the authority to sign
certificates for shares of OCC; and
<bullet> Article IX, Section 14 concerning the authority to suspend
the rules of OCC in emergency circumstances.
OCC would also revise its By-Laws to transfer certain
responsibilities that currently belong to the Executive Chairman, and
that would no longer belong to any Chairman, to OCC's CEO.
Specifically, OCC proposes to revise Article VI, Section 11 of the By-
Laws to assign the responsibility for participating in the Securities
Committee and panels thereof for purposes of contract adjustments to
the CEO. OCC also proposes similar changes to its By-Laws concerning
the fixing of: (i) Underlying interest values of binary and range
options (Article XIV, Section 5), (ii) exercise settlement amounts of
yield-based Treasury options (Article XVI, Section 4), (iii) exercise
settlement amounts of cash-settled securities options other than OTC
index options (Article XVII, Section 4), (iv) exercise settlement
amounts of cash-settled foreign currency options (Article XXII) in
circumstances where certain prices or values are determined to be
unavailable or inaccurate for the contracts in question, and (v) the
Closing Price for BOUNDs contracts (Article XXIV). OCC believes these
responsibilities are best discharged by the CEO--the senior executive
of the company directly familiar with the day-to-day operations of the
company and with no director-related responsibilities--than an
Executive Chairman. Furthermore, the proposed changes would ensure
these responsibilities remain clearly and transparently assigned to an
executive officer of the company in the event the Board elects a Non-
Executive Chairman.
OCC also proposes to revise its By-Laws and Stockholder Agreement
to provide OCC's Board and stockholders with the discretion to elect a
Management Director. Currently, under
[[Page 44108]]
the By-Laws and Stockholder Agreement, the Executive Chairman is also
elected as the Management Director of OCC. Under the proposed rule
change, however, OCC's Board would have the discretion to elect a Non-
Executive Chairman. OCC therefore proposes to revise Article VIIA,
Section 3 of the By-Laws and Sections 2 and 3 of the Stockholder
Agreement to provide the Board and stockholders with the discretion to
elect a Management Director if the Board has elected a Non-Executive
Chairman should they choose. OCC would also revise Article III, Section
12 of the By-Laws to reflect that any vacancy in the position of
Management Director may be filled by the Board until the next meeting
of the stockholders and would not be limited to the selection of the
Executive Chairman to serve as Management Director. In addition, OCC
proposes to revise Article IV, Sections 1 and 7 of the By-Laws to
relocate certain provisions concerning the election of the Vice
Chairman of the Board.
Finally, OCC proposes to revise Article III, Section 4 of the By-
Laws to remove specific references to various Board committees and
their compositions. OCC notes that each of the Board Committee Charters
are filed with the Commission as rules of OCC, and as a result, this
information is unnecessarily duplicated in OCC's By-Laws. OCC believes
that maintaining this information in multiple places does not add any
benefit to the rules of OCC and only increases the possibility for
inconsistent statements among the OCC Governing Documents to the
detriment of clear and transparent governance arrangements.\16\
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\16\ As part of this proposed change, OCC would relocate from
the By-Laws to each of the Board Committee Charters the requirement
that committee members are selected by the Board from among the
directors recommended by the then-constituted Governance and
Nominating Committee after consultation with the Chairman and serve
at the pleasure of the Board.
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Proposed Changes to OCC's Rules
OCC proposes changes to its Rules in connection with the proposed
By-Law changes described above. OCC would revise the following Rules so
that any Chairman (whether Executive or Non-Executive) retains the
following authority and responsibility currently given to the Executive
Chairman.
<bullet> Rule 505 concerning the authority to extend settlement
times upon a determination that an emergency or force majeure condition
exists;
<bullet> Rule 609A concerning the authority to waive margin
deposits in limited circumstances;
<bullet> Rule 1006(f) concerning the authority to use Clearing Fund
assets to borrow or otherwise obtain funds from third parties;
<bullet> Rule 1104, Interpretation and Policy .02 concerning the
authority to elect to use one or more private auctions to liquidate
collateral, open positions and/or exercised/matured contracts of a
suspended Clearing Member; and
<bullet> Rule 1110 concerning the authority to appoint an appeals
panel to considered and decided appeals by suspended Clearing Members.
OCC believes it is appropriate for the Chairman to retain the
authority to make certain critical decisions, which primarily involve
emergency or exigent circumstances or other activities generally
outside of OCC's day-to-day activities. The proposed change would help
to ensure the efficient management and operation of OCC in such
circumstances if other authorized officers are absent or otherwise
unable to perform their duties.
OCC also proposes conforming changes to its Rules concerning those
responsibilities and authorities that would remain with any Executive
Chairman of the Corporation. This includes the following: \17\
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\17\ OCC notes that the CEO and COO would also continue to have
authority to take the following actions.
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<bullet> Rule 1104(b) concerning the authority to delay the
immediate liquidation of a suspended Clearing Member's margin deposits
and to use such deposits to borrow or otherwise obtain funds from third
parties;
<bullet> Rule 1106(e) concerning the authority to determine not to
close out a suspended Clearing Member's unsegregated long positions or
short positions in options or BOUNDs, or long or short positions in
futures; and
<bullet> Rule 1106(f) concerning the authority to execute hedging
transactions to reduce the risk associated with any collateral or
positions not immediately liquidated or closed out pursuant to Rules
1104(b) and 1006(e).
While these responsibilities and authorities involve important
aspects of OCC's default management process, OCC does not believe they
rise to the level of emergency or exigent circumstances. OCC believes
it is appropriate for these responsibilities to remain with senior
executives more closely familiar with the day-to-day operations of the
Corporation. As a result, OCC would not substantively change the
requirements in its existing rules.
Proposed Changes to OCC Board Charters
OCC proposes several conforming changes to its Board Charters in
connection with the proposed changes to its By-Laws and Rules. OCC also
proposes administrative changes to its Board Charters relating to its
Board Committee composition requirements. The proposed changes to each
of the charters are described below.
Board Charter
OCC proposes to revise its Board Charter to conform to the proposed
changes to OCC's By-Laws discussed above. First, OCC would remove the
qualifier ``Executive'' before most occurrences of ``Executive
Chairman'' throughout the charter. In addition, OCC would revise the
Board Charter to clarify that those provisions relating to management
structure, evaluation, and succession would be applicable only to any
Executive Chairman. The proposed changes would also clarify that, with
respect to employee compensation, the Board would be responsible for
the compensation, incentive, and benefit programs and evaluating the
performance of any Executive Chairman. OCC also proposes to revise the
Board Charter to reflect that the election of a Management Director
would be at the discretion of the Board and provide that a Management
Director would no longer be eligible to serve if he or she ceases to
hold a senior officer position at OCC, by virtue of which he or she was
elected as a Management Director.
OCC also proposes to revise the Board Charter to include the
Regulatory Committee in the list of charters required to be established
by the Board.\18\ In addition, OCC proposes to revise its Board Charter
to remove specific requirements around the composition of the
Governance and Nominating Committee, which would align with proposed
changes to the Governance and Nominating Committee discussed below.
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\18\ See Securities Exchange Act Release No. 87577 (November 20,
2019) 84 FR 65202 (November 26, 2019) (SR-OCC-2019-008).
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Audit Committee Charter
OCC proposes changes to its Audit Committee Charter regarding the
functional and administrative reporting lines for the Chief Audit
Executive (``CAE'') and Chief Compliance Officer (``CCO'') and the
review and oversight of OCC's Internal Audit and Compliance functions
to accommodate the proposed changes to OCC's By-Laws. The Audit
Committee Charter currently provides
[[Page 44109]]
that the CAE reports functionally to the Audit Committee and
administratively \19\ to the Executive Chairman and that the committee
consults with the Executive Chairman and CEO in reviewing the
performance of the Internal Audit function and CAE. OCC would revise
the Audit Committee Charter to state that the CAE would continue to
report functionally to the Committee and report administratively to a
member of the Management Committee designated by the Committee. As
noted above, governance responsibilities may vary depending on OCC's
management structure and the Board's allocation of responsibilities at
a given point in time. The proposed rule change is intended to provide
appropriate flexibility for the administrative reporting line of the
CAE and in the officers that the committee may consult in their review
of the Internal Audit function. OCC also proposes similar changes to
the functional and administrative reporting lines of the CCO, who
currently reports functionally to the Audit Committee and
administratively to the CEO, and to the consultation requirements in
reviewing the performance of the CCO and Compliance Department. This
would provide for a consistent approach and similar flexibility for the
Audit Committee's oversight of OCC's Compliance function.
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\19\ Administrative reporting may include, for example,
reporting concerning budgeting and accounting issues, human resource
administration, administration of OCC's internal policies and
procedures, and other day-to-day communication and updates
concerning the respective function.
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Compensation and Performance Committee Charter
OCC proposes to revise its Compensation and Performance Committee
Charter to conform to the proposed changes to OCC's By-Laws.
Specifically, the proposed revisions would reflect that the committee's
responsibilities for reviewing the performance and compensation of
OCC's management team, including the executive officers of OCC, would
extend to any Executive Chairman of OCC.
Governance and Nominating Committee Charter
OCC proposes to revise its Governance and Nominating Committee
Charter to conform to the proposed changes to OCC's By-Laws by
clarifying that the Committee would consult with any Chairman in its
oversight and advising responsibilities to OCC's Board.
Risk Committee Charter
OCC proposes changes to its Risk Committee Charter regarding the
functional and administrative reporting lines for the Chief Risk
Officer (``CRO''). Currently, the Risk Committee Charter provides that
the CRO reports functionally to the Committee and administratively to
the CEO and that the Committee consults with the CEO and other
committees as appropriate in reviewing the CRO's performance. OCC
proposes to revise the Risk Committee Charter to state that the CRO
would continue to report functionally to the Committee and would report
administratively to a member of the Management Committee designated by
the Committee. The proposed rule change is intended to provide
flexibility for the administrative reporting line of the CRO and the
particular officers and committees the Risk Committee may consult in
their review of the CRO's performance depending on the Board's
allocation of responsibilities at a given point in time.
Technology Committee Charter
Finally, OCC proposes to revise its Technology Committee Charter to
require that the chair of the committee be a Public Director. The
proposed change is intended to align the Technology Committee Charter
with OCC's other Board Committee Charters, which also require that a
Public Director serves as committee chair. OCC notes that the proposed
change would not result in any practical change to the Technology
Committee as it is currently chaired by a Public Director.
(2) Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Act \20\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(A) of the Act \21\ requires, among other things, that a
clearing agency be so organized and have the capacity to be able to
facilitate the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts, and
transactions for which it is responsible. The proposed changes would
enable the Board to adjust OCC's Board and management structure in a
timelier fashion based on changing business conditions as well as
changes in personnel and the knowledge, skills, and experience of OCC's
various Board members and senior officers, particularly as it concerns
the Chairman of OCC's Board. OCC notes that SROs registered with the
Commission, including registered clearing agencies, employ a variety of
board of director and management structures, with both Executive and
Non-Executive Chairmen presiding over the board of directors of
SROs.\22\ In certain cases, SROs maintain flexibility to elect
Executive and Non-Executive Chairmen as circumstances warrant. OCC
proposes similar changes to its rules so that its Board can maintain
governance arrangements that promote the efficient and effective
management and operation of OCC. The proposed rule change would also
clearly delineate the authority and responsibilities of an Executive
Chairman versus a Non-Executive Chairman. The proposed rule change
would also provide flexibility in the administrative reporting lines
for key OCC personnel such as the CAE, CCO, and CRO, allowing these
administrative reporting lines to be adjusted, as necessary, and
develop an appropriate review process for the performance of OCC's
Internal Audit and Compliance functions so that OCC can adapt to its
evolving Board and management structure. For these reasons, OCC
believes the proposed rule change is designed to ensure that OCC is so
organized and has the capacity to be able to facilitate the prompt and
accurate clearance and settlement of securities transactions and
derivative agreements, contracts, and transaction for which it is
responsible consistent with the requirements of Section 17A(b)(3)(A) of
the Act.\23\
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\20\ 15 U.S.C. 78q-1.
\21\ 15 U.S.C. 78q-1(b)(3)(A).
\22\ See supra note 4.
\23\ 15 U.S.C. 78q-1(b)(3)(A).
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Exchange Act Rules 17Ad-22(e)(2)(i) and (v) \24\ require covered
clearing agencies to have governance arrangements that are clear and
transparent and that specify clear and direct lines of responsibility.
As discussed above, the proposed rule change would further enable OCC's
Board to adjust OCC's governance arrangements in a more timely fashion,
particularly as they relate to OCC's Chairman, so that its governance
arrangements are continually designed to promote the efficient and
effective management and operation of OCC, taking into consideration
the Board's culture and practices, business circumstances, and the
capabilities, leadership styles, expectations, personal
characteristics, and relationships of its potential leaders at a given
point in time. The proposed rule change would also clearly delineate
the proposed authority and responsibilities of an Executive Chairman
versus a Non-
[[Page 44110]]
Executive Chairman. Finally, OCC believes the proposed changes to its
Board Committee Charters would provide OCC's Board with appropriate
flexibility to more quickly adjust the administrative reporting lines
for, and oversight of the performance of, OCC's Internal Audit and
Compliance functions and key OCC personnel, such as the CAE, CCO, and
CRO, taking into account the specific qualifications, experience,
competence, character, skills, incentives, integrity or other relevant
attributes of Board members and senior officers at any given time. OCC
believes the proposed change would provide an appropriate level of
clarity and transparency regarding the limited set of officers to which
the CAE, CCO, and CRO may report to for administrative purposes and the
Board's responsibility for designating such reporting lines. The
proposed changes to the Board Committee Charters would not alter the
responsibilities of the Board generally or of any of its individual
committees or committee members. These responsibilities would continue
to be specified in each of the Board Committee Charters. As a result,
OCC believes the proposed rule change is reasonably designed to provide
for governance arrangements that remain clear and transparent and
specify clear and direct lines of responsibility in accordance with
Rule 17Ad-22(e)(2)(i) and (v).\25\
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\24\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Exchange Act \26\ requires that the
rules of a clearing agency not impose any burden on competition not
necessary or appropriate in furtherance of the Act. OCC does not
believe that the proposed rule change would have any impact or impose
any burden on competition. The proposed rule change would provide OCC's
Board with the discretion to elect either an Executive Chairman or a
Non-Executive Chairman to preside over the Board and would clarify the
roles and responsibilities of an Executive versus a Non-Executive
Chairman. The proposed rule change would also make changes to OCC's
Board and Board Committee Charters regarding the Board's oversight of
the Chairman and other senior officers of OCC. The proposed rule change
would not inhibit access to OCC's services or disadvantage of favor any
user in relationship to another. As a result, OCC believes the proposed
rule change would not impact or impose a burden on competition.
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\26\ 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.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#196b6c757c347a7674747c776d6a596a7c7a377e766f"><span class="__cf_email__" data-cfemail="7f0d0a131a521c1012121a110b0c3f0c1a1c51181009">[email protected]</span></a>. Please include
File Number SR-OCC-2021-007 on the subject line.
Paper Comments
<bullet> 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-2021-007. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
<a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
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 that you wish to make available publicly.
All submissions should refer to File Number SR-OCC-2021-007 and
should be submitted on or before September 1, 2021.
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\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17088 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.