Notice2021-20969
Self-Regulatory Organizations; the Options Clearing Corporation; Order Granting Approval of Proposed Rule Change Concerning the Options Clearing Corporation's Governance Arrangements
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Published
September 28, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 185 (Tuesday, September 28, 2021)</title>
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[Federal Register Volume 86, Number 185 (Tuesday, September 28, 2021)]
[Notices]
[Pages 53718-53722]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20969]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93102; File No. SR-OCC-2021-007]
Self-Regulatory Organizations; the Options Clearing Corporation;
Order Granting Approval of Proposed Rule Change Concerning the Options
Clearing Corporation's Governance Arrangements
September 22, 2021.
I. Introduction
On July 30, 2021, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2021-007 (``Proposed Rule Change'')
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to 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 the 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.\3\ The Proposed Rule Change was published for public comment in
the Federal Register on August 11, 2021.\4\ The Commission has received
no comments regarding the Proposed Rule Change. This order approves the
Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, 86 FR 44105.
\4\ Securities Exchange Act Release No. 92584 (Aug. 5, 2021), 86
FR 44105 (Aug. 11, 2021) (File No. SR-OCC-2021-007) (``Notice of
Filing'').
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II. Background \5\
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\5\ Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/about/publications/bylaws.jsp">https://www.theocc.com/about/publications/bylaws.jsp</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,\6\ five Exchange
Directors,\7\ five Public Directors,\8\ and an Executive Chairman (who
also serves as a Management Director \9\). OCC's Executive Chairman is
responsible for managing the Board while also being involved with the
``day-to-day'' management decisions of OCC. By contrast, a ``Non-
Executive Chairman'' is typically not an employee of the company and
focuses solely on leading and supporting its board of directors.
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\6\ Member Directors include Clearing Members or representatives
of a Clearing Member. OCC endeavors to achieve balanced
representation among Clearing Members on the Board of Directors to
assure that (i) not all Member Directors are representatives of the
largest Clearing Member organizations based on the prior year's
volume, and (ii) the mix of Member Directors includes
representatives of Clearing Member organizations that are primarily
engaged in agency trading on behalf of retail customers or
individual investors. See Article III, Section 5 of the OCC By-Laws.
\7\ Exchange Directors represent the equity exchanges that are
holders of Class B Common Stock of the OCC. Exchange Directors need
not be Clearing Members or be associated with a Clearing Member
organization. See Article III, Section 6 of the OCC By-Laws.
\8\ Public Directors are independent directors who are not
affiliated with any national securities exchange or national
securities association or with any broker or dealer. See Article
III, Section 6A of the OCC By-Laws.
\9\ Management Directors also serve as employees of OCC. See
Article III, Section 7 of the OCC By-Laws.
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As described in more detail below, OCC proposes to revise its
governing documents, including its 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''), to give the Board
discretion to elect either an Executive or Non-Executive Chairman to
preside over the Board. The Proposed Rule Change would also provide the
Board and stockholders with discretion to elect Management Directors
from OCC's management, which would be necessary if OCC does not have an
Executive Chairman. OCC notes that the Proposed Rule Change would
provide clarity around the authority and responsibilities of an
Executive Chairman versus a Non-Executive Chairman.\10\ OCC also
proposes to make additional clarifying, conforming, and administrative
changes to the documents listed above. OCC believes that the Proposed
Rule Change would provide appropriate flexibility to the Board to
evaluate OCC's governance arrangements, including whether OCC should
have an Executive or Non-
[[Page 53719]]
Executive Chairman, and adjust the composition of the Board and
leadership structure more quickly in response to changing business
conditions and personnel and the knowledge, skills, and experience of
its various Board members and senior officers.\11\
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\10\ See Notice of Filing supra note 4, 86 FR 44106.
\11\ See Notice of Filing supra note 4, 86 FR 44106-07.
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Proposed Changes Relating to the Chairman Role and
Responsibilities. Under OCC's current By-Laws, the individual elected
by the Board to be responsible for certain control functions of OCC and
to preside at all meetings of the Board and stockholders is defined as
the``Executive Chairman.'' \12\ OCC believes that as a result of this
specificity, the Board likely would not consider Non-Executive Chairman
candidates unless the By-Laws state explicitly that the Board has the
ability to do so.\13\ Therefore, OCC proposes to revise Article III,
Section 9 (currently Reserved) 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. OCC believes that revising its By-Laws to
provide this discretion would increase the potential pool of qualified
candidates for the position and enable the Board to select the Chairman
with the most suitable experience and skill set for OCC at any given
time.\14\
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\12\ See Article IV, Section 6 of the OCC By-Laws.
\13\ See Notice of Filing supra note 4, 86 FR 44107.
\14\ Id.
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OCC also proposes to update Article III, Section 9 to 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 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.
OCC also proposes to revise Article III, Section 9 of the By-Laws
to provide the Board with additional flexibility to define the
Chairman's role and responsibilities. The proposed language would be a
general statement that the Chairman would have powers and perform such
duties as the Board may designate.\15\ OCC asserts that the Proposed
Rule 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 any given point in time.\16\
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\15\ The proposed language would replace Article IV, Section 6,
which 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.
\16\ See Notice of Filing supra note 4, 86 FR 44107.
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OCC proposes to revise the following sections of its By-Laws so
that any Chairman (whether Executive or Non-Executive) would retain the
following authority and responsibility currently given to the Executive
Chairman: Article II, Sections 2 and 4 concerning the authority to call
and provide notice of meetings of OCC's stockholders; Article III,
Section 10 concerning the authority to receive notice of resignation of
a member of the Board; Article III, Section 14 concerning the authority
to call special meetings of the Board; Article III, Section 15
concerning the authority to exercise emergency powers and call special
meetings of the Board during such an emergency; 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; 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; Article IX, Section 12 concerning the authority to sign
certificates for shares of OCC; and Article IX, Section 14 concerning
the authority to suspend the rules of OCC in emergency circumstances.
OCC wants the Chairman, whether Executive or Non-Executive, to retain
these authorities and responsibilities which OCC believes relate to
governance matters appropriately assigned to any Chairman of the
Board.\17\
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\17\ Id.
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The Proposed Rule Change would revise the following Rules so that
any Chairman (whether Executive or Non-Executive) would retain the
following authority and responsibility currently given to the Executive
Chairman: Rule 505 concerning the authority to extend settlement times
upon a determination that an emergency or force majeure condition
exists; Rule 609A concerning the authority to waive margin deposits in
limited circumstances; Rule 1006(f) concerning the authority to use
Clearing Fund assets to borrow or otherwise obtain funds from third
parties; 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 Rule 1110 concerning the authority to
appoint an appeals panel to considered and decided appeals by suspended
Clearing Members. OCC believes that updating these Rules to allow the
Chairman to retain these critical responsibilities would help to ensure
the efficient management and operation of OCC in emergency or exigent
circumstances where other authorized officers are absent or otherwise
unable to perform their duties.\18\
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\18\ See Notice of Filing supra note 4, 86 FR 44108.
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Proposed Changes Relating to Responsibilities of Other Senior
Officers. OCC proposes to make conforming changes to Article IV,
Section 8 of the By-Laws to clarify that OCC's Chief Executive Officer
(``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 proposes to revise several By-Law sections to transfer certain
responsibilities currently belonging to the Executive Chairman to the
CEO. OCC proposes to revise Article VI, Section 11 of the By-Laws to
assign to the CEO the responsibility for participating in the
Securities Committee and panels thereof for purposes of contract
adjustments. 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 in
circumstances where certain prices or values are determined to be
unavailable or inaccurate for the contracts in question (Article XXII,
Section 4), and (v) the Closing Price for BOUNDs contracts (Article
XXIV). OCC believes that these responsibilities are best assigned to
the CEO familiar with OCC's day-to-day operations, rather than to a
[[Page 53720]]
Chairman who may or may not possess that familiarity.\19\
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\19\ See Notice of Filing supra note 4, 86 FR 44107.
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OCC also proposes conforming changes to its Rules concerning the
following responsibilities, which would remain with an Executive
Chairman (as well as the CEO and the Chief Operating Officer) if one
has been elected by the Board: 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; 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 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). OCC believes that these
responsibilities do not rise to the level of emergency or exigent
circumstances, and should therefore remain with senior executives more
closely familiar with the day-to-day operations of OCC. As a result,
OCC would not substantively change the requirements in these existing
rules.\20\
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\20\ See Notice of Filing supra note 4, 86 FR 44108.
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Proposed Changes Relating to OCC's Board and Committees. OCC
proposes to revise Article III, Section I of the By-Laws to provide
that the Board may have no less than five Public Directors, as opposed
to the current requirement that OCC have exactly five Public Directors.
The Proposed Rule Change would allow OCC to have a sixth Public
Director serving on its Board if there is a Public Director serving as
Chairman.\21\ 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.
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\21\ 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. See Notice
of Filing supra note 4, 86 FR 44107.
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OCC 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. OCC also proposes to 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. 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.
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.\22\ 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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\22\ See Notice of Filing supra note 4, 86 FR 44108.
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OCC proposes to make conforming changes to its Board Charter.
First, OCC would remove the qualifier ``Executive'' before most
occurrences of ``Executive Chairman'' throughout the charter. 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 Rule Change would 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.\23\ 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.
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\23\ See Securities Exchange Act Release No. 87577 (November 20,
2019), 84 FR 65202 (November 26, 2019) (SR-OCC-2019-008).
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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. OCC would revise
the Audit Committee Charter to state that the CAE would continue to
report functionally to the Audit Committee and report administratively
to a member of the Management Committee designated by the Audit
Committee. 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.\24\ 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. OCC believes that these changes
would provide for a consistent approach and similar flexibility for the
Audit Committee's oversight of OCC's Compliance function.\25\
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\24\ See Notice of Filing supra note 4, 86 FR 44109.
\25\ Id.
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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.
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 Governance and Nominating Committee would consult
with any Chairman in its oversight and advising responsibilities to the
Board.
[[Page 53721]]
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 Risk Committee and administratively
to the CEO and that the Risk 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 Risk Committee and would
report administratively to a member of the Management Committee
designated by the Committee. The proposed 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.\26\
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\26\ Id.
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Finally, OCC proposes to revise its Technology Committee Charter to
require that the chair of the committee be a Public Director. The
proposed change would 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.\27\
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\27\ Id.
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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.\28\ After carefully
considering the Proposed Rule Change, the Commission finds that 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 proposal is consistent with
Section 17A(b)(3)(A) of the Exchange Act,\29\ and Rule 17Ad-22(e)(2)
\30\ thereunder, as described in detail below.
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\28\ 15 U.S.C. 78s(b)(2)(C).
\29\ 15 U.S.C. 78q-1(b)(3)(A).
\30\ 17 CFR 240.17Ad-22(e)(2).
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A. Consistency With Section 17A(b)(3)(A) of the Exchange Act
Section 17A(b)(3)(A) of the Exchange Act requires, among other
things, that a clearing agency 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
transactions for which it is responsible.\31\
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\31\ 15 U.S.C. 78q-1(b)(3)(A).
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Based on its review of the record, and for the reasons described
below, the Commission believes that the proposed changes to revise
OCC's governing documents to provide Board discretion to elect either
an Executive or Non-Executive Chairman is consistent with being
organized to facilitate the prompt and accurate clearance and
settlement of securities transactions and derivative agreements,
contracts, and transactions for which OCC is responsible. By providing
the Board with discretion to choose a Chairman from a broader set of
candidates, the Board would gain greater flexibility to select someone
with the best and most appropriate experience for the role at any given
point in time, whether as part of OCC's day-to-day operations or
otherwise. The proposed changes allow the Board to reassign certain
day-to-day responsibilities to other senior officers, depending on
whether the Board elects a Chairman that is an Executive Chairman.
Similarly, the proposed changes to provide the Board with greater
flexibility to elect an additional Public Director under certain
circumstances and to preserve the authority of the Board and
stockholders to elect a Management Director are consistent with being
organized to facilitate prompt and accurate clearance and settlement
practices. This greater degree of flexibility would leave OCC better
prepared to adjust its Board composition to changing market conditions
and emerging business concerns, so that it can continue to successfully
facilitate the prompt and accurate clearing and settlement of
securities transactions and other transactions for which OCC is
responsible.
OCC also proposes to change to its Audit and Risk Committee
Charters to adjust the administrative reporting lines for the CAE, CCO,
and CRO so that they each report administratively to a member of the
Management Committee designated by the Board Committee to which they
report functionally. These proposed changes are consistent with
facilitating prompt and accurate clearing and settlement practices, as
the changes would provide OCC with the flexilibity to adjust these
administrative reporting lines depending on the existing skill sets of
the officers serving on OCC's Management Committee. This could in turn
strengthen OCC's administrative review processes and ensure greater
accountability from the CAE, CCO, and CRO roles, which would support
the facilitation of prompt and accurate clearing and settlement of
transactions for which OCC is responsible.
The Commission believes, therefore, that the proposal to provide
OCC's Board with the discretion to elect either an Executive Chairman
or a Non-Executive Chairman, provide the 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 is consistent with the requirements of Section
17A(b)(3)(A) of the Exchange Act.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(A).
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B. Consistency With Rule 17Ad-22(e)(2) Under the Exchange Act
Rule 17Ad-22(e)(2)(i), (iv), (v), and (vi) under the Exchange Act
require covered clearing agencies to have governance arrangements that
are clear and transparent, establish that the board of directors and
senior management have appropriate experience and skills to discharge
their duties and responsibilities, specify clear and direct lines of
responsibility, and consider the interests of participants' customers,
securities issues and holders, and other relevant stakeholders of the
covered clearing agency.\33\
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\33\ 17 CFR 240.17Ad-22(e)(2)(i), (iv), (v), and (vi).
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Based on its review of the record, and for the reasons described
below, the Commission believes that the proposed changes described
above are consistent with Rule 17Ad-22(e)(2)(i) under the Exchange Act,
in that the Proposed Rule Change increases the clarity and transparency
of OCC's governance arrangements. In recognizing that there may be a
number of ways to address compliance with Rule 17Ad-22(e)(2), the
Commission has stated that a covered clearing agency generally should
consider, when establishing and maintaining policies and procedures
that address governance, whether the roles and responsibilities of
management have been clearly
[[Page 53722]]
specified.\34\ The proposal to update OCC's By-Laws to state explicitly
that the Board may choose either a Non-Executive Chairman or an
Executive Chairman rectifies current concerns that the Board likely
would not consider Non-Executive Chairman candidates if the ability to
do so were not already in the By-Laws.\35\ The Proposed Rule Change
clarifies that the Board need not disregard non-Executive Chairman
candidates, and that it actually has the option to elect either an
Executive Chairman who is closely involved in the day-to-day
responsibilities of running OCC, or a Non-Executive Chairman primarily
focused on the running of the Board. Additionally, OCC's proposal to
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 GNC after
consultation with the Chairman and serve at the pleasure of the Board
is consistent with increasing the clarity and transparency of OCC's
governance arrangements, as it would eliminate unnecessary duplication
in the governing documents, since OCC already files each of the Board
Committee Charters as OCC rules with the Commission. These proposed
changes are thus consistent with Rule 17Ad-22(e)(2)(i).
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\34\ See Securities Exchange Act Release 78961, 81 FR 70786,
70806 (Oct. 13, 2016) (File No. S7-03-14).
\35\ See supra note 4 at 44107.
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The Commission believes that based on its review of the record and
for the reasons described below, the proposed changes are consistent
with Rule 17Ad-22(e)(2)(iv) under the Exchange Act, in that they help
to ensure that the Board and senior management have the appropriate
experience and skills to discharge their duties and responsibilities.
Specifically, OCC proposed changes to its By-Laws to ensure that the
Board and stockholders retain the discretion to elect a Management
Director to its Board if the Chairman is a Non-Executive Chairman, as
well as to ensure that the Board has the discretion to elect an
additional Public Director to its Board if the elected Chairman is a
Public Director. These changes would provide the Board with the ability
to increase the size of the Board by one Director to ensure that it
continues to have members with the appropriate skills and incentives to
fulfill the Board's multiple roles, by either replacing or
supplementing the elected Chairman's skills and background depending on
his or her competing demands.
The Commission believes that the Proposed Rule Change is also
consistent with Rule 17Ad-22(e)(2)(v) under the Exchange Act, in that
the Proposed Rule Change does provide clear and direct lines of
responsibility. The Commission has previously stated that covered
clearing agencies should have policies and procedures that generally
entail documenting the responsibilities of the board of directors and
senior management, which could help foster accountability and
complement requirements that address the qualifications of the board
and management. This requires the covered clearing agency to further
specify the roles that each individual would fulfill and the lines of
responsibility that would exist within the board and within
management.\36\ In the current instance, the Proposed Rule Change
clarifies which authorities and responsibilities remain with the
Chairman, whether Executive or Non-Executive, and which authorities and
responsibilities are transferred to other senior officers such as the
CEO or COO if the elected Chairman is Non-Executive.
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\36\ See supra note 34 at 70804.
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Finally, the Commission believes that the Proposed Rule Change is
also consistent with Rule 17Ad-22(e)(2)(vi) under the Exchange Act, in
that the Proposed Rule Change provides for governance arrangements that
consider the interests of participants' customers, securities issues
and holders, and other relevant stakeholders of the covered clearing
agency. In recognizing that there may be a number of ways to address
compliance with Rule 17Ad-22(e)(2), the Commission has stated that a
covered clearing agency generally should consider, when establishing
and maintaining policies and procedures that address governance,
whether the major decisions of the covered clearing agency reflect
appropriately the legitimate interests of its direct and indirect
participants and other relevant stakeholders.\37\ OCC's proposed
changes to its Technology Charter to require an independent director as
the chair of the committee would help to ensure that the interests of
direct and indirect participants are considered as part of Technology
Committee determinations, and also makes the Technology Charter
consistent with the other Board Committee Charters.
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\37\ Id. at 70806-07.
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The Commission believes, therefore, that the proposal to provide
OCC's Board with the discretion to elect either an Executive Chairman
or a Non-Executive Chairman, provide the 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 is consistent with the requirements of Rule
17Ad-22(e)(2)(i), (iv), (v), and (vi) under the Exchange Act.\38\
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\38\ 17 CFR 240.17Ad-22(e)(2)(i), (iv), (v), and (vi).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \39\ and the rules and regulations thereunder.
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\39\ In approving this Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\40\ that the Proposed Rule Change (SR-OCC-2021-007) be,
and hereby is, approved.
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\40\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20969 Filed 9-27-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 28, 2021.
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