Notice2022-12731
Clearing Agency; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning Adoption of a Cybersecurity Attestation Program
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
June 14, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 114 (Tuesday, June 14, 2022)</title>
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[Federal Register Volume 87, Number 114 (Tuesday, June 14, 2022)]
[Notices]
[Pages 36023-36028]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-12731]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95068; File No. SR-OCC-2022-008]
Clearing Agency; The Options Clearing Corporation; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Concerning
Adoption of a Cybersecurity Attestation Program
June 8, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 25, 2022, 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. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\
thereunder.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would amend the OCC's Rules to (1) define
``Cybersecurity Confirmation'' as a signed, written representation that
addresses the submitting firm's cybersecurity program; and (2) enhance
the OCC application requirements and ongoing requirements for
applicants for clearing membership (``Applicants'') and Clearing
Members to require (a) each Applicant to provide a completed
Cybersecurity Confirmation as part of its application materials, and
(b) each Clearing Member to deliver to OCC a complete, updated
Cybersecurity Confirmation at least every two years, as described in
greater detail below. The proposed changes to OCC's Rules are included
as Exhibit 5 of File No. SR-OCC-2022-008. Material proposed to be added
to the Rules as currently in effect is underlined and material proposed
to be deleted is marked in strikethrough text. All capitalized terms
not defined herein have the same meaning as set forth in the OCC By-
Laws and Rules.\5\
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\5\ OCC's By-Laws and Rules can be found on OCC's public
website: <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>.
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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 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
Overview
OCC is proposing to modify the Rules in order to (1) define
``Cybersecurity Confirmation'' as a signed, written representation that
addresses the submitting firm's cybersecurity program; and (2) enhance
its existing practices to require that (a) all Applicants deliver a
complete Cybersecurity Confirmation as part of their application
materials, and (b) all Clearing Members to deliver a complete, updated
Cybersecurity Confirmation at least every two years, on a date
established by OCC.
As described in more detail below, the Cybersecurity Confirmation
would help OCC assess the cybersecurity risks that may be introduced to
it by Clearing Members and Applicants that connect to OCC's networks
and systems. The proposed Cybersecurity Confirmation would allow OCC to
better assess its Clearing Members' and Applicants' cybersecurity
programs and frameworks and identify possible cybersecurity risk
exposures. Based on this information, OCC could take action to enhance
its existing controls and mitigate identified risks and potential
impacts to OCC's operations.
OCC believes it is prudent to implement a standardized approach for
due diligence of cybersecurity risks that it may face through its
interconnections to Clearing Members. As a designated systemically
important financial market utility (``SIFMU''),\6\ a failure or
disruption to OCC could increase the risk of significant liquidity
problems spreading among financial institutions or markets and thereby
threaten the stability of the financial system in the United States.
Given its designation as a SIFMU, OCC believes it is prudent to enhance
its understanding of endpoint security frameworks so that its network
and systems remain protected against cyberattacks.
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\6\ OCC was designated as a SIFMU under Title VIII of the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010. 12
U.S.C. 5465(e)(1).
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OCC maintains a Third-Party Risk Management (``TPRM'') Framework
that is designed to enable OCC to identify, measure and manage
potential operational, information technology and security risks
arising from third-parties, including Clearing Members and
Applicants.\7\ Under the TPRM framework, OCC obtains information
regarding the security of an Applicant's systems and cybersecurity
program prior to admitting the firm as a Clearing Member and permitting
it to connect directly to OCC or through another means, such as a
through a third-party service provider, service bureau, network, or the
internet. OCC obtains information regarding the security of a Clearing
Member's systems and cybersecurity program on a periodic basis
thereafter through risk
[[Page 36024]]
examinations that are conducted in accordance with the TPRM Framework.
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\7\ See Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR
86592, 86593 (Dec. 30, 2020) (File No. SR-OCC-2020-014).
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OCC's existing process for assessing cybersecurity risks that may
be presented by Clearing Members and Applicants uses a questionnaire
format. Responses help OCC determine whether the submitting firm (i)
has established a process to notify OCC regarding security incidents;
(ii) has a formal incident communication procedure integrated with its
security incident response and escalation process; (iii) uses
encryption to protect data within and outside of its network; (iv) has
established appropriate access controls, including with respect to OCC
systems and data; and (v) validates controls using independent, third-
party auditors or information security professionals. OCC may require
supporting information or documentation for any of these items. While
the questionnaire is standardized, the form and content of supporting
documentation requested by OCC is not. OCC's process for validating the
submitting firm's information can be iterative and time-consuming. OCC
proposes to adopt a more standardized approach for due diligence of
Clearing Members' and Applicants' cybersecurity programs and
frameworks. OCC believes the proposed rule change would enhance the
consistency of information OCC receives from submitting firms, align
with industry peers and improve process effectiveness and
efficiency.\8\ The proposal would better enable OCC to understand which
Clearing Members may present a heightened cybersecurity risk by
requiring the firms to provide information in a standardized format,
which OCC could better use to make decisions about potential network
risks or threats. Additionally, the proposed rule change would
harmonize OCC's cybersecurity due diligence requirements for Clearing
Members and Applicants with requirements that were adopted by the
National Securities Clearing Corporation, Fixed Income Clearing
Corporation and Depository Trust Company (collectively, the ``DTCC
Clearing Agencies'') and filed with the Commission.\9\ The content of
OCC's proposed Cybersecurity Confirmation form, included at Exhibit 3,
is substantively identical to the content of the cybersecurity
confirmation form adopted by the DTCC Clearing Agencies. OCC believes
an attestation-based format would be more efficient and effective than
its current questionnaire-based format in ascertaining whether the
submitting firm maintains appropriate policies, processes and programs
with respect to cyber risk. OCC's proposed rule change would improve
process effectiveness and efficiency for all submitting firms and OCC.
As noted above, OCC's existing process for evaluating Clearing Members'
cybersecurity programs uses a question-and-answer format that tends
toward an iterative process for gathering responses and supporting
documentation. OCC's proposal would enhance process efficiency for all
submitting firms by standardizing the form of submissions and thereby
reducing the time and effort required to demonstrate the existence of
an acceptable cybersecurity framework. In addition, the large majority
of OCC Clearing Members are required to make attestations regarding
their cybersecurity programs that are substantively identical to OCC's
proposal. OCC believes that aligning the format and content of OCC's
cybersecurity attestation with that used by the DTCC Clearing Agencies
would enhance process efficiency by eliminating the duplication of
effort currently required for these common Clearing Members to submit
different sets of materials to OCC and the DTCC Clearing Agencies
regarding the firm's cybersecurity practices.\10\ These process
efficiencies also support program effectiveness by filtering the
requested information into standardized format, which better enables
OCC to review and identify areas of interest or concern for a specific
firm or groups of firms. The frequency of OCC reviews under the
proposed framework would also increase from every three years to every
two years, which OCC believes would further enhance process
effectiveness.
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\8\ See infra note 10.
\9\ See Exchange Act Release No. 87696 (Dec. 9, 2019), 84 FR
68243, 68244-68245 (Dec. 13, 2019) (File No. SR-NSCC-2019-003);
Exchange Act Release No. 87697 (Dec. 9, 2019), 84 FR 68266, 68267-
68268 (Dec. 13, 2019) (File No. SR-FICC-2019-005); Exchange Act
Release No. 87698 (Dec. 9, 2019), 84 FR 68269, 68270-68271 (Dec. 13,
2019) (File No. SR-DTC-2019-008), respectively (collectively,
``Orders Approving Program'').
\10\ Approximately 90% of current OCC Clearing Members are also
members or participants at one or more of the DTCC Clearing
Agencies.
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OCC Clearing Members may currently be subject to regulations that
are designed, in part, to enhance the safeguards used by these entities
to protect themselves against cyberattacks.\11\ In order to comply with
such regulations, Clearing Members and Applicants would be required to
follow standards established by national or international organizations
focused on information security management, and would have already
established protocols to allow their senior management to verify that
they have sufficient cybersecurity programs in place to fulfill
existing regulatory obligations. Other Clearing Members have
established and follow substantially similar protocols because of
evolving expectations by regulators or by institutional customers as to
the sufficiency of their cyber safeguards. Additionally, approximately
90% of OCC's Clearing Members are subject to requirements that are
substantively identical to the proposed rule change by virtue of their
membership or participation at one or more of the DTCC Clearing
Agencies. The proposed rule change would establish a uniform approach
for Clearing Members and Applicants to demonstrate the adequacy of
their cyber and information security programs to OCC, while also
aligning with the approach adopted by the DTCC Clearing Agencies and
applicable to the large majority of OCC's Clearing Members already.\12\
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\11\ For example, depending on the type of entity, Clearing
Members or Applicants may be subject to one or more of the following
regulations: (1) Regulation S-ID, which requires ``financial
institutions'' or ``creditors'' under the rule to adopt programs to
identify and address the risk of identity theft of individuals (17
CFR 248.201-202); (2) Regulation S-P, which requires broker-dealers,
investment companies, and investment advisers to adopt written
policies and procedures that address administrative, technical, and
physical safeguards for the protection of customer records and
information (17 CFR 248.1-30); and (3) Rule 15c3-5 under the
Securities Exchange Act of 1934 (``Act''), known as the ``Market
Access Rule,'' which requires broker-dealers to establish, document,
and maintain a system for regularly reviewing the effectiveness of
its management controls and supervisory procedures (17 CFR 240.15c3-
5).
\12\ See Orders Approving Program, supra note 9.
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Proposed Rule Changes
OCC is proposing to modify its Rules to (1) define ``Cybersecurity
Confirmation;'' and (2) require that firms deliver a completed
Cybersecurity Confirmation (a) as part of their initial application
with OCC, and (b) on an ongoing basis, at least every two years. Each
of these proposed rule changes is described in greater detail below.
(a) Proposed Cybersecurity Confirmation
OCC is proposing to adopt a definition of ``Cybersecurity
Confirmation.'' Each Cybersecurity Confirmation would be required to be
in writing on a form provided by OCC and signed by a designated senior
executive of the submitting firm who is authorized to attest to these
matters. Based on the form provided by OCC, each Cybersecurity
Confirmation would contain representations regarding the submitting
firm's cybersecurity program and framework. In addition, Clearing
Members and Applicants would be
[[Page 36025]]
required to identify its designated control officer and the standards
and/or frameworks it uses to guide and assess its cybersecurity
program. While the proposed Cybersecurity Confirmation would identify
certain standards and guidelines that would be appropriate, OCC would
consider requests by Clearing Members and Applicants to allow other
standards in accepting a Cybersecurity Confirmation.
The initial representations made by Clearing Members and Applicants
would be made as of the date of submission to OCC. Subsequent
representations made by Clearing Members would cover the two years
prior to the date of the most recently provided Cybersecurity
Confirmation.
OCC is proposing to require that the following representations be
included in the form of Cybersecurity Confirmation:
First, the Cybersecurity Confirmation would include a
representation that the submitting firm has defined and maintains a
comprehensive cybersecurity program and framework that considers
potential cyber threats that impact its organization and protects the
confidentiality, integrity, and availability requirements of its
systems and information.
Second, the Cybersecurity Confirmation would include a
representation that the submitting firm has implemented and maintains a
written enterprise cybersecurity policy or policies approved by senior
management or the organization's board of directors, and the
organization's cybersecurity framework is in alignment with standard
industry best practices and guidelines, as indicated on the form of
Cybersecurity Confirmation.\13\
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\13\ Examples of recognized frameworks, guidelines and standards
that OCC believes are adequate include the Financial Services Sector
Coordinating Council Cybersecurity Profile, the National Institute
of Standards and Technology Cybersecurity Framework (``NIST CSF''),
International Organization for Standardization (``ISO'') standard
27001/27002 (``ISO 27001''), Federal Financial Institutions
Examination Council (``FFIEC'') Cybersecurity Assessment Tool,
Critical Security Controls Top 20, and Control Objectives for
Information and Related Technologies. OCC would identify recognized
frameworks, guidelines and standards in the form of Cybersecurity
Confirmation and in an Information Memorandum that OCC would issue
from time to time. OCC would also consider accepting other standards
upon request by a Clearing Member or Applicant.
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Third, the Cybersecurity Confirmation would include a
representation that, if the submitting firm is using a third-party
service provider or service bureau(s) to connect or transact business
or to manage the connection with OCC, the submitting firm has an
appropriate program to (a) evaluate the cyber risks and impact of these
third parties, and (b) review the third-party assurance reports.
Fourth, the Cybersecurity Confirmation would include a
representation that the submitting firm's cybersecurity program and
framework protect the segment of its system that connects to and/or
interacts with OCC.
Fifth, the Cybersecurity Confirmation would include a
representation that the submitting firm has in place an established
process to remediate cyber issues identified to fulfill the submitting'
firm's regulatory and/or statutory requirements.
Sixth, the Cybersecurity Confirmation would include a
representation that the submitting firm's cybersecurity programs and
framework's risk processes are updated periodically based on a risk
assessment or changes to technology, business, threat ecosystem, and/or
regulatory environment.
Lastly, the Cybersecurity Confirmation would include a
representation that the review of the submitting firm's cybersecurity
program and framework has been conducted by one of the following: (1)
the submitting firm, if it has filed and maintains a current
Certification of Compliance with the Superintendent of the New York
State Department of Financial Services confirming compliance with its
Cybersecurity Requirements for Financial Services Companies; \14\ (2) a
regulator who assesses the program against an industry cybersecurity
framework or industry standard, including those that are listed on the
form of Cybersecurity Confirmation and in an Information Memorandum
that is issued by OCC from time to time; \15\ (3) an independent
external entity with cybersecurity domain expertise in relevant
industry standards and practices, including those that are listed on
the form of Cybersecurity Confirmation and in an Information Memorandum
that is issued by OCC from time to time; \16\ or (4) an independent
internal audit function reporting directly to the submitting firm's
board of directors or designated board of directors committee, such
that the findings of that review are shared with these governance
bodies.
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\14\ 23 N.Y. Comp. Codes R. & Regs. tit. 23, Sec. 500 (2017).
This regulation requires firms to confirm that they have a
comprehensive cybersecurity program, as described in the regulation,
which OCC believes is sufficient to meet the objectives of the
proposed Cybersecurity Confirmation.
\15\ Industry cybersecurity frameworks and industry standards
could include, for example, the Office of the Comptroller of the
Currency or the FFIEC Cybersecurity Assessment Tool. OCC would
identify acceptable industry cybersecurity frameworks and standards
in the form of Cybersecurity Confirmation and in an Information
Memorandum that OCC would issue from time to time. OCC would also
consider accepting other industry cybersecurity frameworks and
standards upon request by a Clearing Member or Applicant.
\16\ A third party with cybersecurity domain expertise is one
that follows and understands industry standards, practices and
regulations that are relevant to the financial sector. Examples of
such standards and practices include ISO 27001 certification or NIST
CSF assessment. OCC would identify acceptable industry standards and
practices in the form of Cybersecurity Confirmation and in an
Information Memorandum that OCC would issue from time to time. OCC
would also consider accepting other industry standards and practices
upon request by a Clearing Member or Applicant.
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Together, the required representations are designed to provide OCC
with evidence of each Clearing Member's and Applicant's management of
cybersecurity with respect to their connectivity to OCC. By requiring
these representations from Clearing Members and Applicants the proposed
Cybersecurity Confirmation would provide OCC with additional
information that it could use to make decisions about risks or threats,
perform additional monitoring, target potential vulnerabilities and
protect the OCC network.
OCC is proposing to amend the Rules to include a definition of
``Cybersecurity Confirmation,'' as described above, in a new Rule 219
(Cybersecurity Confirmation).
(b) Initial and Ongoing Requirement
OCC is proposing to require that a Cybersecurity Confirmation be
submitted by each Applicant, as part of its application materials, and
at least every two years by each Clearing Member. With respect to the
requirement to deliver a Cybersecurity Confirmation at least every two
years, OCC would provide each Clearing Member with notice of the date
on which the Cybersecurity Confirmation would be due. Each Clearing
Member would have 180 calendar days after such notification to provide
OCC with its completed Cybersecurity Confirmation.
In order to implement these proposed changes, OCC would amend the
Rules to include a new Rule 219 (Cybersecurity Confirmation) to require
that (1) each Applicant completes and delivers a Cybersecurity
Confirmation as part of its application materials; and (2) each
Clearing Member completes and delivers a Cybersecurity Confirmation at
least every two years, on a date that is 180 calendar days from the
date that OCC notifies the Clearing Member of the requirement to submit
a Cybersecurity Confirmation.
[[Page 36026]]
Implementation Timeframe
OCC proposes the rule changes to be effective immediately upon
filing. Notwithstanding their immediate effectiveness, OCC would not
make the proposed rule changes operative until 30 days after the date
of the filing, or such shorter time as the Commission may designate.
Upon implementation, the proposed requirement that that [sic] all
Applicants deliver a Cybersecurity Confirmation with their application
materials would apply to applications that have been submitted at that
time but have not yet been approved or rejected. Following the
effective date of the proposed rule change, OCC would notify each
Clearing Member of the date on which its Cybersecurity Confirmation
would be due. Each Clearing Member would then have 180 calendar days
after such notification to provide OCC with its completed Cybersecurity
Confirmation.
(2) Statutory Basis
OCC believes the proposed rule changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, OCC believes
that the proposed rule changes are consistent with Section 17A(b)(3)(F)
of the Act,\17\ and Rules 17Ad-22(e)(17)(i) and (e)(17)(ii), each
promulgated under the Act,\18\ for the reasons described below.
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 17 CFR 240.17Ad-22(e)(17)(i) and (e)(17)(ii).
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Section 17A(b)(3)(F) of the Act requires that the rules of OCC be
designed to, among other things, promote the prompt and accurate
clearance and settlement of securities transactions and assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\19\ As
described above, the proposed requirement that Clearing Members and
Applicants provide a Cybersecurity Confirmation regarding their
cybersecurity program which includes the representations described
above would provide OCC with evidence of each Clearing Member's or
Applicant's management of endpoint security and would enhance the
protection of OCC against cyberattacks. The proposed Cybersecurity
Confirmation would provide OCC with information that it could use to
make decisions about risks or threats, perform additional monitoring,
target potential vulnerabilities, and protect the OCC network. The
proposed Cybersecurity Confirmation would enable OCC to further
identify its exposure and enable it to take steps to mitigate risks.
These requirements would help reduce risk to OCC's network with respect
to its communications with Clearing Members and their submission of
instructions and transactions to OCC by requiring all Clearing Members
connecting to OCC to have appropriate cybersecurity programs in place.
Risks, threats and potential vulnerabilities could impact OCC's ability
to clear and settle securities transactions, or to safeguard the
securities and funds which are in its custody or control, or for which
it is responsible. Therefore, by enhancing its processes to mitigate
these risks, OCC believes the proposal would promote the prompt and
accurate clearance and settlement of securities transactions and assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible,
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\20\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ Id.
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Rule 17Ad-22(e)(17)(i) under the Act requires that each covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to manage the covered
clearing agency's operational risks by identifying the plausible
sources of operational risk, both internal and external, and mitigating
their impact through the use of appropriate systems, policies,
procedures, and controls.\21\ The proposed Cybersecurity Confirmation
would reduce cybersecurity risks to OCC by requiring all Clearing
Members and Applicants to confirm they have defined and maintain
cybersecurity programs that meet standard industry best practices and
guidelines. The proposed representations in the Cybersecurity
Confirmations would help OCC to mitigate its exposure to cybersecurity
risk and, thereby, decrease the operational risks to OCC. The proposed
Cybersecurity Confirmations would identify to OCC potential sources of
external operational risks and enable it to mitigate these risks and
possible impacts to OCC's operations. As a result, OCC believes the
proposal is consistent with the requirements of Rule 17Ad-22(e)(17)(i)
under the Act.\22\
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\21\ 17 CFR 240.17Ad-22(e)(17)(i).
\22\ Id.
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Rule 17Ad-22(e)(17)(ii) under the Act requires that each covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to manage the covered
clearing agency's operational risks by ensuring, in part, that systems
have a high degree of security, resiliency, and operational
reliability.\23\ The proposed Cybersecurity Confirmation would enhance
the security, resiliency, and operational reliability of the endpoint
security with respect to OCC's network or other connectivity because,
as noted above, by making the Cybersecurity Confirmation an application
requirement and an ongoing membership requirement, OCC would be able to
prevent the connection by any Applicant, and take action against any
Clearing Member, that may pose an increased cyber risk to OCC by not
having a defined and ongoing cybersecurity program that meets
appropriate standards. Clearing Members and Applicants that are not in
alignment with a recognized framework, guideline, or standard that OCC
believes is adequate to guide and assess such organization's
cybersecurity program \24\ may present increased risk to OCC. By better
enabling OCC to identify these risks, the proposed rule change would
allow OCC to more effectively secure its environment against potential
vulnerabilities. OCC's controls are strengthened when OCC's Clearing
Members have similar technology risk management controls and programs
within their computing environment. Control weaknesses within a
Clearing Member's environment could allow for malicious or unauthorized
usage of the link between OCC and the Clearing Member. As a result, OCC
believes the proposal would improve OCC's ability to ensure that its
systems have a high degree of security, resiliency, and operational
reliability, and, as such, is consistent with the requirements of Rule
17Ad-22(e)(17)(ii) under the Act.\25\
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\23\ 17 CFR 240.17Ad-22(e)(17)(ii).
\24\ While the proposed Cybersecurity Confirmation would
identify certain standards and guidelines that would be appropriate,
OCC would consider requests by Clearing Members and Applicants to
allow other standards in accepting a Cybersecurity Confirmation.
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
OCC believes that the propose rule change could burden competition
because it would require any Applicants that do not already have
cybersecurity programs that meet the standards set out in the
Cybersecurity Confirmation to incur additional costs including, but not
limited to, establishing a cybersecurity program and framework,
engaging an internal audit function or appropriate third party to
review that program and framework, and remediating any findings from
such review. In addition,
[[Page 36027]]
those Clearing Members and Applicants that do not connect directly to
OCC's network, but connect through a third party service provider or
service bureau, would have the additional burden of evaluating the
cyber risks and impact of these third parties and reviewing the third
party's assurance reports.
As discussed above, all Clearing Members and Applicants are
required to provide OCC with information concerning their program(s)
for information security, encryption, incident notification, access
controls, and control validations. OCC assesses this information prior
to determining whether to permit the firm to access OCC's network and
systems and on an ongoing basis thereafter. The proposed Cybersecurity
Confirmation would establish new due diligence expectations with
respect to firms' submission of required information. The set of
standards against which OCC currently evaluates Clearing Member and
Applicant cybersecurity programs is one of the acceptable standards
and/or frameworks that OCC would recognize under the proposed
attestation framework. OCC has completed security assessments for each
of its Clearing Members and based on the firms' responses, OCC expects
that all existing Clearing Members' cybersecurity programs currently
align to at least one of the standards and/or frameworks that would be
recognized under the proposed framework. Accordingly, OCC believes that
any potential competitive burden would be limited to future Applicants
that may have to implement process changes in order to meet the
Cybersecurity Confirmation requirements.\26\ OCC believes that any
burden on competition for future Applicants that could be created by
the proposed changes would be both necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act, for the reasons described below.\27\
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\26\ The proposed rule change would permit Clearing Members or
Applicants to align their programs to one of several recognized
standards and/or frameworks. OCC does not view this proposed
optionality as burdening competition since it affords the Clearing
Members and Applicants additional discretion they do not have today.
\27\ 15 U.S.C. 78q-1(b)(3)(I).
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First, OCC believes the proposed rule change would be necessary in
furtherance of the Act, specifically Section 17A(b)(3)(F) of the Act,
because the Rules must be designed to promote the prompt and accurate
clearance and settlement of securities transactions and assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\28\ By
requiring that Clearing Members and Applicants provide a Cybersecurity
Confirmation, the proposed rule change would allow OCC to better
understand, assess, and, therefore, mitigate the cyber risks that OCC
could face through its connections to its Clearing Members. As
described above, these risks could impact OCC's ability to clear and
settle securities transactions, or to safeguard the securities and
funds which are in OCC's custody or control, or for which it is
responsible. Enhancing its processes as described above would help to
mitigate these risks, and therefore OCC believes the proposal is
necessary in furtherance of the requirements of Section 17A(b)(3)(F) of
the Act.\29\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ Id.
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The proposed changes are also necessary in furtherance of the
purposes of Rules 17Ad-22(e)(17)(i) and (e)(17)(ii) under the Act.\30\
The proposed Cybersecurity Confirmations would better enable OCC to
identify potential sources of external operational risks and establish
appropriate controls that would mitigate these risks and their possible
impacts to OCC's operations. The proposed changes would also improve
OCC's ability to ensure that its systems have a high degree of
security, by enabling OCC to better identify the cybersecurity risks
that may be presented to it by Clearing Members.
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\30\ 17 CFR 240.17Ad-22(e)(17)(i) and (e)(17)(ii).
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Second, OCC believes that the proposed rule change would be
appropriate in furtherance of the purposes of the Act. The proposed
rule change would apply equally to all Clearing Members and Applicants.
As described above, OCC believes that all of its current Clearing
Members may already be subject to one or more regulatory requirements
or clearing agency rules that include the implementation of a
cybersecurity program, and these firms would already follow a widely
recognized framework, guideline, or standard to guide and assess their
organization's cybersecurity program to comply with these regulations.
OCC has assessed its current Clearing Members' programs and believes
that all of them align to at least one of the recognized standards and/
or frameworks listed in the Cybersecurity Confirmation. Therefore, OCC
believes any burden that may be imposed by the proposed rule change
would be appropriate.
While the proposed Cybersecurity Confirmation would identify
certain standards and guidelines that would be appropriate, OCC would
consider requests by Clearing Members and Applicants to allow other
standards in accepting a Cybersecurity Confirmation. Additionally, the
proposed Cybersecurity Confirmation would provide differing options to
conduct the review of the Clearing Member's or Applicant's
cybersecurity program. As such, OCC has endeavored to design the
Cybersecurity Confirmation in a way that is reasonable and does not
require one approach for meeting its requirements, and which aligns
with the due diligence requirements for cybersecurity programs and
frameworks that were adopted by the DTCC Clearing Agencies.
Finally, OCC is proposing to provide Clearing Members with 180
calendar days' notice before the deadline to submit a completed
Cybersecurity Confirmation. This notice period would allow Clearing
Members to address any impact this change may have on their business.
Applicants would be required to provide the Cybersecurity Confirmation
as part of their application materials upon the effective date of this
proposed rule change. The proposal is designed to provide all impacted
Clearing Members with time to review their cybersecurity programs with
respect to the required representations, and identify, if necessary,
internal or third-party cybersecurity reviewers.
For the reasons described above, OCC believes any burden on
competition that may result from the proposed rule change would be both
necessary and appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\31\
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\31\ 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
Because the foregoing proposed rule change does not:
(i) significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission
[[Page 36028]]
may designate, it has become effective pursuant to Section 19(b)(3)(A)
\32\ of the Act and Rule 19b-4(f)(6) \33\ thereunder.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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#8ffdfae3eaa2ece0e2e2eae1fbfccffceaeca1e8e0f9"><span class="__cf_email__" data-cfemail="deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8">[email protected]</span></a>. Please include
File Number SR-OCC-2022-008 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2022-008. 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 Section, 100 F Street NE, Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's 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; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.
All submissions should refer to File Number SR-OCC-2022-008 and
should be submitted on or before July 5, 2022.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12731 Filed 6-13-22; 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.