Notice2022-15920
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Related to an Expansion of The Options Clearing Corporation's Non-Bank Liquidity Facility Program as Part of Its Overall Liquidity Plan
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
July 26, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 142 (Tuesday, July 26, 2022)</title>
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[Federal Register Volume 87, Number 142 (Tuesday, July 26, 2022)]
[Notices]
[Pages 44477-44481]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-15920]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95327; File No. SR-OCC-2022-803]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice Related to an Expansion of The
Options Clearing Corporation's Non-Bank Liquidity Facility Program as
Part of Its Overall Liquidity Plan
July 20, 2022.
Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, entitled Payment, Clearing
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'')
\1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities Exchange Act of
1934 (``Exchange Act'' or ``Act''),\3\ notice is hereby given that on
July 7, 2022, The Options Clearing Corporation (``OCC'') filed with the
Securities and Exchange Commission (``Commission'') an advance notice
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 advance notice from interested persons.
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\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ 15 U.S.C. 78a et seq.
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
This advance notice is submitted in connection with a proposed
change to its operations to expand capacity under OCC's program for
accessing additional committed sources of liquidity that do not
increase the concentration of OCC's counterparty exposure (``Non-Bank
Liquidity Facility'') as part of OCC's overall liquidity plan. The
proposed changes do not require any changes to the text of OCC's By-
Laws or Rules. All terms with initial capitalization that are not
otherwise defined herein have the same meaning as set forth in the OCC
By-Laws and Rules.\4\
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\4\ 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 Advance Notice
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the advance notice and
discussed any comments it received on the advance notice. 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) and (B)
below, of the most significant aspects of these statements.
(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the advance notice and none have been received. OCC will
notify the Commission of any written comments received by OCC.
(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment,
Clearing, and Settlement Supervision Act
Description of Change
As the sole clearing agency for standardized U.S. securities
options listed on national securities exchanges registered with the
Commission (``listed options''), OCC is obligated to make certain
payments. In the event of a Clearing Member default, OCC would be
obligated to make payments, on time, related to that member's clear
transactions. To meet such payment obligations, OCC maintains access to
cash from a variety of sources, including, a requirement for members to
pledge cash collateral to OCC and various agreements with banks and
other counterparties (``liquidity facilities'') to provide OCC with
cash in exchange for collateral, such as U.S. Government securities.
OCC routinely considers potential market stress scenarios that could
affect such payment obligations. Based on such considerations, OCC now
believes that it should seek to expand its liquidity facility to
increase OCC's access to cash to manage a member default.
OCC is proposing to expand the size of its liquidity facilities by
increasing the size of one of its liquidity facilities. Specifically,
this advance notice concerns a change to OCC's operations to expand
capacity under OCC's Non-Bank Liquidity Facility as part of OCC's
overall liquidity plan, which includes OCC's arrangements to access
cash in exchange for Government securities deposited by Clearing
Members in respect of their Clearing Fund
[[Page 44478]]
requirements to meet OCC's settlement obligations. OCC is not, as part
of this advance notice, proposing to require its members or other
market participants provide additional or different collateral to OCC.
Rather, the purpose of the proposal is to provide OCC with another
vehicle for accessing cash to meet its payment obligations, including
in the event that one of its members fails to meet its payment
obligations to OCC.\5\
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\5\ OCC may use the Clearing Fund to address liquidity
shortfalls arising from the failure of any bank, securities or
commodities clearing organization, or investment counterparty to
perform any obligation to OCC when due. See OCC Rule 1006(f)(1)(C);
Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR 11776 (Mar. 2,
2022) (SR-OCC-2021-014).
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Background
OCC's current liquidity plan provides it with access to a diverse
set of funding sources, including banks (i.e., OCC's syndicated credit
facility),\6\ the Non-Bank Liquidity Facility program,\7\ and Clearing
Members' Cash Clearing Fund Requirement.\8\ The Non-Bank Liquidity
Facility program reduces the concentration of OCC's counterparty
exposure with respect to its overall liquidity plan by diversifying its
base of liquidity providers among banks and non-bank, non-Clearing
Member institutional investors, such as pension funds or insurance
companies.
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\6\ See Exchange Act Release No. 88971 (May 28, 2020), 85 FR
34257 (June 3, 2020) (SR-OCC-2020-804).
\7\ See Exchange Act Release No. 89039 (June 10, 2020), 85 FR
36444 (June 16, 2020) (SR-OCC-2020-803) (``Notice of No Objection to
2020 Advance Notice''); Exchange Act Release No. 76821 (Jan. 4,
2016), 81 FR 3208 (Jan. 20, 2016) (SR-OCC-2015-805) (``Notice of No
Objection to 2015 Advance Notice''); Exchange Act Release No. 73979
(Jan. 2, 2015), 80 FR 1062 (Jan. 8, 2015) (SR-OCC-2014-809)
(``Notice of No Objection to 2014 Advance Notice'').
\8\ See OCC Rule 1002.
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The currently approved Non-Bank Liquidity Facility program is
comprised of two parts: a Master Repurchase Agreement (``MRA'') and
confirmations with one or more institutional investors, which contain
certain individualized terms and conditions of transactions executed
between OCC, the institutional investors and their agents. The MRA is
structured like a typical repurchase arrangement in which the buyer
(i.e., the institutional investor) would purchase from OCC, from time
to time, Government securities (``Eligible Securities'').\9\ OCC, as
the seller, would transfer Eligible Securities to the buyer in exchange
for a payment by the buyer to OCC in immediately available funds
(``Purchase Price''). The buyer would simultaneously agree to transfer
the purchased securities back to OCC at a specified later date
(``Repurchase Date'') or on OCC's demand against the transfer of funds
by OCC to the buyer in an amount equal to the outstanding Purchase
Price plus the accrued and unpaid price differential (together,
``Repurchase Price''), which is the interest component of the
Repurchase Price.
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\9\ OCC would use U.S. government securities that are included
in Clearing Fund contributions by Clearing Members and margin
deposits of any Clearing Member that has been suspended by OCC for
the repurchase arrangements. OCC Rule 1006(f) and OCC Rule 1104(b)
authorize OCC to obtain funds from third parties through securities
repurchases using these sources. The officers who may exercise this
authority include the Executive Chairman, Chief Executive Officer,
and Chief Operating Officer.
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The confirmations establish tailored provisions of repurchase
transactions permitted under the Non-Bank Liquidity Facility that are
designed to reduce concentration risk and to promote certainty of
funding and operational effectiveness based on the specific needs of a
party. For example, OCC would only enter into confirmations with an
institutional investor that is not a Clearing Member or affiliated
bank, such as pension funds or insurance companies, in order to allow
OCC to access stable and reliable sources of funding without increasing
the concentration of its exposure to counterparties that are affiliated
banks, broker/dealers, or futures commission merchants. In addition,
any such institutional investor is obligated to enter repurchase
transactions even if OCC experiences a material adverse change,\10\
funds must be made available to OCC within 60 minutes of OCC's
delivering eligible securities, and the institutional investor is not
permitted to rehypothecate purchased securities.\11\ Additionally, the
confirmations set forth the term and maximum dollar amounts of the
transaction permitted under the MRA.
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\10\ When included in a contract, a ``material adverse change''
is typically defined as a change that would have a materially
adverse effect on the business or financial condition of a company.
\11\ See Notice of No Objection to 2014 Advance Notice, 80 FR at
1064.
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In 2020, OCC set the aggregate amount it may seek through the Non-
Bank Liquidity Facility program to an amount up to $1 billion.\12\ OCC
has since secured from multiple pension funds commitments in an
aggregate amount of $1 billion. Since setting and securing commitments
up to that aggregate commitment limit, OCC has experienced an increase
in its stressed liquidity demands. Under OCC's Liquidity Risk
Management Framework (``LRMF''), OCC performs daily liquidity stress
testing to assess its Base Liquidity Resources \13\ and Available
Liquidity Resources \14\ against OCC's liquidity risk tolerance
(``Adequacy Scenarios''). Based in part on the results of this stress
testing, OCC's Rules provide authority for OCC to periodically adjust
Clearing Member's Cash Clearing Fund Requirement to ensure that OCC
maintains sufficient liquidity resources to cover its liquidity risk
exposures at all times. In response to increased stressed liquidity
demands in 2021, OCC exercised authority under OCC Rule 1002(a) to
increase the Cash Clearing Fund Requirement from $3.5 billion to $4
billion in July 2021, and from $4 billion to $5 billion in October
2021. This advance notice concerns a change to OCC's Non-Bank Liquidity
Facility program to give OCC greater capacity to source liquidity from
its non-bank liquidity providers as needed. OCC provided a summary of
OCC management's recommendation to expand OCC's external liquidity
sources as well as a discussion of the analysis underlying that
recommendation as presented to the Board in confidential Exhibit 3 to
File No. SR-OCC-2022-803.
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\12\ See Notice of No Objection to 2020 Advance Notice, 85 FR at
36446. $1 billion is the same as the aggregate value established at
the inception of the Non-Bank Liquidity Facility program. See Notice
of No Objection to 2014 Advance Notice, 80 FR at 1064 & n.11. In
2015, OCC filed an advance notice that set an aggregate value of at
least $1 billion and up to $1.5 billion. See Notice of No Objection
to 2015 Advance Notice, 81 FR at 3208.
\13\ The LRMF defines ``Base Liquidity Resources'' to mean the
amount of committed liquidity resources maintained at all times by
OCC to meet its Cover 1 liquidity resource requirements under the
applicable regulations. Base Liquidity Resources are comprised of
qualifying liquid resources in the form of Clearing Fund cash
deposited in respect of the Cash Clearing Fund Requirement and
assets that are readily available and convertible into cash (i.e.,
Government securities) through prearranged funding arrangements,
such as the Non-Bank Liquidity Facility.
\14\ The LRMF defines ``Available Liquidity Resources'' to
include Base Liquidity Resources plus allowable Clearing Fund cash
deposited in excess of the Cash Clearing Fund Requirement. Any
Clearing Member request to substitute Government securities for cash
deposits in excess of such Clearing Member's propitiate share of the
Clearing Fund Cash Requirement is subject to a two-day notice
period. See OCC Rule 1002(a)(iv).
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Proposed Change
In order to give OCC greater capacity to source liquidity from
external liquidity providers as needed, OCC would modify the Non-Bank
Liquidity Facility program to remove the aggregate commitment limit
identified in prior advance notices concerning the program. Instead,
OCC's Board of Directors by resolution would set the level of aggregate
commitments under the program from time to time to ensure that OCC
maintains sufficient liquidity
[[Page 44479]]
resources to cover its liquidity risk exposures at all times
considering such factors including, but not limited to: (1) the size
and make-up of the Clearing Fund; (2) the aggregate amount of OCC's
other liquidity sources; and (3) changing market and business
conditions. OCC would establish a target across all external liquidity
resources of at least $3 billion, which is the current aggregate amount
of external liquidity. OCC would continue to manage the allocation
between external liquidity sources to maintain a diverse set of
liquidity providers, including sources like the Non-Bank Liquidity
Facility that reduce concentration of OCC's counterparty exposures.
Considering these factors, the Board of Directors has authorized
OCC to seek up to an additional $2.5 billion in external liquidity,
including through the Non-Bank Liquidity Facility program.
Specifically, the Board considered that:
(1) OCC's current total Clearing Fund requirement, as of January
31, 2022, was approximately $15.8 billion, of which Clearing Members
had deposited approximately $5.5 billion in Government securities.
(2) OCC's Base Liquidity Resources are currently $8 billion,
consisting of $5 billion in cash from the Clearing Fund Cash
Requirement, $2 billion from the syndicated credit facility, and $1
billion from OCC's current commitments under the Non-Bank Liquidity
Facility.
(3) The agent for the liquidity providers under Non-Bank
Liquidity Facility has indicated that several pension funds and
other institutional investors have expressed interest in
establishing or expanding commitments under the facility.\15\
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\15\ See Confidential Exhibit 3 to SR-OCC-2022-803 (Confidential
data and analysis that informed the Board's decision).
OCC expects that it will source up to $500 million of this
liquidity through an expansion of the syndicated credit facility as
part of its annual renewal in June.\16\ In addition, OCC concurrently
has filed an advance notice to source liquidity through a bank
counterparty by executing another master repurchase agreement for up to
$1 billion (the ``Bank Repo Facility''), similar to the repurchase
agreement OCC executed with a bank counterparty in 2020,\17\ this time
with a bank counterparty to which OCC has more limited counterparty
credit exposure. Accordingly, OCC expects to source approximately $1
billion in additional liquidity under the Non-Bank Liquidity Facility.
As such, the proportion of bank versus non-bank sources of liquidity
would remain roughly equal to the current proportions, consistent with
OCC's objective to maintain access to a diverse set of funding sources.
However, to the extent that commitments under the syndicated credit
facility or master repurchase agreement with a bank counterparty are
less than anticipated, the Board has authorized OCC to seek additional
commitments under the Non-Bank Liquidity Facility program to make up
any difference. In the unlikely event that OCC is not able to onboard
any of the additional bank liquidity and sources the full $2.5 billion
under the Non-Bank Liquidity Facility program, OCC believes that the
change in proportions between bank and non-bank liquidity would still
be consistent with OCC's objective to maintain access to a diverse set
of funding sources. Based on current interest received from potential
counterparties, OCC believes that the risk that OCC would not be able
to obtain $2.5 billion in additional external liquidity through one of
more of these sources of liquidity to be low.
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\16\ See Exchange Act Release No. 88971, 85 FR at 34259
(providing conditions for future renewals of the syndicated credit
facility without an additional advance notice, including an increase
of up to $500 million in total).
\17\ See Exchange Act Release No. 88317 (Mar. 4, 2020), 85 FR
13681 (Mar. 9, 2020) (SR-OCC-2020-801) (concerning the establishment
of a ``Bank Repo Facility'' with a bank counterparty in an amount of
$500 million).
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Removing the present $1 billion dollar cap to the Non-Bank
Liquidity Facility program will also have the effect of removing one of
the events in which OCC would file an advance notice for entering into
individual commitments that OCC identified in a prior advance
notice.\18\ Consistent with the proposal to establish a target for
external liquidity and drawing from applicable conditions for filing
advance notices with respect to renewals of OCC's syndicated credit
facility and proposed Bank Repo Facility, OCC would submit another
advance notice with respect to the execution of individual commitments
under the Non-Bank Liquidity Facility only if: (i) OCC should seek to
execute a commitment at a level that would have the effect of reducing
external liquidity below the target of $3 billion; (ii) OCC should seek
to change the terms and conditions of the MRA or commitments thereunder
in a manner that materially affects the nature or level of risk
presented by OCC; \19\ or (iii) OCC should seek to execute a commitment
with a counterparty that has experienced a negative change to its
credit profile or a material adverse change since OCC last executed a
commitment with that counterparty. Consistent with another prior
advance notice, OCC may consider changes to (i) liquidity providers
provided that any new counterparty is subject to a credit review under
OCC's Third-Party Risk Management Framework \20\ and (ii) term lengths
consistent with those approved by OCC's Board considering factors
including, but not limited to, the initial committed length of the
term, market conditions, and OCC's liquidity needs.\21\ OCC would not
consider additional counterparties or different commitment terms within
these specified parameters as materially altering the terms and
conditions of MRAs or commitments under the Non-Bank Liquidity Facility
program.
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\18\ See Exchange Act Release No. 76821, 81 FR at 3209
(describing OCC's proposal to submit an advance notice in connection
with a renewal of commitments under the Non-Bank Liquidity Facility
if: (i) OCC determined that its liquidity needs merited commitments
above or below certain levels; (ii) OCC should seek to change the
terms and conditions of the Non-Bank Liquidity Facility; and (iii)
the commitment counterparty experienced a negative change to its
credit profile or a material adverse change since entering the
commitment or the latest renewal of the commitment). OCC
subsequently submitted an advance notice pursuant to that commitment
to support its ability to onboard multiple liquidity providers below
the identified commitment levels and with different term lengths to
replace expiring commitments. See Exchange Act Release No. 89039, 85
FR at 36445-46.
\19\ For the purposes of clarity, OCC would not consider changes
to pricing or changes in representations, covenants, and terms of
events of default, to be changes to a term or condition that would
require the filing of a subsequent advance notice provided that
pricing is at the then prevailing market rate and changes to such
other provisions are immaterial to OCC as the seller and do not
impair materially OCC's ability to draw against the facility.
\20\ See Third-Party Risk Management Framework, available at
Documents & Archives, <a href="https://www.theocc.com/Company-Information/Documents-and-Archives">https://www.theocc.com/Company-Information/Documents-and-Archives</a>. While credit monitoring of insurance
companies that may become liquidity providers would necessarily be
different than credit monitoring of existing pension fund
counterparties, any new liquidity would be subject to the same
credit review for counterparties of the same type.
\21\ See Exchange Act Release No. 89039, 85 FR at 36445-46.
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Provided that none of the conditions under which OCC would file a
subsequent advance notice are present, OCC would consider a new or
renewed commitment as being on substantially the same terms and
conditions as existing commitments under the Non-Bank Liquidity
Facility program such that executing such commitments would not be
subject to the requirement to file an advance notice filing pursuant to
Section 806(e)(1) of the Clearing Supervision Act.\22\ If OCC
determines to modify the conditions for a new or renewed commitment
under the Non-Bank Liquidity Facility in a subsequent filing, it would
include in that filing the proposed conditions to the terms of any
subsequent commitments or renewals
[[Page 44480]]
that could be done without an additional advance notice.
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\22\ 12 U.S.C. 5465(e)(1).
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Anticipated Effect On and Management of Risk
Completing timely settlement is a key aspect of OCC's role as the
clearing agency performing central counterparty services for all listed
options. Expanding the Non-Bank Liquidity Facility program would
continue to promote the reduction of risks to OCC, its Clearing Members
and the options market in general because it would allow OCC to obtain
short-term funds from the Non-Bank Liquidity Facility to address
liquidity demands arising out of the default or suspension of a
Clearing Member, in anticipation of a potential default or suspension
of Clearing Members, the insolvency of a bank, another securities or
commodities clearing organization, or a counterparty with which OCC has
invested Clearing Member funds, or the failure of such a bank clearing
organization, or investment counterparty to meet an obligation to OCC
when due.
The Non-Bank Liquidity Facility helps OCC minimize losses in the
event of a default, suspension, insolvency, or failure to achieve daily
settlement, by allowing it to obtain funds from sources not connected
to OCC's Clearing Members on extremely short notice to ensure clearance
and settlement of transactions in options and other contracts without
interruption. OCC believes that the reduced settlement risk presented
by OCC resulting from the proposed change would correspondingly reduce
systemic risk and promote the safety and soundness of the clearing
system. The ability to borrow funds from the Non-Bank Liquidity
Facility would allow OCC to avoid liquidating margin or clearing fund
assets in what would likely be volatile market conditions, which would
preserve funds available to cover any losses resulting from the failure
of a Clearing Member, bank, other clearing organization, or investment
counterparty.
The proposed change to the Non-Bank Liquidity Facility program to
allow OCC to seek an aggregate commitment amount for up to the amount
determined by the Board of the Directors from time to time would help
OCC ensure the continued availability of its liquidity resources by
providing OCC with the capacity to seek additional funding amounts on
substantially the same terms, conditions, operations, and mechanics. In
addition, the proposed change to the program would ensure that the
approved amount would not be less than the currently approved amount of
up to $1 billion. Because the proposed change preserves substantially
the same terms and conditions as the MRA and the existing
conformations, OCC believes that the proposed change would not
otherwise affect or alter the management of risk at OCC.
Consistency With the Payment, Clearing and Settlement Supervision Act
The stated purpose of the Clearing Supervision Act is to mitigate
systemic risk in the financial system and promote financial stability
by, among other things, promoting uniform risk management standards for
systemically important financial market utilities and strengthening the
liquidity of systemically important financial market utilities.\23\
Section 805(a)(2) of the Clearing Supervision Act \24\ also authorizes
the Commission to prescribe risk management standards for the payment,
clearing and settlement activities of designated clearing entities,
like OCC, for which the Commission is the supervisory agency. Section
805(b) of the Clearing Supervision Act \25\ states that the objectives
and principles for risk management standards prescribed under Section
805(a) shall be to:
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\23\ 12 U.S.C. 5461(b).
\24\ 12 U.S.C. 5464(a)(2).
\25\ 12 U.S.C. 5464(b).
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<bullet> promote robust risk management;
<bullet> promote safety and soundness;
<bullet> reduce systemic risks; and
<bullet> support the stability of the broader financial system.
The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and the Exchange Act in
furtherance of these objectives and principles.\26\ Rule 17Ad-22
requires registered clearing agencies, like OCC, to establish,
implement, maintain, and enforce written policies and procedures that
are reasonably designed to meet certain minimum requirements for their
operations and risk management practices on an ongoing basis.\27\
Therefore, the Commission has stated \28\ that it believes it is
appropriate to review changes proposed in advance notices against Rule
17Ad-22 and the objectives and principles of these risk management
standards as described in Section 805(b) of the Clearing Supervision
Act.\29\
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\26\ 17 CFR 240.17Ad-22. See Exchange Act Release Nos. 68080
(October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11)
(``Clearing Agency Standards''); 78961 (September 28, 2016), 81 FR
70786 (October 13, 2016) (S7-03-14) (``Standards for Covered
Clearing Agencies'').
\27\ 17 CFR 240.17Ad-22.
\28\ See, e.g., Exchange Act Release No. 86182 (June 24, 2019),
84 FR 31128, 31129 (June 28, 2019) (SR-OCC-2019-803).
\29\ 12 U.S.C. 5464(b).
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OCC believes that the Non-Bank Liquidity Facility program, as
modified, is consistent with Section 805(b)(1) of the Clearing
Supervision Act \30\ because the proposed confirmations would provide
OCC with an additional source of committed liquidity to meet its
settlement obligations while at the same time being structured to
mitigate certain operational risks, as described above, that arise in
connection with this committed liquidity source. In this way, the
proposed changes are designed to promote robust risk management;
promote safety and soundness; reduce systemic risks; and support the
stability of the broader financial system.
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\30\ 12 U.S.C. 5464(b)(1).
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OCC believes that the Non-Bank Liquidity Facility program, as
modified, is also consistent with the requirements of Rule 17Ad-
22(e)(7) under the Exchange Act.\31\ Rule 17Ad-22(e)(7) requires OCC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage liquidity risk that arises in or is borne by OCC, including
measuring, monitoring, and managing its settlement and funding flows on
an ongoing and timely basis, and its use of intraday liquidity, as
specified in the rule.\32\ In particular, Rule 17Ad-22(e)(7)(i) under
the Exchange Act \33\ directs that OCC meet this obligation by, among
other things, ``[m]aintaining sufficient liquid resources at the
minimum in all relevant currencies to effect same-day . . . settlement
of payment obligations with a high degree of confidence under a wide
range of foreseeable stress scenarios that includes, but is not limited
to, the default of the participant family that would generate the
largest aggregate payment obligation for [OCC] in extreme but plausible
market conditions.''
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\31\ 17 CFR 240.17Ad-22(e)(7).
\32\ Id.
\33\ 17 CFR 240.17Ad-22(e)(7)(i).
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As described above, the proposed change would allow OCC to seek a
readily available liquidity resource that would enable it to, among
other things, continue to meet its obligations in a timely fashion and
as an alternative to selling Clearing Member collateral under what may
be stressed and volatile market conditions. For these reasons, OCC
believes that the proposal is consistent with Rule 17Ad-
22(e)(7)(i).\34\
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\34\ Id.
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Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires OCC to
establish,
[[Page 44481]]
implement, maintain and enforce written policies and procedures
reasonably designed to hold qualifying liquid resources sufficient to
satisfy payment obligations owed to Clearing Members.\35\ Rule 17Ad-
22(a)(14) of the Exchange Act defines ``qualifying liquid resources''
to include, among other things, lines of credit without material
adverse change provisions, that are readily available and convertible
into cash.\36\ The MRA under the Non-Bank Liquidity Facility would not
be subject to any material adverse change provision and would continue
to be designed to permit OCC to, among other things, help ensure that
OCC has sufficient, readily-available qualifying liquid resources to
meet the cash settlement obligations of its largest Clearing Member
Group. Therefore, OCC believes that the proposal is consistent with
Rule 17Ad-22(e)(7)(ii).\37\
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\35\ 17 CFR 240.17Ad-22(e)(7)(ii).
\36\ 17 CFR 240.17Ad-22(a)(14).
\37\ 17 CFR 240.17Ad-22(e)(7)(ii).
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For the foregoing reasons, OCC believes that the proposed changes
are consistent with Section 805(b)(1) of the Clearing Supervision Act
\38\ and Rule 17Ad-22(e)(7) \39\ under the Exchange Act.
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\38\ 12 U.S.C. 5464(b)(1).
\39\ 17 CFR 240.17Ad-22(e)(7).
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III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action
The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date the proposed change was filed with the Commission or (ii) the date
any additional information requested by the Commission is received. OCC
shall not implement the proposed change if the Commission has any
objection to the proposed change.
The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an earlier date, subject to any conditions imposed
by the Commission.
OCC shall post notice on its website of proposed changes that are
implemented. The proposal shall not take effect until all regulatory
actions required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the advance
notice 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#1163647d743c727e7c7c747f6562516274723f767e67"><span class="__cf_email__" data-cfemail="c8babda4ade5aba7a5a5ada6bcbb88bbadabe6afa7be">[email protected]</span></a>. Please include
File Number SR-OCC-2022-803 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2022-803. 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 advance notice that are filed with the
Commission, and all written communications relating to the advance
notice 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-2022-803 and
should be submitted on or before August 16, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-15920 Filed 7-25-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 26, 2022.
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.