Notice2023-06195
Self-Regulatory Organizations; Options Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Concerning the Options Clearing Corporation's Collateral Haircuts and Standards for Clearing Banks and Letters of Credit
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
March 27, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 58 (Monday, March 27, 2023)</title>
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[Federal Register Volume 88, Number 58 (Monday, March 27, 2023)]
[Notices]
[Pages 18205-18207]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-06195]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97178; File No. SR-OCC-2022-012]
Self-Regulatory Organizations; Options Clearing Corporation;
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change Concerning the Options Clearing
Corporation's Collateral Haircuts and Standards for Clearing Banks and
Letters of Credit
March 21, 2023.
I. Introduction
On December 5, 2022, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2022-
[[Page 18206]]
012 (``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 change rules, policies, and procedures regarding
collateral haircuts, minimum standards for clearing banks and letter-
of-credit issuers, and concentration limits for letters of credit.\3\
The Proposed Rule Change was published for public comment in the
Federal Register on December 23, 2022.\4\ The Commission has received
comments regarding the Proposed Rule Change.\5\
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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, at 87 FR at 79015.
\4\ Securities Exchange Act Release No. 96533 (Dec. 19, 2022),
87 FR 79015 (Dec. 23, 2022) (File No. SR-OCC-2022-012) (``Notice of
Filing'').
\5\ Comments on the Proposed Rule Change are available at
<a href="https://www.sec.gov/comments/sr-occ-2022-012/srocc2022012.htm">https://www.sec.gov/comments/sr-occ-2022-012/srocc2022012.htm</a>.
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On February 3, 2023, pursuant to Section 19(b)(2) of the Exchange
Act,\6\ the Commission designated a longer period within which to
approve, disapprove, or institute proceedings to determine whether to
approve or disapprove the Proposed Rule Change.\7\ This order
institutes proceedings, pursuant to Section 19(b)(2)(B) of the Exchange
Act,\8\ to determine whether to approve or disapprove the Proposed Rule
Change.
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\6\ 15 U.S.C. 78s(b)(2).
\7\ Securities Exchange Act Release No. 96797 (Feb. 3, 2023), 88
FR 8505 (Feb. 9, 2023) (File No. SR-OCC-2022-012).
\8\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change
OCC is a central counterparty (``CCP''), which means it interposes
itself as the buyer to every seller and seller to every buyer for
financial transactions. As the CCP for the listed options markets in
the U.S.,\9\ as well as for certain futures, OCC is exposed to certain
risks arising from its relationships with its members as well as the
banks that support OCC's clearance and settlement services. Such risks
include credit risk because OCC is obligated to perform on the
contracts it clears even where one of its members defaults. OCC manages
credit risk, in part, by collecting collateral from members (i.e.,
margin and Clearing Fund resources) sufficient to cover OCC's credit
exposure to Clearing Members under a wide range of stress scenarios. In
doing so, OCC requires its Clearing Members to deposit collateral as
margin to support obligations on short options, futures contracts, and
other obligations arising within the members' accounts at OCC. OCC also
requires its members to deposit collateral serving as Clearing Fund
assets to protect OCC, should the margin of a defaulting member be
insufficient to address the potential losses from the defaulting
member's positions. OCC imposes a haircut to collateral to address the
risk that such collateral may be worth less in the future than at the
time it was pledged to OCC. With regard to risks posed by the banks
that support OCC's clearance and settlement services, OCC maintains
standards for third-party relationships, such as those with banks
through which OCC conducts settlement (``Clearing Banks''), and banks
that issue letters of credit that Clearing Members may deposit as
margin collateral.
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\9\ OCC describes itself as ``the sole clearing agency for
standardized equity options listed on a national securities exchange
registered with the Commission (`listed options').'' See Notice of
Filing supra note 4, 87 FR at 79015.
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As described in the Notice of Filing,\10\ OCC proposes to revise
its rules, including certain policies,\11\ to make the following three
changes related to the management of collateral haircuts and banking
relationships:
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\10\ See Notice of Filing supra note 4.
\11\ These policies include the Collateral Risk Management
Policy, Margin Policy, and System for Theoretical Analysis and
Numerical Simulation Methodology Description. Id.
(1) Replace the current processes for applying haircuts to
Government and Government-Sponsored Enterprise (``GSE'') debt
securities provided as collateral \12\ with a new process for
applying fixed collateral haircuts that it would set and adjust from
time to time, based on a process defined in OCC's Collateral Risk
Management Policy;
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\12\ Generally, OCC defines, by rule, specific haircuts for
Government and GSE debt securities. For margin collateral
specifically, OCC currently also has authority to value such
securities using Monte Carlo simulations as part of its margin
methodology.
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(2) Codify internal standards for Clearing Banks and letter-of-
credit issuers in OCC's Rules to provide transparency on minimum
standards for banking relationships that are critical to OCC's
clearance and settlement services; and
(3) Authorize OCC to set more restrictive concentration limits
for letters of credit than those limits currently codified in its
Rules.
III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \13\ to determine whether the Proposed
Rule Change should be approved or disapproved. Institution of
proceedings is appropriate at this time in view of the legal and policy
issues raised by the Proposed Rule Change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the Proposed Rule Change,
providing the Commission with arguments to support the Commission's
analysis as to whether to approve or disapprove the Proposed Rule
Change.
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\13\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\14\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of, and input from commenters with respect to, the
Proposed Rule Change's consistency with Section 17A of the Exchange
Act,\15\ and the rules thereunder, including the following provisions:
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\14\ Id.
\15\ 15 U.S.C. 78q-1.
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<bullet> Section 17A(b)(3)(F) of the Exchange Act,\16\ which
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts, and
transactions; and to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible; and
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
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<bullet> Section 17A(b)(3)(I) of the Exchange Act,\17\ which
requires that the rules of a clearing agency do not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
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\17\ 15 U.S.C. 78q-1(b)(3)(I).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the Proposed Rule Change. In particular, the Commission invites
the written views of interested persons concerning whether the Proposed
Rule Change is consistent with Sections 17A(b)(3)(F) and (I) of the
Exchange Act,\18\ or any other provision of the Exchange Act, or the
rules and regulations thereunder. Although there do not appear to be
any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4(g) under the Exchange
[[Page 18207]]
Act,\19\ any request for an opportunity to make an oral
presentation.\20\
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\18\ 15 U.S.C. 78q-1(b)(3)(F) and (I).
\19\ 17 CFR 240.19b-4(g).
\20\ Section 19(b)(2) of the Exchange Act grants to the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by April 11, 2023. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
April 25, 2023.
The Commission asks that commenters address the sufficiency of
OCC's statements in support of the Proposed Rule Change, which are set
forth in the Notice of Filing,\21\ in addition to any other comments
they may wish to submit about the Proposed Rule Change.
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\21\ See Notice of Filing, supra note 4.
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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#e290978e87cf818d8f8f878c9691a2918781cc858d94"><span class="__cf_email__" data-cfemail="c9bbbca5ace4aaa6a4a4aca7bdba89baacaae7aea6bf">[email protected]</span></a>. Please include
File Number SR-OCC-2022-012 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2022-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the Proposed Rule Change that are filed with
the Commission, and all written communications relating to the Proposed
Rule Change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
<a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-OCC-2022-012 and
should be submitted on or before April 11, 2023. Rebuttal comments
should be submitted by April 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(31).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06195 Filed 3-24-23; 8:45 am]
BILLING CODE 8011-01-P
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