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Notice2023-17445

Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning Amendments to The Options Clearing Corporation's Capital Management Policy and Cash and Investment Management Policy

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Published

August 15, 2023

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 88 Issue 156 (Tuesday, August 15, 2023)</title>
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[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Notices]
[Pages 55492-55497]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17445]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98093; File No. SR-OCC-2023-006]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Concerning Amendments to The Options Clearing Corporation's Capital
Management Policy and Cash and Investment Management Policy

August 9, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 3, 2023, 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)(i) of
the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ such that the proposed
rule change was immediately effective upon filing with the Commission.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

This proposed rule change would make certain administrative and
clarifying amendments to OCC's Capital Management Policy and Cash and
Investment Management Policy. Specifically, the proposed changes would:
(1) provide that Management will, at a minimum, review OCC's fee
schedule at each regularly scheduled Compensation and Performance
Committee (``CPC'') meeting, consistent with recent updates to the
OCC's Board of Director (``Board'') and Board-level committee
(``Committee'') charters, which require each Committee meet at least
four times per year, rather than quarterly as the Capital Management
Policy currently provides; (2) make certain other edits and additions
to the Capital Management Policy for clarity and consistency with OCC's
other policies, and (3) amend the Cash and Investment Management Policy
to better align the text of that policy to OCC Rules 604(a) and
1002(c), which provide separate treatment for cash deposited by
Clearing Members in respect of margin requirements and Clearing Fund
deposits, respectively.
The proposed changes are included in confidential Exhibit 5 to File
No. SR-OCC-2023-006. Material proposed to be added is underlined and
material proposed to be deleted is marked in strikethrough text. All
terms with initial capitalization that are not otherwise defined herein
have the same meaning as set forth in OCC's By-Laws and Rules.\5\
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\5\ OCC's current 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

As the sole clearing agency for standardized equity options listed
on national securities exchanges registered with the Commission, and
with respect to OCC's clearance and settlement of futures and stock
loan transactions, OCC maintains policies and procedures to manage the
risks borne by OCC as a central counterparty. One such risk that OCC
manages is general business risk--that is, the risk of potential
impairment to OCC's financial position resulting from a decline in
revenues or an increase in expenses. In order to manage this risk and
help to ensure that OCC can continue operations and services as a going
concern if general business losses materialize, OCC has filed, and the
Commission has approved,\6\ OCC's

[[Page 55493]]

Capital Management Policy, which provides the framework by which OCC
manages its capital and plans for replenishment of capital if
necessary. Other risks OCC manages include custody and investment risk.
To manage risks associated with holding and investing OCC's own cash
and the cash collected from Clearing Members,\7\ OCC has filed, and the
Commission has approved,\8\ OCC's Cash and Investment Management
Policy.
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\6\ See Order Approving Proposed Rule Change to Establish OCC's
Persistent Minimum Skin-In-The-Game, Exchange Act Release No. 92038
(May 27, 2021), 86 FR 29861 (June 3, 2021) (SR-OCC-2021-003); Order
Approving Proposed Rule Change, as Modified by Partial Amendment No.
1, Concerning a Proposed Capital Management Policy That Would
Support the Option Clearing Corporation's Function as a Systemically
Important Financial Market Utility, Exchange Act Release No. 88029
(Jan. 24, 2020), 85 FR 5500 (Jan. 30, 2020) (SR-OCC-2019-007); see
also Notice of Filing of Partial Amendment No. 1 and Notice of No
Objection to Advance Notice, as Modified by Partial Amendment No. 1,
Concerning a Proposed Capital Management Policy That Would Support
the Option Clearing Corporation's Function as a Systemically
Important Financial Market Utility, Exchange Act Release No. 87257
(Oct. 8, 2019), 84 FR 55194 (Oct. 15, 2019) (SR-OCC-2019-805).
\7\ OCC's investment of collateral deposited by Clearing Members
is limited to the investment of margin cash in overnight reverse
repurchase transactions in U.S. Government securities. See Exchange
Act Release No. 93916 (Jan. 6, 2022), 87 FR 1819, 1820 (Jan. 12,
2022) (SR-OCC-2021-014). OCC's management of risks related to
holding non-cash collateral deposited by Clearing Members is
addressed in other policies and procedures, including OCC's
Collateral Risk Management Policy. See, e.g., Exchange Act Release
No. 82311 (Dec. 13, 2017), 82 FR 60252 (Dec. 19, 2017) (SR-OCC-2017-
008) (approving OCC's Collateral Risk Management Policy).
\8\ See Order Granting Approval of Proposed Rule Change
Concerning the Option Clearing Corporation's Cash and Investment
Management, Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR
11776 (Mar. 2, 2022) (SR-OCC-2021-014); see also Notice of No
Objection to Advance Notice Concerning the Option Clearing
Corporation's Cash and Investment Management, Exchange Act No. 94270
(Feb. 17, 2022), 87 FR 10262 (Feb. 23, 2022) (SR-OCC-2021-803).
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Regulations applicable to OCC require such risk management policies
to be reviewed on a specified periodic basis and approved by the Board
annually.\9\ Through annual reviews of its Capital Management Policy in
2021 and its Cash and Investment Management Policy in 2022, OCC's
management recommended, and the Board approved, certain administrative
and clarifying amendments to the Capital Management Policy and Cash and
Investment Management Policy. This proposed rule change primarily aims
to align the Capital Management Policy to the already revised cadence
of meetings reflected in the CPC charter, as well as to make
administrative edits, including textual revisions to clarify meaning, a
typographical correction, and a description conforming to OCC's current
template \10\ format. With respect to the Cash and Investment
Management Policy, this proposed rule change would better align that
policy's text with OCC's Rules 604(a) and 1002(c), which provide
separate treatment for cash deposited by Clearing Members in respect of
margin requirements and Clearing Fund deposits, respectively. This
proposed rule change would not alter other practices and procedures
described in the Capital Management Policy and the Cash and Investment
Management Policy and would not alter the rights or obligations of
Clearing Members or other market participants. Accordingly, OCC does
not believe such administrative changes to OCC's internal policies
would have any effect on Clearing Members or other market participants.
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\9\ See 17 CFR 240.17Ad-22(e)(3)(i).
\10\ See infra note 12.
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(1) Purpose
OCC is proposing to make certain administrative and clarifying
amendments to OCC's Capital Management Policy, and Cash and Investment
Management Policy identified and approved by the Board as part of the
annual review of such policies. Specifically, as discussed in more
detail below, the proposed changes to the Capital Management Policy
would: (1) provide that Management will, at a minimum, review the fee
schedule at each regularly scheduled CPC meeting, rather than
quarterly, which would align the frequency of such reviews with recent
updates to the Board and Committee charters that require each Committee
to meet at least four times per year, not necessarily quarterly; \11\
and (2) make certain other administrative edits and additions for
clarity and consistency with OCC's other policies, including to (i)
clarify the ways in which OCC may hold additional financial resources
for capital needs, (ii) modify verbiage to avoid confusion with
concepts addressed by other OCC rules, and (iii) conform the Capital
Management Policy to OCC's current template \12\ for its rule-filed
policies. The proposed changes to the Cash and Investment Management
Policy would clarify that interest earned on Clearing Fund cash, as
opposed to margin cash, held at a Federal Reserve Bank would accrue to
the benefit of Clearing Members, less a cash management fee, consistent
with OCC Rule 1002(c) and the intended meaning of the Cash and
Investment Management Policy as expressed in the rule filing that
established that policy.\13\ Interest or gain on investment of margin
cash would continue to accrue to OCC in accordance with existing OCC
Rule 604(a).
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\11\ See Exchange Act Release No. 94988 (May 26, 2022), 87 FR
33535, 33537-8 (June 2, 2022) (SR-OCC-2022-002); see also CPC
Charter, Section II.B, available at <a href="https://www.theocc.com/company-information/documents-and-archives/board-charters">https://www.theocc.com/company-information/documents-and-archives/board-charters</a> (``The Committee
shall meet at least four times a year.'').
\12\ ``Template'' here refers to the format and organizational
structure for OCC's internal policies. Previous OCC filings have
made similar changes across other policies to conform them to OCC's
standard template. See, e.g., Exchange Act Release No. 96566 (Dec.
22, 2022), 87 FR 80207, 80210 (Dec. 29, 2022) (SR-OCC-2022-010)
(approving conforming changes across risk policies to remove policy-
specific sections concerning policy exceptions and violations in
connection with adoption of a section in OCC's Risk Management
Framework that uniformly covered those processes); Exchange Act
Release No. 93436 (Oct. 27, 2021), 86 FR 60499, 60500 (Nov. 2, 2021)
(SR-OCC-2021-010) (removing non-substantive items from OCC's rule-
filed policies, including repeated document titles, certain
introductory information, related policies and standards, related
procedures, and revision history).
\13\ See infra note 25 and accompanying text.
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Background
Capital Management Policy
Under the Capital Management Policy, OCC determines its Target
Capital Requirement, monitors its levels of shareholders' equity
(``Equity'') and liquid net assets funded by equity (``LNAFBE'') to
help ensure adequate financial resources are available for general
business obligations, and manages Equity levels, including by adjusting
OCC's fee schedule as appropriate and establishing a plan for accessing
additional capital should OCC's Equity fall below certain thresholds
(the ``Replenishment Plan'').\14\ In addition, OCC's Rules \15\ and
Capital Management Policy \16\ provide for OCC's skin-in-the-game,
including a Minimum Corporate Contribution \17\ and the use of LNAFBE
in excess of 110% of the Target Capital Requirement (i.e., the ``Early
Warning'' \18\ threshold under OCC's

[[Page 55494]]

Replenishment Plan) to cover losses arising from a Clearing Member's
default.
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\14\ See Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR
5500, 5501-03 (Jan. 30, 2020) (SR-OCC-2019-007).
\15\ See OCC Rule 1006(e)(i).
\16\ See Exchange Act Release No. 92038 (May 27, 2021), 86 FR
29861 (June 3, 2021) (SR-OCC-2021-003) (order approving changes to
OCC's Capital Management Policy and OCC Rule 1006(e) to establish
OCC's persistent minimum skin-in-the-game).
\17\ OCC Rule 101(M)(1) defines the term ``Minimum Corporate
Contribution'' to mean the minimum level of OCC funds maintained
exclusively to cover credit losses or liquidity shortfalls. The
Minimum Corporate Contribution is determined by the Board from time
to time.
\18\ The Capital Management Policy defines ``Early Warning'' as
when Equity less the Minimum Corporate Contribution falls below 110%
of the Target Capital Requirement. Management reviews the Early
Warning threshold on an annual basis. See Exchange Act Release No.
88029, 85 FR at 5502.
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Target Capital Requirement
Pursuant to the Capital Management Policy, the Target Capital
Requirement is based on two components: (1) the amount of LNAFBE
determined by OCC to be necessary to ensure compliance with OCC's
regulatory obligations, including Rule 17Ad-22(e)(15) under the
Exchange Act \19\ and (2) any additional amounts determined to be
necessary and appropriate for capital expenditures approved by OCC's
Board.\20\ With respect to the first component, OCC must set its Target
Capital Requirement at a level sufficient to maintain LNAFBE at least
equal to the greater of: (1) six months of OCC's current operating
expenses, (2) the amount determined by the Board to be sufficient to
ensure a recovery or orderly wind-down of critical operations and
services (``RWD Amount''),\21\ and (3) the amount determined by the
Board to be sufficient for OCC to continue operations and services as a
going concern if general business losses materialize. With respect to
the second component, the Capital Management Policy authorizes the
Board to increase the Target Capital Requirement by an amount to be
retained for capital expenditures. Alternatively, the Board may
determine to fund capital expenditures out of funds in excess of the
Target Capital Requirement. In making such a determination, the Board
would consider factors including, but not limited to, the amount of
funding required, the amount of Equity proposed to be retained, the
potential impact of the investment on OCC's operations, and the
duration of time over which funds would be accumulated.
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\19\ 17 CFR 240.17Ad-22(e)(15).
\20\ In setting the Target Capital Requirement, OCC considers,
but is not bound by, its projected rolling twelve-months' operating
expenses pursuant to OCC's interpretation of the Commodity Futures
Trading Commission (``CFTC'') Regulation 39.11(a)(2). See 17 CFR
39.11(a)(2). Unlike SEC Rule 17Ad-22(e)(15) and CFTC Regulation
39.11(e)(2), which concern the liquidity of the financial resources
to meet six-months' of operating expenses, the financial resources
OCC may count toward the CFTC's twelve-months' requirement is not
limited to LNAFBE or ``unencumbered, liquid financial assets.'' See
17 CFR 39.11(e)(2). OCC may count its ``own capital'' (i.e., Equity)
and ``[a]ny other financial resource deemed acceptable by the
[CFTC]'' toward the twelve-months' requirement. See 17 CFR
39.11(b)(2). Accordingly, the Capital Management Policy does not
require OCC to set its Target Capital Requirement--the amount of
LNAFBE it must maintain to meet its regulatory obligations--to equal
twelve-months' operating expenses.
\21\ Management recommends an RWD Amount calculated on an annual
basis pursuant to the Capital Management Procedure based on the
assumptions in OCC's Recovery and Orderly Wind-down Plan. See
Exchange Act Release No. 88029, 85 FR at 5509.
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On an annual basis, OCC's Chief Financial Officer (``CFO'')
recommends a Target Capital Requirement for the coming year to OCC
management.\22\ Management reviews the CFO's recommendation and, as
appropriate, recommends the Target Capital Requirement to the CPC. The
CPC then reviews and, as appropriate, recommends the proposal to the
Board, which reviews and, as appropriate, approves the Target Capital
Requirement for the coming year.
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\22\ The CFO's recommendation is prepared in accordance with
OCC's Capital Management Procedure, which provides additional detail
supporting the Capital Management Policy. See Exchange Act Release
No. 86725 (Aug. 21, 2019), 84 FR 44944, 44945 (Aug. 27, 2019) (SR-
OCC-2019-007).
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Fee Schedule
OCC's fee structure is designed by the Board in accordance with
Article IX, Section 9 of OCC's By-Laws. The current Capital Management
Policy provides that, on a quarterly basis, management will review
OCC's fee schedule and, considering factors including, but not limited
to, projected operating expenses, projected volumes, anticipated
cashflows and capital needs, recommend to the Board, or a Board-level
Committee to which the Board has delegated authority,\23\ whether a fee
increase, decrease or waiver should be made. If OCC's Equity is above,
in the aggregate, 110% of its Target Capital Requirement and other
approved capital needs, the Board may use such tools as it determines
appropriate to lower costs for Clearing Members, including lowering
fees, fee holidays or refunds.\24\ On an annual basis, management
reviews the operating margin level and, considering historical volume
variance and other relevant factors (including, but not limited to,
variance in revenue other than from clearing fees, such as interest
income), recommends to the Board, or a Committee to which the Board has
delegated authority, whether any changes should be made to OCC's
defined operating margin.
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\23\ The Board has delegated such authority to the CPC under the
CPC Charter. See supra note 11.
\24\ When determining which, if any, tools would be appropriate,
the Board considers factors including, but not limited to,
projecting future volume, expenses, cashflow, capital needs and the
possibility and amount of unfunded obligations. During this process,
Equity must always remain above the ``Early Warning'' threshold. See
Exchange Act Release No. 87257 (Oct. 8, 2019), 84 FR 55194, 55196
(Oct. 15, 2019) (SR-OCC-2019-805).
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Cash and Investment Management Policy
Among other things, OCC's Cash and Investment Management Policy
provides for how OCC may invest its own cash and cash deposited by
Clearing Members in respect of margin requirements or Clearing Fund
deposits. In recent filings, OCC explained that the policy would
provide that ``[i]nterest earned on Clearing Fund cash deposits held at
a Federal Reserve Bank would accrue to the benefit of Clearing Members,
less a cash management fee.'' \25\ However, the proposed text of the
policy submitted with the filing inadvertently did not qualify the
scope as limited to Clearing Fund cash deposits. OCC Rule 1002(c)
provides that interest on Clearing Fund cash deposits held at a Federal
Reserve Bank accrue to Clearing Members less a cash management fee,
consistent with the text of the policy.\26\ In contrast, under OCC Rule
604(a), interest earned on investments of cash deposited by Clearing
Members in respect of margin requirements accrues to the benefit of
OCC.\27\ No change to Rule 604(a) was intended by the proposed
implementation of OCC's Cash and Investment Management Policy.\28\
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\25\ See Exchange Act Release No. 93916 (Jan. 6, 2022), 87 FR
1819, 1821 (Jan. 12, 2022) (SR-OCC-2021-014); Exchange Act Release
No. 93915 (Jan. 6, 2022), 87 FR 1814, 1815 (Jan. 12, 2022) (SR-OCC-
2021-803) (emphasis added).
\26\ See OCC Rule 1002(c) (``Interest earned on cash deposits
held at a Federal Reserve Bank shall accrue to the benefit of
Clearing Members (calculated daily based on each Clearing Member's
pro rata share of Clearing Fund cash deposits), provided that each
such Clearing Member has provided OCC with all tax documentation as
OCC may from time to time require in order to effectuate such
payment, and all other interest earned on investments will accrue to
the benefit of [OCC].''). See also, Exchange Act Release No. 82657
(Feb. 8, 2018), 83 FR 6651 (Feb. 14, 2018) (SR-OCC-2018-005)
(implementing a cash management fee to cover administrative and
other operational expenses incurred by OCC in connection with
passing through to Clearing Members the interest earned on Clearing
Fund cash deposits held at an OCC account at a Federal Reserve
Bank).
\27\ OCC Rule 604(a) (``Clearing Members may deposit U.S.
dollars in accordance with procedures acceptable to [OCC]. Funds so
deposited may from time to time be partially or wholly invested by
[OCC] for its account in Government securities, and any interest or
gain received or accrued on the investment of such funds shall
belong to [OCC].'')
\28\ See Exchange Act Release No. 93916, 87 FR at 1820 (``OCC
does not propose to amend [Rule 604(a)] by this proposed rule
change.'').
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Proposed Changes
(1) Fee Schedule Review
Currently, the Capital Management Policy requires management to
review the fee schedule with the CPC ``[o]n a quarterly basis.'' The
proposed changes would amend this language to instead

[[Page 55495]]

require management to review the fee schedule ``[a]t regularly
scheduled CPC meetings.'' This change would align the fee schedule
review with the cadence of meetings prescribed in the Board and
Committee Charters, which OCC recently amended.\29\ While regular
meetings generally occur on a quarterly basis, the proposed change
would avoid the need to call special meetings to address the routine
review of the fee schedule if a regularly scheduled meeting happens to
fall at the beginning of the next quarter or the end of the last
quarter. For this reason, OCC aligned other periodic reviews identified
in the Committee Charters to occur at each regularly scheduled meeting,
as opposed to quarterly.\30\ OCC proposes to do the same with respect
to the cadence of fee schedule reviews in the Capital Management
Policy.
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\29\ See supra note 11.
\30\ See Exchange Act Release No. 94988, 87 FR at 33537-38
(approving amendments to the Audit Committee, Technology Committee
and CPC Charters to align the cadence of periodic reviews to each
regular meeting of the Committee, rather than ``quarterly'').
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(2) Additional Textual Changes
The proposed changes would also make other textual edits and
additions to the Capital Management Policy for clarity and consistency
with OCC's other policies. For one, OCC would amend the provision
concerning management of OCC's Equity to facilitate capital
expenditures to clarify OCC's intent that either of the two options
identified for doing so--(1) increasing the Target Capital Requirement
or (2) retaining the additional Equity as an amount in excess of the
Target Capital Requirement--is available to the Board. The textual
edits would state more generally at the outset that OCC may retain
additional Equity generated from revenue for capital expenditures
following a recommendation by Management and Board approval. Retention
of such additional Equity generated from revenue is already implicit in
the Capital Management Policy's provisions for setting the fee schedule
and determining whether to employ other tools to lower costs for
Clearing Members (e.g., a clearing fee refund or holiday), both of
which consider OCC's capital needs as a factor. The proposed changes
would also more expressly provide that option (2) is available as an
alternative to option (1). The principal difference between the two
options is that any excess capital retained under option (2) is
available as skin-in-the-game in the event of a default loss. In
addition, adding that such additional Equity would be ``generated from
revenue'' would also clarify the source of the funds OCC may retain as
additional Equity, which under OCC's Capital Management Policy would be
generated from fees or interest income--not from capital contributions
from OCC's stockholders that were part of the Capital Plan that
predated the Capital Management Policy.\31\
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\31\ See Exchange Act Release No. 74452 (Mar. 6, 2015), 80 FR
13058 (Mar. 12, 2015) (SR-OCC-2015-02), disapproved on remand by
Exchange Act Release No. 85121 (Feb. 13, 2019), 84 FR 5157 (Feb. 20,
2019) (SR-OCC-2015-02).
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The Capital Management Policy also currently provides that in
determining whether to retain additional Equity for capital
expenditures, the Board will consider the potential impact of the
``investment'' on OCC's operations. The proposed changes would amend
this language to instead provide that the Board will consider the
potential impact of the ``retention of additional Equity'' on OCC's
operations, consistent with the terminology that OCC proposes to use
throughout that paragraph of the Capital Management Policy. Use of the
term ``investment'' in reference to the retention of Equity may lead to
confusion when compared to OCC's Cash and Investment Management Policy,
which addresses guidelines for investing OCC's own cash and cash
deposited by Clearing Members, as discussed above. ``Investment'' in
that context is a separate concept from OCC's determination whether to
retain additional Equity to meet its capital needs, rather than, for
example, determining to use tools to decrease the cost of membership
through a fee decrease, fee holiday or fee refund.
OCC is also proposing formatting edits to conform the Capital
Management Policy to OCC's current template format for its policies and
procedures. Specifically, the proposed changes would add a new
introductory paragraph at the outset of the Capital Management Policy
that addresses the policy's applicability and scope. This new
introductory paragraph would clarify that the policy applies to the
quantification, monitoring and management of OCC's Equity, as well as
identify the OCC departments that have roles in those processes,
including, primarily, Accounting and Finance, as well as Member
Services, Corporate Risk Management, Legal, and Financial Risk
Management business units. Finally, OCC would correct a typo by
deleting a duplicative word in one of the footnotes to the Capital
Management Policy, and such change would have no impact on the meaning
of the footnote.\32\
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\32\ Currently, the relevant footnote states that OCC management
makes a recommendation that is ``based calculated on an annual
basis'' pursuant to an underlying procedure. OCC proposes to remove
the extraneous word ``based'' from the footnote.
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(3) Cash and Investment Management Policy Correction
Finally, this proposed change would conform the text of the Cash
and Investment Management Policy to the intended meaning by inserting
``Clearing Fund'' before ``cash deposits'' when stating that
``[i]nterest earned on cash deposits held at a Federal Reserve Bank
shall accrue to the benefit of Clearing Members less a cash management
fee.'' The term ``Clearing Fund'' was inadvertently omitted from the
text of the policy, even though that was the intent of the change as
described in the associated regulatory filings described above.\33\
This change would thereby align the policy statement with OCC Rules
604(a) and 1002(c), which provide different treatment for interest
earned on margin cash and Clearing Fund cash deposited at a Federal
Reserve Bank.
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\33\ See supra note 25 and accompanying text.
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(2) Statutory Basis
OCC believes the proposed changes are consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to a registered clearing agency. In particular,
OCC believes the proposed changes are consistent with section
17A(b)(3)(F) of the Exchange Act,\34\ and Rules 17Ad-22(e)(1),\35\
17Ad-22(e)(2),\36\ and 17Ad-22(e)(3) \37\ thereunder for the reasons
described below.
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\34\ 15 U.S.C. 78q-1(b)(3)(F).
\35\ 17 CFR 240.17Ad-22(e)(1).
\36\ 17 CFR 240.17Ad-22(e)(2).
\37\ 17 CFR 240.17Ad-22(e)(3).
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Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that OCC's rules must be designed to promote the prompt and
accurate clearance and settlement of securities transactions, assure
the safeguarding of securities and funds which are in the custody or
control of OCC or for which it is responsible, and protect investors
and the public interest.\38\ OCC believes the Capital Management Policy
is reasonably designed to ensure that it has sufficient capital to
avoid disruptions of its clearance and settlement services in the event
OCC experiences a non-default loss--and the potential harm to investors
and the public interest that such a disruption could cause--by, among
other things, providing that the

[[Page 55496]]

Board or the CPC periodically reviews OCC's schedule of fees. Updating
the Capital Management Policy to align the cadence of those reviews to
the Board-determined cadence for regular Board and CPC meetings will
enhance the efficiency and effectiveness of the Board and CPC's
oversight of OCC's fee schedule by reflecting the Board's determination
about the appropriate cadence of those reviews. In addition, the
proposed changes to the Capital Management Policy would clarify the
options available to OCC to retain additional Equity for capital
expenditures, either through the Target Capital Requirement or outside
of it, which would help to protect investors and the public interest by
ensuring that OCC has a clear framework for retaining additional Equity
for capital expenditures that promotes OCC's ability to provide prompt
and accurate clearance and settlement services. Similarly, amending the
Cash and Investment Management Policy to align the policy with OCC
Rules 604(a) and 1002(c) would help avoid any ambiguity concerning the
treatment of interest on Clearing Fund cash deposited at a Federal
Reserve Bank that OCC has committed to pass through to Clearing
Members, thereby ensuring that OCC has a clear and transparent
framework for ensuring the safeguarding of funds in its custody or
control. For these reasons, OCC believes the proposed changes promote
the prompt and accurate clearance and settlement of securities
transactions, assure the safeguarding of securities and funds which are
in the custody or control of OCC or for which it is responsible, and
protect investors and the public interest.
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\38\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(1) under the Exchange Act requires that OCC
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide for a well-founded, clear,
transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.\39\ The proposed changes to
OCC's Cash and Investment Management Policy are designed to conform the
text of the policy with OCC's Rules,\40\ thereby improving the clarity
and transparency of OCC rules and helping to support OCC's legal basis
for its cash management and investment activities. Accordingly, OCC
believes that the changes to the Cash and Investment Management Policy
are consistent with Rule 17Ad-22(e)(1).\41\
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\39\ 17 CFR 240.17Ad-22(e)(1).
\40\ See supra note 25 and accompanying text.
\41\ 17 CFR 240.17Ad-22(e)(1).
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Rule 17Ad-22(e)(2) under the Exchange Act requires, in part, that
OCC establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that are clear and transparent and specify clear and direct lines of
responsibility.\42\ As noted above, the proposed changes to the Capital
Management Policy would align the cadence of the fee schedule review to
the CPC Charter, which provides for at least four regularly scheduled
meetings each year, but does not require those meetings be scheduled in
each fiscal quarter. For that reason, OCC previously amended its
Committee Charters to align the cadence of other periodic reviews to
occur at each ``regularly scheduled'' meeting, rather than
quarterly.\43\ The Commission concluded that such similar changes were
consistent with Rule 17Ad-22(e)(2) by, among other things, improving
the alignment of OCC's governance documents and thereby ``creat[ing]
stronger clarity and transparency.'' \44\ In addition, the proposed
change to conform OCC's Capital Management Policy to the latest Board-
approved format would add an Applicability and Scope section that would
identify the OCC business units with responsibilities under that
policy, thereby helping to delineate clear and direct lines of
responsibility with respect to the processes set forth therein.
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\42\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
\43\ See supra note 30 and accompanying text.
\44\ See Exchange Act Release No. 94988, 87 FR at 33541.
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Rule 17Ad-22(e)(3)(i) under the Exchange Act requires, in part,
that OCC establish, implement, maintain, and enforce written policies
and procedures reasonably designed to maintain a sound risk management
framework for comprehensively managing general business risk and
investment risk, among other risks, including risk management policies
designed to identify, measure, monitor, and manage the range of risks
that arise in or are borne by OCC, that are subject to review on a
specified periodic basis and approved by the Board annually.\45\ The
proposed changes to the Capital Management Policy and the Cash and
Investment Management Policy arose from annual reviews of policies
designed to address general business risk and investment risk,
respectively. OCC believes those changes are consistent with Rule 17Ad-
22(e)(3)(i) \46\ because by helping to maintain consistency across
OCC's rules and conforming those policies to the versions last approved
by the Board, the proposed changes support the maintenance of OCC's
risk management policies consistent with regulatory expectations.
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\45\ 17 CFR 240.17Ad-22(e)(3)(i).
\46\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

Section 17A(b)(3)(I) of the Exchange Act \47\ requires that the
rules of a clearing agency not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act. OCC
does not believe that the proposal would impose any burden on
competition because the proposal would implement changes to the Capital
Management Policy and the Cash and Investment Management Policy that
would apply equally to all Clearing Member users of OCC's services. The
proposed changes would not inhibit access to OCC's services in any way
and would not disadvantage or favor any particular user in relation to
another user. Accordingly, OCC does not believe that the proposed rule
changes would have any impact or impose a burden on competition.
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\47\ 15 U.S.C. 78q-1(b)(3)(I).
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Written comments 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

The foregoing rule change has become effective pursuant to section
19(b)(3)(A) \48\ of the Act and paragraph (f) of Rule 19b-4
thereunder.\49\ 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.
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\48\ 15 U.S.C. 78s(b)(3)(A).
\49\ 17 CFR 240.19b-4(f).
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The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\50\
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\50\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Regulation 40.6.

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[[Page 55497]]

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#592b2c353c743a3634343c372d2a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email&#160;protected]</span></a>. Please include
File Number SR-OCC-2023-006 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-2023-006. 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 a.m. and 3
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>.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-OCC-2023-006 and should
be submitted on or before September 5, 2023.
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\51\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17445 Filed 8-14-23; 8:45 am]
BILLING CODE 8011-01-P

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