Notice2023-17531
Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment No. 1, by the Options Clearing Corporation Concerning Amendment of Its Recovery and Orderly Wind-Down 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
August 16, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 157 (Wednesday, August 16, 2023)</title>
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[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Notices]
[Pages 55804-55809]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17531]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98107; File No. SR-OCC-2023-005]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of Partial Amendment No. 1 and Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1, by the Options Clearing Corporation Concerning
Amendment of Its Recovery and Orderly Wind-Down Plan
August 10, 2023.
I. Introduction
On June 7, 2023, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2023-005 pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
\2\ thereunder. The proposed rule change would amend OCC's Recovery and
Orderly Wind-Down Plan (``RWD Plan'') by: (i) removing certain
supporting information; (ii) incorporating references to certain
documents and materials; (iii) implementing updates and amendments to
all six chapters of the proposed Plan; and (iv) updating and revising
the hypothetical stress scenarios set forth in Appendix A of the
proposed RWD Plan. The proposed rule change was published for public
comment in the Federal Register on June 27, 2023.\3\ The Commission has
received comments regarding the proposed rule change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 97785 (June 21, 2023),
88 FR 41695 (June 27, 2023) (File No. SR-OCC-2023-005) (``Notice of
Filing'').
\4\ Comments on the Proposed Rule Change are available at
<a href="https://www.sec.gov/comments/sr-occ-2023-005/srocc2023005.htm">https://www.sec.gov/comments/sr-occ-2023-005/srocc2023005.htm</a>. The
commenters raised a concern regarding the confidentiality of certain
exhibits. Id. OCC asserted that the exhibits to the filing were
entitled to confidential treatment because they contained commercial
and financial information that is not customarily released to the
public and is treated as the private information of OCC. Under
Section 23(a)(3) of the Exchange Act, the Commission is not required
to make public statements filed with the Commission in connection
with a proposed rule change of a self-regulatory organization if the
Commission could withhold the statements from the public in
accordance with the Freedom of Information Act (``FOIA''), 5 U.S.C.
552. 15 U.S.C. 78w(a)(3). The Commission has reviewed the documents
for which OCC requests confidential treatment and concludes that
they could be withheld from the public under the FOIA. FOIA
Exemption 4 protects confidential commercial or financial
information. 5 U.S.C. 552(b)(4). Under Exemption 4, information is
confidential if it ``is both customarily and actually treated as
private by its owner and provided to government under an assurance
of privacy.'' Food Marketing Institute v. Argus Leader Media, 139 S.
Ct. 2356, 2366 (2019). In its requests for confidential treatment,
OCC stated that it has not disclosed the confidential exhibits to
the public, and the information is the type that would not
customarily be disclosed to the public. In addition, by requesting
confidential treatment, OCC had an assurance of privacy because the
Commission generally protects information that can be withheld under
Exemption 4. Thus, the Commission has determined to accord
confidential treatment to the confidential exhibits.
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On July 28, 2023, OCC amended SR-OCC-2023-005 to correct an error
in the narrative summary of proposed rule changes (``Partial Amendment
No. 1''). Specifically, the narrative, as filed on June 7, 2023, stated
that OCC proposed to remove a section of the RWD Plan describing OCC's
Risk Management Framework. However, the relevant text was already
removed from the RWD Plan as part of a recent filing.\5\ The amendment
did not change the purpose or basis of the proposed rule change. The
Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons, and, for the reasons discussed
below, is approving the proposed rule change, as modified by Partial
Amendment No. 1 (hereinafter, the ``proposed rule change''), on an
accelerated basis.
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\5\ Securities Exchange Act Release No. 96566 (Dec. 22, 2022),
87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010).
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II. Background
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., as well as for certain futures, OCC is exposed to certain
risks arising from its relationships with its members as well as
general business risk. OCC maintains various tools for managing such
risks.\6\ OCC also maintains tools to manage the risk of liquidity
shortfalls and credit losses that exceed its routine risk management
tools.\7\ OCC describes such tools and the governance related to them
in its RWD Plan.\8\
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\6\ See e.g., Securities Exchange Act Release No. 96566 (Dec.
22, 2022), 87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010);
Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR
68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010); and Securities
Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30,
2020) (File No. SR-OCC-2019-007).
\7\ See Securities Exchange Act Release No. 82351 (Dec. 19,
2017), 82 FR 61107 (Dec. 26, 2017) (File No. SR-OCC-2017-020).
Capitalized terms used but not defined herein have the meanings
specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/about/publications/bylaws.jsp">https://www.theocc.com/about/publications/bylaws.jsp</a>.
\8\ See Securities Exchange Act Release No. 83918 (Aug. 23,
2018), 83 FR 44091 (Aug. 29, 2018) (File No. SR-OCC-2017-021) (Order
approving the adoption of OCC's RWD Plan).
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Over the years, OCC has made substantive and non-substantive
[[Page 55805]]
changes to the RWD Plan.\9\ With regard to the substance of the RWD
Plan, OCC proposes to change the trigger events defined in the RWD
Plan. With regard to recovery, the changes would focus the trigger
events on OCC's ability to meet future obligations (as opposed to a
focus on current resources). With regard to wind-down, the changes
would clarify the Board's role in starting the wind-down process and
provide flexibility to avoid triggering a wind-down where recovery is
still a viable option.
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\9\ See e.g., Securities Exchange Act Release No. 90712 (Dec.
17, 2020), 85 FR 84050 (Dec. 23, 2020) (File No. SR-OCC-2020-013)
(Order approving updates to OCCs RWD Plan to reflect changes to
OCC's capital structure resulting from the disapproval of OCC's
previously approved ``Capital Plan'' and the subsequent approval of
OCC's ``Capital Management Policy'' and implementing changes
identified during OCC's annual review of the RWD Plan).
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OCC also proposes to make a series of non-substantive changes,
including changes to improving the accuracy and consistency of
information in the RWD Plan by moving dynamic, contextual information
(e.g., annual volume data) out of the RWD Plan to a supporting document
that could more easily be maintained as such information changes from
time to time. Similarly, OCC proposes to strike language found in other
OCC sources from the RWD Plan to avoid potential future inconsistencies
across OCC's internal documentation. Further, OCC would update
information and references in the RWD Plan that are currently out of
date. Lastly, OCC proposes to streamline the hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools without affecting the substance covered in the scenarios.\10\
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\10\ OCC also proposes conforming changes throughout the plan as
required by the changes described here (e.g., renumbering sections,
fixing grammar).
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A. Trigger Events
Recovery Triggers. In its RWD Plan, OCC has identified events that
would indicate OCC is facing an extreme stress event that potentially
threatens OCC's viability, the occurrence of which would signal that
OCC has entered into recovery (the ``Recovery Trigger Events'').\11\
The RWD Plan currently defines a set of three such Recovery Trigger
Events arising out of (i) credit losses, (ii) liquidity shortfalls, and
(iii) operational losses and disruption. OCC proposes to revise the
credit and liquidity triggers and to separate the third trigger out
into two separate triggers based on operational disruptions and general
business losses.
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\11\ Once in recovery, OCC would likely look to apply its
recovery tools, which include the ability of OCC to (i) levy
assessments against non-defaulting members; (ii) receive voluntary
payments from its non-defaulting members; (iii) allow non-defaulting
members and customers to voluntarily extinguish certain positions;
(iv) tear-up a defaulter's open positions; and (v) charge members a
fee to replenish OCC's capital in response to certain non-default
losses.
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The credit loss-Recovery Trigger change is merely a rephrasing of
the current trigger clarify that it would be based on a 100 percent
depletion of the pre-funded Clearing Fund resources. OCC proposes to
change the liquidity shortfall Recovery Trigger to better align with
OCC's Liquidity Risk Management Framework. The current trigger focuses
on the inability to complete settlement within the time required. In
contrast, the proposed trigger would focus on the potential inability
to address foreseeable shortfalls.
For events not triggered by a member default, OCC proposes to
replace the current trigger focused on loss and disruption into two
separate triggers, one of which would be based on loss and the other on
disruption. With regard to loss, OCC proposes to replace references to
operational loss with references to broader general business losses.
With regard to disruption, the trigger would continue to focus on the
disruption of critical services. Both the general business loss and
operational disruption triggers would focus on OCC having no reasonable
expectation of timely return to business as usual (i.e., meeting
minimum capital requirements or resumption of critical services).
Wind-Down Triggers. Similar to the Recovery Trigger Events, OCC has
identified events that could jeopardize the viability of OCC's ability
to recover, the occurrence of which would signal the need for OCC to
initiate its Wind-Down Plan (Wind-Down Trigger Events). The RWD Plan
currently defines four Wind-Down Trigger Events that relate to (i) an
inability to comply with regulatory financial resource requirements;
(ii) a loss of confidence by members; (iii) the sustained disruption of
critical services; and (iv) modification or recission of an emergency
filed pursuant to Section 806(e)(2) of the Payment, Clearing, and
Settlement Supervision Act.\12\ To reduce the chance of initiating a
wind-down where a successful recovery would still be possible, OCC
proposes to replace the four Wind-Down Trigger Events with a single,
flexible trigger that grants discretion to OCC's Board of Directors.
The proposed trigger would rest on the Board's determination that OCC's
recovery efforts have not been or are unlikely to be successful in
returning OCC to viability as a going concern. The revised approach
would allow more flexible consideration of the facts and circumstances
of a given event.
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\12\ See 12 U.S.C. 5465(e)(2).
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B. Changes for Consistency and Accuracy
As noted above, OCC is also proposing a set of non-substantive
changes to the RWD Plan. Such changes (described further below) include
the (i) relocation of context and background information from the Plan
into a supplemental document; (ii) removal of duplicative information
maintained elsewhere in OCC's documentation; (iii) updating of
information in the plan that is out of date or inconsistent with
current practices; and (iv) streamlining of hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools. OCC also proposes grammatical and technical edits throughout the
entirety of the RWD Plan, such as modifying the use and location of
certain defined terms for improved readability, using initial
capitalization for term ``Clearing Member'' consistently throughout the
document, deleting unnecessary words, and modifying tense for clarity.
1. RWD Plan Supporting Information
OCC's RWD Plan currently includes information related to OCC's
operations, management structure, personnel, support functions, banking
relationships, vendors, and key agreements. This supporting information
provides background and context for parties that are reviewing the RWD
Plan or using it as part of an actual recovery or wind-down event. OCC
is proposing to move supporting information from the RWD Plan to a
separate document (the ``RWD Plan Supporting Information''). Placing
such information in the RWD Plan Supporting Information would allow OCC
to maintain the accuracy of such information without revising OCC's
rules.\13\
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\13\ OCC intends to review and update the RWD Plan Supporting
Information twice a year, or more frequently as needed. See Notice
of Filing, 88 FR at 41696.
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The proposed rule change would move portions from the current RWD,
such as significant portions of the existing ``Business Overview'' and
``Management Structure'' sections into the RWD Plan Supporting
Information document.\14\ OCC would also move
[[Page 55806]]
background information about OCC's 12 support functions from the RWD
Plan to the RWD Plan Supporting Information.\15\ The proposed rule
change would also move information and data subject to regular change
from the RWD Plan's description of OCC's clearing services to a similar
section of the RWD Plan Supporting Information. Lastly, OCC proposes to
move information about OCC's current settlement banks, custodian banks,
letter-of-credit banks, vendors needed to support recovery and wind-
down, and key agreements to be maintained, currently listed in several
of the RWD Plan Appendices, to the RWD Plan Supporting Information
document.\16\
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\14\ OCC proposes to move the details of OCC's business overview
to Section 2.1 (``Business Overview'') of the RWD Plan Supporting
Information, details of OCC's management structure and executives to
Sections 2.2 (``Management Structure''), and details of its staffing
to Section 2.3 (``People'').
\15\ In the RWD Plan Supporting Information, Chapter 3, OCC
would provide additional context on the Business Operations,
Corporate Risk Management and Security Services Departments.
\16\ Specifically, OCC proposes to move information from current
Appendices E, F, G, H, and J to the new RWD Plan Supporting
Information document. Current Appendix E of the RWD Plan is a list
of OCC's current settlement banks; current Appendix F is a list of
OCC's current custodian banks; current Appendix G is a list of OCC's
current letter-of-credit banks; and current Appendix H is a list of
OCC's current vendors needed to support recovery and wind-down. OCC
also intends to provide additional information about its Tier 1
vendors (i.e., vendors that involve or materially support critical
processes) in the RWD Plan Supporting Information. The information
in these RWD Plan Appendices would be moved to Chapter 4
(``Interconnectedness'') of the RWD Plan Supporting Information.
Current Appendix J of the RWD Plan includes information on OCC's key
agreements to be maintained with third-party products and services.
This would be moved to Chapter 5 (``Key Agreements to be
Maintained'') of the RWD Plan Supporting Information. This new
Chapter 5 itself does not list the agreements with the third-party
products and services, but provides a link to OCC's internal
SharePoint website.
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2. Removal of Duplicative Information
OCC proposes to remove information from the RWD Plan to the extent
OCC already maintains such information elsewhere. The purpose of
removing duplicative information is to reduce the complexity of
maintaining information that could lead to inconsistencies across
multiple documents. For example, OCC proposes to replace financial
information currently set forth in the RWD Plan with a link to the
section of OCC's website that displays OCC's Annual Reports, which
include OCC's audited financial statements, and a link to OCC's fee
schedule, which depicts the Target Capital Requirement.\17\
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\17\ Current Appendix D of the RWD Plan would be removed
altogether. OCC proposes to add the link to OCC's annual reports and
audited financial statements to current section 2.6 (``Financial
Summary'').
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3. Updating of Inaccurate or Outdated Information
OCC also proposes to update text in the RWD Plan that was either
inaccurate in its original form, or is no longer consistent with OCC's
current practices. For example, in Chapter 1 of the Plan, OCC proposes
to change the language related to expense assumptions during a
resolution process, to convey the intended meaning of the assumption
more accurately.\18\ OCC proposes to update outdated descriptions of
its services and facilities in Chapter 2 of the RWD Plan.\19\ In
Chapter 3 of the Plan, OCC proposes to update the descriptions of its
pricing and valuation services by adding detail on the processes and
eliminating specific data that become outdated quickly because it is
subject to frequent changes (e.g., trading data from 2019, such as the
average daily gross volume of options contracts cleared, the average
daily gross value of premium exchanged, etc.). OCC also proposes
removing a reference to letter of credit banks from Section 3.5 because
letter of credit banks comprise less than 0.1 percent of margin pledged
to OCC. Further, OCC proposes conforming changes describing critical
support functions the document that would reflect OCC's internal
employee reporting structure and to provide a more granular view into
the departments that make up each support function. In Chapter 5 of the
Plan, OCC proposes to update timing, cost, and employee assumptions to
reflect the results an of internal review. OCC also proposes replacing
a discussion of heightened capital requirements with discussion of
increased financial reporting for members consistent with OCC's Rule
306 and 307.
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\18\ The language would change from ``stay at historical normal
levels during the wind-down period'' to ``generally follow the
annual budget with timing and staffing considerations.''
\19\ OCC also proposes adding links to the RWD Plan that would
point a reader to up-to-date information more generally, which is
consistent with the changes to remove duplicative information.
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Similar to the updates regarding current practice, OCC proposes to
change how it describes its existing enhanced risk management tools
(e.g., margin and Clearing Fund collateral) in the RWD Plan.\20\ For
example, OCC proposes to clarify the inclusion of executive
compensation as a component of its ``skin in the game'' consistent with
current OCC Rule 1006(e)(i).\21\ OCC also proposes to expand the list
of enhanced risk management tools described Section 4 of the Plan to
include its existing assessment powers for managing a member default
pursuant to OCC's Rule 1006, as well as several tools related to the
management of risks other than a member's default: (i) insurance
coverage, (ii) a working line of credit, (iii) authority to increase
fees, and (iv) authority to extend settlement time pursuant to OCC rule
505.\22\ The changes are intended to reflect a more complete list of
tools that OCC may use to respond to extreme stress scenarios.\23\
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\20\ OCC is not proposing to remove or significantly change four
of the five current enhanced risk management tools, but merely to
align descriptions in the Plan with OCC's current thinking.
\21\ OCC already has authority to use such executive
compensation, and is now updating the Plan for consistency with its
current rules. The proposed revisions would add detail to the
description already provided in the Plan.
\22\ The proposed changes include both addition of such tools to
the list of enhanced risk management tools as well as the addition
of more detailed description of tools and how they operate.
\23\ OCC also proposes to conform the RWD discussion of minimum
clearing fund cash to other sections discussing risk management
tools by removing a paragraph discussing the expected impact and
incentives related to the tool.
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4. Hypothetical Scenarios
Consistent with the revised risk management tool descriptions, OCC
proposes to revise the hypothetical scenarios described in Chapter 7 of
the RWD Plan. The hypothetical scenarios describe how OCC would deploy
its risk management and recovery tools to respond to potential events
such as a member default or settlement bank disruption. OCC is
proposing updates to the hypothetical scenarios to reflect current data
and operational procedures as well as to resolve grammatical issues.
For example, OCC proposes to incorporate recent data regarding peak
liquidity demands; the cash component of the Clearing Fund; and the two
largest Clearing Fund contributions made by Clearing Members. OCC also
proposes to remove references to energy futures and options and
eliminate a related note indicating that the products reflected in this
scenario may not be reflective of products cleared by OCC. Similarly,
OCC would update references to settlement time for consistency with
OCC's Rule 101.\24\
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\24\ See Securities Exchange Act Release No. 94950 (May 19,
2022), 87 FR 31916 (May 25, 2022) (File No. SR-OCC-2022-004).
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OCC is also proposing to revise the hypothetical scenarios in which
OCC would clarify current roles and responsibilities to ensure that the
descriptions set forth in this scenario align with OCC's current
practices and procedures. For example, the revised Plan would reflect
the Head of Default Management's role in recommending an extension of
settlement timing to OCC's Office of the CEO. Similarly, OCC
[[Page 55807]]
proposes various changes to expand the description of roles and
responsibilities related to its stock loan program under a scenario in
which the Depository Trust Company is inaccessible (e.g., describing
the roles of the Collateral Services and Members Services teams with
regard to notifications and escalations).
Lastly, OCC proposes combining the fact patterns presented of two
of its hypothetical scenarios. Specifically, OCC would combine
scenarios focused on cyberattack and member default to describe how OCC
would respond to such a combined set of stresses. The combination of
scenarios would require certain changes in assumptions and data, but
would not affect OCC's available risk management and recovery tools.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\25\ After carefully
considering the proposed rule change, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More
specifically, the Commission finds that the proposal is consistent with
Section 17A(b)(3)(F) of the Exchange Act,\26\ and Rule 17Ad-
22(e)(3)(ii) \27\ thereunder as described in detail below.
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\25\ 15 U.S.C. 78s(b)(2)(C).
\26\ 15 U.S.C. 78q-1(b)(3)(F).
\27\ 17 CFR 240.17Ad-22(e)(3)(ii).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that a clearing agency's rules are designed to promote the
prompt and accurate clearance and settlement of securities
transactions.\28\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
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As a central counterparty, it is important for OCC to have a plan
in place to address extreme stresses or crises with the aim of
maintaining OCC's viability and ability to provide critical services.
In the event that OCC's recovery efforts are not successful, the RWD
Plan would seek to increase the possibility that a resolution of OCC's
operations could be conducted in an orderly manner. The Commission
continues to believe that OCC specifying the steps that it would take
in either a recovery or orderly wind-down would enhance OCC's ability
to address circumstances specific to an extreme stress event.\29\ The
Commission also continues to believe that, by increasing the likelihood
that recovery would be orderly, efficient, and successful, the RWD Plan
enhances OCC's ability to maintain the continuity of its critical
services (including clearance and settlement services) during, through,
and following periods of extreme stress giving rise to the need for
recovery, thereby promoting the prompt and accurate clearance and
settlement of securities transactions.\30\
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\29\ See Securities Exchange Act Release No. 90712 (Dec. 17,
2020), 85 FR 84050, 84051 (Dec. 23, 2020) (File No. SR-OCC-2020-
013).
\30\ See id. at 84052.
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As above, OCC proposes to make changes to the trigger events
defined in the RWD Plan. With regard to recovery, the changes primarily
shift focus to OCC's ability to meet future obligations in recovery.
These changes continue to provide a roadmap for actions OCC may employ
to monitor and manage its risks, and, as needed, to stabilize its
financial condition in the event those risks materialize with a focus
on its ability to continue providing critical services. Maintaining
OCC's ability to continue providing clearance and settlement services
would reduce the likelihood of disruption to the markets it service and
is consistent with promoting the prompt and accurate clearance and
settlement of securities transactions.
With regard to wind-down, OCC proposes clarifying the role of the
Board in making a wind-down determination and consolidating its current
Wind-Down Trigger Events into a trigger based on a scenario's specific
facts and circumstances. The propose changed would provide more
flexibility and could potentially cover a wider variety of scenarios,
including actual insolvency events, that could affect OCC. The
clarification of the Board's role is consistent with prior Commission
statements regarding the importance of governance in the design of
recovery and wind-down plans.\31\ The changes would therefore increase
the likelihood that OCC could continue providing critical services,
thus promoting the prompt and accurate clearance and settlement of
securities transactions.
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\31\ See e.g., Standards for Covered Clearing Agencies,
Securities Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR
70786, 70809 (Oct. 13, 2016) (File No. S7-03014) (``Covered Clearing
Agency Standards Adopting Release'').
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Given the importance of a clearing agency's recovery and wind-down
plan, such plans should be carefully and maintained to ensure that both
the clearing agency and the relevant regulators have up-to-date
information when such a plan is implemented. As described above, OCC
proposes a number of changes designed to update the current plan and
provide for the future maintenance of relevant information.
Specifically, the proposal includes the (i) relocation of context and
background information from the Plan into a supplemental document; (ii)
removal of duplicative information maintained elsewhere in OCC's
documentation; (iii) updating of information in the plan that is out of
date or inconsistent with current practices; and (iv) streamlining of
hypothetical stress scenarios describing how OCC would employ its
recovery and wind-down tools.
The Commission believes, therefore, that the proposal is consistent
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act
Rule 17Ad-22(e)(3)(ii) under the Exchange Act requires that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to maintain a sound
risk management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by the covered clearing agency,
which includes plans for the recovery and orderly wind-down of the
covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.\33\
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\33\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The Commission stressed the importance of the context of the
recovery plan and clearing agency as a whole when assessing the utility
of a particular approach to establishing trigger criteria.\34\ As
described above, OCC proposes changes that would focus its Recovery
Trigger Events on OCC's ability to meet its future obligations in
recovery. OCC also proposes separating out operational disruptions from
general business losses, which would provide more granularity in
describing its trigger events. With regard to wind-down, OCC proposes
to replace four triggers with one flexible trigger. Such a change,
while reducing granularity, may cover a
[[Page 55808]]
wider range of potential scenarios.\35\ Further, the revised Wind-Down
Event Trigger would specify the Board's role in determining whether to
trigger an orderly wind-down.
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\34\ Id.
\35\ The Commission approved a similar single wind-down trigger
event for the National Securities Clearing Corporation (``NSCC'').
See Securities Exchange Act Release No. 83974 (Aug. 28, 2018), 83 FR
44988 (Sept. 4, 2018). NSCC Rule 42 authorizes NSCC's Board to
authorize initiation of NSCC's wind-down plan if it determines that
application of NSCC's recovery tools either (i) has not restored or
likely will not restore NSCC to viability or (ii) that implementing
the wind-down plan is in the best interests of NSCC, its
shareholders and creditors, members, and the U.S. financial markets.
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In adopting Rule 17Ad-22(e)(3)(ii), the Commission provided
guidance, stating that a covered clearing agency generally should
consider, among other things, whether it has provided relevant
resolution authorities with the information needed for purposes of
recovery and resolution planning.\36\ As described above, OCC proposes
non-substantive updates focused primarily on keeping information
accurate and up-to-date. To achieve this focus, OCC proposes (i)
relocating of context and background information from the Plan into a
supplemental document; (ii) removing of duplicative information
maintained elsewhere in OCC's documentation; (iii) updating of
information in the plan that is out of date or inconsistent with
current practices; and (iv) streamlining of hypothetical stress
scenarios describing how OCC would employ its recovery and wind-down
tools., OCC proposes the removal of background and supporting
information from the RWD Plan into a new and separate Supporting
Information document. The Commission believes that, in moving such
information to a separate document, resolution authorities will still
be able to use the RWD Plan to identify the support functions that are
necessary to maintain critical services and operations, yet also cross-
reference to additional detail in the RWD Plan Supporting Information
as needed. OCC also proposes the removing duplicative information and
providing links to other sources of information, such as the OCC's
website, which would allow OCC to update any supporting information in
only one place, thus reducing the risk of providing redundant
information. OCC is also proposing to update outdated information and
to streamline its hypothetical stress scenarios to reflect current OCC
operations more accurately. The Commission believes that the proposed
non-substantive updates will make the information provided in the RWD
Plan more accurate and useful; provide a more accurate and usable
playbook for OCC or source of information for a resolution authority;
eliminate the risk that the RWD Plan may not contain current
information; support OCC's ability to use risk management and recovery
tools effectively to bring about a recovery by clarifying which tools
may be most effective for different situations or needs; and eliminate
redundancy across OCC's by-laws and rules. As such, the non-substantive
changes would provide a more up-to-date set of information for the
relevant authorities to carry out any needed recovery and resolution
planning more expeditiously.
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\36\ See Covered Clearing Agency Standards Adopting Release, 81
FR at 70810.
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The Commission believes, therefore, that the proposal is consistent
with the requirements of Rule 17Ad-22(e)(3)(ii) under the Exchange
Act.\37\
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\37\ 17 CFR 240.17Ad-22(e)(3)(ii).
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IV. Solicitation of Comments on Partial Amendment No. 1 to the Proposed
Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Exchange 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#1361667f763e707c7e7e767d6760536076703d747c65"><span class="__cf_email__" data-cfemail="86f4f3eae3abe5e9ebebe3e8f2f5c6f5e3e5a8e1e9f0">[email protected]</span></a>. Please include
file number SR-OCC-2023-005 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-2023-005. 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 of submission. The Commission will post all
comments on the Commission's website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). Comments are also 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. Operating conditions may limit access to the
Commission's Public Reference Room. 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-2023-005 and should be submitted on or
before September 6, 2023.
V. Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Exchange Act,\38\ to approve the proposed rule change prior to the
30th day after the date of publication of notice of the filing of
Partial Amendment No. 1 in the Federal Register. As discussed above,
Partial Amendment No. 1 modified the original proposed rule change to
correct an error in the narrative summary of proposed rule changes.
Partial Amendment No. 1 does not change the purpose of or basis for the
proposed changes.
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\38\ 15 U.S.C. 78s(b)(2).
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For similar reasons as discussed above, the Commission finds that
Partial Amendment No. 1 is consistent with the requirement that OCC's
rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions under Section 17A(b)(3)(F) of the
Exchange Act.\39\ Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Exchange Act, to approve the
proposed rule change, as modified by Partial Amendment No. 1, on an
accelerated basis, pursuant to Section 19(b)(2) of the Exchange
Act.\40\
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\39\ 15 U.S.C. 78q-1(b)(3)(F).
\40\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with the requirements of the Exchange Act, and in
particular, the requirements of Section 17A of the Exchange Act \41\
and the rules and regulations thereunder.
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\41\ In approving this proposed rule change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\42\ that the proposed rule change (SR-OCC-2023-005), as
modified by Partial
[[Page 55809]]
Amendment No. 1, be, and hereby is, approved.
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\42\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17531 Filed 8-15-23; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.