Notice2024-12466
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Update the Options Clearing Corporation's Schedule of Fees
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 7, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 111 (Friday, June 7, 2024)</title>
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[Federal Register Volume 89, Number 111 (Friday, June 7, 2024)]
[Notices]
[Pages 48697-48700]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-12466]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100261; File No. SR-OCC-2024-007]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Update the Options Clearing Corporation's Schedule of Fees
June 3, 2024.
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 May 29, 2024, 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)(ii) \3\
of the Act and Rule 19b-4(f)(2) \4\ thereunder so that the proposal was
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)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would revise OCC's schedule of fees.
Specifically, OCC proposes to update the Options Disclosure Document
(``ODD'') \5\ fee and make certain other changes, including allowing
OCC to charge applicable taxes and removing language related to
authorization stamp fees, which are no longer in use. Proposed changes
to OCC's schedule of fees are included as Exhibit 5 to File Number SR-
OCC-2024-007. Material proposed to be added to OCC's schedule of fees
as currently in effect is underlined and material proposed to be
deleted is marked in strikethrough text. All capitalized terms not
defined herein have the same meaning as set forth in the OCC By-Laws
and Rules.\6\
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\5\ The ODD is written to meet the requirements of Rule 9b-1
under the Exchange Act that requires the U.S. options markets to
prepare, and brokerage firms to distribute, a document that
describes the characteristics of options and the risks to investors
of maintaining positions in options. More specifically, such
document will include information pertaining to the mechanics of
exercising the options, the risks of being a holder or writer of the
options, and the market or markets in which the options are traded,
among other items identified in Rule 9b-1(c). See 17 CFR 240.9b-1.
\6\ OCC's By-Laws and Rules can be found on OCC's public
website: <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
The purpose of this filing is to revise OCC's schedule of fees. 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. 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, OCC's Capital Management Policy,\7\ which provides the
framework by which OCC manages its capital. Amending OCC's schedule of
fees is one action used by OCC to manage its capital.
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\7\ 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).
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In accordance with the Capital Management Policy, OCC management
reviews the fee schedule at regularly scheduled meetings and,
considering factors including, but not limited to, projected operating
expenses, projected volumes, anticipated cashflows, and capital needs,
recommends to the Board (or a committee to which the Board has
delegated authority), whether a fee change should be made. In
accordance with such procedures, OCC management recommended, and the
Compensation and Performance Committee of OCC's Board approved certain
fee changes. As further described below, these proposed changes are
intended to promote cost management by facilitating OCC's ability to
break even on certain costs. Additional proposed changes are intended
to ensure OCC's schedule of fees remains current and clear.
ODD Fee Changes
OCC proposes to update the fee charged for a printed version of the
ODD to industry participants, including both Clearing Members and non-
Clearing Members. The Characteristics and Risks of Standardized
Options, also known as the ODD, explains the characteristics and risks
of exchange traded options. Broker-dealers are required to distribute
the ODD to customers pursuant to Rule 9b-1 under the Exchange Act.\8\
Prior to
[[Page 48698]]
buying or selling an option, investors must be given a copy of the ODD.
Investors may also obtain a printed version of the ODD from any
exchange on which options are traded or by placing an order on OCC's
website. Additionally, OCC provides an option to electronically
download the full version of the ODD on its website for no charge.\9\
OCC advises broker-dealers to consult with their legal and compliance
resources to determine the appropriate means of delivery of the ODD to
investors.\10\ Electronic delivery of the ODD is permissible if the
requirements for electronic delivery as established by the Commission
are met.\11\ Additionally, OCC makes available a print-ready PDF
version of the ODD to Clearing Members and non-Clearing Members so that
firms who wish to print the ODD through their own printing services may
do so.\12\
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\8\ 17 CFR 240.9b-1.
\9\ The ODD is available electronically at <a href="https://www.theocc.com/company-information/documents-and-archives/publications">https://www.theocc.com/company-information/documents-and-archives/publications</a>.
\10\ See OCC's website for additional information regarding
electronic delivery and print copies at <a href="https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document">https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document</a>.
\11\ See Exchange Act Release No. 37183 (May 9, 1996), 61 FR
24652 (May 15, 1996) (adopting technical amendments to the
Commission's rules that are premised on the distribution of paper
documents).
\12\ Firms may contact OCC to request the print-ready PDF
version. See supra note 10.
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OCC proposes to update the fee charged for a printed copy of the
ODD from $0.45 to $0.95. The current fee is charged when the order is
placed with OCC. OCC has not increased this fee since 1994 and it is
out of sync with the current environment. There has been notable
inflation over the past 30 years. For instance, the dollar had an
average inflation rate of 2.52% per year between 1994 and 2023,
producing a cumulative price increase of approximately 106%.\13\ The
proposed fee constitutes a 111% increase from the fee adopted in 1994,
which deviates only slightly from the cumulative rate. OCC believes the
proposed fee increase is reasonable given that the costs and expenses
associated with the ODD (e.g., printing, preparation, and labor costs),
as well as the form of the ODD itself,\14\ have changed since 1994.
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\13\ See the inflation calculator at <a href="https://www.officialdata.org/us/inflation/1994?endyear=2023">https://www.officialdata.org/us/inflation/1994?endyear=2023</a>.
\14\ For example, in 2021, OCC integrated all prior ODD
supplements into one document and eliminated the distribution of
supplements. While the integration of the supplements created a more
digestible document for investors, the change increased the printing
costs for OCC.
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ODD costs are difficult to predict. New versions of the ODD may be
issued at various times as needed to address new products or industry
changes, and it may be necessary to distribute multiple new versions of
the ODD within a year.\15\ OCC proposes to increase the current fee to
$0.95 per copy, which reflects the current cost to print and distribute
the ODD.\16\ OCC does not intend to generate a profit through this
change. This proposal is designed to facilitate OCC's ability to break
even on the costs of printing and distributing the ODD. Additionally,
as a clarification, OCC proposes to update the current reference to the
ODD in the fee schedule from ``Disclosure Documents'' to ``Options
Disclosure Document.'' The proposed changes to the fee schedule are set
out below.
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\15\ Because it is difficult to forecast the number of printed
versions that OCC needs to purchase to fulfill orders, OCC may place
several orders of different quantities throughout the year. OCC's
printing costs generally depend on the quantity ordered.
\16\ This fee is the sum of current per copy printing and
distribution costs. Current per copy printing costs were derived
through a weighted average based on the volume of ODD copies that
OCC purchased at different price points from 2020 through 2023 from
its printer. Current per copy distribution costs were derived using
estimated yearly costs incurred by OCC in distributing the ODD, such
as maintenance and storage, accounting, legal, waste, and growth.
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Current fee schedule Proposed fee schedule
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Disclosure Documents--$0.45............... Options Disclosure Document--
$0.95.
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The proposed changes are designed to promote cost management in
compliance with Rule 17Ad-22(e)(15) under the Exchange Act that, among
other things, requires OCC to identify, monitor, and manage its general
business risk,\17\ which includes the risk of potential impairment to
OCC's financial position resulting from a decline in revenues or an
increase in expenses. The proposed increase in the ODD fee is designed
to facilitate OCC's ability to break even on the costs of printing and
distributing the ODD. OCC does not intend to make a profit with this
increase and as discussed above, OCC makes available additional options
for ODD distribution at no charge, including an electronic version and
a print-ready PDF version. Implementation of the proposed fee increase
is designed to bring the ODD fee in sync with the current environment
as well as the current form of the ODD.
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\17\ See 17 CFR 240.17Ad-22(e)(15).
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Additional Fee Changes
Additional proposed changes allow OCC to charge applicable taxes.
OCC currently does not charge sales tax. For example, in connection
with the ODD, OCC pays the sales tax and absorbs the cost. OCC believes
it is reasonable to allocate rather than absorb the cost of applicable
taxes because it will facilitate OCC's ability to break even on these
types of required costs. Under the amended fee schedule, OCC may charge
state sales or use tax when due in connection with any of its listed
fees. OCC does not believe such change would create a financial burden
as it is limited to the cost of applicable taxes, which OCC does not
control. Moreover, OCC believes charging sales or use tax where
applicable is reasonable because it is similar to a practice currently
employed by another self-regulatory organization.\18\
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\18\ See New York Stock Exchange (``NYSE'') Fee Schedule at
<a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/nyse_price_list.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/nyse_price_list.pdf</a>. NYSE charges sales tax for various products
where applicable.
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Finally, OCC proposes to remove an outdated fee for authorization
stamps because authorization stamps are no longer used by OCC. OCC
previously used authorization stamps as a security measure for
authentication. OCC removed provisions in its Rules related to such
stamps in 2023.\19\ Such change is intended to ensure that the fee
schedule remains current and accurate.
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\19\ See Exchange Act Release No. 97439 (May 5, 2023), 88 FR
30373 (May 11, 2023) (SR-OCC-2023-002) (removing provisions related
to authorization stamps in then-existing Rule 212).
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Implementation Timeframe
OCC proposes to implement the fee changes within 60 days from the
date that OCC receives all necessary regulatory approvals for the
filing. OCC will announce the implementation date of the proposed fee
changes by an Information Memorandum posted to its public website at
least seven days prior to implementation. Such implementation is
proposed to provide notice to industry participants and to allow OCC to
complete any necessary steps in its order system to effect the fee
changes. Additionally, OCC would not make the fee changes operative
until after the time required to self-certify the proposed change with
the Commodity Futures Trading Commission (``CFTC'').
(2) Statutory Basis
OCC believes the proposed rule change is consistent with the Act
\20\ and the rules and regulations thereunder. In particular, OCC
believes that the proposed fee changes are also consistent with Section
17A(b)(3)(D) of the Act,\21\ which requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues,
[[Page 48699]]
fees, and other charges among its participants.
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\20\ 15 U.S.C. 78a et seq.
\21\ 15 U.S.C. 78q-1(b)(3)(D).
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OCC believes that the proposed fee changes are reasonable. The
current ODD fee has not increased since 1994 and is out of sync with
the current environment. As discussed above, there has been notable
inflation over the past 30 years. OCC believes the proposed fee
increase is reasonable given that the costs and expenses associated
with the ODD (e.g., printing, preparation, and labor costs), as well as
the form of the ODD itself, have changed since 1994. The proposed fee
is designed to reflect the current cost to print and distribute the ODD
to facilitate OCC's ability to break even on these costs. In addition,
OCC believes it is reasonable to allocate rather than absorb the cost
of applicable taxes because it will facilitate OCC's ability to break
even on these types of required costs. OCC does not believe such change
would create a financial burden as it is limited to the cost of
applicable taxes, which OCC does not control. Moreover, OCC believes
charging appropriate sales or use tax is reasonable because it is
similar to a practice currently employed by another self-regulatory
organization.\22\ Furthermore, OCC believes it is reasonable to remove
the fee for authorization stamps, as OCC no longer uses authorization
stamps. This change would ensure that the fee schedule remains current
and accurate.
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\22\ See supra note 18.
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OCC also believes that the proposed fee changes would result in an
equitable allocation of fees. The ODD fee increase would apply equally
to all industry participants that order printed copies of the ODD.
Moreover, OCC makes available additional options for ODD distribution
at no charge, including an electronic version and a print-ready PDF
version. The additional changes, including allowing OCC to charge
applicable taxes and removing outdated language, would also be applied
equally to industry participants that utilize OCC's services. As a
result, OCC believes that the proposed changes to OCC's fee schedule
provide for the equitable allocation of reasonable fees in accordance
with Section 17A(b)(3)(D) of the Act.\23\
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\23\ 15 U.S.C. 78q-1(b)(3)(D).
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In addition, OCC believes that the proposed rule change is
consistent with Rule 17Ad-22(e)(15), which requires that OCC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to identify, monitor, and manage OCC's general
business risk.\24\ The proposed fee changes are designed to promote
cost management by facilitating OCC's ability to break even on certain
costs, which would promote OCC's ability to manage its general business
risk or the risk of potential impairment to OCC's financial position
resulting from a decline in revenues or an increase in expense.
Therefore, OCC believes that the proposed changes to OCC's schedule of
fees are consistent with Rule 17Ad-22(e)(15).\25\
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\24\ 17 CFR 240.17Ad-22(e)(15).
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \26\ 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 proposed rule change would have any impact or impose a
burden on competition. OCC believes that the proposed rule change would
not disadvantage or favor any particular user of OCC's services in
relationship to another user because the proposed changes would equally
apply to all industry participants. In addition, OCC does not believe
the fee changes impose a significant burden, as the changes are
intended to reflect current costs incurred by OCC rather than generate
a profit. Accordingly, OCC does not believe that the proposed rule
change would have any impact or impose a burden on competition.
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\26\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(ii) \27\ of the Act, and Rule 19b-
4(f)(2) thereunder,\28\ the proposed rule change is filed for immediate
effectiveness as it constitutes a change in fees. 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. The proposal shall not take effect until
all regulatory actions required with respect to the proposal are
completed.\29\
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\27\ 15 U.S.C. 78s(b)(3)(A)(ii).
\28\ 17 CFR 240.19b-4(f)(2).
\29\ 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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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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3b494e575e16585456565e554f487b485e58155c544d"><span class="__cf_email__" data-cfemail="0674736a632b65696b6b636872754675636528616970">[email protected]</span></a>. Please include
file number SR-OCC-2024-007 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-2024-007. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 48700]]
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-2024-007 and
should be submitted on or before June 28, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-12466 Filed 6-6-24; 8:45 am]
BILLING CODE 8011-01-P
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