Notice2024-16661
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Regarding Its Backtesting Framework and To Establish a Resource Backtesting Margin Charge
Primary source
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Published
July 30, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 146 (Tuesday, July 30, 2024)</title>
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[Federal Register Volume 89, Number 146 (Tuesday, July 30, 2024)]
[Notices]
[Pages 61211-61222]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100584; File No. SR-OCC-2024-009]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by The Options Clearing
Corporation Regarding Its Backtesting Framework and To Establish a
Resource Backtesting Margin Charge
July 24, 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 July 11, 2024, The Options Clearing Corporation
(``OCC'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared primarily by OCC. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would (i) amend OCC's Margin Policy to
more comprehensively describe OCC's approach to backtesting, including
how OCC establishes and reviews assumptions underlying OCC's
backtesting and criteria for escalating backtesting results; (ii)
provide for a new category of backtesting designed to evaluate whether
OCC maintains sufficient margin resources to cover its credit exposure
to the liquidation portfolio of each Clearing Member from the last
margin collection until the end of the liquidation horizon following
the default of that Clearing Member with a high degree of confidence
(as defined below, ``Resource Backtesting''); (iii) implement a
Resource Backtesting Margin Charge that OCC would collect from Clearing
Members who experience Resource Backtesting deficiencies that bring
their margin coverage rates below a 99% coverage target; and (iv) make
certain conforming changes to other OCC rules to reflect these proposed
changes.
Proposed changes to OCC's Rules are contained in Exhibit 5A to File
No. SR-OCC-2024-009. Proposed changes to OCC's Margin Policy, Model
Risk Management Policy and STANS Methodology Description are contained
in confidential Exhibits 5B, 5C, and 5D to File No. SR-OCC-2024-009,
respectively. Material proposed to be added is marked by underlining
and material proposed to be deleted is marked with strikethrough text.
All terms with initial capitalization that are not otherwise defined
herein have the same meaning as set forth in the OCC By-Laws and
Rules.\3\
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\3\ 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
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission.
OCC also clears certain stock loan and futures transactions. In its
role as a clearing agency, OCC is the guarantor for all contracts
cleared through OCC; that is, OCC becomes the buyer to every seller or
the seller to every buyer (or the lender to every borrower and the
borrower to every lender, in the case of stock loans). As a central
counterparty, OCC is exposed to credit risk in the event of the failure
of one its members because OCC is obligated to perform on the contracts
it clears even when one of its members defaults.
OCC manages this credit risk through various safeguards to ensure
that it has sufficient financial resources in the event of a Clearing
Member failure. For example, OCC periodically collects margin
collateral from its Clearing Members, which is used to cover the credit
exposures they individually present to OCC. OCC has established a
proprietary system, the System for
[[Page 61212]]
Theoretical Analysis and Numerical Simulation (``STANS''), that runs
various models used to calculate margin requirements, as described in
the STANS Methodology Description.
To monitor whether margin requirements calculated by STANS are
adequate, OCC compares the margin derived from its use of the STANS
margin models against the amount it could have lost if a Clearing
Member had failed (``backtesting''). OCC relies on backtesting to
evaluate the accuracy of its margin models by comparing the calculated
margin coverage for each margin account against the actual profit and
loss on the margined portfolios. OCC performs backtesting at least once
each day using standard predetermined parameters and assumptions. While
backtesting does not directly establish Clearing Members' margin
requirements, OCC maintains broad authority under its rules to collect
additional margin if OCC identifies issues with its margin coverage.\4\
In addition, backtesting may reveal opportunities to enhance OCC's
credit risk management and margin methodology or to adjust model
parameters.
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\4\ See OCC Rule 601(c) (``Notwithstanding any other provision
of this Rule 601, [OCC] may fix the margin requirement for an
account or any class of cleared contracts at such amount as it deems
necessary or appropriate under the circumstances to protect the
respective interests of Clearing Members, [OCC], and the public.'');
OCC Rule 609(a) (providing OCC's authority to issue intra-day margin
calls to protect OCC, other Clearing Members and the general public,
among other reasons); see also OCC Rule 307C (authorizing OCC to
impose protective measures, including to ``adjust the amount or
composition of margin'' when, under Rule 307, a Clearing Member
``presents increased credit or liquidity risk to OCC,'' among other
reasons).
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This proposed rule change would make three enhancements to OCC's
backtesting framework. First, OCC proposes to amend its rule-filed
Margin Policy to comprehensively describe material aspects of its
backtesting framework. As a self-regulatory organization, OCC is
subject to requirements to submit filings with its regulators in
connection with changes to its rules, which include material aspects of
the facilities of OCC. OCC has filed as rules certain frameworks and
policies that describe OCC's approach for credit risk management,
including OCC's Margin Policy. Specifically, the Margin Policy
establishes a process for ongoing monitoring, review, testing and
verification of OCC's risk-based margin system, including by requiring
OCC to conduct daily backtesting, conduct analysis of exceedances, and
report results at least monthly through OCC's governance process,\5\ as
required by SEC Rule 17Ad-22(e)(6)(vi).\6\ However, the Margin Policy
does not currently provide detail concerning (i) how OCC establishes
and modifies its assumptions for backtesting; or (ii) how OCC
establishes and reviews criteria and thresholds for escalating
backtesting results and reviews of backtesting assumptions to
appropriate decisionmakers. This proposal would amend the Margin Policy
to provide further detail about those aspects of OCC's backtesting
framework, as well as a more comprehensive description of the different
types of backtesting OCC performs and their respective purposes.
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\5\ See Exchange Act Release No. 82658 (Feb. 7, 2018), 83 FR
6646, 6649 (Feb. 14, 2018) (SR-OCC-2017-007) (Commission order
approving OCC's Margin Policy, inclusive of its provision for
backtesting of each margin account).
\6\ 17 CFR 240.17Ad-22(e)(6)(vi).
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Second, OCC is proposing to add another category of backtesting to
its backtesting framework. OCC's current backtesting assesses whether
OCC's margin model achieves a 99% coverage rate for each marginable
account, which is the level at which OCC's models calculate margin
requirements.\7\ However, under OCC's By-Laws and Rules,\8\ each
Clearing Member may have multiple marginable accounts on which OCC
maintains different liens designed to facilitate Clearing Members'
compliance with the SEC's customer protection regime.\9\ Accordingly,
in order to conduct backtesting at the level of each Clearing Member
Organization, OCC proposes to amend the Margin Policy to add Resource
Backtesting, as defined below, as a separate category of backtesting
within OCC's backtesting framework to assess the adequacy of OCC's
margin resources to cover its credit exposure at the Clearing Member
level. OCC has designed its Resource Backtesting to assess whether OCC
maintains sufficient margin resources, among other prefunded financial
resources,\10\ to cover its credit exposure to each participant fully
with a high degree of confidence, consistent with SEC Rule 17Ad-
22(e)(4)(i).\11\ Specifically, Resource Backtesting would test whether
the liquidation portfolio of each Clearing Member from the last margin
collection until the end of the liquidation horizon following the
Clearing Member's default achieves a 99% coverage rate, in line with
the coverage standard for the current backtesting of OCC's margin
models.
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\7\ See Exchange Act Release No. 82658, supra note 5, 83 FR at
6647.
\8\ See OCC By-Laws, Art. VI, Sec. 3 (providing for the various
accounts and their respective lien structures).
\9\ See, e.g., 17 CFR 240.15c3-3(e) (providing for the reserve
formula used in calculating the amounts of funds a clearing member
is required to deposit in a special reserve bank account for the
exclusive benefit of customers, including a debit for ``[m]argin
required and on deposit with [OCC] for all option contracts written
or purchased in customer accounts'').
\10\ Such other prefunded financial resources include, in order
of contribution within OCC's default waterfall: (i) the Clearing
Fund deposit of the defaulting Clearing Member, which would be at
least $500,000; (ii) OCC's skin-in-the-game in the form of OCC's
Minimum Corporate Contribution and its liquid net assets funded by
equity in excess of 110% of its Target Capital Requirement (which,
as of December 31, 2023, was more than $130 million); and (iii) the
Clearing Fund deposits of non-defaulting Clearing Members (as of
December 31, 2023, the Clearing Fund was more than $16.7 billion)
and the EDCP Unvested Balance (i.e., the unvested funds held in
respect of OCC's Executive Deferred Compensation Plan Trust that OCC
would be charged on a proportionate basis with the Clearing Fund
deposits of non-defaulting Clearing Members).
\11\ 17 CFR 240.17Ad-22(e)(4)(i).
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Third, OCC proposes to amend its rules to establish a margin add-on
that OCC would charge a Clearing Member if Resource Backtesting
coverage for that Clearing Member falls below 99% (``Resource
Backtesting Margin Charge''). Accordingly, OCC's new backtesting
framework would impact the total margin collected from certain Clearing
Members depending on the performance of OCC's margin models and the
activity those members clear through OCC. As discussed further below,
OCC believes that the Resource Backtesting Margin Charge would help OCC
ensure it collects margin sufficient to cover its potential future
exposure to participants in the interval between the last margin
collection and the close out of positions following a participant
default, consistent with SEC Rule 17Ad-22(e)(6)(iii).\12\
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\12\ 17 CFR 240.17Ad-22(e)(6)(iii).
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In connection with these three backtesting enhancements, OCC would
also make certain conforming changes to the Model Risk Management
Policy and STANS Methodology Description to reflect changes in defined
terms associated with backtesting and changes to the underlying
procedures.
(1) Purpose
Background
Backtesting Procedures
STANS is OCC's proprietary risk management system for calculating
Clearing Member margin requirements.\13\ The STANS
[[Page 61213]]
methodology utilizes large-scale Monte Carlo simulations to forecast
price and volatility movements in determining a Clearing Member's
margin requirement.\14\ OCC has conducted daily backtesting of margin
accounts subject to STANS margining since 2006.
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\13\ See Exchange Act Release No. 91079 (Feb. 8, 2021), 86 FR
9410 (Feb. 12, 2021) (File No. SR-OCC-2020-016). OCC makes its STANS
Methodology Description available to Clearing Members. An overview
of the STANS methodology is on OCC's public website: <a href="https://www.theocc.com/Risk-Management/Margin-Methodology">https://www.theocc.com/Risk-Management/Margin-Methodology</a>.
\14\ See OCC Rule 601.
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In 2014, OCC filed proposed changes to its backtesting
procedures.\15\ Among other things, the changes included: (1) the
addition of certain industry-standard statistical tests, including the
Kupiec Test \16\ and Christoffersen Independence Test; \17\ (2)
backtesting of hypothetical portfolios (which OCC currently refers to
as ``Model Backtesting''), in addition to actual portfolios (which OCC
currently refers to as ``Business Backtesting''), to provide more
comprehensive insight into the adequacy of the underlying model
assumptions under market conditions prevailing in the backtesting
observation periods, as well as stressed market conditions; (3)
adjustments to the forecasted horizon used for backtesting to better
reflect the two-day liquidation period (OCC's margin period of risk or
``MPOR'') used in margin calculations and to provide OCC with a more
accurate view of the sufficiency of its margin methodology; and (4)
system changes to give OCC's backtesting staff additional tools to help
identify the root cause of backtesting exceedances. The Commission
issued a notice of no objection with respect to those proposed
changes.\18\
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\15\ See Exchange Act Release No. 73749 (Dec. 5, 2014), 79 FR
73673 (Dec. 11, 2014) (SR-OCC-2014-810).
\16\ The Kupiec Test is a proportion of failures test that
compares the actual number of exceedances with the number that would
be expected in light of the confidence level associated with the
calculation of margin. See Kupiec, P. ``Techniques for Verifying the
Accuracy of Risk Management Models,'' Journal of Derivatives, v3,
P73-84. (1995).
\17\ The Christoffersen Independence Test measures the extent to
which exceedances are independent of each other. See Christoffersen,
P. ``Evaluating Interval Forecasts.'' International Economic Review,
39 (4), 841-862 (1998).
\18\ See Exchange Act Release No. 75290 (June 24, 2015), 80 FR
37323 (June 30, 2015) (SR-OCC-2014-810).
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OCC currently maintains its Model Backtesting and Business
Backtesting procedures in internal OCC procedures and technical
documents. Among other things, those procedures address data
acquisition, application of statistical tests, analyses initiated to
address root causes of exceedances, reporting of results, annual
methodology reviews, and issue escalation. The technical documents are
similar in nature to the margin model whitepapers that support OCC's
STANS methodology.\19\
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\19\ As described in the rule filing establishing the STANS
Methodology Description, the whitepapers describe how the various
quantitative components of STANS were developed and operate,
including the various parameters and assumptions contained within
those components and the mathematical theories underlying the
selection of those quantitative methods. See Exchange Act Release
No. 91079, supra note 13, 80 FR at 9410 n.5 and accompanying text.
The model whitepapers are not filed as rules of OCC.
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Backtesting Framework
In addition to the procedural documents noted above, OCC considers
its backtesting framework to include its Margin Policy, among other
rule-filed documents established after OCC last filed changes to its
backtesting procedures.\20\ The Margin Policy provides that OCC's
Financial Risk Management Department (``FRM'') continually evaluates
the effectiveness of its margin models through daily backtesting of
each margin account as provided in the Business Backtesting Procedure,
analyzing in detail all accounts exhibiting losses in excess of
calculated margin requirements.\21\ The Margin Policy further directs
OCC's Quantitative Risk Management business unit (``QRM'') to design
backtests to focus on: (i) satisfying OCC's regulatory obligations;
(ii) identifying potential opportunities to improve the margin
methodology; and (iii) identifying trends in exceedances that may be
indicative of behavioral changes by market participants. In addition,
the Margin Policy directs QRM to design backtests to find potential
opportunities to improve OCC's risk-assessment processes, noting that
problems may arise from both technical and model-related issues. With
respect to the former, the Margin Policy notes that technical issues
may arise from corporate actions and special dividends, for example.
The Margin Policy provides that FRM performs Business Backtesting to
measure whether the losses observed for a constant set of positions
over OCC's MPOR were in excess of the total risk charges (i.e.,
aggregate of expected shortfall, stress test charges and add-on
charges) required for the account. The Margin Policy directs FRM to
classify any observation in which losses are in excess as an
exceedance.
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\20\ For example, the rule-filed STANS Methodology Description
describes ongoing model performance monitoring and backtesting in
that document's executive summary, noting that further detail on
such model monitoring activity is found in the Margin Policy and the
Model Risk Management Policy. See Exchange Act Release No. 90763
(Dec. 21, 2020), 85 FR 85788, 85790 n. 18 and accompanying text
(Dec. 29, 2020) (SR-OCC-2020-016). In addition, the Model Risk
Management Policy provides that margin models will be monitored
``according to the Model Backtesting Procedure [and] Business
Backtesting Procedure,'' among other procedures. See Exchange Act
Release No. 82473 (Jan. 9, 2018), 83 FR 2271, 2273 (Jan. 16, 2018)
(SR-OCC-2017-011).
\21\ See Exchange Act Release No. 82658, supra note 5, 83 FR at
6648.
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While the Margin Policy contemplates that backtesting results and
analyses of backtesting assumptions may require escalation, it does not
provide for established escalation criteria or thresholds. The absence
of specific guidance, thresholds or criteria for escalation could lead
to inconsistencies in the escalation of similar backtesting
exceedances. For example, the Margin Policy currently directs QRM to
report identified problems and overall performance to FRM and the Model
Risk Working Group (``MRWG''),\22\ and that the MRWG determines
``whether the results require escalation'' to the Management Committee.
The Margin Policy further provides that QRM presents MRWG monthly
reporting, or more frequently when determined by MRWG, and quarterly
reporting that accumulate daily backtesting results and detailed
descriptions of the accounts that have incurred exceedances, trends and
causes of the exceedances. As with the escalation of identified
problems and overall performance, the Margin Policy directs QRM to
provide notable results from these reviews to the Chief Financial Risk
Officer (i.e., the head of FRM) and MRWG, and that MRWG determines
whether ``escalation is warranted'' to the Management Committee, which
may determine what remedial actions may be taken.\23\ In addition, the
Margin Policy provides for a monthly review of the parameters and
assumptions for Business Backtesting, the results of which are reported
to the MRWG to discuss and escalate issues ``as necessary.'' \24\
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\22\ The MRWG is a cross-functional group responsible for
assisting OCC's management in overseeing OCC's model-related risk
comprised of representatives from relevant OCC business units
including Quantitative Risk Management, Model Risk Management, and
Corporate Risk Management.
\23\ Remedial actions could take various forms including, but
not limited to, margin add-on charges to account for risk that may
not be captured appropriately by OCC's margin models, adjustments to
model parameters, or other changes to OCC's margin models or margin
methodology, subject to any necessary approvals by OCC's Risk
Committee, Board of Directors, and regulators.
\24\ See Exchange Act Release No. 82658, supra note 5, 83 FR at
6647 (discussing how the backtesting results are ``reported to [the
MRWG] and may be escalated to OCC's Management Committee'').
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[[Page 61214]]
Proposed Changes
(i) Backtesting Framework
OCC is proposing amendments to its Margin Policy to describe more
comprehensively its approach to backtesting, including OCC's:
<bullet> backtesting framework, which includes (i) the purpose and
scope of the backtesting OCC performs and (ii) the assumptions
underlying OCC's backtesting and the process for reviewing and
modifying those assumptions; and
<bullet> backtesting reporting, including how OCC establishes and
reviews criteria for escalating exceedances.
Specifically, OCC would replace the first two paragraphs of the
section of the Margin Policy that concerns margin monitoring, which
currently address OCC's Business Backtesting, and a subsection that
concerns backtesting reporting, with two new subsections: one that more
comprehensively describes OCC's backtesting framework and another that
describes backtesting reporting, as described below. The current third
paragraph of that section, which concerns the monthly review of margin
model parameters and sensitivity analyses of the margin model, would be
relocated to its own subsection below the new subsection on backtesting
reporting with certain edits discussed below related to the review of
backtesting assumptions and the conditions for more frequent review.
Purpose and Scope of Model Backtesting
With respect to OCC's current backtesting processes, the new
backtesting framework subsection in the Margin Policy would provide
that FRM will continue to conduct daily backtesting of actual and
hypothetical portfolios to evaluate the performance of its margin
methodology, as it does today. OCC would refer to such backtesting as
``Model Backtesting,'' which would distinguish such backtesting from
the proposed Resource Backtesting discussed below. As such, Model
Backtesting under the proposed amendments would encompass what OCC
currently refers to as ``Business Backtesting'' (i.e., backtesting of
its margin model performance using actual portfolios) and ``Model
Backtesting'' (i.e., backtesting of its margin model performance using
hypothetical portfolios). With respect to the latter, the Margin Policy
would explain that FRM conducts Model Backtesting of hypothetical
portfolios to target specific aspects of the models that may be masked
by the backtesting of actual portfolios because margin accounts may
have thousands of positions in many diverse products. With respect to
the former, the Margin Policy would explain that OCC conducts Model
Backtesting of actual portfolios to determine whether the losses
observed for a constant set of positions over OCC's liquidation horizon
were in excess of margin requirements forecasted by OCC's margin
methodology for each margin account. This description aligns with OCC's
current Business Backtesting practices. Accordingly, OCC would continue
to conduct Model Backtesting at the level of each marginable account,
which is the level at which OCC calculates margin requirements. As the
Margin Policy would explain, OCC conducts Model Backtesting at this
level because Model Backtesting exceedances potentially indicate issues
that could be actively impacting OCC's margin requirements for the
margin accounts. In addition, backtesting at this level is consistent
with OCC's obligations in its capacity as a derivatives clearing
organization (``DCO'') registered with the Commodity Futures Trading
Commission.\25\
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\25\ See 17 CFR 39.13(g)(7)(i)(C) (requiring a DCO to conduct
daily backtests for ``each account'' held by a clearing member at
the DCO).
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The Margin Policy would further provide that FRM conducts Model
Backtesting, as it does today, to evaluate whether margin requirements
forecasted by OCC's margin methodology are sufficient to cover the
realized loss of a portfolio at the maximum exposure estimated to occur
at the end of the liquidation period with an established single-tailed
confidence level of at least 99 percent with respect to the estimated
distribution of future exposure--the coverage standard identified in
SEC Rule 17Ad-22(e)(6)(iii).\26\ This is the regulatory standard that
OCC's current Business Backtesting was designed to evaluate. The Margin
Policy would also provide that FRM will classify as an ``exceedance'' a
daily outcome in which the loss in portfolio value over the applicable
time horizon is larger in magnitude than what the STANS model
predicted. In addition, the Margin Policy would explain that Model
Backtesting is limited to those components of margin requirements that
capture changes in market risk factors when assessing OCC's compliance
with SEC Rule 17Ad-22(e)(6)(iii).\27\
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\26\ 17 CFR 240.17Ad-22(e)(6)(iii).
\27\ Id.
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OCC would continue to exclude collateral from Model Backtesting
that is not modeled by STANS (commonly referred to as ``non-Collateral
in Margin'' or ``non-CiM'' collateral),\28\ or that does not capture
changes in market risk factors. OCC's current backtesting analyses are
not designed to assess the sufficiency of non-CiM collateral, which OCC
values instead using the more traditional method of fixed collateral
haircuts.\29\ This limitation reflects that backtesting's purpose is to
assess the performance of OCC's margin models in calculating margin
requirements,\30\ as opposed to the performance of other aspects of
OCC's credit risk management. As such, Model Backtesting would continue
to exclude collateral that is valued using collateral haircuts outside
of the STANS margin methodology. In addition, the particular Model
Backtesting analysis used to assess OCC's compliance with SEC Rule
17Ad-22(e)(6)(iii) \31\ would exclude certain add-on charges that are
not tied to changes in market risk factors.\32\ However, as discussed
below, Resource Backtesting would take into account non-CiM collateral
and the margin collected through add-on charges not related to market
risk when assessing the sufficiency of the financial resources OCC
collects from each Clearing Member. In addition, as discussed below,
OCC may maintain variations of Model Backtesting for diagnostic or
informational purposes that include such add-ons.
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\28\ Following the implementation of STANS in 2006, OCC filed
and the Commission approved a proposed rule change to include equity
securities deposited by Clearing Members to satisfy margin
requirements in STANS margin calculations, referred to as
``Collateral in Margin'' or ``CiM.'' See Exchange Act Release No.
58158 (July 15, 2008), 73 FR 42646, 42646-47 (SR-OCC-2007-020). OCC
implemented CiM, in part, to incentivize Clearing Members to deposit
risk reducing assets and to better risk manage collateral deposits
using the more sophisticated STANS treatment versus a fixed haircut
rate.
\29\ See, e.g., Exchange Act Release No. 98101 (Aug. 10, 2023),
88 FR 55775 (Aug. 16, 2023) (SR-OCC-2022-012) (approving OCC's
procedures-based approach for setting and adjusting fixed haircuts
for Government securities and GSE debt securities deposited by
Clearing Members).
\30\ See Standards for Covered Clearing Agencies, Exchange Act
Release No. 78961 (Sept. 28, 2016), 81 FR 70786, 70819 (Oct. 13,
2016) (S7-03-14) (``[B]acktests are conducted with respect to the
margin model and not the margin resources themselves.''); 17 CFR
240.17Ad-22(a) ``Backtesting'' (``Backtesting means an ex-post
comparison of actual outcomes with expected outcomes derived from
the use of margin models.'').
\31\ 17 CFR 240.17Ad-22(e)(6)(iii).
\32\ For example, OCC may collect additional margin from a
Clearing Member as a protective measure under Rule 307 when OCC
determines that the Clearing Member's operational or financial
condition presents elevated risk to OCC, other Clearing Members, and
the public.
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Backtesting Assumptions
The proposed backtesting framework subsection to the Margin Policy
would
[[Page 61215]]
also provide that FRM maintains assumptions used in backtesting in its
internal procedures. The existence of backtesting assumptions may be
inferred from OCC's existing Margin Policy, which provides for their
review. However, the Margin Policy does not currently identify the
categories of relevant assumptions, provide for how they are
established or modified, or explain how assumptions may differ across
different types of backtesting depending on the purpose of those
backtesting variants. The amended Margin Policy would provide that the
assumptions include, but are not limited to, the timing of default,
liquidation horizon, available resources, lookback period, backtesting
portfolio, and the confidence level of the tests used to evaluate the
statistical significance of an exceedance rate.\33\
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\33\ As addressed in OCC's prior advance notice, OCC employs the
Kupiec Test and the Christoffersen Independence Test to evaluate
whether the exceedance rate is larger than the expected value. See
supra notes 16-17 and accompanying text.
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In addition, the Margin Policy would explain that OCC may provide
for backtesting variations for reporting, diagnostic and informational
purposes, each of which may have different assumptions based on the
purpose of the backtesting variant. For example, OCC plans to report
Model Backtesting results for actual portfolios in connection with
OCC's quantitative disclosures under the Principles for Financial
Market Infrastructures (``PFMI'')--which OCC discloses in compliance
with SEC Rule 17Ad-22(e)(23)--because such Model Backtesting at the
margin account level aligns with the guidance for such disclosures.\34\
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\34\ See Committee on Payments and Market Infrastructures &
Board of the International Organization of Securities Commissions
(``CPMI-IOSCO''), Public quantitative disclosure standards for
central counterparties, at 7 (Feb. 2015), available at <a href="https://www.bis.org/cpmi/publ/d125.pdf">https://www.bis.org/cpmi/publ/d125.pdf</a> (providing guidance on disclosure 6.5
with respect to initial margin backtesting results for margin
accounts).
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The Margin Policy would further provide that changes to these
backtesting assumptions would require escalation by MRWG and OCC's
Management Committee, with ultimate approval by the Risk Committee.
These assumptions relate to foundational aspects of OCC's margin
methodology that may be tied to specific regulatory requirements \35\
or modification of which may require proposed rule changes.\36\
Accordingly, Board-level approval by the Risk Committee would be
required to approve any necessary regulatory filing to modify OCC's
margin methodology. The Margin Policy would further require that FRM
would prepare and present to MRWG a review of the backtesting
assumptions more frequently than monthly in the event of triggers
related to high market volatility, low market liquidity, and
significant increases or decreases in position size or concentration
risk (as has been proposed to be defined in the Margin Policy, ``CCA
Monitoring Thresholds''),\37\ as contemplated by regulation.\38\
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\35\ For example, with respect to the confidence interval, SEC
Rules require that OCC's risk-based margin system must be designed
to calculate margin sufficient to cover the maximum exposure
estimated to occur in the internal between the last margin
collection and the close out of positions following a participant
default with an established single-tailed confidence level of at
least 99 percent with respect to the estimated distribution of
future exposure. See 17 CFR 240.17Ad-22(a) ``Potential future
exposure'', (e)(6)(iii).
\36\ For example, OCC's rule-filed Margin Policy codifies OCC's
two-day MPOR assumption. See Exchange Act Release No. 82658, supra
note 5, 83 FR at 6647-6648 (describing the Margin Policy discussion
of OCC's two-day risk horizon).
\37\ See Exchange Act Release No. 99393 (Jan. 19, 2024), 89 FR
5062, 5066 (Jan. 25, 2024) (SR-OCC-2024-001). These thresholds are
currently provided in procedures under OCC's Clearing Fund
Methodology Policy with respect to the stress testing analyses that
breaches of those thresholds would trigger. See Exchange Act Release
No. 83406 (June 11, 2018), 83 FR 28018, 28026 (June 15, 2018) (SR-
OCC-2018-008) (``The [Clearing Fund Methodology] Policy would
require that OCC maintain procedures for determining whether, and in
what circumstances, such intra-month reviews shall be conducted, and
would indicate the persons responsible for making the
determination.''). Pursuant to those procedures, OCC's Stress Test
and Liquidity Risk Management (``STLRM'') business unit currently
monitors market activity against these thresholds, which are
approved by OCC's Stress Test Working Group (``STWG'') and the MRWG.
\38\ See 17 CFR 240.17Ad-22(e)(6)(vi)(C).
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The Margin Policy would further provide that FRM's written
procedures may include other triggers for evaluation of backtesting
assumptions. OCC expects that one of the triggers it would establish
under this rule would be the implementation of changes to OCC's margin
methodology that may affect backtesting assumptions. For example, if
MRWG were to approve a change to OCC's margin methodology in the form
of a new margin add-on charge that was implemented following approval
by the Risk Committee and any necessary regulatory filing, MRWG would
review the backtesting assumptions and associated triggers to determine
whether that add-on charge should be included in the portfolio
composition assumption across OCC's backtesting variants, depending on
their respective purposes.
The Margin Policy would further provide that changes to the
triggers for backtesting assumption reviews must be approved by MRWG.
This is already true with respect to the CCA Monitoring Thresholds that
trigger backtesting assumption reviews, changes to which must be
approved by the MRWG and the STWG.\39\ In addition, MRWG approval would
be required to change any other thresholds MRWG believes would be
appropriate for triggering a review of backtesting assumptions. In the
case of other triggers for backtesting assumptions, OCC believes that
MRWG is the appropriate governing body to establish triggers that go
beyond those prescribed by regulation because as between MRWG and STWG,
MRWG is the internal governing body tasked with of its oversight of
model risk related to margin models.
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\39\ See supra note 37.
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Backtesting Reporting
As discussed above, the purpose of the proposed Model Backtesting
is to provide OCC decisionmakers with timely information about OCC's
margin coverage and potential opportunities to enhance OCC's credit
risk management or margin methodology, or to adjust model parameters.
Currently, the Margin Policy provides for monthly reviews to MRWG. In
addition, the Margin Policy directs QRM to identify and report problems
and overall performance to MRWG, which then in turn determines whether
to escalate the issue to the Management Committee. OCC proposes to
replace the current subsection that addresses reporting of backtesting
results with a new subsection that more clearly provides that OCC
maintains criteria for escalating backtesting results to relevant
decisionmakers.
Specifically, the new subsection would provide that FRM will
maintain escalation criteria for backtesting exceedances according to
which FRM will, if met, escalate exceedance information to the MRWG,
Management Committee, or Risk Committee, as applicable. Accordingly,
the procedures may provide for escalations to different governing
bodies depending on the nature of the exceedances or issues such
exceedances may evidence.\40\ The Margin Policy would provide that such
required escalation criteria would include, but are not limited to: (i)
thresholds related to the size and number of exceedances for Model
Backtesting of actual portfolios, (ii) thresholds related to
statistical tests
[[Page 61216]]
applicable to Model Backtesting of hypothetical portfolios; and (iii)
thresholds related to the size of an individual Clearing Member's
Resource Backtesting deficiency and the coverage rate across all
Clearing Members in the aggregate. For example, OCC anticipates that
such escalation criteria for Model Backtesting of actual portfolios
would include an exceedance that is equal to or larger than 50% of the
applicable Clearing Member's Clearing Fund contribution.\41\ With
respect to Model Backtesting of hypothetical portfolios, escalation
criteria would include criteria for escalation of results based on the
Kupiec Test and Christoffersen Tests (e.g., for the Kupiec Test, when
the coverage rate of instruments in a category of instruments falls
below 99% with statistical significance of 90% \42\).
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\40\ While the proposed change contemplates and allows for a
tiered escalation approach, OCC anticipates that the escalation
criteria it would initially implement would require escalation to
each of the MRWG, Management Committee and Risk Committee when the
criteria are met.
\41\ OCC does not intend this example to be a statement that
establishes or changes any standard, limit or guideline with respect
to the rights, obligations, or privileges of specified persons or
the meaning, administration, or enforcement of an existing rule.
\42\ OCC does not intend this example to be a statement that
establishes or changes any standard, limit or guideline with respect
to the rights, obligations, or privileges of specified persons or
the meaning, administration, or enforcement of an existing rule.
---------------------------------------------------------------------------
Outside of the escalation of backtesting exceedances that meet the
escalation criteria, the Margin Policy would continue to provide for a
review of all backtesting exceedances or deficiencies on an at-least
monthly basis. Specifically, the subsection on backtesting reporting
would provide that at least monthly, FRM will provide the MRWG a
detailed analysis of any Model Backtesting exceedances or Resource
Backtesting deficiencies, and a review of the backtesting assumptions.
In addition, the Margin Policy would provide that FRM will prepare a
review of assumptions for backtesting more frequently than monthly when
the CCA Monitoring Thresholds, as discussed above, are breached. In
addition to the CCA Monitoring Thresholds, the Margin Policy would
provide that the Backtesting Procedure may identify other triggers
that, if met, would require FRM to prepare and present to MRWG a review
of assumptions for backtesting, including, but not limited to,
implementation of rule changes to OCC's margin methodology that may
affect backtesting assumptions. Changes to the triggers for review of
backtesting assumptions must be approved by MRWG.
The Margin Policy would also provide that QRM conducts an annual
review of OCC's backtesting framework, including QRM's recommendations
regarding whether OCC should change any of the backtesting assumptions
and exceedance escalation criteria. With respect to the escalation
criteria, the Margin Policy would provide that changes to the
escalation criteria must be approved by the governing body to which the
escalation must be made. For example, changes to the criteria for
escalating exceedances to the Risk Committee must be approved by the
Risk Committee.\43\ With respect to any proposed changes to the
backtesting assumptions, the Margin Policy would provide that the MRWG
would evaluate the results of the annual review and escalate any
recommended changes to the backtesting framework, including any
recommended changes to the backtesting assumptions, to the Management
Committee for consideration. The Management Committee, in turn, would
report the results of the annual review to the Risk Committee,
including any changes it believes should be made to OCC's backtesting
assumptions, which the Risk Committee would be authorized to approve
for implementation. As part of this annual review process, MRWG, the
Management Committee and the Risk Committee would also be authorized to
approve changes to the escalation criteria applicable to each governing
body, as discussed above. OCC believes these changes would provide
greater clarity concerning the escalation of backtesting exceedances to
appropriate OCC decisionmakers.
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\43\ Because OCC anticipates that the initial escalation
criteria it would adopt under this proposal would require escalation
to each of the MRWG, Management Committee and Risk Committee, all
such escalation criteria will require Risk Committee approval to
change. See supra note 40. Should the MRWG or Management Committee
adopt more sensitive escalation criteria for themselves, any change
to the criteria for escalating to the Risk Committee would continue
to require Risk Committee approval while the escalation criteria for
the MRWG and Management Committee would be subject to approval by
the MRWG or Management Committee, respectively.
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(ii) Resource Backtesting
In addition to formalizing its Model Backtesting in the Margin
Policy, OCC proposes to enhance its backtesting framework by
establishing Resource Backtesting designed to evaluate whether OCC
maintains sufficient financial resources to cover its credit exposure
to the liquidation portfolio of each Clearing Member following the
default of that Clearing Member until the end of the liquidation
horizon with a high degree of confidence. OCC would conduct Resource
Backtesting using actual portfolios at the Clearing Member level.
Accordingly, while Model Backtesting is conducted at the account level
at which margin requirements are calculated under the STANS
methodology, Resource Backtesting would consider OCC's credit exposure
to a Clearing Member across that member's marginable accounts.
Backtesting at the Clearing Member level would not be as simple as
aggregating profit and loss (``P&L'') and margin resources across each
marginable account maintained by a Clearing Member because OCC's By-
Laws and Rules provide OCC with different types of liens over different
types of accounts. For example, a surplus in a securities customer
account, for which OCC maintains a restricted lien, may not be used to
offset a loss in the member's firm account.\44\ In contrast, a surplus
in the member's firm account, for which OCC maintains a general lien,
could be used to offset losses in any of the member's other
accounts.\45\ OCC would consider the liens on a particular account when
netting deficits and surpluses across account types to ensure that
surpluses in an account over which OCC maintains a restricted lien do
not offset losses in another account for purposes of assessing the
sufficiency of OCC's financial resources to cover the default of a
Clearing Member.
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\44\ See By-Law Art. VI Sec. 3(e).
\45\ See, e.g., OCC Rule 1104(e) (clarifying, for the avoidance
of doubt, that margin assets in a firm lien account may be applied
to cover losses in a segregated futures account).
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Resource Backtesting would also take into account the value of
other margin resources collected from a Clearing Member available to
address default losses, including non-CiM margin collateral and certain
margin add-ons. Conversely, OCC would exclude the Clearing Fund deposit
of the applicable Clearing Member as a prefunded financial resource of
that Clearing Member under Resource Backtesting.\46\
[[Page 61217]]
In addition, such margin resources would be limited to required
resources, and would therefore exclude any margin collateral held by
OCC in excess of a Clearing Member's required margin.\47\ As discussed
above, these details about the composition of the Resource Backtesting
portfolios would be backtesting assumptions that the Margin Policy
would require FRM to document in its procedures.
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\46\ OCC considered including, but ultimately determined not to
include a Clearing Member's Clearing Fund deposit as a financial
resource for that Clearing Member in Resource Backtesting. The
Clearing Fund deposit of a defaulting Clearing Member is a prefunded
financial resource that OCC would use to cover any loss prior to
charging other resources in the default waterfall, including OCC's
skin-in-the-game or the mutualized Clearing Fund deposits of non-
defaulting Clearing Members. See OCC Rule 1006(b). Each Clearing
Member's Clearing Fund deposit is comprised of a $500,000 minimum
deposit and a variable component that is currently allocated to each
Clearing Member based predominately on each Clearing Member's margin
requirement. See OCC Rule 1003. Based on 2023 historic data, each
Clearing Member would be above the 99% coverage target if the
Clearing Fund deposit of that Clearing Member was included as a
resource for Resource Backtesting. However, concerns were raised
about including such resources in Resource Backtesting because the
Clearing Fund, in the aggregate, is sized using stressed exposures.
Accordingly, OCC is proposing to limit Resource Backtesting to
margin resources.
\47\ Because a Clearing Member is entitled to withdraw excess
collateral, limiting Resource Backtesting to required resources
addresses concerns that a Clearing Member may withdraw any excess
collateral just prior to its default.
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In addition, while Model Backtesting assesses the performance of
OCC's margin models in calculating margin requirements by evaluating
P&L for a constant portfolio, Resource Backtesting would be designed to
determine whether the liquidating value of a Clearing Member's
portfolios was positive or negative at the end of OCC's liquidation
horizon. Accordingly, Resource Backtesting would take into account
observed intraday position changes from the time of the last good
margin collection until the assumed point of default.
OCC would assess Resource Backtesting with the expectation that
exceedances of financial resources would be no more than one percent in
the lookback period for each Clearing Member (i.e., 99% coverage). To
distinguish between Model Resource exceedances, OCC would use the term
``deficiency'' with respect to Resource Backtesting, which would result
when the prefunded financial resources collected from the Clearing
Member Organization (``CMO'') would have been insufficient to cover the
potential loss if the CMO had defaulted. That is, OCC would classify a
result as a Resource Backtesting deficiency when the liquidating value
of the CMO's portfolios is negative.
OCC would integrate Resource Backtesting into the Margin Policy's
discussion of the backtesting framework and backtesting reporting. The
purpose and scope of Resource Backtesting, as described above, would be
added to the backtesting framework subsection. In addition, the Margin
Policy would provide that FRM will maintain requirements with respect
to backtesting assumptions, monthly backtesting reviews, and escalation
criteria for Resource Backtesting deficiencies, and the same governance
relating to review and changes to assumptions and escalation criteria
for Model Backtesting would apply to Resource Backtesting. With respect
to escalation criteria for Resource Backtesting deficiencies, the
Margin Policy would provide that FRM will maintain written procedures
that establish criteria including, but not limited to, thresholds
related to the size of a Resource Backtesting deficiency and the
coverage rate across all Clearing Members in the aggregate. For
example, OCC anticipates establishing criteria under this rule to
escalate when the aggregate cover rate across all Clearing Members
(including any Resource Backtesting Margin Charges then in effect as a
resource) falls below 99%.\48\ As another example, OCC anticipates
establishing a threshold for any verified Resource Backtesting
deficiency that exceeds the lesser of (i) 50% of the Clearing Member's
individual Clearing Fund contribution, or, (ii) in the case of Clearing
Members whose Clearing Fund contributions are in excess of $200
million, $100 million.\49\
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\48\ OCC does not intend this example to be a statement that
establishes or changes any standard, limit or guideline with respect
to the rights, obligations, or privileges of specified persons or
the meaning, administration, or enforcement of an existing rule.
\49\ OCC does not intend this example to be a statement that
establishes or changes any standard, limit or guideline with respect
to the rights, obligations, or privileges of specified persons or
the meaning, administration, or enforcement of an existing rule.
---------------------------------------------------------------------------
(iii) Resource Backtesting Margin Charge
Based on OCC's analysis of Resource Backtesting results using the
proposed methodology described above, OCC has observed that the
Resource Backtesting for some Clearing Members falls below a 99%
coverage threshold \50\ (i.e., greater than two Resource Backtesting
deficiency days in a rolling 12-month period).\51\ Specifically, based
on 2023 historical data, approximately 25% of Clearing Members would
have fallen below the Resource Backtesting coverage target.\52\ The
size of the third-largest deficiencies ranged from a few hundred
dollars to an outlier of $35 million, with the majority below $100,000
and all but a few below $1 million. Collectively, the amounts represent
less than 0.1% on average of the aggregate margin OCC collects. In
order to ensure that OCC's margin resources, among other prefunded
financial resources,\53\ are sufficient to cover the 99% coverage
target, OCC proposes to establish a Resource Backtesting Margin Charge.
OCC notes that other covered clearing agencies under the SEC's
jurisdiction have, with SEC approval, established similar charges
designed to collect additional resources when a Clearing Member's
margin coverage falls below the agencies' coverage target.\54\
---------------------------------------------------------------------------
\50\ OCC has included 2023 results of the proposed Resource
Backtesting in confidential Exhibit 3A to File No. SR-OCC-2024-009.
\51\ Based on 250 observation days per year, each observed
Resource Backtesting deficiency reduces the coverage by 0.4%.
\52\ See supra note 50.
\53\ See supra note 46.
\54\ See Exchange Act Release No. 79167 (Oct. 26, 2016), 81 FR
75883, 75884 (Nov. 1, 2016) (SR-FICC-2016-006; SR-NSCC-2016-004).
---------------------------------------------------------------------------
The thresholds for applying a Resource Backtesting Margin Charge,
the method for calculating the charge, and the proposed rule changes
proposed to reflect this new charge are discussed below.
Thresholds for Applying the Resource Backtesting Margin Charge
The Resource Backtesting Margin Charge would only apply to those
Clearing Members whose 12-month trailing Resource Backtesting falls
below 99% coverage based on confirmed Resource Backtesting deficiencies
(i.e., three or more confirmed Resource Backtesting deficiencies over
the last 12 months). On an at-least monthly basis, OCC would review and
determine which Clearing Members may be subject to the Resource
Backtesting Margin Charge, or whose Resource Backtesting Margin Charge
amount is subject to change, based on each Clearing Member's trailing
12-month Resource Backtesting coverage. Resource Backtesting Margin
Charges would be applied on a daily basis for the applicable accounts
of the Clearing Member that contributed to the deficiencies. If in a
subsequent month an affected Clearing Member's trailing 12-month
backtesting coverage rises above 99%, the Resource Backtesting Margin
Charge would be removed.
In conducting this analysis for purposes of identifying Clearing
Members who should be subject to the Resource Backtesting Margin Charge
and for determining the amount of the third-largest Resource
Backtesting deficiency for purposes of calculating the charge, OCC
would not take into account Resource Backtesting Margin Charges already
in effect, but would take into account the number and size of
deficiencies subsequent to the Resource Backtesting Margin Charge
already applied. For example, if a Clearing Member subject to a
Resource Backtesting Margin Charge experienced subsequent Resource
Backtesting deficiencies that were smaller in size than a Resource
Backtesting Margin Charge currently in effect, such deficiencies would
continue to count towards the overall deficiency count, even if they
are covered by an existing Resource Backtesting Margin Charge. This
approach ensures that Clearing
[[Page 61218]]
Members will continue to be subject to a Resource Backtesting Margin
Charge while three or more deficiencies remain in the look-back period.
If, in that example, the third-largest deficiency driving the Resource
Backtesting Margin Charge fell out of the 12-month look-back period,
the Resource Backtesting Margin Charge would then be reduced to the
third largest of the remaining deficiencies, subject to OCC authority
to adjust the amount as discussed further below. In addition, if a
Clearing Member subject to the charge were to experience additional
Resource Backtesting deficiencies that were greater in magnitude than
the deficiency that had been driving the Resource Backtesting Margin
Charge, OCC would increase the Resource Backtesting Margin Charge as
necessary to achieve a 99% coverage target within the rolling 12-month
lookback based on the methodology for sizing the Resource Backtesting
Margin Charge discussed below.
Calculating the Resource Backtesting Margin Charge
The Resource Backtesting Margin Charge would generally be equal to
the third-largest Resource Backtesting deficiency in the rolling 12-
month lookback period rounded up to the nearest $1,000, subject to
adjustments as further described below. Setting the Resource
Backtesting Margin Charge to cover the third-largest deficiency would
bring the Clearing Member's margin coverage back in line with OCC's 99%
coverage target on a lookback basis. The Resource Backtesting Margin
Charge would generally be allocated proportionally to the Clearing
Member's accounts contributing to the third-largest Resource
Backtesting deficiency.
For Clearing Members with more than three deficiencies, however,
such additional financial resources as allocated based on the accounts
driving the third-largest deficiency may not necessarily cover Resource
Backtesting deficiencies that are lower in dollar amount, but with a
different allocation of accounts contributing to the remaining
deficiencies. For example, if a customer account contributed more to
the third-largest Resource Backtesting deficiency and the Clearing
Member's firm account (or another account) contributed more to any
lesser Resource Backtesting deficiency, then a charge allocated
proportionally to accounts based on the third-largest deficiency may
not cover the lesser Resource Backtesting deficiencies on a look-back
basis because funds allocated to a customer account cannot be used to
offset losses in any other account.\55\ In circumstances when applying
and allocating the Resource Backtesting Margin Charge based on the
third-largest deficiency would not bring the Clearing Member above
OCC's coverage target on a look-back basis, OCC would have authority to
increase the charge for a particular account in an amount necessary to
meet the coverage target pursuant to establish procedures, as discussed
below.
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\55\ In contrast, if the firm account, over which OCC maintains
a general lien, was the driver of the third-largest deficiency, the
charge allocated to the firm account can be used to cover a Resource
Backtesting deficiency with a proportionally greater shortfall
driven by any other account.
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Consistent with Commission-approved rules of other clearing
agencies,\56\ OCC would also retain discretion to adjust the Resource
Backtesting Margin Charge based on other circumstances (i.e., in
addition to account for differences in the accounts contributing to a
Clearing Member's Resource Backtesting deficiencies) that may impact
the likelihood or estimated size of potential future backtesting
deficiencies, consistent with achieving OCC's 99% Resource Backtesting
coverage target. Such other circumstances may include, but are not
limited to, differences in magnitude of the deficiencies observed over
the last 12-month period, variability in the Clearing Member's activity
since the observed deficiencies, cyclicality of observed deficiencies,
and/or market volatility. MRWG approval would be required to approve
such other adjustments.
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\56\ See Exchange Act Release No. 79167, supra note 54, 81 FR at
75884 (``Although the third largest historical backtesting
deficiency for a Member is used as the Backtesting Charge in most
cases, [NSCC and FICC] retain[ ] discretion to adjust the charge
amount based on other circumstances that may be relevant for
assessing whether an impacted Member is likely to experience future
backtesting deficiencies and the estimated size of such
deficiencies.'').
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Establishing the Resource Backtesting Margin Charge in OCC's Rules
To implement the Resource Backtesting Margin Charge, OCC proposes
to add OCC Rule 601(h) and amend the Margin Policy. Proposed Rule
601(h)(1) would provide that OCC may require a Clearing Member to
deposit additional margin assets to mitigate exposures to OCC that may
not otherwise be covered by the margin requirements calculated in
accordance with Rule 601 and OCC's policies and procedures. Rule
601(h)(1) would further provide that OCC may assess the charge as part
of the Clearing Member's daily margin requirement, as needed, to enable
OCC to achieve its Resource Backtesting coverage target. Specifically,
Rules 601(h)(1) would provide that the Resource Backtesting Margin
Charge may apply when a Clearing Member has a 12-month trailing
Resource Backtesting coverage below the 99 percent backtesting coverage
target.
With respect to calculation of the charge, Rule 601(h)(2) would
provide that the Resource Backtesting Margin Charge generally will be
equal to the third-largest Resource Backtesting deficiency during the
previous 12 months, rounded up to the nearest $1,000. Like the
Commission-approved rules of other clearing agencies,\57\ Rule
601(h)(2) would also provide that OCC may, in its discretion, adjust
such charge if OCC determines that circumstances particular to a
Clearing Member's clearance and settlement activity and/or market
volatility warrant a different approach to determining or applying such
charge in a manner consistent with achieving OCC's backtesting coverage
target. As discussed below, the governance concerning exercise of such
discretion and the factors that may inform it would be addressed in the
Margin Policy.
---------------------------------------------------------------------------
\57\ See supra note 54 and accompanying text.
---------------------------------------------------------------------------
Rule 601(h)(3) would provide that in calculating a Clearing
Member's Resource Backtesting coverage for purposes of the Resource
Backtesting Margin Charge and in calculating the third-largest Resource
Backtesting deficiency, OCC would not include amounts already collected
as a Resource Backtesting Margin Charge from that Clearing Member. As
discussed above, OCC would continue to count future Resource
Backtesting deficiencies for the purpose of determining whether a
Clearing Member should remain subject to the charge by reviewing
whether the Clearing Member would have had Resource Backtesting
deficiencies had no Resource Backtesting Margin Charge been in effect.
In addition, OCC would, as part of the at-least monthly review,
determine the third-largest Resource Backtesting deficiency for
purposes of increasing or decreasing a charge already in effect without
including the existing Resource Backtesting Margin Charge as a
resource. This provision mirrors the rules of other clearing agencies
filed with the Commission.\58\ However, OCC would, in accordance with
established procedures, test the sufficiency of the Resource
Backtesting Margin Charge against a Resource Backtesting variant that
includes that charge as a financial resource for
[[Page 61219]]
purposes of: (i) confirming that the charge, as allocated
proportionally to the accounts contributing to the third-largest
Resource Backtesting deficiency, would be sufficient to achieve the 99%
coverage target, and (ii) increasing the Resource Backtesting Margin
Charge for a particular account that may be contributing a
proportionally greater amount to other Resource Backtesting
deficiencies if the coverage target is not met.
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\58\ See Exchange Act Release No. 93678 (Nov. 30, 2021), 86 FR
69109, 69110 (Dec. 6, 2021) (SR-NSCC-2021-014).
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Rule 601(h)(4) would further provide a definition of ``Resource
Backtesting,'' which is not a term otherwise found in the By-Laws and
Rules. Specifically, Rule 601(h)(4) would provide that for purposes of
that Rule, ``Resource Backtesting'' means backtesting pursuant to OCC's
policies and procedures designed to evaluate whether OCC maintains
sufficient financial resources to cover its credit exposure to the
liquidation portfolio of each Clearing Member from the last margin
collection until the end of the liquidation horizon following the
Clearing Member's default with a high degree of confidence.
OCC would also amend the section of the Margin Policy that
addresses margin add-ons to reflect and reference the Resource
Backtesting Margin Charge provisions of proposed OCC Rule 601(h). The
Margin Policy would identify the governance processes related to the
at-least monthly review of Resource Backtesting deficiencies for
purposes of imposing or adjusting a Resource Backtesting Margin Charge.
Specifically, the Margin Policy would provide that FRM would review
Resource Backtesting results for the purposes of determining whether a
Clearing Member should be assessed a Resource Backtesting Margin Charge
and, if so, the amount to be charged. While the review and
determination would be conducted at-least monthly, a Resource
Backtesting Margin Charge could be applied on an intramonth basis based
on the daily backtesting results reviewed by FRM.
The Margin Policy would further provide for the governance with
respect to applying a Resource Backtesting Margin Charge. Specifically,
based on the at-least monthly review of the Resource Backtesting
deficiencies, an FRM Officer \59\ would be authorized to approve \60\ a
Resource Backtesting Margin Charge equal to the third-largest Resource
Backtesting deficiency rounded up to the nearest $1,000, excluding any
Resource Backtesting Margin Charge currently in effect. The Margin
Policy would further provide that the Resource Backtesting Margin
Charge generally would be allocated proportionally to the Clearing
Member's accounts contribution to the third-largest Resource
Backtesting deficiency.
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\59\ Officers are identified in OCC's By-Laws. See OCC By-Law
Art. IV. In this context, an FRM Officer would include any member of
FRM appointed by the Chief Executive Officer or Chief Operating
Officer, including a Managing Director, Executive Director or
Executive Principal. Id. Sec. 9.
\60\ This type of FRM Officer approval is designed as a control
to avoid imposing a charge based on erroneous information.
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To account for the circumstances when a charge allocated based on
the third-largest Resource Backtesting deficiency may be insufficient
to increase a Clearing Member's Resource Backtesting to OCC's 99%
coverage target due to differences in the accounts contributing to
Resource Backtesting deficiencies, the Margin Policy would identify
such circumstances as one in which OCC may adjust the Resource
Backtesting Margin Charge, consistent with proposed Rule 601(h)(2). In
addition, the Margin Policy would provide that an FRM Officer would be
authorized, in accordance with established procedures, to approve an
additional amount for a particular account necessary to achieve OCC's
99% coverage target at the Clearing Member level. These established
procedures would utilize a Resource Backtesting variant that includes
the Resource Backtesting Margin Charge as a financial resource to test
whether, after applying the charge, the coverage for that Clearing
Member would be above OCC's 99% coverage target on a look-back basis.
If not, FRM would increase the charge for the accounts contributing to
the third largest of the remaining Resource Backtesting deficiencies
until the 99% coverage target has been achieved. The FRM Officer's
authority to approve an adjustment to the Resource Backtesting Margin
Charge would be limited to such increases. Any other adjustments,
including any reduction other than a reduction due to a change in the
third-largest Resource Backtesting deficiency in the rolling 12-month
lookback period, would require MRWG approval.
The Margin Policy would further provide that other adjustments to
the Resource Backtesting Margin Charge may be made with approval of the
MRWG. As provided in proposed Rule 601(h)(2), such adjustments must be
consistent with achieving OCC's Resource Backtesting coverage target.
The Margin Policy would provide that circumstances in which MRWG may
approve such other adjustments include, but are not limited to,
differences in magnitude of the deficiencies observed over the last 12-
month period, variability in the Clearing Member's activity since the
observed deficiencies, cyclicality of observed deficiencies and/or
market volatility.\61\
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\61\ These circumstances are consistent with those identified by
the Commission in approving authority of other clearing agencies to
adjust similar backtesting margin charges. See Exchange Act Release
No. 79167, supra note 54, 81 FR at 75884 (``Examples of relevant
circumstances that would be considered in calculating the final,
applicable Backtesting charge amount include material differences in
the three largest backtesting deficiencies observed over the prior
12-month period, variability in the net settlement activity after
the collection of the Member's Required Deposit, seasonality in
observed backtesting deficiencies and observed market price
volatility in excess of the member's historical VaR charge.'').
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The Margin Policy would further provide that to the extent OCC
implements changes to its margin methodology that affect Clearing
Members' margin requirements, OCC would reevaluate Resource Backtesting
coverage within the 12-month lookback period based on the margin
resources it would have collected under the revised methodology to
determine whether a Resource Backtesting Margin Charge for a particular
Clearing Member is warranted and, if so, in what amount. For example,
if OCC were to begin requiring the collection of additional margin
resources through another add-on charge designed to capture some aspect
of market risk not adequately captured under OCC's current models
(other than the Resource Backtesting Margin Charge itself), the
additional resources that OCC would have collected through that add-on
may, if charged at the time, have covered observed Resource Backtesting
deficiencies within the look-back period, either in whole or in part.
In such circumstances, OCC would re-calculate the Resource Backtesting
Margin Charge based on the deficiencies that would have remained had
the additional resources been collected at the time of the
deficiencies. As such, OCC believes the Margin Policy would be designed
to avoid double-margining Clearing Members when OCC begins collecting
additional margin resources following changes to its margin methodology
implemented within the 12-month lookback period.
(iv) Conforming Changes
In connection with the consolidation of OCC's current Business
Backtesting and Model Backtesting, as well as the addition of Resource
Backtesting, OCC proposes to consolidate its internal procedures for
all backtesting into a
[[Page 61220]]
Backtesting Procedure and associated technical document.\62\
Accordingly, OCC would amend its Margin Policy and Model Risk
Management Policy to refer to the new Backtesting Procedure, rather
than the current Business Backtesting Procedure and Model Backtesting
Procedure. In addition, OCC would update the description of ongoing
model performance monitoring in the STANS Methodology Description to
reflect OCC's Model Backtesting as provided in the Margin Policy and
supporting procedure and technical document. OCC would also insert
headings into the section of the Margin Policy that addresses add-on
charges, including the proposed Resource Backtesting Margin Charge, to
separate the discussion of add-on charges for which the Margin Policy
already provides specific treatment, such as the add-on to address
specific wrong-way risk (``SWWR''), (i.e., the risk that the value of a
Clearing Member's positions is positively correlated with the
creditworthiness of the Clearing Member).\63\
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\62\ OCC has included anticipated drafts of these document in
confidential Exhibit 3B and 3C to File No. SR-OCC-2024-009,
respectively. OCC has also included in confidential Exhibit 3D to
File No. SR-OCC-2024-009 a numerical example of how Resource
Backtesting results are calculated using data for certain Clearing
Members from an actual activity date.
\63\ See Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR
68992 (Dec. 17, 2019) (SR-OCC-2019-010) (approving OCC's SWWR Add-
On).
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Implementation Timeframe
OCC will implement the proposed changes within sixty (60) days
after the date that OCC receives all necessary regulatory approvals for
the proposed changes. OCC will announce the implementation date of the
proposed change by an Information Memorandum posted to its public
website at least two (2 weeks prior to implementing the Resource
Backtesting Margin Charge.
(2) Statutory Basis
OCC believes the proposed changes are consistent with Section 17A
of the Exchange Act \64\ and the rules and regulations thereunder
applicable to OCC. Section 17A(b)(3)(F) of the Act \65\ requires, in
part, that the rules of a clearing agency be designed to promote the
prompt and accurate clearance and settlement of securities
transactions, and in general, to protect investors and the public
interest. If a Clearing Member defaults on its obligations to OCC, OCC
would use the margin collateral deposited by that Clearing Member,
among other prefunded financial resources from that Clearing Member, to
mitigate OCC's credit exposure. If OCC's margin models calculated
margin requirements insufficient to address default losses, then OCC
may need to utilize the mutualized funds deposited in OCC's Clearing
Fund.\66\ The proposed changes are intended to enhance OCC's process
for monitoring its margin coverage and the performance of its margin
models, which would help OCC maintain sufficient financial resources to
mitigate its credit exposure. To the extent that OCC identifies
Resource Backtesting deficiencies that bring a Clearing Member's margin
coverage below the target coverage level, the proposed Resource
Backtesting Margin Charge would require the impacted Clearing Member to
deposit additional margin resources to absorb a potential loss that
OCC's margin system may not otherwise capture. Collecting sufficient
margin resources to cover potential losses would help to ensure that
OCC may manage the default of a Clearing Member without disruption to
its clearance and settlement services and avoid loss mutualization that
could impose unanticipated costs on other Clearing Members and their
customers. Accordingly, OCC believes the proposed changes are
reasonably designed to promote the prompt and accurate clearance and
settlement of securities transactions, and in general, to protect
investors and the public interest, in accordance with Section
17A(b)(3)(F) of the Act.\67\
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\64\ See 15 U.S.C. 78q-1.
\65\ 15 U.S.C. 78q-1(b)(3)(F).
\66\ Prior to charging the Clearing Fund deposits of non-
defaulting Clearing Members, OCC would first contribute OCC's
Minimum Corporate Contribution and its liquid net assets funded by
equity in excess of 110% of OCC's Target Capital Requirement. See
Exchange Act Release No. 92038 (May 27, 2021), 86 FR 29861 (June 3,
2021), 29862 n.15 and accompanying text (SR-OCC-2021-003).
\67\ 15 U.S.C. 78q-1(b)(3)(F).
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OCC also believes the proposed changes described above are
consistent with SEC Rules under the Act for the following reasons.
(i) Backtesting Framework
Paragraph (vi) of Rule 17Ad-22(e)(6) \68\ requires OCC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, is monitored by OCC's management on an ongoing basis and is
regularly reviewed, tested, and verified by, in relevant part: (A)
conducting backtests of its margin model at least once each day using
standard predetermined parameters and assumptions; (B) conducting a
review of its assumptions for backtesting on at least a monthly basis,
and considering modifications to ensure the backtesting practices are
appropriate for determining the adequacy of OCC's margin resources; (C)
conducting a review of its assumptions for backtesting more frequently
than monthly during periods of time when the products cleared or
markets served display high volatility or become less liquid, or when
the size or concentration of positions held by OCC's participants
increases or decreases significantly; and (D) reporting the results of
these analyses to appropriate OCC decisionmakers, including but not
limited to, its Risk Committee or Board of Directors, and using these
results to evaluate the adequacy of its margin methodology, model
parameters, and any other relevant aspect of its credit risk management
framework. As explained by the Commission, such backtesting ``is a
technique used to compare the potential losses forecasted by a model
with the actual losses that participants incurred'' that is ``intended
to reveal the accuracy of models.'' \69\ Accordingly, the Commission
promulgated Rule 17Ad-22(e)(6) \70\ to require covered clearing
agencies to establish and maintain ``policies and procedures that
provide for backtesting the margin models . . . to help uncover and
address possible errors in model design, misapplication of models, or
errors in the inputs to, and assumptions underlying, margin models.''
\71\
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\68\ 17 CFR 240.17Ad-22(e)(6)(vi).
\69\ Exchange Act Release No. 71699 (Mar. 12, 2014), 79 FR
29508, 29530 (May 22, 2014) (File No. S7-03-14).
\70\ 17 CFR 240.17Ad-22(e)(6).
\71\ Exchange Act Release No. 71699, supra note 69, 79 FR at
29530.
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The proposed Margin Policy would describe how OCC conducts
backtesting of its margin models at least once each day, as required by
Rule 17Ad-22(e)(6)(vi)(A).\72\ OCC believes that the proposed Model
Backtesting is reasonably designed to assess the performance of OCC's
margin models in order to provide decisionmakers with information about
potential issues with or enhancements to those models. The proposed
enhancements would provide greater clarity and transparency about how
OCC establishes, reviews and adjusts the assumptions for backtesting,
including the role of the MRWG, Management Committee and Risk Committee
in approving changes thereto, as contemplated by paragraphs (B) and (C)
of Rule 17Ad-22(e)(6)(vi).\73\
[[Page 61221]]
Such reviews would occur on at least a monthly basis, but would occur
more frequently when the CCA Monitoring Thresholds are breached,
consistent with paragraph (C) of Rule 17Ad-22(e)(6)(vi).\74\ In
addition, the enhancements would also provide greater clarity about the
escalation of backtesting exceedances to appropriate OCC
decisionmakers, including that OCC maintains thresholds for such
escalations that are periodically reviewed and approved by the
governing body to which the escalation must be made, including to OCC's
Risk Committee, consistent with Rule 17Ad-22(e)(6)(vi)(D).\75\
Accordingly, OCC believes its proposed backtesting framework is
reasonably designed in a manner consistent with Rule 17Ad-
22(e)(6)(vi).\76\
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\72\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
\73\ 17 CFR 240.17Ad-22(e)(6)(vi)(B), (C).
\74\ 17 CFR 240.17Ad-22(e)(6)(vi)(C).
\75\ 17 CFR 240.17Ad-22(e)(6)(vi)(D).
\76\ 17 CFR 240.17Ad-22(e)(6)(vi).
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(ii) Resource Backtesting
OCC believes that the proposed expansion of backtesting to include
Resource Backtesting is consistent with Rule 17Ad-22(e)(4)(i),\77\
which requires OCC to maintain sufficient financial resources to cover
its credit exposure to each participant fully with a high degree of
confidence. OCC proposes to expand its backtesting analyses to include
Resource Backtesting in order to ensure that OCC maintains sufficient
margin resources collected from a Clearing Member, among other
prefunded financial resources, to cover its credit exposures to that
Clearing Member fully with a high degree of confidence. Such Resource
Backtesting would take into account other resources collected from a
Clearing Member, including non-CiM resources that are subject to fixed
collateral haircuts rather than valued through OCC's margin models. In
addition, Resource Backtesting would be done at the Clearing Member
level, taking into consideration netting rules based on the types of
liens OCC has on specific margin accounts. Accordingly, OCC believes
that such Resource Backtesting is designed to assess the sufficiency of
the margin resources collected from each Clearing Member, among other
prefunded resources, available to cover the default of that Clearing
Member at the Clearing Member level, consistent with Rule 17Ad-
22(e)(4)(i).\78\
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\77\ 17 CFR 240.17Ad-22(e)(4)(i).
\78\ Id.
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(iii) Resource Backtesting Margin Charge
OCC believes the proposed Resource Backtesting Margin Charge and
the changes to OCC's Rules and Margin Policy to effect it would be
consistent with Rule 17Ad-22(e)(6)(iii), which requires OCC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by, at a minimum, establishing a risk-based margin system
that calculates margin sufficient to cover its potential future
exposure to participants in the interval between the last margin
collection and the close out of positions following a participant
default.\79\ Rule 17Ad-22(a)(13), in turn, defines ``potential future
exposure'' to mean the maximum exposure estimated to occur at a future
point in time with an established single-tailed confidence level of at
least 99% with respect to the estimated distribution of future
exposures.\80\ The Resource Backtesting Margin Charge is designed to
require additional margin resources when OCC identifies Resource
Backtesting deficiencies that bring a Clearing Member's margin coverage
below 99%. The Resource Backtesting Margin Charge applied generally
would be equal to the third-largest Resource Backtesting deficiency
during the lookback period in order to achieve OCC's Resource
Backtesting coverage target, rounded up to the nearest $1,000. OCC
would also retain discretion to adjust the Resource Backtesting Margin
Charge based on facts and circumstances that would lead it to conclude
that a different amount was appropriate and consistent with achieving
its 99% coverage target. Accordingly, OCC believes that the Resource
Backtesting Margin Charge is consistent with Rule 17Ad-
22(e)(6)(iii).\81\
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\79\ 17 CFR 240.17Ad-22(e)(6)(iii).
\80\ 17 CFR 240.17ad-22(a) ``Potential future exposure''.
\81\ 17 CFR 240.17Ad-22(e)(6)(iii).
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(iv) Conforming Changes
OCC also believes that the proposed changes are consistent with SEC
Rule 17Ad-22(e)(2),\82\ which provides in relevant part that OCC must
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.\83\ OCC would make conforming changes to the Margin
Policy and Model Risk Management Policy that would reflect the
consolidated backtesting procedures governed by those policies, thereby
ensuring that cross-references in those rule-filed policies remain
accurate. In addition, OCC believes the proposed rule change would
provide greater clarity about OCC's backtesting framework, including
OCC's governance arrangements for reviewing backtesting assumptions and
escalating backtesting exceedances to appropriate decisionmakers within
OCC. While OCC's current rule-filed policies provide for escalation of
exceedances ``as necessary,'' for example, the proposed changes would
provide greater clarity about governance processes currently maintained
in OCC's internal procedures by providing that OCC will maintain
thresholds for escalation that FRM will adhere to if the criteria are
met. As discussed above, the Margin Policy would provide that such
escalation criteria would include, but not be limited to: (i)
thresholds related to the size and number of exceedances for Model
Backtesting of actual portfolios, (ii) thresholds related to
statistical tests applicable to Model Backtesting of hypothetical
portfolios, and (iii) thresholds related to the size of Resource
Backtesting deficiency and the coverage rate across all Clearing
Members in the aggregate. The changes would also provide greater
clarity about the lines of responsibility with respect to the MRWG's,
Management Committee's and Risk Committee's roles in approving changes
to the backtesting assumptions and escalation criteria. Accordingly,
OCC believes the proposed changes are consistent with SEC Rule 17Ad-
22(e)(2).\84\
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\82\ 17 CFR 240.17Ad-22(e)(2).
\83\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
\84\ 17 CFR 240.17Ad-22(e)(2).
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For the above reasons, OCC believes that this proposed rule change
is consistent with Section 17A of the Exchange Act \85\ and the rules
and regulations thereunder applicable to OCC.
---------------------------------------------------------------------------
\85\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Exchange Act \86\ 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.
With respect to the proposed changes to OCC's backtesting framework and
the addition of Resource Backtesting, OCC does not believe that the
proposed rule change would impact or impose any burden on competition.
The proposed changes would provide greater clarity concerning OCC's
backtesting framework, including how OCC monitors the performance of
[[Page 61222]]
margin models used to calculate margin requirements for each Clearing
Member account and how OCC monitors the sufficiency of the margin
collateral it collects to cover losses that may arise from the default
of a Clearing Member. OCC does not believe that these changes would
unfairly inhibit access to OCC's services or disadvantage or favor any
particular user in relationship to another user.
---------------------------------------------------------------------------
\86\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
With respect to the proposed Resource Backtesting Margin Charge,
whether a particular Clearing Member would be charged and the amount it
would be charged would depend on the Clearing Member's activity and the
performance of OCC's margin models. OCC has designed the Resource
Backtesting Margin Charge to ensure its compliance with regulations
that require OCC to calculate margin resources sufficient to cover each
Clearing Member's maximum exposure estimated to occur at a future point
in time with an established single-tailed confidence level of at least
99 percent with respect to the estimated distribution of future
exposure in the interval between the last margin collection and the
close out of positions following a participant default.\87\ To the
extent a Clearing Member's margin coverage falls below OCC's coverage
target, a Resource Backtesting Margin Charge would be applied.
Accordingly, OCC believes that the proposed rule change would not
impose any burden on competition not necessary or appropriate in
furtherance of the Act.
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\87\ See supra notes 79-81 and accompanying text.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the proposed change and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9ceee9f0f9b1fff3f1f1f9f2e8efdceff9ffb2fbf3ea"><span class="__cf_email__" data-cfemail="4b393e272e66282426262e253f380b382e28652c243d">[email protected]</span></a>. Please include
file number SR-OCC-2024-009 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-2024-009. 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</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-2024-009 and
should be submitted on or before August 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\88\
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\88\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16661 Filed 7-29-24; 8:45 am]
BILLING CODE 8011-01-P
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