Notice2025-05962
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Options Clearing Corporation Concerning a Change in the Maximum Contingent Operational Loss Fee Listed in OCC's Schedule of Fees in Accordance With OCC's Capital Management Policy
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Published
April 8, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 66 (Tuesday, April 8, 2025)</title>
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[Federal Register Volume 90, Number 66 (Tuesday, April 8, 2025)]
[Notices]
[Pages 15175-15178]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-05962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102758; File No. SR-OCC-2025-004]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change by
The Options Clearing Corporation Concerning a Change in the Maximum
Contingent Operational Loss Fee Listed in OCC's Schedule of Fees in
Accordance With OCC's Capital Management Policy
April 2, 2025.
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 March 27, 2025, 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. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)
\3\ of the Act and paragraph (f)(2) or Rule 19b-4 \4\ thereunder, such
that the proposed rule change was immediately effective upon filing
with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would implement a change in the maximum
contingent Operational Loss Fee listed in OCC's schedule of fees in
accordance with OCC's Capital Management Policy. Proposed changes to
OCC's schedule of fees are included as Exhibit 5 to File Number SR-OCC-
2025-004. Material proposed to be added to OCC's schedule of fees as
currently in effect is underlined and material proposed to be deleted
is marked in strikethrough text. All capitalized terms not defined
herein have the same meaning as set forth in the OCC By-Laws and
Rules.\5\ Clearing Agency's Statement of the Purpose of, and Statutory
Basis for, the Proposed Rule Change
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\5\ 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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In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
The purpose of this proposed rule change is to revise OCC's
schedule of fees to update the maximum aggregate Operational Loss Fee
that OCC would charge Clearing Members in equal shares in the unlikely
event that OCC's Liquid Net Assets Funded by Equity (``LNAFBE'') \6\
falls below certain thresholds defined in OCC's Capital Management
Policy.
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\6\ While the relevant rules under the Exchange Act do not
define the term, the Commission-approved Capital Management Policy
defines LNFABE as the level of cash and cash equivalents, no greater
than shareholders' equity, less any approved adjustments. These
approved adjustments exclude cash that would not be available to
cover general business expenses, including (1) cash collected by OCC
in an agency-related capacity, including the Section 31 fees that
OCC collects monthly and transmits to the Commission bi-annually on
behalf of the options exchanges, and (2) OCC's Minimum Corporate
Contribution, which is the minimum level of OCC funds maintained
exclusively to cover credit losses or liquidity shortfalls arising
from a Clearing Member default, often referred to as ``skin-in-the-
game.'' See Exchange Act Release Nos. 92038 (May 27, 2021), 86 FR
29861, 29862 (June 3, 2021) (SR-OCC-2021-003); 88029 (Jan. 24,
2020), 85 FR 5500 (Jan. 30, 2020) (SR-OCC-2019-007) (``Order
Approving OCC's Capital Management Policy'').
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The proposed fee change is designed to enable OCC to replenish
capital to comply with Rule 17Ad-22(e)(15) under the Exchange Act,
which requires OCC, in pertinent part, to ``hold[ ] [LNAFBE] to the
greater of either (x) six months . . . current operating expenses, or
(y) the amount determined by the board of directors to be sufficient to
ensure a recovery or orderly wind-down of critical operations and
service'' \7\ and ``[m]aintain[ ] a viable plan, approved by the board
of directors and updated at least annually, for raising additional
equity should its equity fall close to or below the amount required.''
\8\ The proposed rule change would implement a change in the maximum
contingent Operational Loss Fee listed in OCC's schedule of fees in
accordance with OCC's Capital Management Policy.
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\7\ See 17 CFR 240.17Ad-22(e)(15)(ii).
\8\ See 17 CFR 240.17Ad-22(e)(15)(iii).
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OCC's Capital Management Policy includes OCC's replenishment plan.
Pursuant to the Capital Management Policy, OCC would charge an
Operational Loss Fee in equal shares to Clearing Members to raise
additional capital should OCC's LNAFBE fall below certain defined
thresholds relative to OCC's Target Capital Requirement (i.e., a
``Trigger Event''), after first applying the unvested balance held in
respect of OCC's Executive Deferred Compensation Program.\9\
Specifically, a Trigger Event is when LNAFBE: (i) remains below the
Target Capital Requirement for 90 consecutive calendar days; or (ii)
falls below 90% of the Target Capital Requirement. Based on the Board-
approved Target Capital Requirement for 2025 of $286 million, a Trigger
Event would occur if OCC's LNAFBE falls below $257.4 million at any
time or below $286 million for a period of 90 consecutive calendar
days.
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\9\ See Exchange Act Release No. 101151 (Sept. 24, 2024), 89 FR
79668, 79669 (Sept. 30, 2024) (SR-OCC-2024-012) (amending OCC's
replenishment plant to measure the Trigger Event against OCC's
LNAFBE, rather than shareholders' equity).
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[[Page 15176]]
In the unlikely event those thresholds are breached, OCC would
charge an Operational Loss Fee in an amount to raise LNAFBE to 110% of
OCC's Target Capital Requirement, up to the maximum Operational Loss
Fee identified in OCC's schedule of fees less the amount of any
Operational Loss Fees previously charged and not refunded.\10\ OCC
calculates the maximum aggregate Operational Loss Fee based on the
amount determined by the Board to be sufficient for a recovery or
orderly wind-down of critical operations and services (``RWD
Amount''),\11\ which is determined based on the assumptions in OCC's
Recovery and Orderly Wind-Down Plan (``RWD Plan'').\12\ In order to
account for OCC's tax liability for retaining the Operational Loss Fee
as earnings, OCC may apply a tax gross-up to the RWD Amount (``Adjusted
RWD Amount'') depending on whether the operational loss that caused
OCC's LNAFBE to fall below the Trigger Event thresholds is tax
deductible.\13\
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\10\ See Order Approving OCC's Capital Management Policy, 85 FR
at 5503.
\11\ Id.
\12\ The RWD Plan states OCC's basic assumptions concerning the
resolution process, including assumptions about the duration of the
resolution process, the cost of the resolution process, OCC's
capitalization through the resolution process, the maintenance of
Critical Services and Critical Support Functions, as defined by the
RWD Plan, and the retention of personnel and contractual
relationships. See Exchange Act Release No. 83918 (Aug. 23, 2018),
83 FR 44091, 44094, 44096 (Aug. 29, 2018) (File No. SR-OCC-2017-
021).
\13\ See Order Approving OCC's Capital Management Policy, 85 FR
at 5503.
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The RWD Amount and, in turn, the Adjusted RWD Amount are determined
annually based on OCC's corporate budget, the assumptions articulated
in the RWD Plan, and OCC's projected effective tax rate.\14\ The
current Operational Loss Fee listed in OCC's schedule of fees is the
Adjusted RWD Amount calculated based on OCC's 2024 corporate budget.
Budgeted operating expenses in 2025 are higher than the 2024 budgeted
operating expenses. This proposed rule change would revise the maximum
Operational Loss Fee to reflect the Adjusted RWD Amount based on OCC's
2025 budget,\15\ as follows:
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\14\ See Order Approving OCC's Capital Management Policy, 85 FR
at 5501 n.20, 5503.
\15\ Confidential data and analysis evidencing the calculation
of the Adjusted RWD Amount based on OCC's 2025 corporate budget is
included in Exhibit 3 to File Number SR-OCC-2025-004.
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Current fee schedule Proposed fee schedule
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$182,000,000.00 less the aggregate $211,000,000.00 less the
amount of Operational Loss Fees aggregate amount of
previously charged and not refunded as Operational Loss Fees
of the date calculated, divided by the previously charged and not
number of Clearing Members at the time refunded as of the date
charged. calculated, divided by the
number of Clearing Members at
the time charged.
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Since the allocation of the Operational Loss Fee is a function of
the number of Clearing Members at the time of the charge, the maximum
Operational Loss Fee per Clearing Member is subject to fluctuation
during the course of the year. However, if the proposed Operational
Loss Fee were charged to 101 Clearing Members, the number of Clearing
Members as of December 31, 2024, for example, the maximum Operational
Loss Fee per Clearing Member would be approximately $2.09 million.
OCC would also update the schedule of fees to reflect the levels of
LNAFBE at which OCC would charge the Operational Loss Fee according to
the thresholds defined in the Capital Management Policy, as well as the
level of LNAFBE at which OCC would limit the Operational Loss Fee
charged, based on OCC's current Target Capital Requirement.\16\
Consistent with OCC's approach to its persistent minimum skin-in-the-
game, the threshold in the schedule of fees continues to reflect that
consistent with OCC's Capital Management Policy, the Trigger Event
threshold is measured against LNAFBE.
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\16\ OCC does not propose any change to the thresholds and
limits defined in the Capital Management Policy. This proposed
change merely conforms the disclosure in OCC's schedule of fees to
the current amounts based on the Board-approved Target Capital
Requirement of $286 million.
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OCC proposes the fee change to be effective immediately upon
filing, because the Board approved the Adjusted RWD Amount upon which
the Operational Loss Fee is based for 2025. Notwithstanding the
immediate effectiveness, OCC would not make the fee change operative
until after the time required to self-certify the proposed change with
the Commodity Futures Trading Commission (``CFTC'').
(2) Statutory Basis
OCC believes the proposed rule change is consistent with the Act
\17\ and the rules and regulations thereunder. In particular, OCC
believes that the proposed fee change is also consistent with Section
17A(b)(3)(D) of the Act,\18\ which requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants. OCC believes that
the proposed fee change is reasonable because it is designed to
replenish OCC's LNAFBE as a component of OCC's plan to replenish its
capital in the event that OCC's LNAFBE falls close to or below its
Target Capital Requirement so that OCC can continue to meet its
obligations as a systemically important financial market utility
(``SIFMU'') to Clearing Members and the general public should
operational losses materialize (including through a recovery or orderly
wind-down of critical operations and services) and thereby facilitate
compliance with Rule 17Ad-22(e)(15)(iii).\19\ The maximum Operational
Loss Fee is sized to ensure that OCC maintains sufficient liquid net
assets to support its RWD Plan and imposes a contingent obligation on
Clearing Members that is similar to a Clearing Member's contingent
obligation for Clearing Fund assessments for a Clearing Member
operating at the minimum Clearing Fund deposit.\20\ OCC thus believes
the proposed maximum Operational Loss Fee sized to OCC's Adjusted RWD
Amount is reasonable.
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\17\ 15 U.S.C. 78a et seq.
\18\ 15 U.S.C. 78q-1(b)(3)(D).
\19\ 17 CFR 240.17Ad-22(e)(15)(iii).
\20\ A Clearing Member operating at the minimum Clearing Fund
deposit ($500,000) could be assessed up to an additional $1 million
(the minimum deposit, assessed up to two times), for a total
contingent obligation of $1.5 million. See OCC Rule 1006(h).
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OCC also believes that the proposed Operational Loss Fee would
result in an equitable allocation of fees among its participants
because it would be equally applicable to all Clearing Members. As the
Commission has recognized, OCC's designation as a SIFMU and its role as
the sole covered clearing agency for all listed options contracts in
the U.S. makes it an integral part of the national system for clearance
and settlement, through which ``Clearing Members, their customers,
investors, and the markets as a whole derive significant benefit . . .
regardless of their specific utilization of that system.'' \21\ Neither
the SEC nor OCC is aware of a positive correlation
[[Page 15177]]
between measures of Clearing Member utilization and OCC's benefit to
Clearing Members \22\ or its risk of operational loss.\23\ As a result,
OCC believes that the proposed change to OCC's fee schedule provides
for the equitable allocation of reasonable fees in accordance with
Section 17A(b)(3)(D) of the Act.\24\
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\21\ See Order Approving OCC's Capital Management Policy, 85 FR
at 5506.
\22\ Id. (``The Commission is not aware of evidence
demonstrating that those benefits are tied directly or positively
correlated to an individual Clearing Member's rate of utilization of
OCC's clearance and settlement services.'')
\23\ Id. (rejecting an objection to the equal allocation of the
proposed Operational Loss Fee based on the SEC's regulatory
experience and OCC's analyses of Clearing Member utilization (e.g.,
contract volume) or credit risk (e.g., Clearing Fund size) and the
various operational and general business risks that could trigger an
Operational Loss Fee). To date, OCC has observed no correlation
between Clearing Member utilization or credit risk and OCC's
potential risk of operational loss. See Confidential Exhibit 3
[sic], demonstrating that operational risks may arise from a variety
of sources that are represented in different ways.
\24\ 15 U.S.C. 78q-1(b)(3)(D).
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In addition, OCC believes that the proposed rule change is
consistent with Rule 17Ad-22(e)(15)(iii), which requires that OCC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to identify, monitor, and manage OCC's
general business risk, including by maintaining a viable plan, approved
by the Board and updated at least annually, for raising additional
equity should its equity fall close to or below the amount required
under Rule 17Ad-22(e)(15)(ii).\25\ While Rule 17Ad-22(e)(15)(iii) does
not by its terms specify the amount of additional equity a clearing
agency's plan for replenishment capital must be designed to raise, the
Commission's adopting release states that ``a viable plan generally
should enable the covered clearing agency to hold sufficient liquid net
assets to achieve recovery or orderly wind-down.'' \26\ OCC sets the
maximum Operational Loss Fee at an amount sufficient to raise, on a
post-tax basis, the amount determined annually by the Board to be
sufficient to ensure recovery or orderly wind-down pursuant to the RWD
Plan.\27\ Therefore, OCC believes the proposed change to the
Operational Loss Fee in OCC's schedule of fees is consistent with Rule
17Ad-22(e)(15)(iii) and the guidance provided by the SEC in the
adopting release.
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\25\ 17 CFR 240.17Ad-22(e)(15)(iii).
\26\ Standards for Covered Clearing Agencies, Exchange Act
Release No. 78961 (Sept. 28, 2016), 81 FR 70786, 70836 (Oct. 13,
2016) (File No. S7-03-14).
\27\ See Order Approving OCC's Capital Management Policy, 85 FR
at 5510 (``The Operational Loss Fee would be sized to the Adjusted
RWD Amount, and therefore would be designed to provide OCC with at
least enough capital either to continue as a going concern or to
wind-down in an orderly fashion.'').
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OCC also believes that the proposed fee change is consistent with
Section 19(g)(1) of the Act,\28\ which, among other things, requires
every self-regulatory organization to comply with its own rules. OCC
filed its Capital Management Policy as a ``proposed rule change''
within the meaning of Section 19(b) of the Act,\29\ and Rule 19b-4
under the Act.\30\ The Capital Management Policy specifies that the
maximum Operational Loss Fee shall be the Adjusted RWD Amount.\31\
Because the Adjusted RWD Amount will change annually based, in part, on
OCC's corporate budget, fee filings are necessary to ensure that the
maximum Operational Loss Fee in OCC's schedule of fees remains
consistent with the amount identified in the Capital Management Policy.
In addition, the amounts associated with the thresholds at which OCC
would charge the Operational Loss Fee and the limit to the amount that
would change in accordance with the Capital Management Policy are
determined based upon the level at which the Board sets OCC's Target
Capital Requirement. Consequently, OCC seeks to amend the amounts
identified in the schedule of fees to reflect OCC's current Target
Capital Requirement.
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\28\ 15 U.S.C. 78s(g)(1).
\29\ 15 U.S.C. 78s(b).
\30\ 17 CFR 240.19b-4.
\31\ Order Approving OCC's Capital Management Policy, 85 FR at
5503.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \32\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would have any impact or impose a
burden on competition. Although the proposed Operational Loss Fee
affects Clearing Members, their customers, and the markets that OCC
serves, OCC believes that the proposed increase in the Operational Loss
Fee would not disadvantage or favor any particular user of OCC's
services in relationship to another user because the proposed
Operational Loss Fee would apply equally to all Clearing Members. In
addition, OCC does not believe that the proposed Operational Loss Fee
imposes a significant burden on smaller firms because the maximum
Operational Loss Fee imposes a contingent obligation on Clearing
Members that is similar to a Clearing Member's contingent obligation
for Clearing Fund assessments for a Clearing Member operating at the
minimum Clearing Fund deposit.\33\ Accordingly, OCC does not believe
that the proposed rule change would have any impact or impose a burden
on competition.
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\32\ 15 U.S.C. 78q-1(b)(3)(I).
\33\ See supra note 22.
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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 rule change, and none have been received.
II. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \34\ and paragraph (f)(2) of Rule 19b-4 \35\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. The proposal shall
not take effect until all regulatory actions required with respect to
the proposal are completed.\36\
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 17 CFR 240.19b-4(f)(2).
\36\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Regulation 40.6.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9"><span class="__cf_email__" data-cfemail="2654534a430b45494b4b434852556655434508414950">[email protected]</span></a>. Please include
file number SR-OCC-2025-004 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-OCC-2025-004. This file
[[Page 15178]]
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of OCC and on OCC's
website at <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make 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-2025-004 and
should be submitted on or before April 29, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05962 Filed 4-7-25; 8:45 am]
BILLING CODE 8011-01-P
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