Notice2025-11877
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to OCC's Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description (“Methodology Description”) and Clearing Fund Methodology Policy (Together With the Methodology Description, the “Risk Policies”) To Enhance Its Stress Testing Methodology
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 27, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 122 (Friday, June 27, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 122 (Friday, June 27, 2025)]
[Notices]
[Pages 27739-27744]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-11877]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103308; File No. SR-OCC-2025-009]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by The Options Clearing
Corporation Concerning Amendments to OCC's Comprehensive Stress Testing
& Clearing Fund Methodology, and Liquidity Risk Management Description
(``Methodology Description'') and Clearing Fund Methodology Policy
(Together With the Methodology Description, the ``Risk Policies'') To
Enhance Its Stress Testing Methodology
June 24, 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 June 11, 2025, The Options Clearing Corporation
(``OCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared primarily by OCC. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would amend OCC's Comprehensive Stress
Testing & Clearing Fund Methodology, and Liquidity Risk Management
Description (``Methodology
[[Page 27740]]
Description'') and Clearing Fund Methodology Policy (together with the
Methodology Description, the ``Risk Policies'') to enhance its stress
testing methodology. OCC filed proposed changes to the text of the
Methodology Description and Clearing Fund Methodology Policy in
Exhibits 5A and 5B [sic], respectively, to File No. SR-OCC-2025-009.
Material proposed to be added 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.\3\
---------------------------------------------------------------------------
\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>.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
As the sole clearing agency for standardized equity options listed
on a national securities exchange registered with the Commission, and
for the other products it clears, OCC is exposed to certain risks,
including credit risk and liquidity risk, arising from its Clearing
Members' cleared contracts, for which OCC becomes the buyer to every
seller and the seller to every buyer. The management of credit and
liquidity risks are essential elements of OCC's risk management
framework. Given the critical role OCC plays within the U.S. financial
markets, it is vital that OCC maintains sufficient financial resources
to cover its exposures under normal and stressed conditions and
adequate resources to satisfy liquidity needs arising from its
settlement obligations. OCC manages its credit risk related to Clearing
Members by collecting margin and Clearing Fund resources based on a
Clearing Member's risk profile. OCC manages its liquidity risk by
maintaining a reliable and diverse set of committed resources and
liquidity providers, establishing a contingent funding plan for
additional resources, and performing stress testing that covers a wide
range of scenarios.
OCC performs daily stress testing of its financial resources using
a wide range of scenarios. OCC's stress testing inventory contains
scenarios designed to: (1) assess whether the resources collected are
adequate to cover OCC's risk tolerance of a 1-in-50 year statistical
market event over a two-year lookback period (``Adequacy Scenarios'');
(2) inform the size of OCC's financial resources (``Sizing
Scenarios''); (3) measure the potential exposures that Clearing Member
Group portfolios present relative to OCC's credit and liquidity
resources and determine potential calls for additional collateral,
either as margin or as Clearing Fund collateral, or adjust the forms of
collateral on deposit (``Sufficiency Scenarios''); and (4) monitor and
assess the size of OCC's prefunded financial resources against a wide
range of stress scenarios for informational and risk monitoring
purposes (``Informational Scenarios''). OCC's stress tests are used for
evaluating both credit and liquidity risk, and the output of these
scenarios is also used for liquidity resource evaluation. Informational
Scenarios are used for risk monitoring and informational purposes,
distinct from OCC's Adequacy, Sizing, and Sufficiency Scenarios that
inform the size and composition of OCC's mutualized financial
resources. Informational Scenarios may be re-categorized as Adequacy,
Sufficiency, or Sizing Scenarios upon the approval of OCC's Risk
Committee pursuant to the Clearing Fund Methodology Policy.\4\
---------------------------------------------------------------------------
\4\ OCC's Clearing Fund Methodology Policy summarizes the manner
in which OCC determines the level of financial resources necessary
to satisfy regulatory requirements and the Board's direction with
respect to the additional financial resources necessary to withstand
a wide range of foreseeable stress scenarios. See Exchange Act
Release Nos. 96566 (Dec. 22, 2022), 87 FR 80207 (Dec. 29, 2022) (SR-
OCC-2022-010); 94950 (May 19, 2022), 87 FR 31916 (May 25, 2022) (SR-
OCC-2022-004); 93436 (Oct. 27, 2021), 86 FR 60499 (Nov. 2, 2021)
(SR-OCC-2021-010); 92038 (May 27, 2021), 86 FR 29861 (June 3, 2021)
(SROCC-2021-003); 89037 (June 10, 2020), 85 FR 36442 (June 16, 2020)
(SR-OCC-2020-006); 89014 (June 4, 2020), 85 FR 35446 (June 10, 2020)
(SR-OCC-2020-003); 87718 (Dec. 11, 2019), 84 FR 68992 (Dec. 17,
2019) (SR-OCC-2019-010); 86436 (July 23, 2019), 84 FR 36632 (July
29, 2019) (SR-OCC-2019-006); 83735 (July 27, 2018), 83 FR 37855
(Aug. 2, 2018) (SR-OCC-2018-008).
---------------------------------------------------------------------------
OCC proposes enhancements to its stress testing methodology in the
Risk Policies. OCC proposes three groups of changes as part of the
proposed rule change. First, OCC proposes to recategorize certain
stress scenarios, including recategorizing certain Informational
Scenarios as Sufficiency Scenarios and recategorizing other Sufficiency
Scenarios as Informational Scenarios. As a result, six scenarios
recategorized from Informational Scenarios to Sufficiency Scenarios
would be used to determine potential calls for additional collateral.
Eight Sufficiency Scenarios would be recategorized as Informational
Scenarios and, therefore, would no longer be used to determine
potential calls for additional collateral. Second, OCC proposes to
modify the sample list of stress scenarios in the Methodology
Description \5\ to streamline and more clearly present the sample of
scenarios codified in the document. Third, OCC proposes to amend
language related to scenario calibration to more clearly describe
cadence and implementation. The basis for the changes is further
described below in detail.
---------------------------------------------------------------------------
\5\ The Methodology Description describes the Comprehensive
Stress Testing & Clearing Fund Methodology, and Liquidity Risk
Management that OCC uses to analyze the adequacy of its financial
resources and to challenge its risk management framework. See
Exchange Act Release Nos. 102203 (Jan. 15, 2025), 90 FR 7720 (Jan.
22, 2025) (SR-OCC-2024-016); 100455 (Jul. 2, 2024), 89 FR 56452
(Jul. 9, 2024) (SR-OCC-2024-006); 90827 (Dec. 30, 2020), 86 FR 659
(Jan. 6, 2021) (SR-OCC-2020-015); 89014 (June 4, 2020), 85 FR 35446
(June 10, 2020) (SR-OCC-2020-003); 87718 (Dec. 11, 2019), 84 FR
68992 (Dec. 17, 2019) (SR-OCC-2019-010); 87717 (Dec. 11, 2019), 84
FR 68985 (Dec. 17, 2019) (SROCC-2019-009); 83735 (July 27, 2018), 83
FR 37855 (Aug. 2, 2018) (SR-OCC-2018-008).
---------------------------------------------------------------------------
1. Purpose
OCC proposes to amend the Risk Policies to enhance its stress
testing methodology. Such changes include the (1) recategorization of
certain stress scenarios, (2) modifications to the sample list of
stress scenarios in the Methodology Description, and (3) enhanced
language related to scenario calibration.
Recategorization of Stress Scenarios
OCC proposes to recategorize certain stress scenarios to enhance
its ability to manage risks. As described above, OCC's stress testing
inventory is divided into different categories of scenarios, including
Sufficiency and Informational Scenarios. Sufficiency Scenarios are
designed to measure the potential exposures that Clearing Member Group
portfolios present relative to OCC's credit and liquidity resources so
that OCC can determine whether to call for additional collateral or
adjust the forms of collateral on deposit. OCC's current Sufficiency
Scenarios are variations of historical scenarios that attempt to
replicate historical events under current market conditions. For
example, OCC's current Sufficiency Scenarios include historical
scenarios that attempt to replicate the most extreme market rally
[[Page 27741]]
and decline moves (``Largest Rally/Decline'') during certain
historically observed stressed market events. OCC uses Informational
Scenarios to monitor and assess the size of OCC's prefunded financial
resources against a wide range of stress scenarios for informational
and risk monitoring purposes. Informational Scenarios are not used to
determine the size of OCC's mutualized financial resources.
OCC proposes to elevate certain Informational Scenarios to
Sufficiency Scenarios, including four sector-specific scenarios and two
variations of existing Largest Rally/Decline scenarios. OCC proposes to
elevate the four sector-specific Informational Scenarios to Sufficiency
Scenarios to ensure that it can account for sector-specific exposure
when determining the size of its financial resources. The proposed
sector-specific scenarios are hypothetical scenarios \6\ that are
designed to measure the risk arising out of sector-specific exposures.
To measure sector-specific exposures, these scenarios apply price
shocks to sector constituents based on a corresponding sector exchange-
traded fund's (``ETF'') return during selected time periods. The
selected time periods were identified from an analysis of large sector
ETF moves. OCC does not currently maintain any sector-specific
Sufficiency Scenarios. As Informational Scenarios, these sector-
specific scenarios are not used to directly determine the size of OCC's
financial resources. Upon elevation to Sufficiency Scenarios, these
scenarios would enhance the existing suite of Sufficiency Scenarios by
considering sector-specific exposures. Moreover, OCC found that the
proposed sector-specific scenarios yielded exposures that were
generally in line with its current, most impactful Sufficiency
Scenarios.\7\
---------------------------------------------------------------------------
\6\ Hypothetical scenarios represent events in which market
conditions change in ways that have not yet been observed. In
contrast, historical scenarios attempt to replicate historical
events in current market conditions.
\7\ OCC has provided data and analysis concerning the proposed
rule change in Confidential Exhibit 3A to SR-OCC-2025-009, including
the performance of the proposed scenarios relative to existing
scenarios.
---------------------------------------------------------------------------
OCC also proposes to elevate two other Informational Scenarios to
Sufficiency Scenarios. OCC recently implemented Sufficiency Scenarios
representing the most extreme market rally and decline moves in 2008,
which differed from its existing scenarios in terms of how individual
risk factor price shocks are determined.\8\ In particular, to determine
which price shocks to apply to risk factors,\9\ these scenarios
directly apply the risk driver beta-derived price shock instead of
using a waterfall approach.\10\ OCC proposes to implement complementary
scenarios that represent the most extreme market rally and decline
moves in 2020 that would directly apply the risk driver beta-derived
price shock instead of using the waterfall approach, even where actual
and sector returns are available. As part of the regular review of the
output of its stress scenarios, OCC found that the proposed scenarios
yielded exposures that were consistently higher than those generated by
the corresponding Sufficiency Scenarios and were comparable to overall
peak Sufficiency Scenario exposures.\11\ In order to enhance its
ability to manage risks, OCC proposes recategorizing such scenarios
from Informational Scenarios to Sufficiency Scenarios.
---------------------------------------------------------------------------
\8\ See Exchange Act Release No. 100455 (Jul. 2, 2024), 89 FR
56452 (Jul. 9, 2024) (SR-OCC-2024-006) (implementing the Largest
Rally/Decline from 2008 Sufficiency Scenarios with risk driver beta-
derived price shocks).
\9\ A ``risk factor'' is a product or attribute whose historical
data is used to estimate and simulate the risk for an associated
product. Risk factors include the returns on individual equity
securities, returns on equity indexes, and returns on implied
volatility, among others.
\10\ For the waterfall approach, the actual return of the risk
factor during the historical event is utilized as the price shock,
if available. If unavailable, a proxy market return from a
corresponding sector is utilized as the price shock. An actual
return may be unavailable as not all current risk factors existed
during a given historical period. Finally, if data is unavailable
for both actual and sector returns, the price shock is determined by
the ``beta'' of the risk factor to its assigned risk driver
multiplied by the corresponding risk driver shock (the ``risk driver
beta-derived price shock''). The ``beta'' is the sensitivity of a
security with respect to its corresponding risk driver (i.e., the
sensitivity of the price of the security relative to the price of
the risk driver). See supra notes 7 and 8.
\11\ OCC currently maintains historical Sufficiency Scenarios
representing the most extreme market rally and decline moves in 2020
using the waterfall approach (``corresponding Sufficiency
Scenarios'').
---------------------------------------------------------------------------
The proposed rule change would enable OCC to test the sufficiency
of its financial resources under a wider range of relevant stress
scenarios and respond quickly when OCC believes additional financial
resources are necessary. In particular, elevating the sector-specific
Informational Scenarios to Sufficiency Scenarios will enhance the
existing suite of Sufficiency Scenarios by considering sector-specific
exposures. Elevating the 2020 Largest Rally/Decline scenarios with risk
driver beta-derived price shocks will also enhance the existing suite
of Sufficiency Scenarios by considering a different approach to the
determination of price shocks to evaluate how such an event could occur
under current market conditions. In their current state as
Informational Scenarios, these scenarios do not drive the size of the
Clearing Fund or calls for additional resources. However, as
Sufficiency Scenarios, they would be used to measure the exposure of
OCC's Clearing Fund to the portfolios of individual Clearing Member
Groups and determine whether any such exposure is sufficiently large
enough to necessitate OCC calling for additional resources in the form
of margin collateral or an intra-month resizing of the Clearing Fund.
The proposed rule change would thereby improve OCC's ability to
measure, monitor, and manage its exposures to its participants and
enhance OCC's ability to manage risks in its role as a systemically
important financial market utility. OCC's analysis indicates that the
proposed Sufficiency Scenarios generate stress test exposures that are
generally in line with its current, most impactful Sufficiency
Scenarios.\12\
---------------------------------------------------------------------------
\12\ See supra note 7.
---------------------------------------------------------------------------
OCC also proposes to recategorize certain Sufficiency Scenarios as
Informational Scenarios due to their lack of impact on OCC's
Sufficiency Scenario stress testing. Specifically, OCC proposes to
recategorize eight historical Sufficiency Scenarios as Informational
Scenarios. These historical scenarios attempt to replicate historical
events (e.g., global events, political actions, and investor
sentiments) spanning 1974 to 2008 in current market conditions. A
review initiated by the OCC Risk team determined that these scenarios
had an immaterial impact on OCC's Sufficiency Scenario stress
testing.\13\ Namely, OCC compared the output of the subject scenarios
with other Sufficiency Scenarios over a one-year period and determined
that the subject eight scenarios consistently ranked the lowest in
terms of the peak shortfalls generated as well as the percentage of
occurrences that generated peak daily exposure for any Clearing Member
Group. As a result, the eight scenarios had no impact on the amount of
financial resources OCC collected from its members. The proposed
changes would avoid unnecessary complexity in OCC's stress testing
methodology by removing superfluous Sufficiency Scenarios.
---------------------------------------------------------------------------
\13\ Id.
---------------------------------------------------------------------------
Stress Scenario List Modifications
In connection with the proposed changes, OCC proposes to modify the
sample list of stress scenarios in the Methodology Description to
streamline and more clearly present the sample of scenarios codified in
the document. The current embedded list represents a subset of
Adequacy, Sizing, and
[[Page 27742]]
Sufficiency Scenarios that have been implemented in OCC's stress
testing system. OCC proposes to transition the list to narrative format
in the ``Clearing Fund Sizing and Stress Testing'' section and make
conforming changes to the ``Liquidity Stress Testing'' section. Changes
would include the removal of certain Informational and Sufficiency
Scenarios from the list, as described above, and modifications to allow
for the addition of certain new scenarios as approved by OCC's Risk
Committee pursuant to the Clearing Fund Methodology Policy.\14\ Under
the new narrative format, OCC would maintain certain key Adequacy,
Sizing, and Sufficiency Scenarios in list form and would remove text
made redundant by such changes. OCC also proposes changes that would
highlight the ability to size the Clearing Fund using a scenario that
exceeds a 1-in-80 year event (e.g., a 1-in-90 year event) if the Stress
Testing Working Group (``STWG''), Management Committee, and Risk
Committee determine that using the larger scenario is necessary.\15\ A
conforming change would be made to the Clearing Fund Methodology
Policy. Additionally, OCC proposes to remove references to specific
Informational Scenarios, as these scenarios are subject to review and
change by the STWG.\16\ OCC would continue to maintain a description of
its Informational Scenarios. Informational Scenarios are used for risk
monitoring and informational purposes, distinct from OCC's Adequacy,
Sizing, and Sufficiency Scenarios that inform the size and composition
of OCC's mutualized financial resources. As these scenarios are used
for informational purposes and have no impact on the amount of
financial resources collected from members, OCC believes they represent
information that is not inherent to its stress testing model design and
has no impact on model results. To the extent these specific scenarios
are not needed to understand how the model currently works, do not
impact model results, and are subject to change from time to time based
on market conditions, OCC does not believe they need to be maintained
in its rules.
---------------------------------------------------------------------------
\14\ The Clearing Fund Methodology Policy allows the Stress Test
Working Group to recommend for approval the creation or retirement
of Adequacy, Sizing, or Sufficiency Stress Tests, subject to
applicable governance requirements.
\15\ The Clearing Fund Methodology Policy allows the STWG to
recommend that a 1-in-90 year event be used in OCC's Sizing
Scenarios, subject to applicable governance requirements.
\16\ The Clearing Fund Methodology Policy states that the STWG
may approve the creation or retirement of Informational Scenarios.
---------------------------------------------------------------------------
Scenario Calibration Amendments
In connection with the proposed changes, OCC also proposes to
better align language related to scenario calibration with OCC's
current practices. While OCC meets the requirements set out in the
Methodology Description regarding scenario calibration, which are to
implement a calibration at least annually and review the calibration
quarterly, its current practices with respect to scenario calibration
cadence and implementation differ slightly from the language used in
the document as each quarterly calibration is implemented. The proposed
changes use more specific language to memorialize staff
responsibilities in the document to ensure they are appropriately
carried out. Currently, OCC engages in a quarterly review of stress
scenario calibrations and recommends updates to the STWG. Scenario
calibration components that are reviewed include risk driver shocks,
idiosyncratic scenario volatility shocks, and historical scenario
sector shocks, among others. The proposed changes are intended to
revise OCC's rules to match its current practices regarding when such
scenario calibrations would be implemented, as described below.
The ``Stress Testing Model'' section sets out the responsibilities
of various groups in relation to the scenario calibration process.
OCC's current practice is to recalibrate scenario shocks at least
quarterly, although the Methodology Description only requires that
scenario shocks be implemented at least annually. The amended
Methodology Description would align with OCC's current practice and
state that scenario shocks are recalibrated and updated at least
quarterly. Additionally, the Methodology Description currently states
that, on a quarterly basis, or more frequently if OCC's Quantitative
Risk Management team (``QRM'') or STWG determines that updates are
necessary, QRM recalibrates risk driver shocks and reports its results
to the STWG. Currently, the STWG is the group that determines whether
more frequent updates are necessary. The amended Methodology
Description would align with OCC's current practice to codify that the
STWG and not the QRM determines whether more frequent updates are
necessary. OCC also proposes to specify that the STWG will review and
approve any updates to risk driver shocks prior to implementation,
consistent with current practice. Furthermore, under the ``Stress
Testing Scenario Construction'' section, OCC recalibrates scenario
shocks at least annually and produces an analysis of the impact of
these updates quarterly. As amended, OCC would recalibrate scenario
shocks quarterly and produce an analysis of the impact of these updates
at least quarterly. Such revisions would conform with the cadence noted
above.
In addition, OCC proposes to update the Comprehensive Stress
Testing (``CST'') Methodology document to include missing entries from
the list of key tenors used for computing volatility beta, which were
inadvertently excluded from the document as part of the changes
envisaged by OCC's recently approved proposed rule change in connection
with enhancements to the modeling approach for implied volatility
components within OCC's margin methodology, the System for Theoretical
Analysis and Numerical Simulations (``STANS'') and OCC's CST
methodology, to better capture the risks associated with short-dated
options (``SDO Enhancements''), File No. SR-OCC-2024-016.\17\ The SDO
Enhancements filing had proposed the extension of the volatility beta
approach to cover constant maturity tenors expiring in less than one-
month, by adding tenors at the 1-week (``1W'') and 2-week (``2W'') key
points of the term structure to the CST Methodology. These missing
tenors will be inserted along with other minor non-substantive updates
and corrections.
---------------------------------------------------------------------------
\17\ See Exchange Act Release No. 102203, supra note 5.
---------------------------------------------------------------------------
Finally, OCC proposes making corrections to errors found in the
document. Specifically, OCC is correcting the Liquidity Stress Testing
section to accurately state that OCC adheres to a Cover 1 standard for
liquidity stress testing and not a Cover 2 standard. Additionally, OCC
is making non-substantive typographical edits throughout the document,
including replacing a parenthetical with commas and changing the tense
of a word in the ``Stress Testing Model'' section, correcting a
spelling error in the ``Liquidity Risk Management'' section, and
updating the list of references.
Implementation Timeframe
OCC expects to implement the proposed changes no later than sixty
days from the date that OCC receives all necessary regulatory approvals
for the filing in light of the technical system changes that are
required to implement the additional stress scenarios. OCC will
announce the implementation date of the proposed changes by an
Information
[[Page 27743]]
Memorandum posted to its public website at least seven calendar days
prior to implementation.\18\
---------------------------------------------------------------------------
\18\ Implementation of this rule change will be delayed until
this change is deemed certified under CFTC Regulation 40.6.
---------------------------------------------------------------------------
2. Statutory Basis
OCC believes the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, OCC believes
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \19\ and Rule 17ad-22(e)(4) \20\ and Rule 17ad-22(e)(7) \21\
thereunder, for the reasons described below.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ 17 CFR 240.17ad-22(e)(4).
\21\ 17 CFR 240.17ad-22(e)(7).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Exchange Act \22\ requires, among other
things, that the rules of a clearing agency be designed to promote the
prompt and accurate clearance and settlement of securities and
derivatives transactions and, in general, protect investors and the
public interest. OCC proposes to amend the Risk Policies to enhance its
stress testing methodology, which OCC believes would promote the prompt
and accurate clearance and settlement of securities and derivatives
transactions. The proposed changes include the (1) recategorization of
certain stress scenarios, (2) modifications to the sample list of
stress scenarios in the Methodology Description, and (3) enhanced
language related to scenario calibration. The proposed rule change
would enhance OCC's framework for measuring, monitoring, and managing
its credit and liquidity risks. Implementation of the additional
Sufficiency Scenarios would enable OCC to test the sufficiency of its
prefunded financial resources under a wider range of stress scenarios
and respond quickly when OCC believes the collection of additional
financial resources is necessary. The ability to appropriately size and
test the sufficiency of prefunded financial resources is critical to
ensuring that OCC can continue to provide prompt and accurate clearance
and settlement of securities and derivatives transactions in the event
of a Clearing Member default and manage the risks associated with its
role as a systemically important financial market utility. Additional
proposed changes would ensure that OCC's documentation and risk
management practices remain clear and effective. For example,
recategorizing certain Sufficiency Scenarios as Informational Scenarios
would avoid unnecessary complexity in OCC's stress testing methodology
by removing superfluous scenarios. Streamlining the sample list of
scenarios in the Methodology Description would help ensure that OCC's
stress testing practices remains clear, transparent, and effective.
Amending language related to scenario calibration would more clearly
set out the cadence of scenario calibration and the associated
implementation process.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
OCC believes that by ensuring that its documentation and risk
management practices remain clear and effective, the proposed changes
would protect investors and the public interest by providing that the
requirements under the Risk Policies continue to be carried out
properly such that OCC continues to maintain sufficient financial
resources to cover its exposures under normal and stressed conditions
and adequate resources to satisfy liquidity needs arising from its
settlement obligations. Accordingly, OCC believes the proposed rule
change is consistent with the requirements of Section 17A(b)(3)(F) of
the Act.\23\
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
Rule 17ad-22(e)(4)(iii) \24\ requires, in part, that a covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes,
including by maintaining additional financial resources (beyond those
used to maintain sufficient financial resources to cover its credit
exposure to each participant fully with a high degree of confidence) at
the minimum to enable it to cover a wide range of foreseeable stress
scenarios that include, but are not limited to, the default of the
participant family that would potentially cause the largest aggregate
credit exposure for the covered clearing agency in extreme but
plausible market conditions. Rule 17ad-22(e)(4)(vi)(A) \25\ further
requires, in part, that such policies and procedures are reasonably
designed to test the sufficiency of the covered clearing agency's total
financial resources available to meet the minimum financial resource
requirements under Rule 17ad-22(e)(4)(iii) \26\ by conducting stress
testing of its total financial resources once each day using standard
predetermined parameters and assumptions. As described above, the
proposed changes would enable OCC to test the sufficiency of its
prefunded financial resources under a wider range of stress scenarios,
respond quickly when OCC believes additional financial resources are
necessary, and promote clarity and transparency of its stress testing
practices. Moreover, the proposed Sufficiency Scenarios were
constructed in accordance with OCC's existing Methodology Description
using standard predetermined parameters and assumptions. As a result,
OCC believes the proposed rule change is designed to further OCC's
compliance with the requirements of Rules 17ad-22(e)(4)(iii) and
(vi)(A).\27\
---------------------------------------------------------------------------
\24\ 17 CFR 240.17ad-22(e)(4)(iii).
\25\ 17 CFR 240.17ad-22(e)(4)(vi)(A).
\26\ 17 CFR 240. 17ad-22(e)(4)(iii).
\27\ 17 CFR 240.17ad-22(e)(4)(iii) and (vi)(A).
---------------------------------------------------------------------------
Rule 17ad-22(e)(7)(vi) \28\ requires, in part, that a covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively measure,
monitor, and manage the liquidity risk that arises in or is borne by
the covered clearing agency, including measuring, monitoring, and
managing its settlement and funding flows on an ongoing and timely
basis, and its use of intraday liquidity by, at a minimum, determining
the amount and regularly testing the sufficiency of the liquid
resources held for purposes of meeting the minimum liquid resource
requirement under Rule 17ad-22(e)(7)(i).\29\ The proposed changes would
allow OCC to measure, manage and monitor its liquidity risk and test
the sufficiency of its liquid resources under a wider range of stress
scenarios and respond quickly when OCC believes additional liquid
resources from its Clearing Members are necessary. The inclusion of the
proposed scenarios as Sufficiency Scenarios would increase the
likelihood that OCC maintains sufficient liquid resources at all times.
OCC thus believes the proposed rule change is consistent with the
requirements of Rules 17ad-22(e)(7)(vi).\30\
---------------------------------------------------------------------------
\28\ 17 CFR 240.17ad-22(e)(7)(vi).
\29\ 17 CFR 240.17ad-22(e)(7)(i).
\30\ 17 CFR 240.17ad-22(e)(7)(vi).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Exchange Act \31\ 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 Exchange
Act. While the proposed change to implement additional Sufficiency
Scenarios could have an impact on certain Clearing Members, OCC does
not believe that the
[[Page 27744]]
proposed rule change would impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
OCC's analysis indicates that the proposed Sufficiency Scenarios
generate stress test exposures that are generally in line with its
current, most impactful Sufficiency Scenarios.\32\ OCC notes, however,
that the results of these proposed scenarios may vary depending on the
composition of each individual Clearing Member's portfolio at a given
point in time. As a result, the proposed scenarios could from time-to-
time result in more frequent or larger calls for additional resources.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78q-1(b)(3)(I).
\32\ OCC has provided data and analysis concerning the proposed
rule change in Confidential Exhibit 3A to SR-OCC-2025-009.
---------------------------------------------------------------------------
The implementation of the new Sufficiency Scenarios would enable
OCC to test the sufficiency of its financial resources under a wider
range of relevant stress scenarios and respond quickly when OCC
believes additional financial resources are required. The proposed
changes are designed to improve OCC's ability to measure, monitor and
manage its credit exposures to its participants consistent with its
regulatory requirements under Rule 17ad-22(e)(4),\33\ to effectively
measure, monitor, and manage the liquidity risk that arises in or is
borne by OCC under Rule 17ad-22(e)(7),\34\ and to enhance OCC's ability
to manage risks in its role as a systemically important financial
market utility.\35\ Moreover, the proposed Sufficiency Scenarios were
constructed in accordance with OCC's approved stress testing
methodology using standard predetermined parameters and assumptions.
These scenarios would help capture risks that OCC's current inventory
of Sufficiency Scenarios may not capture. Accordingly, OCC believes
that any impact on competition or OCC's Clearing Members would be
necessary and appropriate in furtherance of the protection of investors
and the public interest under the Act.
---------------------------------------------------------------------------
\33\ 17 CFR 240.17ad-22(e)(4).
\34\ 17 CFR 240.17ad-22(e)(7).
\35\ OCC has been designated by the Financial Stability
Oversight Council as a systemically important financial market
utility under Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
---------------------------------------------------------------------------
Additional proposed changes would ensure that OCC's documentation
and risk management practices remain clear and effective. All Clearing
Members would be equally subject to the changes. For the foregoing
reasons, OCC believes that the proposed rule change is in the public
interest, would be consistent with the requirements of the Exchange Act
applicable to clearing agencies, and would not impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.\36\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
(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.
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 selfregulatory 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/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5d2f283138703e3230303833292e1d2e383e733a322b"><span class="__cf_email__" data-cfemail="a2d0d7cec78fc1cdcfcfc7ccd6d1e2d1c7c18cc5cdd4">[email protected]</span></a>. Please include
file number SR-OCC-2025-009 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-2025-009. 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/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-2025-009 and
should be submitted on or before July 18, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
---------------------------------------------------------------------------
\37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11877 Filed 6-26-25; 8:45 am]
BILLING CODE P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 27, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.