Notice2025-13263
Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of Proposed Rule Change by The Options Clearing Corporation Concerning the Adoption of the Amended and Restated Participant Exchange Agreement Between OCC and Each of the National Securities Exchanges That List Equity Options
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
July 16, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 134 (Wednesday, July 16, 2025)</title>
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[Federal Register Volume 90, Number 134 (Wednesday, July 16, 2025)]
[Notices]
[Pages 32045-32050]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-13263]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103436; File Nos. SR-OCC-2025-006]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Granting Approval of Proposed Rule Change by The Options Clearing
Corporation Concerning the Adoption of the Amended and Restated
Participant Exchange Agreement Between OCC and Each of the National
Securities Exchanges That List Equity Options
July 11, 2025.
I. Introduction
On May 13, 2025, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2025-006, pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
\2\ thereunder, to replace the current Restated Participant Exchange
Agreement with a new agreement.\3\ The proposed rule change was
published for public comment in the Federal Register on May 29,
2025.\4\ The Commission has received no written comments regarding the
proposed rule change.\5\ For the reasons discussed below, the
Commission is approving the proposed rule change (hereinafter defined
as ``Proposed Rule Change'').
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, at 90 FR 22807.
\4\ See Securities Exchange Act Release No. 103106 (May 22,
2025), 90 FR 22807 (May 29, 2025) (File No. SR-OCC-2025-006)
(``Notice of Filing'').
\5\ On June 17, 2025, representatives of BOX Exchange, LLC met
with staff in the Commission's Division of Trading and Markets to
discuss the proposed rule changes. See Memorandum from the Division
of Trading and Markets regarding a June 17, 2025 meeting with
representatives of BOX Exchange, LLC; available at <a href="https://www.sec.gov/comments/sr-occ-2025-006/srocc2025006-615728-1806735.pdf">https://www.sec.gov/comments/sr-occ-2025-006/srocc2025006-615728-1806735.pdf</a>.
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II. Background
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission.
OCC's relationship with the national securities exchanges that list
options (each an ``Exchange,'' and collectively, the ``Exchanges'') is
largely governed by an agreement, last updated in 2007, between OCC and
the Exchanges. This agreement, the Restated Participant Exchange
Agreement (``RPEA'') sets out the terms and conditions under which OCC
will provide to the Exchanges clearing services for the options listed
on the Exchanges.
OCC proposes to replace the current RPEA with a new RPEA. OCC
represents that the differences between the current and new RPEA are
designed to: (i) reflect current, enhanced, or implied but not
specifically stated operational and business practices between OCC and
the Exchanges, which may address technology or industry changes or
developments that necessitate new or updated agreement terms or
incorporate adopted best practices for contract terms; (ii) align the
agreement with current law and/or OCC's rules; (iii) eliminate
provisions that are out of date or update provisions to reflect current
industry terminology; (iv) acknowledge the legal and regulatory
landscape of the options industry that affect the interactions between
OCC and the Exchanges by recognizing such factors within the agreement;
and (v) improve overall readability of the document through the
incorporation of intervening amendments and changes into the
agreement.\6\
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\6\ See Notice of Filing, 90 FR at 22808.
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Such differences are described in more detail below.
A. Operational and Business Practices
As stated above, OCC represents that some of the differences
between the current RPEA and the new RPEA are designed to reflect
current, enhanced, or implied but not specifically stated operational
and business practices between OCC and the Exchanges. These operational
and business practice changes generally result from technology and
industry developments that either necessitate new or updated agreement
terms or incorporate into the new RPEA best practices for contract
terms that have been implied or adopted in practice but are not
reflected in the current RPEA.\7\ The specific updates related to
developments in operational and business practices are discussed in
more detail below.
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\7\ See Notice of Filing, 90 FR at 22808.
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Section 5 of the new RPEA would set forth conditions the Exchanges
will establish before seeking to delist an option. OCC states that this
change would reduce the risk that Clearing Members could have open
interest in options with no mechanism to close out those positions.\8\
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\8\ See Notice of Filing, 90 FR at 22810.
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OCC proposes to add a new Section 2(b) \9\ that would allow OCC to
refuse to clear options that materially impact OCC's risk profile or
introduce novel or unique risks to OCC.\10\ Proposed section 2(b)
requires OCC to work with the Exchange to mitigate any such risk, if
feasible, and to otherwise notify an Exchange of a disapproval of a new
product. OCC states that this change would address industry changes in
terms of risk assessment and management of new products.\11\
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\9\ Section 2 of the new RPEA corresponds to Section 3 of the
current RPEA because OCC proposes deleting section 2 of the current
RPEA as described below. OCC proposes to make other section number
changes as needed. For clarity, references herein are to the
proposed section numbers of the new RPEA unless otherwise stated.
\10\ New section 2(b) replaces an out of date section related to
the obligation to register options for trading.
\11\ See Notice of Filing, 90 FR at 22809.
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OCC proposes to add a new Section 6 to set forth the conditions for
options that are listed on only one Exchange. Where OCC deems the price
of an option listed on only one Exchange to be inaccurate, unreliable,
unavailable, or inappropriate, the new RPEA would require the Exchanges
to work with OCC to determine reliable settlement prices and to use
commercially reasonable efforts to continue listing a singly listed
option until all open interest is closed out at OCC.\12\ OCC states
that these changes would address a situation in which an underlying
price may not be available or accurate.\13\
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\12\ If the Exchange could no longer list a singly listed
option, it would be required to notify OCC and to permit listing and
trading on an alternate Exchange.
\13\ See Notice of Filing, 90 FR at 22810.
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As a consequence of the substantial growth in the amount and speed
of data flow between OCC and the Exchanges since the execution of the
current
[[Page 32046]]
RPEA,\14\ OCC proposes to add a new Section 7 governing OCC's use of
data provided by the Exchanges.\15\ New Section 7 would restrict OCC's
use of Exchange Data such that OCC would not be permitted to use
Exchange Data in any index calculation or other financial instrument,
investment product, or investment strategy without consent.\16\ Section
7 also would limit the entities to which OCC would be permitted to
redistribute data based on the type of data being provided by the
Exchange, and the Exchanges would be permitted to audit OCC's use of
Exchange Data for non-compliance with any material provision of this
Section 7. Separately, Section 7 would define Derived Data as data
derived by OCC from non-real-time Exchange Data, which OCC would be
authorized to create and use without restriction.
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\14\ See Notice of Filing, 90 FR at 22810.
\15\ The Exchanges would provide daily values of underlying
interest and options. See Notice of Filing, 90 FR at 22811.
\16\ The Exchanges would be required to use commercially
reasonable efforts to provide OCC with at least 60 days' notice of
material modifications, additions, or deletions to Exchange Data.
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Section 8 of the RPEA governs trade comparisons. OCC proposes to
add a new provision to Section 8 that would require OCC to notify the
Exchanges at least 60 days prior to any change to the time by which an
Exchange must report trade comparisons. OCC states that this change is
designed to give the Exchanges sufficient notice to prepare for the
change.\17\
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\17\ See Notice of Filing, 90 FR at 22811. To reflect current
industry terminology, OCC would also add language stating that the
term Trading Day is any day the Exchange is trading. See id.
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Section 13 of the RPEA limits on OCC's authority. For the avoidance
of doubt, and to reflect current practice,\18\ OCC proposes to add a
provision to Section 13 that would authorize OCC to calculate position
limits at the request of the Exchanges even though OCC is generally
precluded from establishing or enforcing position limits. OCC states
that it began calculating position limits in 2003 at the request of the
Exchanges and continues to provide position limits on the OCC
website.\19\ OCC also proposes adding a parenthetical noting that the
general limit precluding OCC from determining when to open or restrict
trading would not limit OCC's other rights and obligations under the
RPEA.
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\18\ See Notice of Filing, 90 FR at 22812.
\19\ See Notice of Filing, 90 FR at 22812.
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Section 15 addresses financial requirements for Clearing Members.
Currenctly, Exchanges are required both to notify OCC when a Clearing
Member is not in compliance with OCC's financial responsibility
standards \20\ and notify OCC of any financial condition that would be
reported any resolution authority.\21\ In an effort to incorporate into
the RPEA best practices for contract terms that have already been
adopted and are in use by the industry, OCC proposes to remove the
requirement to notify OCC when a Clearing Member is not in compliance
with OCC's financial responsibility standards.\22\ OCC also proposes to
change the time requirement for submission of material from 2 p.m.
Central Time to 3 p.m. Central Time, and to require such reporting
``promptly'' rather than ``immediately.''
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\20\ Exchanges have indicated that they do not incorporate OCC's
financial responsibility standards into their Exchange monitoring
processes. See Notice of Filing, 90 FR at 22812.
\21\ The current RPEA already ready requires notification of
such reporting to the Securities Investor Protection Corporation.
See Notice of Filing, 90 FR at 22812.
\22\ See Notice of Filing, 90 FR at 22812. This is part of a
general set of changes to to remove details related to interactions
regarding lack of operational capacity to clear a new underlying.
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Currently, Section 17, which addresses operations, requires OCC to
use its best efforts to maintain sufficient operational capacity to
clear new options on behalf of the Exchanges. OCC proposes to replace
this language with a requirement to use commercially reasonable
efforts, which OCC asserts would allow it to conduct its operations in
a manner that is economically justified and in accordance with commonly
accepted commercial practices.\23\ Relatedly, OCC proposes to replace
the current requirement to act ``as expeditiously as possible'' with a
requirement to act ``as soon as reasonably practicable.'' Additionally,
the new RPEA would require the Exchanges to comply with OCC's
operational specification for new products and to provide 60 days
notice in advance of operational changes such as trading hour changes.
OCC asserts that such changes incorporate best practices for contract
terms.\24\
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\23\ See Notice of Filing, 90 FR at 22812.
\24\ See Notice of Filing, 90 FR at 22813.
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OCC proposes to add a new Section 18 governing financial reporting
from the Exchanges, including obligations relating to annual
financials, quarterly financials, and losses. For example, an Exhange
would be obligated to provide quarterly unaudited financials for three
years after becoming a party to the new RPEA (if not a party to the
current RPEA). An Exchange would also be required to provide quarterly
financials following losses over certain thresholds. Under the proposed
terms, OCC would be obligated to maintain the confidentiality of such
financials to the extent they are not publicly available.\25\ OCC
states that the purpose of this new section is to allow OCC to monitor
for going concern risk.\26\
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\25\ Relatedly, OCC proposes to add language to Section 25,
which addresses access to books and records of OCC, to state that an
Exchange will not have a right to view another Exchange's
Confidential Information.
\26\ See Notice of Filing, 90 FR at 22813.
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OCC proposes to add Section 19 in the new RPEA, which addresses
information technology and security. Section 19 requires Exchanges and
OCC to provide each other with contact information for personnel
relating to operational, technology and information security matters.
OCC and the Exchanges would be required to provide notice if either
party has an incident that could impact their ability to provide or
receive services \27\ and to take commercially reasonable efforts to
comply with relevant cybersecurity regulations. The Exchanges would
further agree to accommodate OCC's connectivity requirements. OCC
proposes these changes to to strengthen information security given
widespread use of ever evolving and improving electronic systems, along
with related security concerns since the time the current RPEA became
effective.\28\
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\27\ The proposed terms would permit OCC to take steps in
response to the reporting of an incident, such as suspending its
obligations to an Exchange under the RPEA. To suspend obligations to
the Exchanges, OCC proposes to add a requirement that the OCC CEO,
or the COO if the CEO is unavailable, must approve a suspension of
obligations to the Exchange. If neither the OCC CEO and OCC COO are
available, the Chief Security Officer has the authority to suspend
services to the Exchange.
\28\ See Notice of Filing, 90 FR at 22813.
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OCC proposes changes to Section 24, which governs the services,
programs and projects OCC provides to and for Exchanges. The changes
would provide OCC sole and absolute discretion with regard to taking on
projects for an Exchange. The proposed changes would also make it clear
that (i) services OCC develops for any Clearing Member or group of
Clearing Members and (ii) programs or projects developed at OCC's own
cost will be offered to all Clearing Members on the same terms and
cost.
OCC proposes to revise Section 29, which covers miscellaneous
items, to state that the RPEA may not be assigned by the Exchange
without written consent of OCC, and that the RPEA cannot be assigned by
OCC without the consent of all Exchanges.\29\ OCC also proposes to add
a new provision related to the use of the parties' names,
[[Page 32047]]
tradenames, logos, and trademarks (collectively, ``Marks''). More
specifically, OCC proposes to add language where each Exchange grants
OCC license to use each party's respective name, tradename, logos, and
trademarks in connection with OCC's activities such as issuance,
clearance, settlement, and investor education services. OCC states that
these changes are intended to reflect either current or implied
business practices between OCC and the Exchanges and to incorporate
adopted best practices for contract terms.\30\
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\29\ The RPEA would allow assignment without written consent in
the event of a corporate reorganization or the sale of OCC.
\30\ See Notice of Filing, 90 FR at 22814.
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Section 31 addresses the options disclosure document (``ODD''). OCC
proposes to add a subparagraph addressing indemnification.
Specifically, OCC proposes to incorporate language from Section 2(g) of
the current RPEA, which is being deleted. The proposed text would
indicate that OCC agrees to indemnify each Exchange from claims
relating to any untrue statement or alleged untrue statement of a
material fact contained in the ODD, and the Exchanges agree to
indemnify OCC from damages relating to any untrue statement of a
material fact contained in information from the ODD. The new text
regarding indemnification would also detail the notice requirements
related to indemnification (e.g., notification of claim made against an
indemnified party).
OCC also proposes to add a new Section 32 that addresses
confidential information. OCC proposes to define ``Confidential
Information'' to include information that relates to a disclosing
party's products and services, operations, customers, members,
prospects, know-how, design rights, trade secrets, market information,
business affairs, and information provided to the receiving party. OCC
would not be permitted to disclose Exchange Data that identifies an
Exchange member except when the Exchange consents, when allowed by OCC
By-Laws and Rules or required by law, regulation, or government rule,
or as post-trade information given to clearing members. OCC states that
these changes are intended to reflect current business practices
between OCC and the Exchanges and to adopt best practices for contract
terms.\31\
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\31\ See Notice of Filing, 90 FR at 22815.
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B. Current Law and OCC Rules
As stated above, OCC represents that some of the differences
between the current RPEA and the new RPEA are designed to align the
agreement with current law and/or OCC's rules.\32\ General changes
throughout the new RPEA include replacing references from ``the
Corporation'' to ``OCC.'' In Section 1, OCC proposes to add a
requirement for both OCC and the Exchanges that both parties will
remain in compliance with the Exchange Act and its own Exchange rules
and to require that each party will use reasonable efforts to come back
into compliance in the event a party can no longer make the
representation. The proposed language of Section 26, which addresses
indemnification, would add ``or noteholder agreement'' where the
current RPEA references the ``stockholders agreement'' because certain
exchanges are subject to the shareholders agreement while other are
subject to the noteholders agreement. OCC also proposes to add
references to OCC Rules and references.
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\32\ See Notice of Filing, 90 FR at 22808.
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C. Out of Date Provisions
As stated above, OCC represents that some of the differences
between the current RPEA and the new RPEA are designed to eliminate
provisions that are out of date or update provisions to reflect current
industry terminology.\33\ For example, OCC proposes to replace the term
``Participating Exchange'' with ``Exchange'' throughout the agreement.
In the introductory paragraph, the new RPEA would note that the current
agreement supercedes the old agreement and would reflect the date of
the new agreement. OCC proposes to change Section 1 so that national
securities associations cannot become parties to the agreement.\34\
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\33\ See Notice of Filing, 90 FR at 22808.
\34\ OCC states that no parties to the Existing RPEA are
national securities associations and the parties do not anticipate
that any such entity will become a party to the agreement in the
future. See Notice of Filing, 90 FR at 22809.
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OCC proposes to delete Section 2 of the current RPEA, which relates
to the registration of options, because the registration of
standardized options is no longer required.\35\ OCC also proposes
changes to Section 2 of the new RPEA (section 3 of the current RPEA),
which addresses selection of underlying interests. OCC proposes changes
regarding the products it clears, incuding (i) defining the term
``Underlying Interests''; (ii) requiring that an underlying interest
must be permitted on a national securities exchange; and (iii) changing
the set of Underlying Interests explicitly listed in the RPEA.\36\ OCC
also proposes to remove a subsection of what would be Section 2 of the
new RPEA that is now out of date as it relates to OCC's former
obligation to register options for trading. OCC proposes to remove
similar references to its former obligation to register options for
trading from Section 31 of the new RPEA as well.
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\35\ See 17 CFR 230.238.
\36\ For example, OCC proposes to remove U.S. Treasury bonds,
notes, or bills because they do not underlie listed options that OCC
clears and do not align with the interest types OCC is prepared to
clear. See Notice of Filing, 90 FR at 22809. OCC proposes to add,
among other things exchange trades funds and exchange traded notes
because they did not exist at the time the current RPEA was first
executed. See id.
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OCC proposes to amend Section 3, which addresses expiration dates,
exercise prices, and units of trading, to remove time requirements for
new series of options for trading. OCC states that such timeframes were
necessary decades prior when adding new series and notifying other
exchanges of newly added series was a more manual process but are now
no longer needed.\37\ OCC proposes further to assign the responsibility
for determining units of trading to the Exchanges instead of the
Securities Committee because the change reflects current business
practices.\38\
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\37\ See Notice of Filing, 90 FR at 22810.
\38\ This reflects a rule change OCC implemented in 2018 that
transferred the authority to make contract adjustment determinations
from panels of the Securities Committee to OCC. See Notice of
Filing, 90 FR at 22810.
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OCC proposes to amend Section 4, which addresses the listing of
option, by replacing a reference to ``expiration months'' with a
reference to ``expiration dates'' because expirations have expanded
outside of the standard monthly expiration cycle that was prevalent
when the RPEA was first executed. OCC also propose to remove the phrase
``in reasonable quantities'' that currently is used in reference to
making the list of options available to members because such lists are
now provided electronically.
OCC proposes to amend Section 8, which addresses comparison of
options transactions, to remove the ability of an Exchange to request a
comparison service because OCC has not been retained by the Exchanges
to perform such services. OCC also proposes to make ``Matched
Trade(s)'' and ``Trading Day'' defined terms. OCC proposes to amend
Section 10, which addresses acceptance of options transactions, to
remove the payment of options premiums as a perquisite for clearing
because OCC accepts all transactions for clearance until a member
terminates its membership or is suspended by OCC.
OCC proposes to amend Section 15, which addresses financial
requirements for Clearing Members, to add a reference
[[Page 32048]]
to ``Regulatory Services Agreement'' because some Exchanges outsource
member surveillance. OCC also proposes to remove requirements for in-
person delivery of documents and telephone calls. Finally, OCC proposes
to replace reference to OCC's Chairman or any Vice President with
reference to a ``Financial Risk Management officer'' to reflect OCCs'
current designation of authority.
OCC proposes to amend Section 17, which addresses Clearing Member
operations, to remove references to systems and response protocols that
OCC and the Exchange no longer use. Instead, the new RPEA would require
Exchanges to provide OCC with supporting materials to support the
Exchange's clearing activities. Exchanges would also be required to
make representatives available to OCC to discuss any of OCC's
additional information needs, and to comply with OCC operational
specifications such as extended trading hours.
OCC proposes to delete Section 16 of the current RPEA because it
requires OCC to maintain offices in each city in which an Exchange is
located. OCC states that, given the widespread use of electronic
communications in financial services, the increase in the number and
various locations of Exchanges over time, and the ability of Exchanges
and OCC to send and receive information quickly via electronic means,
the requirement for OCC to maintain an office in such locations is
outdated.\39\ Similarly, OCC proposes to amend Section 23, which
addresses financial arrangements, to remove a requirement to establish
local banking relationships because this is no longer necessary. OCC
also proposes to amend Section 28, regarding Notices, to remove
references to physical addresses of each party and instead add an
option to provide notices by email because the addresses in the current
RPEA are out of date and, even if updated, may change over time.
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\39\ See Notice of Filing, 90 FR at 22812.
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OCC proposes to amend Section 20, which addresses exercise
restrictions, to replace references to ``index options'' with
references to ``Options that are cash settled'' and to replace
references to ``other options'' with references to ``Options that are
physically settled'' to ensure consistency with current industry
terminology, which generally is broader and more descriptive of the
products subject to the provisions. OCC also proposes to add language
that allows either an Exchange or OCC to restrict the exercise of
Options if doing so would be necessary to comply with any government
imposed restriction that would have the effect of restricting the
exercise of an option.
OCC proposes to amend Section 31, which addresses options
disclosure documents, to reassign the responsibility for chairing the
Listed Options Disclosure Committee (``LDOC'') from OCC's Chairman of
the Board to a an officer of OCC.\40\ The changes would also modify the
current provision specifying that the Exchange Directors of OCC's Board
will participate on the LDOC to specify that representatives of each
Exchange will participate on the LDOC. As new Exchanges have joined OCC
over time, not all of them have a representative on the OCC Board.
Thus, this change would align the RPEA with current practice and help
future proof it in the event that additional Exchanges join OCC in the
future. OCC also proposes to require Exchanges to notify OCC of
proposed Exchange rule changes that would cause information in the ODD
to become inaccurate and to require relevant Exchanges to provide input
and feedback when OCC is drafting amendments to the ODD. OCC proposes
to remove the requirement that OCC will pay costs associated with the
meeting of the LODC. OCC states that this provision is out of date
because the LODC does not meet in person.\41\
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\40\ The new RPEA does not specify which officer OCC would
designate.
\41\ See Notice of Filing, 90 FR at 22815.
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D. Industry Landscape
As stated above, OCC represents that some of the differences
between the current RPEA and the new RPEA are designed to acknowledge
and factor into the RPEA the legal and regulatory landscape of the
options industry that affect the interactions between OCC and the
Exchanges.\42\
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\42\ See Notice of Filing, 90 FR at 22808.
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In Section 2, OCC proposes to add language stating that the
underlying interest must be listed in accordance with Options Rules,
listed on a national securities exchange, and permitted in the Options
Disclosure Document. OCC proposes to add a requirement in Section 2
that Exchanges submit new Options to OCC pursuant to the requirements
of the Options Listing Procedures Plan. OCC proposes these changes
because because the OLPP serves as the national market plan that
establishes the requirements Exchanges must follow when submitting a
new option class to OCC.\43\
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\43\ See Notice of Filing, 90 FR at 22810.
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OCC proposes to amend Section 30, which addresses breach and
termination, by adding a provision permitting OCC to suspend its
obligations to an Exchange whenever a suspension is necessary to comply
with OCC's own rules and outlining which provisions of the RPEA, if
breached by an Exchange, would allow OCC to cease providing clearing
services. OCC also proposes to add language allowing termination if
providing services for the Exchange would cause OCC to be in breach
federal securities law. The proposed amendments would also define who
at OCC is authorized to approve a suspension and require OCC to notify
each Exchange of any suspension. Finally, amended Section 30 would
require OCC and the relevant Exchange to work together to minimize a
suspension while simultaneously acknowledging that OCC would not be
obligated to clear transactions for an Exchange that ceases to (i) be a
registered exchange, (ii) abide by the Securities Act of 1933 or the
Exchange Act, or (iii) be an OCC noteholder or stockholder.
E. Readability
As stated above, OCC represents that some of the differences
between the current RPEA and the new RPEA are designed to improve
overall readability of the document through the incorporation of
intervening amendments and changes into the agreement.\44\ OCC also
proposes to replace ``premises'' with ``promises'' in the introduction,
and to to remove the language ``The 1975 Agreement is hereby
terminated, effective as of the date of this Agreement'' because the
1975 agreement was terminated by the 1983 agreement.
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\44\ See Notice of Filing, 90 FR at 22808.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\45\ Under the Commission's
Rules of Practice, the ``burden to demonstrate that a proposed rule
change is consistent with the Exchange Act and the rules and
regulations issued thereunder . . . is on the self-regulatory
organization [`SRO'] that proposed the rule change.'' \46\
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\45\ 15 U.S.C. 78s(b)(2)(C).
\46\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its
[[Page 32049]]
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\47\ and any failure of an SRO to
provide this information may result in the Commission not having a
sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\48\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\49\
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\47\ Id.
\48\ Id.
\49\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the Proposed Rule Change, the
Commission finds that the Proposed Rule Change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to OCC. More specifically, the Commission finds
that the Proposed Rule Change is consistent with and with Section
17A(b)(3)(F) of the Exchange Act,\50\ Exchange Act Rules 17ad-
222(e)(1),\51\ 17ad-222(e)(20),\52\ and 17ad-222(e)(21),\53\ as
described in detail below.
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\50\ 15 U.S.C. 78q-1(b)(3)(F).
\51\ 17 CFR 240.17ad-222(e)(1).
\52\ 17 CFR 240.17ad-222(e)(20).
\53\ 17 CFR 240.17ad-222(e)(21).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that the rules of a clearing agency be designed to foster
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions.\54\ As discussed above, the RPEA
sets out the terms and conditions under which OCC will provide clearing
services to the Exchanges for the options listed on the Exchanges.
Amending the RPEA to better reflect current practices, laws,
regulations, and industry terminology as well as general readability,
strengthens the RPEA. For example the proposed addition of a section
based on singly listed options would require cooperation between OCC
and the Exchanges to arrive at a reliable settlement process in the
event that the price listed on an exchange is inaccurate. This
subparagraph requires both OCC and the exchange to cooperate to
determine the correct price. Further, in the selection of new
underlying interests, if OCC identifies a risk to a new product, OCC is
required to undertake commercially reasonable efforts to address the
risk that caused OCC to refuse to issue such option, and the relevant
Exchange would be required to reasonably cooperate with those efforts.
Both of these provisions require OCC to cooperate with exchanges if
there is an inaccurate price or risk posed from the new product.
Further, the Proposed Rule Change establishes that an Exchange that
makes changes to its Exchange Data will give OCC at least 60 days
notice in advance of such change, in most cases. The notice period will
provide OCC with the time to prepare for the change, and OCC will
cooperate with an Exchange in addressing any such change. Such change,
along with those described above, promote cooperation between OCC and
the Exchanges because they facilitate, and at times require cooperation
between, OCC and the Exchanges.
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\54\ 15 U.S.C. 78q-1(b)(3)(F).
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Accordingly, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Exchange Act.\55\
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\55\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17ad-222(e)(1) Under the Exchange Act
Rule 17ad-222(e)(1) under the Exchange Act requires that a covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to provide for a well-
founded, transparent, and enforceable legal framework for each aspect
of its activities in all relevant jurisdictions.\56\
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\56\ 17 CFR 240.17ad-222(e)(1).
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As described above, OCC proposes various changes designed to align
the terms of the RPEA with current law and OCC's rules,\57\ acknowledge
the current legal and regulatory landscape of the options industry,\58\
and generally improve the readability of the RPEA.\59\ For example, OCC
proposes to add multiple representations from both OCC and the
Exchanges that OCC and each Exchange is and will remain in compliance
with the Exchange Act. In Section 2, OCC proposes to clarify that an
Exchange must list options in accordance with the relevant Exchange's
rule and submit new products to OCC in accordance with the Options
Listing Procedure Plan. These changes are well-founded in that OCC and
the exchanges are required to be in compliance with the Exchange Act
and create procedures for listing new options and in all aspects of its
operations.
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\57\ See infra section II.B.
\58\ See infra section II.D.
\59\ See infra section II.E.
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As discussed above, in Section 30, OCC proposes to add language
permitting OCC to suspend its obligations when necessary to comply with
its own rules. OCC also proposes to modify the RPEA to explicitly
acknowledge that OCC will not be obligated to clear transactions for an
Exchange that cannot abide by the the Exchange Act. These changes help
create reasonably designed policies and procedures that allow for a
well-founded and enforceable legal framework by ensuring all parties
are in compliance with relevant securities laws.
With regard to the ODD, the proposed changes would require that,
absent certain exceptions, the Exchanges and OCC indemnify each other
for untrue statements or omissions of material fact. Additionally, OCC
proposes to update the manner in which the RPEA may be assigned by
specifying that an Exchange must have the prior written consent of OCC
for assignment and OCC must have prior written consent of all the
Exchanges. These changes would help create a more transparent and
enforceable legal framework by clarifying both the requirements for
effective assignment of the RPEA and when parties are responsible for
omissions of material fact by the other party. These changes clarify
how the agreement can be assigned and ensure all parties to the RPEA
understand the consequences of making or providing untrue statements or
omissions of material fact in connection with the ODD.
Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(1) under the Exchange Act.\60\
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\60\ 17 CFR 240.17ad-22(e)(1).
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C. Consistency With Rule 17ad-22(e)(20) Under the Exchange Act
Rule 17ad-22(e)(20) under the Exchange Act requires that a covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to identify, monitor, and
manage risks related to any link the covered clearing agency
establishes with one or more other clearing agencies, financial market
utilities, or trading markets.\61\
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\61\ 17 CFR 240.17ad-22(e)(20).
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As described above, OCC proposes various changes to the RPEA
designed to reflect current, enhanced, or implied business practices
between OCC and the
[[Page 32050]]
Exchanges.\62\ For example, OCC proposes to add language allowing it to
disapprove new options that pose a risk to OCC. OCC also proposes new
provisions governing the pricing and listing of options that are listed
on only one Exchange, and to add the ability for OCC to calculate
position limits at the request of the Exchanges. These changes help
decrease the risk to OCC presented by options that are only listed on
one exchange by reducing the risk that OCC would be unable to price
such options or that members would be unable to trade options for which
there is open interest at OCC. It would also help reduce the risk from
position limits so that OCC can adjust accordingly if a position grows
too large.
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\62\ See infra section II.A.
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As discussed above, the proposed rule would establish financial
requirements for Exchanges and allow OCC to monitor for going concern
risk. If an Exchange becomes insolvent it could pose a risk to OCC and
other financial institutions. Thus, Exchanges would be required to
provide certain financial statements to OCC and notify OCC if they
experience a certain percentage decrease in shareholder equity or
losses exceeding a certain percentage of shareholder equity. At the
same time, the proposed changes to the RPEA would create clear
obligations for OCC to keep and maintain non-public information
submitted to OCC by the Exchanges strictly confidential and would
prevent OCC from sharing or disclosing such information outside of
limited circumstances. Together, these updates to the RPEA would help
OCC manage financial risk from trading markets should an exchange
become insolvent, allow OCC to monitor its member Exchanges for signs
of financial distress, and help ensure that the Exchnages' sensitive
financial information is protected and kept confidential.
The proposed rule change would also require the parties' to take
commercially reasonable steps to comply with relevant cybersecurity
regulations. As part of this change, OCC would be authorized under the
RPEA to take reasonable steps to mitigate any effects from a
cybersecurity incident at an Exchange, for example by suspending its
obligations for the impacted Exchange. Cyber related incidents have the
potential to disrupt financial institutions, including both the
Exchanges and OCC. These policy changes would help OCC identify and
manage cybersecurity, connectivity, and other operational and
technology risks posed to OCC through its connection to the Exchanges
and the various trading markets they serve..
The proposed rule would also explain how Confidential Information
is defined and provide how it can be shared. It would also outlines the
repercussions in the event of a breach of the confidentiality
provisions. Given the volume of information produced by both OCC and
the Exchanges, it is important to set clear standards to reduce legal
risk.
Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(20) under the Exchange Act.\63\
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\63\ 17 CFR 240.17ad-22(e)(20).
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D. Consistency With Rule 17ad-22(e)(21) Under the Exchange Act
Rule 17ad-22(e)(21) under the Exchange Act requires, in part, that
a covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to be efficient and
effective in meeting the requirements of its participants and the
markets it serves, and have the covered clearing agency's management
regularly review the efficiency and effectiveness of its (i) scope of
products cleared or settled \64\ and (ii) use of technology and
communication procedures.\65\
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\64\ 17 CFR 240.17ad-22(e)(21)(ii).
\65\ 17 CFR 240.17ad-22(e)(21)(iii).
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As described above, OCC proposes various changes designed to
reflect current, enhanced, or implied business practices between OCC
and the Exchanges.\66\ For example, the proposed rule change addresses
how new options will be approved, permits OCC to refuse to issue such
option if it identifies a risk in the new option, and requires OCC to
undertake commercially reasonable efforts to address the risk that
caused OCC to refuse the new option. The Exchange is also required to
reasonably cooperate with OCC. The proposed changes also update the
Underlying Interests provisions of the RPEA and, more broadly, help
establish transparent and consistent procedures for OCC to clear new
products and identify and address the specific risks such new products
might pose. Such changes will enhance OCC's ability to meet the
requirements of its participants and the needs of the market it serves.
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\66\ See infra section II.A.
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As described above, OCC proposes various changes designed to
eliminate RPEA provisions that are out of date.\67\ For example, the
Proposed Rule Change would remove references to specific times for
opening new option series and reflect that it is currently the
Exchanges, not the Securities Committee, that determine units of
trading. Similarly, OCC proposes to remove the requirement that lists
of options be provided ``in reasonable quantities'' because such lists
are now provided electronically. OCC also proposes to remove references
to in-person delivery of documents and telephone calls, requirements
for local banking relationships, and the maintenance of offices in
certain cities. These updates to remove outdated references to
timeframes, quantities, and requirements improve the clarity and
effectiveness of OCC's policies and procedures.
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\67\ See infra section II.C.
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Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(21) under the Exchange Act.\68\
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\68\ 17 CFR 240.17ad-22(e)(21).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \69\ and the rules and regulations thereunder.
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\69\ In approving the Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\70\ that the Proposed Rule Change (SR-OCC-2025-006) be,
and hereby is, approved.
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\70\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\71\
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\71\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-13263 Filed 7-15-25; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on July 16, 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.