Notice2025-14669
Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, by the Options Clearing Corporation Concerning Modifications to OCC's Recovery and Orderly Wind-Down (“RWD Plan”)
Primary source
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Published
August 4, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 147 (Monday, August 4, 2025)</title>
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[Federal Register Volume 90, Number 147 (Monday, August 4, 2025)]
[Notices]
[Pages 36472-36478]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14669]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103587; File No. SR-OCC-2025-005]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change, as Modified by Partial Amendment
No. 1, by the Options Clearing Corporation Concerning Modifications to
OCC's Recovery and Orderly Wind-Down (``RWD Plan'')
July 30, 2025.
I. Introduction
On April 17, 2025, the Options Clearing Corporation (``OCC''),
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its RWD Plan. On April 28, 2025, OCC
filed Partial Amendment No. 1 to the proposed rule change.\3\ The
proposed rule change, as modified by Partial Amendment No. 1
(hereinafter ``Proposed Rule Change''), was published for comment in
the Federal Register on May 7, 2025.\4\ On June 17, 2025, pursuant to
Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a
longer period within which to approve, disapprove, or institute
proceedings to determine whether to approve or disapprove the Proposed
Rule Change, until August 5, 2025.\6\ The Commission has not received
any comments on the Proposed Rule Change. For the reasons discussed
below, the Commission is approving the Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Partial Amendment No. 1 corrects an error in OCC's original
narrative description of the proposed rule change. The amendment
also modified the Exhibit 5 to File No. SR-OCC-2025-005 to
accurately mark the proposed changes against the currently effective
RWD Plan and makes conforming changes to the narrative description
of the proposed rule change.
\4\ Securities Exchange Act Release No. 102962 (May 1, 2025), 90
FR 19346 (May 7, 2025) (File No. SR-OCC-2025-005) (``Notice'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ Securities Exchange Act Release No. 103280 (June 17, 2025),
90 FR 26632 (June 23, 2025) (File No. SR-OCC-2025-005).
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II. Description of the Proposed Rule Change
OCC is a central counterparty (``CCP''), which means it interposes
itself as the buyer to every seller and seller to every buyer for
financial transactions. As the CCP for the listed options markets in
the U.S., as well as for certain futures, OCC is exposed to certain
risks arising from its relationships with its members. OCC maintains
various tools for managing such risks.\7\ OCC also maintains tools to
manage the risk of liquidity shortfalls and credit losses that exceed
its routine risk management tools.\8\ OCC describes such tools and the
governance related to them in its RWD Plan.\9\
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\7\ See e.g., Securities Exchange Act Release No. 96566 (Dec.
22, 2022), 87 FR 80207 (Dec. 29, 2022) (File No. SR-OCC-2022-010);
Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR
68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010); and Securities
Exchange Act Release No. 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30,
2020) (File No. SR-OCC-2019-007).
\8\ See Securities Exchange Act Release No. 82351 (Dec. 19,
2017), 82 FR 61107 (Dec. 26, 2017) (File No. SR-OCC-2017-020).
\9\ See Securities Exchange Act Release No. 83918 (Aug. 23,
2018), 83 FR 44091 (Aug. 29, 2018) (File No. SR-OCC-2017-021) (Order
approving the adoption of OCC's RWD Plan).
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OCC is proposing a series of changes to its RWD Plan. One set of
changes are intended to achieve compliance with the Commission's
recently adopted content requirements for recovery and wind-down plans
of covered clearing agencies (``CCAs''), including new Exchange Act
Rule 17ad-26.\10\ The other set of changes were identified during OCC's
annual review of the RWD Plan.\11\ Both sets of changes are described
in greater detail below.
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\10\ See Notice, 90 FR at 19346. In late 2024, the Commission
adopted a final rule that, in part, prescribes requirements for the
contents of a CCA's recovery and wind-down plans. Securities
Exchange Act Release No. 101446 (Oct. 25, 2024), 89 FR 91000 (Nov.
18, 2024) (File No. SR-S7-10-23) (``Adopting Release'').
\11\ See Notice, 90 FR at 19346.
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A. Proposed Changes Related to the New Recovery and Wind-Down Rule
OCC proposes the following categories of changes to its RWD Plan to
comply with Rule 17ad-26: (i) identifying staffing roles necessary to
support OCC's core services; (ii) replacing the term ``critical
services'' with the term ``core services''; (iii) addressing service
providers for core services; (iv) identifying details regarding the
triggering of the RWD Plan; (v) specifying the timing in which OCC will
provide notice in the event it considers implementing the recovery or
orderly wind-down plan; and (vi) establishing requirements related to
testing the recovery and orderly wind-down plan.
1. Staffing Necessary To Support Core Services
OCC's RWD Plan does not currently contain a list of key staff by
department. OCC proposes changes to its RWD Plan to identify staffing
roles necessary to support OCC's core services.\12\ Specifically, OCC
proposes adding a new section in Chapter 3 titled Key Staffing Roles.
The Key Staffing Roles section lists a number of functions that support
OCC's core services, including Business Operations, Corporate,
Corporate Finance, Financial Risk Management, and Information
Technology.\13\ Under these support functions, OCC lists key staffing
roles necessary to support its core services in the event of a recovery
or wind-down.\14\
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\12\ See Id. at 19349
\13\ Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/about/publications/bylaws.jsp">https://www.theocc.com/about/publications/bylaws.jsp</a>.
\14\ Proposed Chapter 3 also provides that a single employee may
be able to perform multiple key staffing roles.
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To analyze how staffing roles necessary to support core services
would continue in the event of a recovery or wind-down, OCC proposes
changes to a section in Chapter 5 titled ``Targeted Reductions in
Force.'' \15\ Specifically, OCC proposes text indicating that, while
staff reductions
[[Page 36473]]
would be an attempt to limit OCC's expenses, Management's primary
responsibility is retaining key staffing roles such that OCC is able to
continue providing core services. The proposed RWD Plan notes that
OCC's Management may need to offer additional compensation to retain
key staff while simultaneously reducing other staff during a wind-down
and that OCC adjusts its staffing estimate for resolution cost to
account for retention bonuses.
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\15\ See Notice, 90 FR at 19351.
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2. Replacing ``Critical Services'' With ``Core Services''
To align with the language the Commission uses in its rules, OCC
proposes replacing ``critical services'' with ``core services''
throughout the RWD Plan.\16\ OCC also proposes a change in Section 1.2
of the RWD Plan to indicate that OCC has identified its core payment,
clearing, and settlement services based on CPSS-IOSCO \17\ and FSB \18\
guidance on the identification of critical services. OCC stated that
the purpose of this change is to improve clarity and consistency with
terminology in Commission rules.\19\
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\16\ See Id. at 19349. OCC also proposes adding a new footnote 1
to the RWD Plan explaining the switch from ``critical services'' to
``core services'' and clarifying that this replacement does not
affect OCC's identification of those services.
\17\ Committee on Payment and Settlement Systems of the Bank for
International Settlements and the International Organization of
Securities Commissions.
\18\ Financial Stability Board.
\19\ See Notice, 90 FR at 19349. OCC also proposes deleting the
text ``have provided'' from this passage for grammatical reasons.
Id.
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3. Service Providers for Core Services
The Proposed Rule Change describes service providers for core
services, specifies which core services each service provider supports,
and addresses how OCC ensures that service providers for core services
would continue to perform in the event of a recovery and during an
orderly wind-down. OCC proposes adding a new section to the RWD Plan
titled Service Providers for Core Services.\20\ This new section
provides that OCC's Board is responsible for the oversight of service
providers that provide core services for OCC, including the review of
risk assessments for current vendors and approving terms for new
vendors that will provide core services for OCC. The proposed section
also includes a table identifying service providers that support core
services, including vendors, financial market utilities, banks,
liquidity providers, and liquidation agents. The proposed table
identifies the type of service provider, the service provider's name,
OCC's relationship with the service provider, and which core service
the service provider supports.\21\ OCC also proposes adding a footnote
indicating that OCC maintains multiple relationships with some service
providers.\22\
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\20\ See Id.
\21\ OCC's core services are clearance and settlement services
and pricing and valuation services. See Id.
\22\ See Id. at 19352. The RWD Plan would also provide that
additional information related to OCC's service providers for core
services, as well as a more extensive list of service providers
supporting OCC, is available and may be obtained from OCC's Third-
Party Risk Management Department upon request. Separately, OCC
proposes removing Clearing Members and exchanges from a list of
``Critical External Interconnections'' that are necessary for OCC to
provide core services because OCC does not believe these types of
third-parties qualify as service providers.
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OCC proposes to eliminate existing references to ``Tier 1 Vendors''
because OCC would no longer categorize vendors in such a way. Instead,
OCC would, in some instances, refer to such vendors as service
providers for core services and make additional changes conforming the
RWD Plan to this proposed replacement.\23\ OCC also proposes replacing
references to Tier 1 Vendors with text providing that in addition to
the service providers for core services referenced in the RWD Plan, OCC
maintains an extensive list of other service providers supporting OCC,
which list may be obtained from OCC's Third-Party Risk Management
Department upon request.\24\ In this provision, OCC also proposes to
replace reference to the RWD Plan Supporting Information with reference
to OCC's Third-Party Risk Management Department. The list of additional
vendors supporting OCC is dynamic. OCC proposes this change to minimize
the risk that the ever-changing, additional vendor information becomes
outdated.\25\ OCC also proposes additions and replacements throughout
Chapter 2 indicating that the Service Providers for Core Services
section of the RWD Plan lists information including the names of
certain subsets of core service providers. OCC proposes these changes
because the list of service providers for core services was relocated
from the RWD Plan Supporting Information into the RWD Plan.\26\
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\23\ See Id. at 19348, 19350. OCC proposes replacing one
reference to ``Tier 1 vendor'' with the word ``vendor.''
\24\ See Id. at 19349-50.
\25\ See Id. at 19350.
\26\ See Id. at 19352.
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As noted above, OCC proposes to add a new section to the RWD Plan
that would include a table referencing types of service providers.
There, liquidation agents and escrow banks are listed as types of core
service providers. In connection with this change, OCC also proposes
conforming updates to Chapter 2 of the RWD Plan to reference and
describe these categories of core service providers.\27\ The proposed
changes would add liquidation agents to a list of third-parties with
which OCC has interconnections and add a new section to the RWD Plan
titled ``Interconnections with Liquidation Agents.'' \28\ This new
section would specify that OCC has financial and operational
interconnections with liquidation agents and that liquidation agents
may be charged with the duty of winding up the affairs of a defaulting
Clearing Member.\29\ The new section explains further that OCC has
several risk management tools available to re-establish a matched book
after a Clearing Member default, including open market transactions
executed by OCC's Liquidation Agent (i.e., liquidation of the
defaulter's portfolio). Separately OCC proposes adding a new section
related to escrow banks (e.g., ``Interconnections with Escrow Banks'')
and, where relevant, revising the title of a section of the RWD Plan to
reference escrow banks.\30\ The RWD Plan would further be updated to
state that OCC has financial and operational interconnections with
escrow banks and that OCC's Escrow Deposit Program allows a customer of
an OCC Clearing Member to use cash deposited with the Escrow Bank as
supporting collateral backing Escrow Deposits. It would further note
that each customer must enter into a Tri-Party Agreement with the Bank
and OCC in order to use cash as collateral.
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\27\ See Id. at 19351.
\28\ Id.
\29\ Id. at 19351-52.
\30\ OCC also proposes to add escrow banks and liquidation
agents to a list of ``Critical External Interconnections'' that are
necessary for OCC to provide core services.
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OCC also proposes modifying and relocating the ``Key Agreements to
be Maintained'' section of the RWD Plan to align its RWD Plan more
closely to the Commission's recovery and wind-down rule.\31\ The
relocation is also designed to acknowledge that it pertains to both
recovery and wind-down rather than solely to wind-down.\32\ The
relocated section would also state that a list of key agreements is
available upon request as indicated in the RWD Plan Supporting
Information. Similarly, the proposed
[[Page 36474]]
changes would indicate that OCC's critical external interconnections
are essential to OCC's continued provision of core services and that it
is imperative that OCC maintains them ``during a recovery or wind-
down'' rather than ``during the execution of the WDP.'' Currently, the
RWD Plan discusses material adverse change clauses only in the wind-
down context. OCC proposes to broaden the discussion in the RWD Plan to
indicate that agreements with Exchanges and Service Providers for Core
Services do not contain material adverse change (``MAC'') clauses or
similar provisions that would permit the counterparty to terminate the
agreement and discontinue the provision of services in the event of a
recovery or during a wind-down.\33\ Finally, OCC proposes removing text
that currently indicates that each OCC interconnection with a
particular Clearing Member, settlement bank, or custodian bank
relationship is not necessarily critical to OCC's provision of critical
services, given the number of institutions within each category upon
which OCC relies, because OCC believes that the text to be removed does
not align with the service providers for core services list or the
Commission's recovery and wind-down rule.\34\
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\31\ See Notice, 90 FR at 19350.
\32\ The section currently resides in Chapter 5 of the RWD Plan,
which focuses solely on wind-downs.
\33\ See Notice, 90 FR at 19350. Additionally, the RWD Plan
would indicate that OCC's Legal Department will review key
agreements to determine whether any renewals or expirations of such
agreements will occur during the expected duration of the wind-down
and counsel the business accordingly. Separately, OCC proposes to
more concisely describe OCC's Material Agreements Policy, which
pertains to the periodic review of agreements with Exchanges and
service providers for core services.
\34\ See Notice, 90 FR at 19352.
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4. Triggering OCC's Implementation of the RWD Plan
The Proposed Rule Change describes the process that OCC uses to
monitor and determine whether the criteria that could trigger its
implementation of the RWD Plan have been met. OCC proposes a new
``Trigger Monitoring'' section of the RWD Plan, which would provide
that trigger monitoring is performed through several processes at
OCC.\35\ The proposed language explains that the monitoring of specific
triggers (i.e., triggers related to Credit Loss, Liquidity Loss,
Operational Disruption, and General Business Loss) is prescribed in
specific policies and their underlying procedures.\36\ For example, the
language ties the Credit Loss trigger to the Default Management Policy,
the Liquidity Loss trigger to the Clearing Fund Methodology Policy, the
Operational Disruption trigger to the Technology Operations Policy, and
the General Business Loss trigger to the Capital Management Policy
(``CMP'').\37\ The Proposed Rule Change provides that the relevant
support function lead or delegate, as prescribed in the underlying
policy or procedures, is responsible for notifying OCC's Crisis
Management Team of a breach of any of the Recovery Triggers.
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\35\ See Id. at 19350.
\36\ See Id.
\37\ See Id.
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5. Notice of Implementation of the Recovery or Orderly Wind-Down
OCC proposes changes to the RWD Plan aimed at informing the
Commission as soon as practicable when OCC is considering implementing
a recovery or orderly wind-down. Currently, in the context of a
recovery, the RWD Plan indicates that OCC's General Counsel is
responsible for notifying the Commission, the Federal Reserve Bank, and
the CFTC (and the FDIC, to the extent applicable) of the occurrence of
a Recovery Trigger Event. OCC proposes to require such notification
``as soon as practicable when OCC is considering the implementation''
of a recovery. Similarly, OCC proposes new language that would require
the responsible staff to notify regulators as soon as practicable when
the Board of Directors' is considering the decision to enact a wind-
down.\38\
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\38\ See Id. at 19351.
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6. Testing OCC's Ability To Implement the RWD Plan
OCC proposes changes to its RWD Plan to require testing of OCC's
ability to implement the plan at least every 12 months, which is not
part of the current RWD Plan.\39\ The amended RWD Plan would note that
the Risk Management Framework and Default Management Policy govern such
testing and that the results of such testing would be reported to OCC's
Board. OCC's proposed changes also would require participation by
participants and in some instances stakeholders,\40\ and outline the
roles and responsibilities related to testing (e.g., review of results
by OCC's Management Committee or the Working Group incorporating into
the RWD Plan any lessons learned from workshops or testing).\41\
Further, OCC proposes adding that the Risk Committee's review of the
RWD Plan, as well as any subsequent recommendation to OCC's Board,
considers revisions to the RWD Plan informed by testing results.\42\
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\39\ See Id.
\40\ See Id.
\41\ See Id.
\42\ See Id.
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B. Proposed Changes Related to the Annual Review Process
The Proposed Rule Change would also make several changes to the RWD
Plan that were identified during OCC's annual review process.\43\ These
changes relate to OCC's organizational structure; the alignment of
provisions within the RWD Plan with each other, OCC's Rules, and other
policies; the RWD Plan's hypothetical scenarios; and other corrections,
clarifications, and updates to the RWD Plan.
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\43\ See Id. at 19348.
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1. Changes to OCC's Organizational Structure
OCC proposes changes to reflect its current organizational
structure and the duties associated with specific roles within OCC's
management.\44\ Such changes include reflecting that the Chief External
Relations Officer \45\ and the Chief Clearing and Settlement Services
Officer are a part of OCC's Management Committee.\46\ The Proposed Rule
Change would also reflect OCC's transition to a non-Executive Chairman
governance structure given that the Executive Chairman role no longer
exists at OCC.\47\ Due to this organizational structure, OCC also
proposes replacing the term Executive Chairman with Chairman in several
provisions in the RWD Plan.\48\ OCC also proposes to replace throughout
the RWD Plan the title Chief Legal Officer and General Counsel with
General Counsel and Corporate Secretary to align with OCC's current
organizational structure.\49\
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\44\ See Id. at 19352.
\45\ See Id. OCC would also update the description of the Chief
External Relations Officer's role to reflect that the Corporate
Communications support function has moved from under the Chief
External Relations Officer into the Human Resources Dept. See id.
\46\ See Id. The Chief Clearing and Settlement Services Officer
is responsible for the oversight of the Business Operations
department, which includes Collateral Services, Market Operations,
Corporate Actions, and Participant Services and Solutions. See id.
\47\ See Id.
\48\ See Id. at 19357.
\49\ See Id. at 19348.
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OCC proposes changes to Chapter 3 that would update, add, remove,
and relocate the names of departments and support functions to align
with OCC's current organizational structure.\50\ For example, OCC
proposes to note that the Exams Department currently resides within the
Compliance support function, where it was moved from the
[[Page 36475]]
Legal support function. Similarly, OCC proposes moving the Business
Continuity Department from the Security Services support function to
the Business Operations support function and the Corporate
Communications Department from the External Relations support function
to the Human Resources support function.\51\ The proposed changes would
also update department ratings.\52\ Finally, OCC would correct a
reference to the number of support functions necessary to deliver OCC's
core services by replacing the number 12 with 11 to reflect OCC's
determination that 11 support functions have been identified as
necessary to deliver OCC's core services.\53\
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\50\ See Id. at 19353.
\51\ See Id.
\52\ OCC's RWD Plan contains department ratings based on whether
a department is necessary to deliver OCC's Core Services and the
speed with which a department's failure would impact OCC's Core
Services.
\53\ As a result of the Corporate Communications Department
moving to Human Resources, External Relations would no longer be
designated as a critical support function. OCC proposes changes
reflecting its current critical support functions. See Notice, 90 FR
at 19353.
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2. Aligning the RWD Plan Internally and With OCC's Rules and Policies
OCC proposes several changes to its RWD Plan to align its
provisions with each other and with OCC's Rules and policies.\54\ For
example, OCC proposes to amend certain hypothetical scenario titles to
ensure that they are internally consistent within the RWD Plan.\55\ To
ensure consistency with OCC's Board Charter, which uses the term RWD
Plan instead of Recovery and Resolution Plan, OCC also proposes to
replace a current reference in the RWD Plan to Recovery and Resolution
Plan with a reference to RWD Plan.\56\
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\54\ See Id.
\55\ See Id. 19354-55.
\56\ See Id. at 19357.
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OCC proposes a number of changes to align the RWD Plan with the
Capital Management Policy, including replacing references to Equity in
the RWD Plan with Liquid Net Assets Funded By Equity (``LNAFBE'') \57\
and defining Minimum Corporate Contribution within the RWD Plan as the
minimum level of OCC funds maintained exclusively to cover credit
losses or liquidity shortfalls and is determined by the Board from time
to time, which is the definition used in the CMP. Consistent with OCC
Rule 1006(e)(i) and the CMP, the revised RWD Plan would explain that
OCC may use certain corporate resources to address non-default losses,
default losses, or both.\58\ Because OCC proposes adding text
discussing its tools in the event of a non-default loss, default loss,
or both, OCC also proposes adding text clarifying that, in the event of
an operational loss, contribution of Excess LNAFBE and EDCP Unvested
Balance are not subject to heightened governance or further Board
approval.\59\ OCC also proposes to replace a general reference to OCC's
Replenishment Plan with a more specific reference to OCC's Operational
Loss Fee in the context of enhanced risk management and recovery tools.
Further, OCC proposes to remove language stating that implementation of
a clearing fee change would more likely happen if shareholders' equity
fell below 110% but remained above 90% of OCC's Target Capital
Requirement, because this text is outdated.\60\ OCC replaces the
deleted text with the more general statement that implementation of a
clearing fee change would more likely be based on the thresholds in
OCC's CMP. OCC proposes the more general language to reduce the risk of
the RWD Plan becoming inaccurate due to future changes to the CMP.\61\
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\57\ Id. at 19353.
\58\ See Id. at 19353-54 (discussing the application of liquid
net assets funded by equity as well as the EDCP Unvested Balance).
The EDCP Unvested Balance is a specific set of executive
compensation held in trust that comprises a portion of OCC's skin-
in-the-game. See Securities Exchange Act Release No. 92038 (May 27,
2021), 86 FR 29861, 29862 n.10 (June 3, 2021) (File No. SR-OCC-2021-
003). OCC also proposes conforming changes to Exhibit 4-1 in the RWD
Plan.
\59\ See Notice, 90 FR at 19354.
\60\ See Id.
\61\ See Id.
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For consistency with OCC Rule 1002, OCC proposes inserting
``minimum'' before ``cash Clearing Fund'' to provide that temporary
increases in the minimum cash Clearing Fund requirement must be
reviewed by the Risk Committee as soon as practicable, and in any event
within 20 days of the decision to increase.\62\ Finally, OCC proposes
changes to more accurately describe the process for use of the Clearing
Fund and EDCP Unvested Balance pursuant to Rule 1006.\63\ As proposed,
the RWD Plan would (i) state that OCC pays deficiencies (rather than
losses) from the Clearing Fund, for consistency with OCC Rule 1006(b);
\64\ (ii) no longer state that, to borrow from the Clearing Fund, OCC
must first determine that it is unable to borrow or otherwise obtain
such funds on acceptable terms on an unsecured basis, because OCC's
rules no longer require this; and (iii) consistent with OCC Rule
1006(h), clarify that replenishment of the Clearing Fund would not be
required until a borrowing is deemed a charge against the Clearing
Fund.
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\62\ See Id.
\63\ Id.
\64\ See Id.
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3. Scenario Changes
The RWD Plan identifies four hypothetical scenarios that could
threaten OCC's viability as a going concern and describes how OCC would
respond to each scenario.\65\ OCC proposes changes to these scenarios
that it states would (i) update referenced numbers throughout all
detailed scenarios and (ii) provide more granular information regarding
assumptions and details to make each scenario more realistic.\66\ Such
changes include adding regulatory notification as an action that may be
taken in each scenario, removing information that OCC believes is no
longer relevant,\67\ relocating information within a scenario to
clarify the timeline,\68\ adding language to avoid ambiguity in
scenario assumptions,\69\ revising information regarding assumptions
and details in the scenarios,\70\ updating timelines within the
scenarios,\71\ and improving the scenarios' flexibility.\72\ OCC
believes the proposed changes identified during its annual review
process, including those related to hypothetical scenarios, improve the
accuracy of the Plan by
[[Page 36476]]
incorporating the most up to date information within the Plan so that
OCC can reasonably anticipate and prepare for the possibility of a
recovery or wind-down.\73\
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\65\ See Id. at 19347.
\66\ See Id. at 19355. For example, OCC proposes, for scenario
1, to characterize the first draw after the Clearing Member default
as a borrowing from the Clearing Fund rather than a proportionate
charge to the Clearing Fund and unvested EDCP Balance to align with
OCC's approach to firm-wide default tests. See id. at 19355-56.
\67\ See Id. at 19356 (describing removal of two provisions from
day 2 of scenario 1 related to the satisfaction of assessment and
replenishment obligations that OCC asserts are no longer applicable
in the event of a realistic scenario).
\68\ See Id. at 19357 (describing the relocation of ``DTC
confirms they are experiencing an outage and are working on the
problem'' and ``DTC has no ETA on resolution and does not expect to
be resolved by the end of the processing day'' in scenario 3 to an
earlier section of the scenario).
\69\ See Id. at 19356-57 (adding ``due to the large number of
Clearing Members settling through Bank A and the extensive manual
payment instructions that go along with enacting alternative
settlement, the OCEO authorizes extension of settlement until the
close of Fedwire'' to specify OCC's existing expectation in
writing.)
\70\ See Id. at 19357 (proposing revisions to scenario 3
reflecting that in a realistic scenario OCC would respond to
Clearing Member inquiries regarding the validity of their collateral
but would not proactively address collateral validity).
\71\ See Id. at 19356 (proposing to extend scenario 1 to last 22
days rather than 21 to account for the initial draw in scenario 1
being a borrowing from the Clearing Fund rather than a proportionate
charge to the Clearing Fund and unvested EDCP Balance.
\72\ See Id. (revising scenario 2 to assume that ``more than''
25 Clearing Members settle through Bank A).
\73\ See Id. at 19358.
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4. Other Corrections, Clarifications, and Updates
The Proposed Rule Change would make a series of other corrections,
clarifications, and updates to provisions that do not address the
scenarios.\74\ Proposed corrections include (i) adding the word ``not''
to correct a statement about Wind-Down trigger events that, as
proposed, would state that such a trigger event would occur when,
during OCC's recovery efforts, OCC determined that recovery efforts
have not been, or are unlikely to be successful,\75\ (ii) correcting
inaccurate references to the ``Bank On-Boarding and Off-Boarding
Procedure'' by replacing them with references to the ``Settlement Bank
Failure Procedure,'' \76\ and (iii) in the context of stock loan
terminations, replacing an inaccurate reference to increasing the size
of the Clearing Fund with a more accurate statement about the need to
communicate termination of the stock loan programs in a timely and
appropriate manner.\77\
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\74\ Throughout the RWD Plan, OCC proposes minor grammatical,
formatting, and non-substantive changes. See Id. at 19349. Further,
OCC also proposes changes to section and exhibit numbering
throughout the RWD Plan to reflect deleted or added provisions. See
id.
\75\ See Id. at 19352.
\76\ See Id. at 19355.
\77\ See Id.
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Proposed clarifications include (i) updating discussion of service
level agreements to note that OCC maintains such agreements with
certain (as opposed to all) vendors,\78\ (ii) removing a redundant list
of Critical Support Functions,\79\ (iii) replacing ``LNAFBE greater
than 110% of the Target Capital Requirement'' with ``Excess LNAFBE''
throughout the RWD Plan,\80\ (iv) expanding the groups that receive
notifications of certain incidents in a scenario, (v) revising the RWD
Plan to acknowledge that, following a merger in wind-down, OCC may not
be the only surviving entity,\81\ and (vi) amending a scenario
description to acknowledge the assumption that Clearing Members would
be able to both send and receive wire funds to and from back up
settlement banks.\82\
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\78\ See Id. at 19352.
\79\ See Id. at 19353.
\80\ See Id.
\81\ See Id. at 19355.
\82\ See Id. at 19356 (stating that the change is designed to
capture the assumption that functionality between settlement bank
and Clearing Member is operating without issue).
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Proposed updates include (i) removing reference to the Jersey City
Business Center because that facility no longer exists,\83\ (ii)
adjusting the number of staff working in critical support
functions,\84\ (iii) revising data related to potential reductions in
force in the context of a wind-down,\85\ and (iv) replacing ``CMT
Leader'' with ``Crisis Management Coordinator'' throughout the RWD Plan
to reflect the accurate name of the title of the role at OCC.\86\
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\83\ See Id. at 19352.
\84\ See Id. at 19353.
\85\ See Id. at 19355.
\86\ See Id.
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OCC also proposes to remove outdated data and reduce the need for
future updates by replacing a specific statement regarding member
affiliated banks in the bank credit facility \87\ with the general
statement that the amount of the commitment of each bank is capped to
limit the risk posed by any single bank counterparty.\88\ Relatedly,
OCC would update the RWD Plan to reflect that the list of eligible
collateral for the facility was expanded beyond just the components of
the S&P 500.\89\ The Proposed Rule Change would make similar
corrections, clarifications, and updates to those described above
throughout the RWD Plan.\90\
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\87\ The bank credit facility is revolving credit facility that
OCC maintains for a 364-day term and that it may use in certain
instances, such as in anticipation of a potential default by or
suspension of a Clearing Member. See Securities Exchange Act Release
No. 88971 (May 28, 2020), 85 FR 34257, 34258 (June 3, 2020) (File
No. SR-OCC-2020-804).
\88\ See Notice, 90 FR at 19352.
\89\ See Id. at 19353.
\90\ See Id. at 19346.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\91\ 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.'' \92\ The description of a proposed rule change, its purpose
and operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\93\ 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.\94\ 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.\95\
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\91\ 15 U.S.C. 78s(b)(2)(C).
\92\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\93\ Id.
\94\ Id.
\95\ 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
Section 17A(b)(3)(F) of the Act,\96\ Rule 17ad-22(e)(3)(ii),\97\ and
Rules 17ad-26(a)(1), (2), (4), (7), and (8) thereunder, as described in
detail below.\98\
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\96\ 15 U.S.C. 78q-1(b)(3)(F).
\97\ 17 CFR 240.17ad-22(e)(3)(ii).
\98\ 17 CFR 240.17ad-26(a)(1), (2), (4), (7), and (8).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, OCC's rules, among other
things, must be designed to promote the prompt and accurate clearance
and settlement of securities transactions.\99\ Based on a review of the
record, and for the reasons discussed below, OCC's proposed rule change
is consistent with Section 17A(b)(3)(F). Based on a review of the
record, and for the reasons discussed below,\100\ OCC's changes are
consistent with the promotion of prompt and accurate clearance and
settlement of securities transactions. Accordingly, the Proposed Rule
Change is consistent with the requirements of Section 17A(b)(3)(F) of
the Act.\101\
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\99\ 15 U.S.C. 78q-1(b)(3)(F).
\100\ See infra Section III.B. (Consistency with Rule 17ad-
22(e)(3)(ii) under the Act) and Sections III.C.--G (Consistency with
Rule 17ad-26(a) under the Act).
\101\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17ad-22(e)(3)(ii)
Rule 17ad-22(e)(3)(ii) requires that OCC ``establish implement,
maintain and enforce written policies and procedures reasonably
designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by the covered clearing agency, which includes plans
[[Page 36477]]
for the recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\102\
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\102\ 17 CFR 240.17ad-22(e)(3)(ii).
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As described above, OCC proposes changes relating to OCC's
organizational structure; the alignment of provisions within the RWD
Plan with each other and with OCC's Rules and policies; the RWD Plan's
hypothetical scenarios; and other corrections, clarifications, and
updates to the RWD Plan. For example, OCC proposes changes to reflect
its current organizational structure such as identifying the Chief
External Relations Officer and the Chief Clearing and Settlement
Services Officer as members of the Management Committee and replacing
references to an Executive Chairman because that role no longer exists
at OCC.\103\ Separately, OCC proposes several changes to its RWD Plan
to ensure that it is both internally consistent and consistent with
other OCC Rules and policies, such as OCC Rule 1006 and the CMP.\104\
The proposed changes also would update data and provide more
granularity in the hypothetical scenarios described in the RWD Plan
\105\ and make various other corrections, clarifications, and updates
designed to further strengthen and clarify the RWD Plan.\106\
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\103\ See supra Section II.B.1.
\104\ See supra Section II.B.2.
\105\ See supra Section II.B.3.
\106\ See supra Section II.B.4.
---------------------------------------------------------------------------
These proposed changes will make the information provided in the
RWD Plan more accurate and useful; provide a more accurate and usable
playbook for OCC or source of information for a resolution authority;
reduce the risk that the RWD Plan contains inaccurate or stale
information; and support OCC's ability to use risk management and
recovery tools effectively to bring about a recovery by clarifying
which tools may be most effective for different situations or needs. As
such, these changes would provide a more up-to-date and useful set of
information for the relevant authorities to carry out any needed
recovery and resolution planning more expeditiously.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-22(e)(3)(ii) under the Act.\107\
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\107\ 17 CFR. 240.17ad-22(e)(3)(ii).
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C. Consistency With Rule 17ad-26(a)(1) Under the Act
Rule 17ad-26(a)(1) requires OCC's RWD Plan to ``identify and
describe the covered clearing agency's core payment, clearing, and
settlement services and address how the covered clearing agency would
continue to provide such core services in the event of a recovery and
during an orderly wind-down, including by identifying the staffing
roles necessary to support such core services; and analyzing how such
staffing roles necessary to support such core services would continue
in the event of a recovery and during an orderly wind-down.'' \108\
Based on a review of the record, and for the reasons discussed below,
OCC's proposed rule change is consistent with Rule 17ad-26(a)(1).
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\108\ 17 CFR 240.17ad-26(a)(1).
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As described above in section II.A.1, OCC's proposed changes
identify staffing roles necessary to support core services. Staffing
roles do not refer to specific personnel or employees, but instead,
positions, roles, or personnel functions that are necessary for the
continuation of core services. OCC's proposed changes list key staffing
roles necessary for OCC to continue providing its core services in the
event of a recovery or wind-down. The Proposed Rule Change also
analyzes how staffing roles necessary to support core services would
continue in the event of a recovery and during an orderly wind-down.
For example, the proposed changes would indicate that, during a wind-
down, OCC's Management may need to offer additional compensation to
retain key staff while simultaneously reducing other staff. Similarly,
OCC proposes replacing ``critical services'' with ``core services''
throughout the RWD Plan to align the RWD Plan with the text of Rule
17ad-26(a)(1).
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-26(a)(1).\109\
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\109\ 17 CFR 240.17ad-26(a)(1).
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D. Consistency With Rule 17ad-26(a)(2) Under the Act
Rule 17ad-26(a)(2) requires OCC's RWD Plan to ``identify and
describe any service providers for core services, specifying which core
services each service provider supports; and address how the covered
clearing agency would ensure that service providers for core services
would continue to perform in the event of a recovery and during an
orderly wind-down, including consideration of its written agreements
with such service providers and whether the obligations under those
written agreements are subject to alteration or termination as a result
of initiation of the recovery and orderly wind-down plan.'' \110\ Based
on a review of the record, and for the reasons discussed below, OCC's
proposed rule change is consistent with Rule 17ad-26(a)(2).
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\110\ 17 CFR 240.17ad-26(a)(2).
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As described above in section II.A.3, OCC's proposed changes
describe service providers for core services and specify which core
service each service provider supports. Specifically, OCC proposes
adding a section to the RWD Plan that would contain a table identifying
service providers that support OCC's core services. The proposed
changes also identify the type of service provider, the service
provider's name, OCC's relationship with the service provider, and the
specific core service the service provider supports.
The proposed changes also address how OCC would ensure that service
providers for core services would continue to perform in the event of a
recovery and during an orderly wind-down, including consideration of
OCC's written agreements with such service providers and whether the
obligations under those written agreements are subject to alteration or
termination as a result of initiation of the recovery and orderly wind-
down plan. Specifically, the proposed changes would revise the RWD Plan
to specify that OCC drafted its written agreements with service
providers in a manner that acknowledges and helps ensure that service
providers can continue to perform their services during a recovery or
wind-down event. For example, the Proposed Rule Change would indicate
that agreements do not contain MAC clauses or similar provisions that
would permit the counterparty to terminate the agreement and
discontinue the provision of services in the event of a recovery or
during a wind-down. The Proposed Rule Change also would acknowledge the
need to consider the maintenance of key agreements in both recovery and
wind-down rather than solely wind-down.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-26(a)(2).\111\
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\111\ 17 CFR 240.17ad-26(a)(2).
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E. Consistency With Rule 17ad-26(a)(4) Under the Act
Rule 17ad-26(a)(4) requires OCC's RWD Plan to ``identify and
describe criteria that could trigger the covered clearing agency's
implementation of the recovery and orderly wind-down plans and the
process that the covered clearing agency uses to monitor and determine
whether the criteria have been met, including the governance
arrangements applicable to such
[[Page 36478]]
process.'' \112\ Based on a review of the record, and for the reasons
discussed below, OCC's proposed rule change is consistent with Rule
17ad-26(a)(4).
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\112\ 17 CFR 240.17ad-26(a)(4).
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As described above in Section II.A.4, OCC's proposed changes
support the identification of relevant governance arrangements by
clearly identifying the relevant internal policy document governing the
process for monitoring each trigger and adding a new Trigger Monitoring
section to the RWD Plan that generally describes the four triggers that
OCC relies upon to determine whether it is appropriate to implement the
RWD Plan.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-26(a)(4).\113\
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\113\ 17 CFR 240.17ad-26(a)(4).
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F. Consistency With Rule 17ad-26(a)(7) Under the Act
Rule 17ad-26(a)(7) requires OCC's RWD Plan to ``require the covered
clearing agency to inform the Commission as soon as practicable when
the covered clearing agency is considering implementing a recovery or
orderly wind-down.'' \114\ Based on a review of the record, and for the
reasons discussed below, OCC's proposed rule change is consistent with
Rule 17ad-26(a)(7).
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\114\ 17 CFR 240.17ad-26(a)(7).
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As described in section II.A.5 above, OCC proposes to add language
to the RWD Plan requiring that OCC's General Counsel notify the
Commission, among others, as soon as practicable when OCC is
considering the implementation of a Recovery Trigger Event. The
proposed changes would also require responsible staff to notify
regulators as soon as practicable when the Board of Directors' is
considering the decision to enact a wind-down.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-26(a)(7).\115\
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\115\ 17 CFR 240.17ad-26(a)(7).
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G. Consistency With Rule 17ad-26(a)(8) Under the Act
Rule 17ad-26(a)(8), in part, requires OCC's RWD Plan to ``include
procedures for testing the covered clearing agency's ability to
implement the recovery and orderly wind-down plans at least every 12
months, including by requiring the covered clearing agency's
participants and when practicable other stakeholders to participate in
the testing of its plans; . . . providing for reporting the results of
such testing to the covered clearing agency's board of directors and
senior management; and specifying the procedures for, as appropriate,
amending the plans to address the results of such testing.'' \116\
Based on a review of the record, and for the reasons discussed below,
OCC's proposed rule change is consistent with Rule 17ad-26(a)(8).
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\116\ 17 CFR 240.17ad-26(a)(8).
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As described in section II.A.6 above, OCC proposes to add language
to the RWD Plan to require testing of OCC's ability to implement the
plan at least every 12 months and state that the Risk Management
Framework and Default Management Policy govern such testing. OCC's
proposed changes also would require participation by participants and
in some instances stakeholders in testing, and outline the roles and
responsibilities related to testing (e.g., review of results by OCC's
Management Committee). Further, the Proposed Rule Change would require
that testing results are reported to OCC's Board and senior management.
OCC's proposed changes would also require the Risk Committee to
annually review and consider for an approval recommendation to the
Board any revisions to the RWD Plan informed by testing results.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-26(a)(8).\117\
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\117\ 17 CFR 240.17ad-26(a)(8).
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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 Act,
and in particular, Section 17A(b)(3)(F) of the Act,\118\ Rule 17ad-
22(e)(3)(ii),\119\ and Rules 17ad-26(a)(1), (2), (4), (7), and
(8).\120\
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\118\ 15 U.S.C. 78q-1(b)(3)(F).
\119\ 17 CFR. 240.17ad-22(e)(3)(ii).
\120\ 17 CFR 240.17ad-26(a)(1), (2), (4), (7), and (8).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-OCC-2025-005) be, and hereby is,
approved.\121\
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\121\ In approving the proposed rule change, the Commission
considered the proposal's impacts on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\122\
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\122\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-14669 Filed 8-1-25; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on August 4, 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.