Notice2025-15426
Self-Regulatory Organizations; the Options Clearing Corporation; Order Granting Approval of Proposed Rule Change by the Options Clearing Corporation Concerning Updates to Its Portfolio Revaluation Process for Purposes of Determining Intraday Margin Calls in Order To Better Manage OCC's Intraday Risk Exposure to Its Clearing Members
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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
August 14, 2025
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 90 Issue 155 (Thursday, August 14, 2025)</title>
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[Federal Register Volume 90, Number 155 (Thursday, August 14, 2025)]
[Notices]
[Pages 39229-39231]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-15426]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103677; File No. SR-OCC-2025-007]
Self-Regulatory Organizations; the Options Clearing Corporation;
Order Granting Approval of Proposed Rule Change by the Options Clearing
Corporation Concerning Updates to Its Portfolio Revaluation Process for
Purposes of Determining Intraday Margin Calls in Order To Better Manage
OCC's Intraday Risk Exposure to Its Clearing Members
August 11, 2025.
I. Introduction
On May 15, 2025, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2025-007, pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
\2\ thereunder, to make updates to its portfolio revaluation process
for purposes of determining intraday margin calls.\3\ The proposed rule
change was published for public comment in the Federal Register on June
2, 2025.\4\ The Commission has received public comment supporting the
proposed rule change.\5\ On July 17, 2025, pursuant to Section 19(b)(2)
of the Exchange Act,\6\ 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.\7\ 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 23403.
\4\ See Securities Exchange Act Release No. 103123 (May 27,
2025), 90 FR 23403 (June 2, 2025) (File No. SR-OCC-2025-007)
(``Notice of Filing'').
\5\ Comments on the proposed rule change are available at
<a href="https://www.sec.gov/comments/sr-occ-2025-007/srocc2025007.htm">https://www.sec.gov/comments/sr-occ-2025-007/srocc2025007.htm</a>.
\6\ 15 U.S.C. 78s(b)(2).
\7\ Securities Exchange Act Release No. 103493 (July 17, 2025),
90 FR 34564 (July 22, 2025) (File No. SR-OCC-2025-007).
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II. Background
OCC is a central counterparty (``CCP''), which means that, as part
of its function as a clearing agency, it interposes itself as the buyer
to every seller and the seller to every buyer for certain financial
transactions. As the CCP for the listed options markets in the United
States,\8\ as well as for certain futures and stock loans, OCC is
exposed to certain risks arising from providing clearing and settlement
services to its Clearing Members.\9\ Because OCC is obligated to
perform on the contracts it clears, even where one of its Clearing
Members defaults, one such risk to which OCC is exposed is credit risk
in the form of exposure to a Clearing Member's trading activities. OCC
manages such credit risk, in part, by collecting collateral from its
Clearing Members in the form of margin. OCC sets margin requirements
and collects margin daily; however, it may also collect margin intraday
under certain circumstances.
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\8\ OCC describes itself as ``the sole clearing agency for
standardized equity options listed on a national securities exchange
registered with the Commission (`listed options').'' See Securities
Exchange Act Release No. 96533 (Dec. 19, 2022), 87 FR 79015 (Dec.
23, 2022) (File No. SR-OCC-2022-012).
\9\ Capitalized terms not defined herein have the same meaning
as provided in OCC's By-Laws and Rules, which can be found on OCC's
public website: <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
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At the start of each business day, OCC collects the required margin
for each marginable account calculated by OCC's proprietary System for
Theoretical Analysis and Numerical Simulation (``STANS''), based on the
account's end-of-day positions \10\ from the previous business day. OCC
is also authorized to make intraday margin calls in certain defined
circumstances, such as to reflect changes in the market price of
options held in a short position, size of a Clearing Member's
positions, value of securities deposited as margin, or otherwise to
protect OCC, other Clearing Members or the general public, among other
circumstances.\11\
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\10\ The term ``end-of-day positions'' refers to the positions
held by Clearing Members after the markets have closed each business
day. See Notice of Filing, 90 FR at 23404 n.4.
\11\ See OCC Rule 609(a).
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OCC monitors the impact of intraday price movements on Clearing
Member positions as a potential basis for collecting additional
margin.\12\ Specifically, OCC uses price movements throughout the day
to calculate updated profit and loss (``P&L'') for each account based
on a Clearing Member's start-of-day positions in that account.\13\ OCC
may call for additional margin intraday if it observes losses in an
account beyond a threshold; \14\ specifically, when OCC observes
unrealized losses greater than 50 percent of an account's total risk
charges.\15\ While this process addresses price movements, it does not
take intraday position changes into account for purposes of monitoring
P&L changes and issuing related margin calls. OCC believes that
incorporating intraday position changes into its portfolio revaluation
process will help mitigate intraday risk exposures to its Clearing
Members driven by position changes in the Clearing Members'
portfolios.\16\ Accordingly, OCC proposes to change its portfolio
revaluation process to incorporate current positions.\17\
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\12\ OCC refers to this process as portfolio revaluation. See
Notice of Filing, 90 FR at 23404.
\13\ The term ``start-of-day positions'' refers to Clearing
Member end-of-day positions from the prior trading day adjusted for
corporate actions, but does not include any positions generated from
overnight extended trading hours. See Notice of Filing, 90 FR at
23404 n.9.
\14\ See OCC Rule 609(a)(3) (stating that OCC may require the
deposit of intra-day margin to reflect changes in the value of
securities deposited by the Clearing Member as margin).
\15\ Total risk charges consist of expected shortfall (``ES''),
stress test charges, and add-on charges. See Notice of Filing, 90 FR
at 23407. ES is the estimated average of potential losses higher
than the 99 percent value at risk (VaR) threshold. See Notice of
Filing, 90 FR at 23407 n.28. VaR refers to a statistical technique
that is used in risk management to measure the potential risk of
loss for a given set of assets over a particular time horizon. See
id.
\16\ See Notice of Filing, 90 FR at 23408.
\17\ The term ``current positions'' refers to Clearing Member
positions at a certain point in time during the regular trading
hours (``RTH''), which includes positions from the start-of-day and
those generated during extended trading hours and RTH. See Notice of
Filing, 90 FR at 23405 n.11.
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Under the current revaluation process, to calculate updated account
P&L throughout the day, OCC revalues start-of-day positions with
current prices at set intervals (``revaluation runs,'' or ``runs'')
during standard equity trading hours between 8:30 a.m. CT and 3:15 p.m.
CT. Under the Proposed Rule Change, OCC proposes to revalue current
positions, rather than start-of-day positions, at the time of each
intraday revalulation run. Among other things, this would account for
potentially risk-reducing or risk-increasing position changes in a
Clearing Member's portfolio over the course of the trading day. For
instance,
[[Page 39230]]
under the current process, a Clearing Member's start-of-day positions
may present unrealized losses that exceed the threshold, which could
lead to a margin call. If the Clearing Member's current positions at
the time of an intraday revaluation run lead to a higher P&L compared
to the start-of-day positions, the current process would not account
for that risk-reducing change; however, under the Proposed Rule Change,
the Clearing Member's margin call could be reduced in that situation.
OCC also proposes to change the frequency with which it conducts
the revaluation process. Currently, OCC completes a revaluation run
once every 40 minutes. Under the Proposed Rule Change, OCC would
complete a run once every five minutes.\18\ Where OCC's internal system
determines there has been an account P&L breach,\19\ it automatically
sends an email alert to OCC's Market Risk and Default Management team
(``MRDM''). Currently, such determinations and alerts occur once every
40-minutes. OCC proposes to keep the alert interval at 40 minutes, but
to make it configurable such that it could change in the future.
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\18\ As noted above, OCC completes revaluation runs between 8:30
a.m. CT and 3:15 p.m. CT.
\19\ As noted above, the threshold for a breach is when an
account experiences unrealized losses greater than 50 percent of
that account's total risk charges. To avoid confusion with other
terminology, OCC proposes to replace the phrase ``total risk
charge'' with ``total risk margin charge'' in its documentation.
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Other than the basis for and frequency of portfolio revaluation,
OCC does not propose to change its existing related monitoring,
escalation, and margin call processes. Both currently and as proposed,
MRDM would verify and escalate breaches to OCC's Financial Risk
Management team (``FRM'') to recommend an intraday margin call. The
determination to approve or defer an intraday margin call would be made
by an OCC employee at the Executive Director level or higher. Such
calls would be made at or around noon CT if approved. Any intraday
margin call to be made after 1:30 p.m. CT would continue to require
approval by OCC senior management.\20\
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\20\ The senior management positions authorized to approve a
late intraday margin call are Chief Financial Risk Officer, Chief
Executive Officer, Chief Operating Officer, or Chief Risk Officer.
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OCC has stated that this process would have no impact on OCC's
calculation of STANS margin requirements or other models.\21\ Based on
a review of the potential impact over a one-year period, however, the
proposed change would have had an impact on the frequency and size of
intraday margin calls.\22\ During the period reviewed, the total number
of margin calls would have increased 34 percent from 93 to 125, but the
average margin call amount would have decreased 19.3 percent from $69.3
million to $55.9 million.\23\
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\21\ See Notice of Filing, 90 FR at 23405.
\22\ See Notice of Filing, 90 FR at 23407.
\23\ The minimum call amount would remain the same starting at
$500,000, but under the proposed methodology the largest call amount
would have decreased 21.8 percent to $682.7 million. The total
margin collected from intraday calls over the period would have
increased 7.8 percent from $6.45 billion to $6.99 billion.
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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.\24\ 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.'' \25\
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\24\ 15 U.S.C. 78s(b)(2)(C).
\25\ 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 effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\26\ 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.\27\ 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.\28\
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\26\ Id.
\27\ Id.
\28\ 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 proposal is consistent with Sections 17A(b)(3)(F) of the
Exchange Act,\29\ and Rule 17ad-22(e)(6) \30\ thereunder, as described
in detail below.
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\29\ 15 U.S.C. 78q-1(b)(3)(F).
\30\ 17 CFR 240.17ad-22(e)(6).
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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 a clearing agency's rules are designed to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\31\
Based on the Commission's review of the record, and for the reasons
described below, the Proposed Rule Change described above is consistent
with assuring the safeguarding of securities and funds which are in
OCC's custody or control or for which it is responsible.
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\31\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, OCC sets margin requirements using end-of-day
account positions, but also has a system in place to call for
additional margin intraday based on price changes that impact the
positions of Clearing Members. OCC's current system applies intraday
price changes to start-of-day positions, but does not account for a
Clearing Member's trades made throughout the day. Where OCC observes
losses in excess of a preset threshold, OCC may make intraday margin
calls, which are generally requested at a central collection time
during the business day.
OCC now proposes revaluing Clearing Member accounts based on change
in both prices and positions throughout the day. Accounting for changes
in positions as well as in prices will provide OCC with a more current
view of its exposures. More current exposure information increases the
likelihood that OCC will accurately determine when it needs to call for
additional margin and how much additional margin is necessary.
Increasing the accuracy of OCC's intraday margin call processes will
increase the likelihood that OCC collects sufficient margin collateral
to mitigate OCC's credit exposure to a Clearing Member default, which,
in turn, helps assure the safeguarding of non-defaulting Clearing
Members' collateral by reducing the likelihood that OCC would be forced
to charge losses to the Clearing Fund, which is mutualized among
Clearing Members.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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[[Page 39231]]
B. Consistency With SEC Rule 17ad-22(e)(6)(ii) of the Exchange Act
Rule 17ad-22(e)(6)(ii) under the Exchange Act requires, inter alia,
that a covered clearing agency (``CCA'') establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to cover, if the CCA provides central counterparty services,
its credit exposures to its participants by establishing a risk-based
margin system that, at a minimum, among other things, (i) monitors
intraday exposures on an ongoing basis \33\ and (ii) includes the
authority and operational capacity to make intraday margin calls, as
frequently as circumstances warrant, including when risk thresholds
specified by the CCA are breached.\34\
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\33\ 17 CFR 240.17ad-22(e)(6)(ii)(B).
\34\ 17 CFR 240.17ad-22(e)(6)(ii)(C)(1).
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OCC's Proposed Rule Change is designed to monitor Clearing Member
account valuations to collect margin more closely aligned to OCC's risk
exposure. OCC assumes risk on every transaction it clears because it
must guarantee those transactions in connection with its role as both
buyer to every seller and seller to every buyer. One aspect of the
OCC's risk is credit exposure to its Clearing Members. As described
above, OCC already maintains a process for monitoring exposures
intraday, and now proposes to incorporate intraday position changes
into that monitoring process, which will provide OCC a more accurate
view of the positions to which it is exposed. OCC also proposes to
increase the frequency of its intraday monitoring from once every 40
minutes to once every 5 minutes, which will provide OCC with more
granular information to OCC regarding its intraday exposures. Although
OCC does not propose to change the frequency with which OCC's system
provides alerts of intraday threshold breaches at this time, the
proposal would make such frequency configurable, which would allow OCC
to change the frequency in the event it determines that doing so would
be more appropriate for the markets it serves.\35\ The proposed changes
are, therefore, reasonably designed to allow OCC to monitor its
intraday exposures on an ongoing basis.\36\
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\35\ The Commission declined to adopt a minimum monitoring
frequency for intraday exposures and has stated that the requirement
for ongoing monitoring is designed to allow a CCA to determine what
monitoring frequency is appropriate for its particular market.
Covered Clearing Agency Resilience and Recovery and Orderly Wind-
Down Plans, Securities Exchange Act Release 101446, 89 FR 91000,
91001 (Nov. 18, 2024) (File No. S7-10-23).
\36\ OCC's rules already authorize it to make margin intraday
margin calls. OCC has processes in place related monitoring,
escalation, and margin call processes. As described above, OCC is
not proposing to remove or change those processes such that it would
continue to execute intraday margin calls as it has in the past
based on its internal governance and operational processes.
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Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-22(e)(6)(ii).\37\
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\37\ 17 CFR 240.17ad-22(e)(6)(ii).
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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 \38\ and the rules and regulations thereunder.
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\38\ 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,\39\ that the Proposed Rule Change (SR-OCC-2025-007) be,
and hereby is, approved.
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\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-15426 Filed 8-13-25; 8:45 am]
BILLING CODE 8011-01-P
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