Notice2025-17727
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Certain Revisions in Connection With Proposed Modifications to the Manner in Which OCC Accounts for the Guaranty Substitution Payment in OCC's Liquidity Risk Management Processes
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
September 15, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 176 (Monday, September 15, 2025)</title>
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[Federal Register Volume 90, Number 176 (Monday, September 15, 2025)]
[Notices]
[Pages 44430-44436]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-17727]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103937; File No. SR-OCC-2025-013]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by The Options Clearing
Corporation Concerning Certain Revisions in Connection With Proposed
Modifications to the Manner in Which OCC Accounts for the Guaranty
Substitution Payment in OCC's Liquidity Risk Management Processes
September 10, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 29, 2025, The Options Clearing
Corporation (``OCC'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared primarily by
OCC. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would make certain revisions to OCC's
Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity
Risk Management Description (the ``Methodology'') and OCC's Liquidity
Risk Management Framework (``LRMF'') to permit OCC to account for the
cash payment, i.e., a ``Guaranty Substitution Payment'' or ``GSP'' OCC
could make to the National Securities Clearing Corporation (``NSCC'')
following the default of a common clearing participant that is
attributable only to OCC-related activity (known as the ``Final GSP''),
in OCC's liquidity stress testing, as described in greater detail
below.
OCC filed the proposed changes to the Methodology and the LRMF as
Confidential Exhibits 5A and 5B [sic] to File No. SR-OCC-2025-013,
respectively. Material proposed to be added is underlined and material
proposed to be deleted is marked in strikethrough text. All capitalized
terms not defined herein have the same meaning as set forth in the OCC
By-Laws and Rules.\3\
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\3\ OCC's By-Laws and Rules can be found on OCC's public
website: <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
Executive Summary
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission,
including options that contemplate the physical delivery of the
underlying equity securities (``physically settled'' options).\4\ OCC
also clears certain futures contracts that, at maturity, require
delivery of underlying equity securities. The exercise/assignment of
physically settled options or maturation of certain futures cleared by
OCC effectively results in settlement obligations of the related
underlying equity securities, i.e., shares of stock in this case.
Because OCC does not clear equity securities, OCC's Rules provide that
delivery of, and payment for, securities underlying certain exercised
stock options and matured single stock futures that are physically
settled are generally effected through the facilities of NSCC and are
not settled through OCC's facilities.\5\ NSCC is a clearing agency that
provides clearing, settlement, risk management, and central
counterparty services for trades involving equity securities, including
those equity securities related
[[Page 44431]]
to the settlement of physically settled options and futures contracts.
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\4\ The term ``physically-settled'' as used throughout the OCC
Rulebook refers to cleared contracts that settle into their
underlying interest (i.e., options or futures contracts that are not
cash-settled). When a contract settles into its underlying interest,
shares of stock are sent, i.e., delivered, to contract holders who
have the right to receive the shares from contract holders who are
obligated to deliver the shares at the time of exercise/assignment
in the case of an option and maturity in the case of a future.
\5\ See Chapter IX of OCC's Rules (Delivery of Underlying
Securities and Payment), supra note 3.
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To effect the settlement of equity securities related to options
and futures activity, NSCC and OCC maintain a legal agreement, referred
to by the parties as the ``Accord'', that governs the processing of
physically settled options and futures cleared by OCC that result in
transactions with delivery obligations in the underlying equity
securities that are cleared and settled by NSCC. The Accord establishes
terms under which NSCC accepts for clearing and settlement certain
securities transactions that result from the exercise and assignment of
OCC cleared and settled options contracts and the maturation of futures
contracts, referred to as ``E&A/Delivery Transactions'' in the
Accord.\6\ It also establishes the time when OCC's settlement guaranty
in respect of E&A/Delivery Transactions ends and NSCC's settlement
guaranty begins.
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\6\ While the Accord contemplates NSCC's settlement of equity
securities in connection with options and futures contracts cleared
by OCC, as of the date of this filing, OCC is not clearing any
futures contracts that result in physical delivery.
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The parties most recently amended the Accord on May 28, 2024,
primarily to account for the following:\7\
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\7\ See Exchange Act Release Nos. 99735 (Mar. 14, 2024), 89 FR
19907 (Mar. 20, 2024) (File No. SR-OCC-2023-007); 99731 (Mar. 13,
2024), 89 FR 19629 (May. 19[sic], 2024) (File No. SR-OCC-2023-801).
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<bullet> Amendments that addressed issues where NSCC could choose
not to guarantee the settlement of the underlying equity securities
related to E&A/Delivery Transactions in the event of the default of a
clearing member common to both agencies (a ``Common Clearing Member'')
by giving OCC the right to make a GSP to NSCC to allow for NSCC to
continue to effect settlement of the underlying securities.
<bullet> Amendments that addressed operational, information
sharing, and timing issues related to the industry-wide implementation
of the move to a shortened settlement cycle from trade date plus two
(``T+2'') to trade date plus one (``T+1'').
In conjunction with the changes to the Accord, OCC also made
changes to its liquidity risk management processes that included
incorporating the potential for OCC to have to make a GSP to NSCC into
its liquidity stress testing. In the time since the May 28, 2024,
implementation, OCC has identified issues where OCC has been accounting
for activity that is not related to the settlement of the underlying
equity securities related to E&A/Delivery Transactions, thereby causing
OCC to over collect financial resources from its Clearing Members. To
address these issues, OCC is proposing changes to the Methodology and
LRMF such that OCC only will account for the portion of deficits
created at NSCC related to OCC activity in its liquidity risk
management processes.
GSP and Liquidity Stress Testing Impact
GSP
Pursuant to the terms of the Accord, OCC can choose to make a cash
payment to NSCC, i.e., a GSP, if a Common Clearing Member defaults. The
GSP allows OCC to ``step into the shoes'' of a defaulting Common
Clearing Member so that NSCC will continue to process, clear, and
settle the underlying securities related to E&A/Delivery Transactions.
For every Common Clearing Member during each trading day (``T''),
NSCC calculates and sends to OCC indications of the amounts of the
components used to determine the GSP, as well as other financial
information, leading up to morning settlement on the following day
(T+1). NSCC also sends final indications on T+1 each day prior to
morning settlement along with the final amount of the share of deficits
related to E&A/Delivery Transactions, i.e., the amount of the Final
GSP. To arrive at the sum of the Final GSP, NSCC determines a Common
Clearing Member's (i) unpaid Required Fund Deposit (``RFD'') \8\ and
(ii) unpaid Supplemental Liquidity Deposit (``SLD'') \9\ obligation
that are attributable to E&A/Delivery Transactions and transmits the
results to OCC at the NSCC Family level.
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\8\ The Required Fund Deposit is the portion of a defaulted
Common Member's Required Fund Deposit deficit to NSCC, calculated as
a difference between the Required Fund Deposit deficit calculated on
the entire portfolio and the Required Fund Deposit deficit
calculated on the Common Member's portfolio prior to the submission
of E&A/Delivery Transactions. The Required Fund Deposit is
calculated pursuant to Rule 4 (Clearing Fund) and Procedure XV
(Clearing Fund Formula and Other Matters) of the NSCC Rules
available at <a href="https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf">https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf</a>.
\9\ See id. at NSCC Rule 4A. Under the NSCC Rules, NSCC collects
Supplemental Liquidity Deposits as additional cash deposits from
those Members who would generate the largest settlement debits in
stressed market conditions.
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To account for the liquidity needs associated with the potential
for OCC to make a GSP, OCC creates a ``hypothetical GSP'' using the
final indications of the GSP components NSCC sends to OCC on the
morning of T+1. These amounts include, among other things, final total
SLDs and total deficits at NSCC. OCC subsequently uses the hypothetical
GSP in OCC's end of day stress testing processes. OCC's inclusion of
the entire amounts owed at NSCC in the hypothetical GSP is a
conservative approach; OCC is incorporating into its liquidity stress
testing amounts representing Common Clearing Member obligations
attributable to transactions at both NSCC and OCC when OCC ultimately
is only responsible for satisfying those portions of the unpaid RFD and
unpaid SLD related to OCC E&A/Delivery Transactions, i.e., the Final
GSP.
Liquidity Stress Testing Impact
In the 13 months since OCC implemented the hypothetical GSP in its
liquidity risk management processes, OCC identified unexpected amounts
in the data that NSCC sends every day that could cause OCC to over
collect resources. More specifically, OCC identified the following:
<bullet> NSCC's existing methodologies calculate SLDs at the
``family'' level, which can include activity undertaken by affiliates
of a Common Clearing Member that are NSCC members, but not OCC Clearing
Members. This SLD data that NSCC provides at the family level is
apportioned separately based on the NSCC and OCC contributions to the
overall amount, and OCC currently uses both data points in the
construction of the hypothetical GSP. The GSP is not intended to
address the default of an NSCC member that is not a Common Clearing
Member.
<bullet> Similarly, the data NSCC sends to OCC can include deficits
related to non-E&A/Delivery Transactions, e.g., ETF creation and
redemption activity. The GSP is intended to address only OCC E&A/
Delivery Transactions settlements related to a Common Clearing Member
default.
By way of example, OCC identified these issues in late 2024, when
data NSCC sent to OCC included anomalous SLDs driven by the activity of
affiliates of a Common Clearing Member that were not OCC Clearing
Members, as well as activity that was not related to E&A/Delivery
Transactions. The amount was approximately $7 billion. At the same
time, the Final GSP--the amount OCC would pay to NSCC for NSCC to
settle E&A/Delivery Transactions--for that same Common Clearing
Member--was approximately $60 million.
OCC is now proposing to incorporate only the Final GSP into its
liquidity stress testing because the Final GSP is the most accurate
assessment of what OCC would owe to NSCC to effect settlement of E&A/
Delivery Transactions. OCC believes that this approach would continue
to represent conservative treatment because OCC
[[Page 44432]]
would include two consecutive days of peak Final GSP calculations on a
12-month lookback basis in its liquidity demand calculation. More
specifically, OCC would apply the peak Final GSP amounts from the prior
twelve months for the relevant expiration category for the specific CMO
Group for each forecasted liquidity demand calculation by adding the
peak Final GSP amounts to the CMO Group's other forecasted liquidity
demands for the relevant expiration day. If a Common Clearing Member
defaulted, OCC may have to pay a Final GSP to NSCC on two successive
days to facilitate the close-out of the defaulted Clearing Member's
positions.
To account for this possibility in its liquidity risk management
process, OCC will continue to contemplate the payment of the GSP on
expirations that result in settlements on the first and second days of
the default management process. As proposed, OCC would provision
sufficient resources to cover the peak Final GSP on two consecutive
days as opposed to OCC's current process of provisioning for payment of
a peak hypothetical GSP on two consecutive days. From time to time, the
exposures posed by a Common Member's portfolio will result in the
setting of a new peak GSP. However, since the inception of the GSP, OCC
has not observed a single instance in which peak GSPs have been set on
two consecutive days.\10\ Additionally, as described below, OCC
believes that its default management processes make it operationally
unlikely that OCC would make two consecutive GSP payments at peak
levels for the default of a single Common member.
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\10\ OCC provided data demonstrating how frequently new peaks
have been set in Confidential Exhibit 3A to File No. SR-OCC-2025-
013.
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OCC believes further that provisioning for payment of two peak
Final GSPs is conservative because OCC will include two consecutive
days of peak Final GSPs in its liquidity demand calculations, which
historically are based on two days of trading activity. The likelihood
of observing two consecutive peak Final GSP amounts is low due to the
cyclical nature of OCC E&A activity whose largest notional exposures
tend to be separated across tenors further than one day apart, and most
highly concentrated during standard monthly expirations. As noted
above, since the inception of the GSP, OCC has not observed a single
instance in which peak GSPs have been set on two consecutive days.\11\
Furthermore, as the RFD component of Final GSP is driven by
contributions to deficits, large increases in exposures linked to
changes in unsettled positions at NSCC and the successful collection of
the resulting RFD deficits from clearing members at NSCC tend to reduce
the potential for and/or magnitude of RFD deficits on a subsequent day
given the increased level of pre-funded collateralization. OCC also
believes provisioning for payment of two peak Final GSP is conservative
because the default of a member, by definition, would stop further
trading by the suspended member and result in OCC taking only risk
reducing actions with regard to the defaulter's portfolio. On the day
OCC declares a Common Clearing Member to be in default (``D'')--most
likely for the Clearing Member failing to make morning settlement on D
prior to the opening of trading--the defaulting Common Clearing Member
would be prevented from engaging in any trading activity on D. The
defaulting Common Clearing Member would be unable to add to or subtract
from its existing positions at OCC, therefore the option position set
that would result in delivery instructions at the end of the day
becomes fixed. OCC could elect to make a GSP to NSCC on D to ensure
NSCC processes E&A/Delivery Transactions that were sent to NSCC on D-1
on behalf of the defaulting Clearing Member. This payment would account
for the first day of Final GSP that OCC would include in its liquidity
demand calculations.
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\11\ See id.
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OCC would next create a close-out action plan (``CAP'') to dispose
of the defaulting Clearing Member's remaining positions. OCC would, to
the extent possible, reduce its risk by internally netting positions
and liquidating the defaulting Clearing Member's positions by way of a
private auction before or on the morning of D+1 prior to the open of
trading and/or use a broker to liquidate the Clearing Member's
positions in the open market. In development of the CAP, OCC possesses
the optionality to liquidate the Clearing Member's remaining positions
via private auction or liquidation in the open market, which can
include physically settled options expiring on D. This means OCC could
potentially not submit any E&A/Delivery Transactions to NSCC on the
evening of D for overnight processing. This could also occur in the
case that the defaulting Clearing Member has no physically settled
option positions that expire on day D. In such cases, OCC would not be
responsible for making the second Final GSP that OCC accounted for in
its liquidity demand calculations.
OCC will continue to use a one-year lookback time period to
determine the appropriate Final GSP amount to apply because OCC
believes that the one-year lookback allows for the best like-to-like
application of a historical Final GSP due to the cyclical nature of
option standard expirations with quarterly expirations (i.e., March,
June, September, and December) and January expiration generally being
more impactful than non-quarterly expirations. The one-year lookback
also allows behavior changes of a Clearing Member to be recognized
within an annual cycle.
To effect these changes, OCC would amend the Methodology and LRMF
as described in more detail in the Proposed Changes to the Methodology
and LRMF Section, below.
Ongoing Monitoring
In addition to accounting for the GSP in OCC's liquidity stress
testing, OCC is continuously risk managing and monitoring all Clearing
Member activity throughout each trading day. OCC monitors forecasted
liquidity demands on an ongoing basis and can take mitigating action,
or protective measures, including directly with Clearing Members who
are presenting elevated risk.\12\ Through ongoing monitoring, OCC's
Credit Risk Management (CRM) staff detect business-related concerns
and/or financial or operational deterioration of Clearing Members in
order to protect OCC and its stakeholders. CRM identifies a Clearing
Member for placement on watch and suggests appropriate preventative
measures by presenting a summary and recommendation to the OCC Credit
and Liquidity Risk Working Group (CLRWG), which in turn makes a
recommendation for approval to the OCC Chief Financial Risk Officer
(CFRO) and the OCC Office of the Chief Executive Officer (OCEO). A
summary of Clearing Member watch status is presented at monthly CLRWG
meetings and is also provided to the Management Committee and Board
Risk Committee. Protective measures might include, but are not limited
to, placement on a Watch List, more frequent financial reporting, and
margin adjustments.\13\
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\12\ See OCC Rule 307 (Protective Measures), supra note 3.
\13\ OCC provided its Clearing Member Monitoring and Protective
Measures Procedure as Confidential Exhibit 3B to File No. SR-OCC-
2025-013.
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Some examples of ongoing monitoring include:
<bullet> If an account exhibits losses exceeding 50% of that
account's total risk charges,\14\ which are based upon
[[Page 44433]]
start-of-day positions that are inclusive of all NSCC-settled options
expiring at the end of the day, OCC may require the deposit of intra-
day margin by a Clearing Member in any account at any time. While OCC
generally issues intraday margin calls at or around 12:00 p.m. CT, OCC
has broad authority pursuant to OCC Rule 609 to issue margin calls to
any Clearing Member at any time during the day.\15\
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\14\ See Confidential Exhibit 5A File No. SR-OCC-2025-013 (the
Methodology) (defining ``total risk'' as a risk measure aggregated
across all accounts of a Clearing Member, determined using the OCC's
STANS margin methodology and such add-on charges as may be
determined by OCC).
\15\ See Chapter VI of OCC's Rules (Margins), supra note 3.
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<bullet> On settlement date minus 1, to the extent information is
available OCC monitors anticipated RFD deficits and liquidity needs at
NSCC for next day settlement by reviewing intraday equity trade
activity at NSCC in conjunction with expected exercise and assignment
activity at OCC based on intraday option position and pricing
snapshots. OCC would escalate to NSCC in the event that calculated
results for projected VaR, Mark-to-Market, and Liquidity Need amounts
were to indicate potential Final GSPs that are approaching or in excess
of OCC Financial Resources.\16\
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\16\ See Accord Section 9 ``Additional Reports; Information
Sharing,'' Confidential Exhibit 5C to File Nos. SR-OCC-2023-007 &
SR-OCC-2023-801, supra note 7.
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<bullet> OCC expects the projections that were generated during the
day to be a reasonable approximation of the Clearing Member margin
deficit and SLD estimates provided by NSCC during the evening as part
of the GSP Monitoring Data information sharing per the Accord.\17\ OCC
may escalate to NSCC for discussion if the projected amounts are
approaching or in excess of OCC Financial Resources.\18\
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\17\ See Confidential Exhibit 5B to File No. SR-OCC-2025-013
(LRMF).
\18\ See Accord Section 3 ``Historical Peak Guaranty
Substitution Payment,'' supra note 16.
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<bullet> OCC monitors anticipated large cash settlements each
business day during the week leading up to standard monthly
expiration.\19\ OCC also evaluates margin forecasts and intraday
trading activity to determine if projected settlement amounts for T+1
exceed monitoring thresholds, and if necessary, OCC will contact the
Clearing Member and their settlement bank to ensure the Clearing Member
is prepared to meet settlement. In the event that OCC were to become
aware of a potential issue with the Clearing Member or settlement bank
satisfying the projected amount, OCC would escalate internally to
determine necessary follow-up action.
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\19\ See Confidential Exhibit 3B to File No. SR-OCC-2025-013,
supra note 13.
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In addition to the monitoring described above, OCC may call for
additional financial resources from its Clearing Members in the form of
a Required Cash Deposit or an increase to the Clearing Member's overall
margin requirement based on the liquidity demands inclusive of two days
of historical peak Final GSP payments generated by Sufficiency
Scenarios.\20\
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\20\ See OCC Rule 307C (Additional Operational, Personnel,
Financial Resource and Risk Management Requirements), supra note 3.
See also id. at OCC Rule 609 (Intraday Margin).
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Based on the results of OCC's Adequacy and/or Sufficiency Scenarios
where forecasts are made out to 20 calendar days, OCC may also place a
Clearing Member on Watch Level and/or collect additional margin in
advance of expiration via protective measures. The collection of such
margin in advance is done to collateralize a Clearing Member's elevated
liquidity exposures in the event that forecasted liquidity demands
approach or exceed OCC's Base and/or Available Liquidity Resources. An
intra-month resizing of the Clearing Fund pursuant to OCC Rule 1001(c)
may also be performed to mutualize the risk and maintain resources
consistent with a ``Cover One'' standard.\21\
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\21\ See id. at Chapter X (Clearing Fund Contributions).
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Proposed Changes to the Methodology and LRMF
Proposed Changes to the Methodology
OCC developed the Methodology to enable OCC to analyze the adequacy
of its financial resources and to challenge its risk management
framework. The Methodology allows OCC to better manage its risks by
promoting OCC's ability to thoroughly monitor its potential exposure
under flexible and varied sets of stressed market scenarios. The
Methodology also provides OCC with the ability to review the
sufficiency of its financial resources and includes stress tests
designed to size and monitor the sufficiency of prefunded credit and
liquidity resources.
In conjunction with the implementation of the Accord that became
effective on May 28, 2024, OCC revised the Methodology to include the
GSP in its liquidity risk management practices. The Methodology
reflects that the GSP functions as an additional liquidity demand type
at the Clearing Member Organization (``CMO'') Group level.\22\ The
Methodology explains that the GSP is the amount of cash OCC would need
to pay to NSCC on behalf of a defaulting Common Clearing Member. The
Methodology explains that the GSP accounts for liquidity demands at
NSCC that are comprised of NSCC Clearing Fund deficits, i.e., RFD,
which are analogous to OCC margin deficits, and start of day SLDs. The
Methodology also explains that to account for the liquidity demand
associated with a potential GSP (i) OCC will include the peak amount of
historical actual RFDs and SLDs specific to each CMO Group for the
relevant type of expiration on a rolling twelve-month lookback at a CMO
Group level and (ii) OCC will account for its potential GSP obligation
using the total amount of deficits at NSCC in its calculation, i.e.,
the hypothetical GSP. Although the Methodology is clear that in the
event of a default, OCC will only be responsible for a proportionate
share of both the NSCC Clearing Fund deficits and SLDs that are
attributable to OCC E&A Delivery Transactions, and that NSCC will be
responsible for the portion of the deficits associated with activity
that NSCC clears unrelated to E&A/Delivery Transactions, the
Methodology nevertheless requires that OCC must account for a potential
GSP obligation using the total amount of deficits at NSCC in the GSP
liquidity demand calculation.
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\22\ A Clearing Member Group is composed of a set of affiliated
OCC Clearing Members.
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OCC is proposing to amend the Methodology to account for the Final
GSP, i.e., the amount of unpaid RFDs and SLDs attributable to E&A
Delivery Transactions, instead of the hypothetical GSP, which consists
of the entire amount of unpaid RFDs and SLDs at NSCC. To accomplish
this, the Methodology would be changed to reflect that NSCC could
reject the E&A/Delivery Transactions of a suspended Common Clearing
Member if OCC did not elect to make a Final GSP, in place of GSP as
currently reflected in the Methodology.
The Methodology also would reflect that the Final GSP is a firm-
specific liquidity demand. The Methodology would reflect that the Final
GSP represents only that portion of a GSP related to E&A/Delivery
Transactions that would include SLDs and unpaid RFDs related to E&A/
Delivery Transactions. OCC would replace an existing footnote in the
Methodology with text in the body of the document that states that NSCC
aggregates RFDs and SLDs at the Family Level. The Methodology would
continue to reflect that SLDs are an additional cash requirement NSCC
levies upon clearing members who have a projected liquidity need
breaching NSCC total qualifying liquidity resources. The Methodology
also would continue to explain that the projected liquidity need is the
potential share net purchase obligations generated
[[Page 44434]]
by physical/stock settlement from equity trading and OCC long call and
short put expiration. The Methodology will also explain that OCC will
include the peak Final GSP amount specific to each CMO Group for the
relevant type of expiration on a rolling twelve-month lookback to
account for liquidity demand associated with GSP. The Methodology also
would explain that SLD amounts are calculated by NSCC at the Family
Level with netting of transactions allowed across both Common Clearing
Members and their non-Common Clearing Member affiliates. The
Methodology would explain that OCC's proportionate share of the SLD is
determined by the pro-rata contribution of E&A Delivery Transactions to
the overall liquidity need at NSCC after netting has taken place and
that OCC further aggregates the Final GSP to the corresponding CMO
Group.
The Methodology would further state that if a Common Clearing
Member defaults, OCC is responsible for the Final GSP, which represents
a proportionate share of the RFD deficit and SLD amounts that are
attributable to E&A/Delivery Transactions that OCC transmitted to NSCC
for settlement. The Methodology would reflect that NSCC provides these
proportionate amounts as the Final GSP and that NSCC will be
responsible for the portion of the deficits associated with activity
that NSCC clears and that is unrelated to E&A/Delivery Transactions
transmitted to NSCC by OCC.
Because OCC intends to only include the Final GSP in its liquidity
stress testing, OCC is also proposing to remove references to the
inclusion of the peak historical actual unpaid RFDs and SLDs specific
to each CMO Group. Additionally, OCC would include the word ``Final''
next to GSP in the section where OCC is referring to the inclusion of
the GSP in liquidity stress testing. OCC would remove from the
Methodology existing references to the fact that OCC will account for
its potential GSP obligation using the total amount of deficits at NSCC
in its calculation. OCC also would remove from the Methodology existing
language that states OCC will be responsible for a proportionate share
of both the NSCC Clearing Fund deficits and SLDs that are attributable
to OCC E&A activity transmitted to NSCC for settlement and that NSCC
will be responsible for the portion of the deficits associated with
activity that NSCC clears which is not transmitted by OCC because OCC
would include the concept of OCC's responsibility for its proportionate
share in the new language described above.
OCC would update six additional references to the GSP to include
the word ``Final'' where OCC indicates that it may have to pay a GSP on
two consecutive days and where OCC discusses its flooring process for
different expiration types.
Lastly, OCC would address one minor typographical error in the
section related to the use of substitute brokers where OCC references
``informationals'' scenarios. OCC would replace the word
``informationals'' with the word ``informational''.
Proposed Changes to the LRMF
OCC's LRMF is designed to allow OCC to hold sufficient liquid
resources to enable it to meet its intraday, same-day, and multiday
settlement obligations with a high degree of confidence under a wide
range of foreseeable stress scenarios, including the default of a
Clearing Member Group that would generate the largest aggregate payment
obligation to OCC in extreme but plausible market conditions.
In conjunction with the implementation of the Accord on May 28,
2024, OCC also revised the LRMF to incorporate the GSP within OCC's
processes for managing liquidity risk. More specifically, the Liquidity
Risk Identification section of the LRMF specifies that, in a situation
where a Clearing Member defaults, OCC may elect to make a GSP to NSCC
to compel NSCC to accept and process E&A/Delivery Transactions. The
LRMF further notes that if OCC elects not to make a GSP, OCC would
effect settlement of the defaulted Clearing Member's E&A/Delivery
Transactions through alternate settlement means. In relevant part, the
LRMF also: (i) includes definitions for (a) ``Historical Peak GSP'',
which is the largest Final GSP for a Common Clearing Member over the
prior twelve months, and (b) Final GSP; and (ii) explains that the GSP
is a Clearing Member-specific liquidity demand that represents the
amount of cash OCC would need to pay to NSCC on behalf of a defaulting
Common Clearing Member to settle E&A/Delivery Transactions in
accordance with the terms of the Accord.
OCC is proposing to amend the LRMF to clarify that OCC would be
able to make a Final GSP to NSCC, instead of the GSP. To accomplish
this, OCC would amend the LRMF to change the reference to OCC's ability
to make a GSP to NSCC in the Liquidity Risk Identification Section of
the LRMF to OCC's ability to make a Final GSP.
OCC also is proposing amendments to the definition of Final GSP in
the LRMF to clarify that Final GSP represents only those portions of
the unpaid RFDs and SLDs at NSCC related to E&A/Delivery Transactions.
OCC also would remove references to the fact that to account for the
liquidity demand associated with the potential payment of a Final GSP,
OCC includes a hypothetical GSP calculation specific to each CMO Group
for the relevant type of expiration on a rolling twelve-month lookback
in its liquidity stress testing.
The LRMF provides that OCC's Risk Department will prepare reports
that include analyses of the results of daily Adequacy and Sufficiency
stress tests and that review the adequacy of OCC's liquidity resources.
The reports are reviewed by OCC's Stress Testing Working Group. OCC is
proposing to amend the LRMF to indicate that the monthly reviews will
include an analysis of impacts of the Final GSP within liquidity
demands, as well as the sensitivities to the application of Final GSP
amounts received from NSCC subsequent to the original calculation of
liquidity demands. This sensitivity analysis varies the application of
which Final GSP amounts are applied in liquidity stress testing
corresponding with the day of default and day after, demonstrating the
overall impact to prior stressed liquidity demand calculations when new
historical peaks are subsequently observed.
OCC is also proposing amendments to the LRMF regarding daily review
activities that include the following actions:
<bullet> Pursuant to OCC Rule 609, OCC may call for additional
financial resources from Clearing Members in the form of a Required
Cash Deposit or an increase to the Clearing Member's overall margin
requirement if potential settlement obligations, including estimated
Final GSP amounts, approach or exceed OCC liquidity resources available
to make settlement in the event of a Clearing Member default. For
example, OCC may determine that the Clearing Member's forecasted
settlement obligations could exceed available liquidity resources based
on two days of historical peak Final GSP payments generated by
Sufficiency Scenarios, which is detailed in the Financial Resources
Sufficiency Monitoring Procedure.
<bullet> Placing a Clearing Member on Watch Level as a result of
presenting increased liquidity risk from stressed liquidity demands
within OCC's Adequacy and/or Sufficiency Scenarios. Pursuant to OCC
Rule 307, as a result of placing a member on a higher Watch Level, OCC
would be authorized to collect additional margin in advance of
expiration via protective measures to
[[Page 44435]]
collateralize a given Clearing Member's elevated liquidity exposures
once on Watch Level.
<bullet> Pursuant to OCC Rule 1001(c), performing an intra-month
resizing of the Clearing Fund to mutualize the risk and maintain
resources consistent with a ``Cover One'' standard.
2. Statutory Basis
OCC believes the proposed changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, OCC believes
the proposed changes are consistent with Section 17A(b)(3)(F) of the
Act.\23\ Section 17A(b)(3)(F) \24\ of the Act requires, among other
things, that the rules of a clearing agency be designed to promote the
prompt and accurate clearance and settlement of securities transactions
and, in general, to protect investors and the public interest. As
described above, OCC believes that modifying its liquidity stress
testing procedures to allow OCC to account for the Final GSP related
only to E&A/Delivery Transactions in its liquidity risk management
processes would promote prompt and accurate clearance and settlement
because it would ensure OCC is using a more accurate reflection of the
potential financial risks associated with the settlement of E&A/
Delivery Transactions of a defaulting Common Clearing Member.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 15 U.S.C. 78q-1(b)(3)(F).
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Additionally, by ensuring that it accounts for only those risks
related to the settlement of E&A/Delivery Transactions, OCC reduces the
risk of over-collecting financial resources from its Clearing Members,
which could lead to unintended consequences for OCC Clearing Members
and their ability to perform their obligations in other areas in the
marketplace, thus protecting investors and the public interest.
OCC believes that the proposed changes are also consistent with the
SEC rules that apply to OCC as a covered clearing agency. In
particular, SEC Rule 17ad-22(e)(20) requires OCC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to identify, monitor and manage risks related to
any link that OCC establishes with one or more other clearing agencies,
financial market utilities, or trading markets.\25\ As described in
OCC's publicly available disclosure framework for financial market
infrastructures,\26\ the Existing Accord between OCC and NSCC is one
such link. Based on OCC's experience with the current approach for
incorporating the GSP into liquidity risk management, OCC believes the
approach is beyond extreme and plausible. OCC has noted that the
highest exposures under the current approach are outliers driven by
non-OCC related activity. The approach proposed in this filing, where
OCC would rely on the Final GSP in liquidity risk management, would
isolate the potential payment of a GSP to OCC-only activity. OCC
believes this would change OCC's approach from implausible to more
plausible. As noted above, the likelihood of observing two consecutive
peak Final GSP amounts is low due to the cyclical nature of OCC E&A
activity whose largest notional exposures tend to be separated across
tenors that are further than one day apart, and most highly
concentrated during standard monthly expirations. Furthermore, as the
RFD component of Final GSP is driven by contributions to deficits,
large increases in exposures linked to changes in unsettled positions
at NSCC and the successful collection of the resulting Required Fund
Deposit deficits from clearing members at NSCC tend to reduce the
potential for and/or magnitude of RFD deficits on a subsequent day
given the increased level of available collateral. Furthermore, based
on data OCC has reviewed to date, OCC believes that the incorporation
of two peak Final GSP payments in liquidity demand calculations,
combined with stressed liquidity demands of non-expiring and OCC
settled positions, provides a more rational measure of the financial
resources necessary to cover exposures that could arise in an extreme
but plausible scenario. OCC also will continue to monitor liquidity and
E&A/Delivery Transactions settlements on an ongoing basis and would
have the ability to take mitigating action directly with any Clearing
Members presenting elevated risk to OCC. As described above, OCC
believes that because the data NSCC sends to OCC for use in OCC's
liquidity stress testing may include activity not related to OCC E&A/
Delivery Transactions, the proposed modifications to OCC's stress
testing procedures (i) are designed to enhance OCC's ability to call
for a more accurate amount of liquidity resources from its Clearing
Members, while (ii) ensuring that it will be able to make a Final GSP
to NSCC, which, in turn, will help manage the risks presented to OCC
and its Clearing Members by the settlement link with NSCC because OCC's
ability to pay the Final GSP would continue to ensure that the relevant
securities settlement obligations would be accepted by NSCC for
clearance and settlement.
---------------------------------------------------------------------------
\25\ 17 CFR 240.17ad-22(e)(20).
\26\ See The Options Clearing Corporation Disclosure Framework
for Financial Market Infrastructures, Principle 20 (FMI Links),
available at <a href="https://www.theocc.com/risk-management/pfmi-disclosures">https://www.theocc.com/risk-management/pfmi-disclosures</a>
(last updated July 10, 2025).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposal would impose any burden on competition. The
proposed changes would allow OCC to more accurately capture the
potential impact of OCC making a Final GSP on behalf of any defaulting
Clearing Member in OCC's liquidity risk management processes, while
continuing to ensure that OCC would have adequate resources to make a
Final GSP. Accordingly, OCC does not believe that the proposed rule
change would impose a burden on competition. Rather, OCC expects that
the proposed changes would reduce liquidity demands for OCC Clearing
Members because OCC is proposing to account for the risk from a Common
Clearing Member default in a manner that would more accurately reflect
the risks associated historically with the settlement of E&A/Delivery
Transactions. This potential reduction in liquidity needs at OCC could
mean that OCC's Clearing Members would have more of their own resources
available for use for other purposes. The proposal also would reduce
the potential overlap between OCC and NSCC related to calling common
Clearing Members for resources for the same activity as OCC would only
reflect OCC activity within its liquidity demands.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the proposed rule change, and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal
[[Page 44436]]
Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">http://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#740601181159171b1919111a0007340711175a131b02"><span class="__cf_email__" data-cfemail="87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1">[email protected]</span></a>. Please include
file number SR-OCC-2025-013 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to file number SR-OCC-2025-013. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>). Copies of such
filing will be available for inspection and copying at the principal
office of OCC and on OCC's website at <a href="https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules">https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules</a>.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-OCC-2025-013 and
should be submitted on or before October 6, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-17727 Filed 9-12-25; 8:45 am]
BILLING CODE 8011-01-P
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