Notice2026-11378
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice by The Options Clearing Corporation To Establish a Commercial Paper Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 8, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 109 (Monday, June 8, 2026)</title>
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[Federal Register Volume 91, Number 109 (Monday, June 8, 2026)]
[Notices]
[Pages 34685-34693]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11378]
[[Page 34685]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105602; File No. SR-OCC-2026-801]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice by The Options Clearing Corporation
To Establish a Commercial Paper Program
June 3, 2026.
Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, entitled Payment, Clearing
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'')
\1\ and Rule 19b-4(n)(1)(i) \2\ of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\3\ notice is hereby given that on May
19, 2026, The Options Clearing Corporation (``OCC'' or ``Corporation'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') an advance notice 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 advance notice
from interested persons.
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\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ 15 U.S.C. 78a et seq.
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
This advance notice is submitted by OCC in connection with a prosed
change to its operations to establish a commercial paper program as
part of its overall liquidity plan to meet OCC's settlement
obligations.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the advance notice and
discussed any comments it received on the advance notice. 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) and (B)
below, of the most significant aspects of these statements.
(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants or Others
The proposed change was approved for filing with the Commission by
OCC's Board of Directors (``Board'') on December 12, 2024. The proposal
was presented to OCC's non-Board-level risk management committee
(``RMC'') \4\ and OCC's Financial Risk Advisory Council (``FRAC'') \5\
on February 24, 2025, and April 30, 2025, respectively. No substantive
feedback on the proposed change was received by the RMC or FRAC.
Proposed changes to OCC's Capital Management Policy were approved by
OCC's stockholders on September 10, 2025. Written comments were not and
are not intended to be solicited with respect to the proposed change
and none have been received.
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\4\ The RMC is a sub-advisory group of rotating FRAC
participants that OCC consults with on all matters that could
materially affect OCC's risk profile. OCC established the RMC in
compliance with Commodity Futures Trading Commission (``CFTC'')
Regulations, which requires a derivatives clearing organization
(``DCO'') to establish one or more risk management committees,
comprised of a rotating membership of clearing member
representatives and representatives of customers of clearing
members, to consult with, and consider and respond to input from, on
all matters that could materially affect the risk profile of the
DCO, including any material changes to the DCO's margin model,
default procedures, participation requirements, and risk monitoring
practices, as well as the clearing of new products that could
materially affect the risk profile of the DCO. See 17 CFR
39.24(b)(11).
\5\ The FRAC is a forum to discuss and seek feedback on proposed
financial risk initiatives comprised of representatives from direct
and indirect market participants, including clearing members,
customers of clearing members, exchanges, and other relevant
stakeholders. As such, the FRAC and RMC function as risk advisory
working groups as required by CFTC Regulation. See 17 CFR
39.24(b)(12). Board consultation with the RMC and FRAC are also
means by which OCC complies with Exchange Act Rule 17ad-25(j), which
requires each clearing agency to establish, implement, maintain, and
enforce written policies and procedures reasonably designed to
require the board of directors to solicit, consider, and document
its consideration of the view of participants and other relevant
stakeholders of the registered clearing agency regarding material
developments in its risk management and operations on a recurring
basis. 17 CFR 240.17ad-25(j). Materials submitted to the FRAC are
included as Exhibits 3A and 3B [sic].
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(B) Advance Notice Filed Pursuant to Section 806(e) of the Payment,
Clearing, and Settlement Supervision Act
OCC is the sole clearing agency for standardized equity options
listed on national securities exchanges registered with the Commission.
In its role as a registered clearing agency, and as a derivatives
clearing organization (``DCO'') registered with the Commodity Futures
Trading Commission (``CFTC''), OCC acts as a central counterparty
(``CCP'') that guarantees all contracts it clears. That is, OCC becomes
the buyer to every seller and the seller to every buyer. In its role as
guarantor, OCC is exposed to risks from a Clearing Member's failure to
fulfill its obligations, including liquidity risk (i.e., the risks that
OCC may need to meet the defaulting Clearing Member's settlement
obligations during the period between the default and the conclusion of
a liquidation of the defaulting Clearing Member's portfolio). In the
event of a Clearing Member default, OCC would be obligated to fulfill
that member's cleared transactions and meet settlement obligations in a
timely manner.
OCC manages liquidity risk by maintaining an overall liquidity plan
that includes a minimum amount of cash OCC requires each Clearing
Member to deposit in the Clearing Fund (``Clearing Fund Cash
Requirement'') \6\ and any excess cash a Clearing Member may choose to
maintain up to its required Clearing Fund contribution.\7\ In addition,
OCC maintains access to a diverse set of committed funding sources for
accessing additional liquidity on a same-day basis, including: (A) a
syndicated bank credit facility, through which OCC may borrow cash by
pledging the margin funds of the defaulting Clearing Member or
Government securities borrowed from the Clearing Fund; \8\ and (B) a
non-bank liquidity facility program, through which OCC may use
Government securities deposited by the defaulting Clearing Member or
borrowed from the Clearing Fund to enter into repurchase transactions
with institutional investment counterparties, such as insurance
companies and pension funds, that do not increase the concentration of
OCC's counterparty exposure to its participants \9\ (together with the
syndicated bank credit facility, the ``committed facilities'').\10\
Together,
[[Page 34686]]
the Clearing Fund Cash Requirement and committed facilities comprise
OCC's ``Base Liquidity Resources'' under its LRMF--i.e., the amount of
qualifying liquid resources \11\ OCC maintains at all times to satisfy
its regulatory obligation to maintain sufficient qualifying liquid
resources to cover payment obligations arising from the default of the
CMO Group that would generate the largest aggregate payment obligation
in extreme but plausible market conditions (a ``Cover 1'' liquidity
requirement).\12\
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\6\ See OCC Rule 1002.
\7\ Clearing Members may choose to satisfy their Clearing Fund
requirement with more than the minimum amount of cash or deposit
Government securities. See OCC Rule 1002(a). Substitution of U.S.
Government securities in place of excess cash is subject to a two-
day notification period, which aligns with OCC's liquidation time
horizon for managing a Clearing Member default. See OCC Rule
1002(a)(iv). Accordingly, OCC considers excess cash up to the
Clearing Member's Clearing Fund requirement as part of its
``Available Liquidity Resources'' under its Liquidity Risk
Management Framework. See Exchange Act Release No. 89014 (June 4,
2020), 85 FR 35446, 35447 (June 10, 2020) (SR-OCC-2020-003).
\8\ See, e.g., Exchange Act Release No. 88971 (May 28, 2020), 85
FR 34257 (June 3, 2020) (SR-OCC-2020-804).
\9\ See, e.g., Exchange Act Release Nos. 89039 (June 10, 2020),
85 FR 36444 (June 16, 2020) (SR-OCC-2020-803).
\10\ OCC was provided a notice of no objection regarding
establishing a repurchase agreement with a bank counterparty through
which OCC may use Government securities deposited by the defaulting
Clearing Member or borrowed from the Clearing Fund. See Exchange Act
Release No. 103047 (May 21, 2025), 90 FR 21800 (May 21, 2025) (SR-
OCC-2025-801).
\11\ Regulations applicable to OCC define ``qualifying liquid
resources'' to include, among other things, (i) cash held either at
the central bank of issue or at creditworthy commercial banks; and
(ii) assets that are readily available and convertible into cash
through prearranged funding arrangements, such as committed
arrangements without material adverse changes provisions, including
lines of credit and repurchase agreements. See 17 CFR 240.17ad-22(a)
(``Qualifying liquid resources'').
\12\ See 17 CFR 240.17ad-22(e)(7); 17 CFR 39.11(e).
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To further diversify its liquidity resources, OCC proposes to
establish a program to raise prefunded liquidity through the private
placement of unsecured debt (``Notes'') to institutional investors in
an aggregate amount not to exceed $1 billion (the ``Commercial Paper
Program''). OCC would engage an issuing and paying agent, as well as
certain placement agent dealers, to develop a program to issue the
Notes. The Notes would be issued to institutional investors through a
private placement and offered in reliance on an exemption from
registration under Section 4(a)(2) of the Securities Act of 1933.\13\
OCC would execute certain agreements required to establish the
Commercial Paper Program, including an issuing and paying agent
agreement, and a dealer agreement with each of the placement agent
dealers.\14\ The dealer agreements would each be based on the standard
form of dealer agreement for commercial paper programs, which is
published by the Securities Industry and Financial Markets Association.
The material terms and conditions of the Commercial Paper Program are
summarized further below. Proceeds from the Commercial Paper Program
would be held in an OCC account at the Federal Reserve Bank of Chicago
(a ``Federal Reserve Bank account'').
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\13\ 15 U.S.C. 77d(a)(2).
\14\ Pursuant to the existing TPRMF, as approved by the
Commission, OCC's Management Committee will determine whether these
counterparties constitute service providers for core services within
the meaning of Exchange Act Rule 17Ad-25, 17 CFR 240.17ad-25, during
the on-boarding stage and prior to entering into any agreement. If
these counterparties are determined to be service providers for core
services, then: (1) the Management Committee will evaluate and
document the risks related to the agreement, including under changes
to circumstances and potential disruptions, and assess whether the
risks can be managed in a manner consistent with the TPRMF; and (2)
the agreements establishing a relationship with these counterparties
would be subject to Board approval. See Exchange Act Release No. 34-
104099 (Sept. 26, 2025), 90 FR 47105 (Sept. 30, 2025) (SR-OCC-2025-
015).
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OCC believes the Commercial Paper Program would further diversify
its liquidity sources by adding a cost-effective \15\ means to source
liquidity more efficiently than its current facilities in response to
changing liquidity demands or changes in its counterparties'
commitments under the committed facilities. Specifically, once the
program is established, OCC expects it will be able to issue new debt
and receive proceeds on the same day. By comparison, sourcing
additional commitments from liquidity providers through OCC's existing
committed facilities is a process that can take weeks or months.
Currently, the only tool available to OCC to increase Base Liquidity
Resources on an expedited basis is to increase the Clearing Fund Cash
Requirement under OCC Rule 1002(a)(i)(A). The Commercial Paper Program
would add another tool for quickly increasing liquidity resources in
response to changing liquidity needs.
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\15\ OCC anticipates that the cost of sourcing liquidity through
the Commercial Paper Program would be less than the cost of its
existing syndicated bank credit facility and non-bank liquidity
facility. OCC has provided an assessment of these costs in
confidential Exhibit 3C [sic] to File No. SR-OCC-2026-801.
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In addition, the Commercial Paper Program would benefit OCC by
providing a prefunded source of liquidity that OCC would maintain in
one of its Federal Reserve Bank accounts. Accordingly, using proceeds
from the Commercial Paper Program would not require OCC to draw on a
facility during a Clearing Member default to make same-day settlement.
The absence of a facility draw mitigates the risk that a liquidity
provider may be delayed in funding or fail to fund as required under
the terms of OCC's committed facilities.\16\
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\16\ OCC mitigates these risks under its committed facilities by
executing committed arrangements without material adverse change
provisions and conducting periodic test draws of its facilities.
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Description of Change
1. Material Terms of the Commercial Paper Program
As discussed above, OCC's Board has authorized OCC to establish a
Commercial Paper Program in an aggregate amount not to exceed $1
billion. Initially, OCC anticipates replacing $250 million of existing
liquidity from its non-bank liquidity facility with Commercial Paper
proceeds. Specifically, to further diversify OCC's liquidity resources,
OCC plans to replace one of three commitments from a single liquidity
provider that together comprise 42.5% of the commitments under the $2
billion non-bank liquidity facility, and approximately 19% of OCC's
$4.5 million in committed facilities. Any expansion of the Commercial
Paper Program beyond the $1 billion would require further approval from
the Board. Any change to the program that would materially affect the
nature or level of risk at OCC would also require further regulatory
filings. OCC intends to structure the Commercial Paper Program such
that maturities of the Notes are staggered to avoid concentration of
maturing liabilities and the risk that a rollover issuance to replace
expiring Notes does not fund. For example, replacing $250 million of
non-bank liquidity facility commitments may be achieved with two issues
of $250 million in Notes of 90-day duration, staggered by 45 days.
The Notes would be interest-bearing and would be book-entry notes
evidenced by one or more master notes registered in the name of The
Depository Trust Company (``DTC'') or its nominee, in the form or forms
annexed to OCC's agreement with the issuing and paying agent. To
minimize interest rate risk,\17\ the Notes would have a maturity not to
exceed 180 days. The Notes would not be redeemable by OCC prior to
maturity, nor would they contain any provision for extension, renewal,
automatic rollover or voluntary prepayment.
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\17\ In this context, interest rate risk is the risk of
dislocation between the interest OCC pays on the Notes and the
interest that OCC would earn by holding the cash proceeds in its
Federal Reserve bank account. Such dislocation could increase OCC's
costs for maintaining the Commercial Paper Program.
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2. Amendments to Rules
In order to establish the Commercial Paper Program, OCC proposes to
amend certain of its frameworks and policies that have been filed as
rules with the Commission in order to (1) recognize the proceeds from
the Commercial Paper Program as a qualifying liquid resource, (2)
ensure that OCC maintains sufficient funds to repay the Notes as they
expire by incorporating the Commercial Paper Program proceeds into how
OCC sizes its Clearing Fund and providing that OCC may use the Clearing
Fund to repay the Notes if Commercial Paper Program proceeds are used
to cover losses or liquidity shortfalls in lieu of the Clearing Fund,
(3) distinguish the Commercial Paper
[[Page 34687]]
Program proceeds from other types of prefunded financial resources that
OCC maintains, (4) address the role played by the placement dealers and
the issuing and payment agent and how OCC monitors and manages its
relationships with these supporting institutions, (5) allow for OCC to
maintain the proceeds in one of its Federal Reserve Bank accounts, and
(6) provide for the governance to use the proceeds in the event of a
Clearing Member default.
A. Qualifying Liquid Resources
OCC proposes to amend OCC's Rules and LRMF to recognize the
proceeds from the Commercial Paper Program as a qualifying liquid
resource under OCC's overall liquidity plan. Specifically, OCC would
define the term ``Commercial Paper Program'' in Rule 101 as OCC's
program to raise prefunded qualifying liquid resources through the
private placement of unsecured debt to institutional investors up to an
amount approved by the Board, proceeds of which OCC would use
exclusively to: (i) repay maturing notes issued under the Commercial
Paper Program or (ii) cover losses or liquidity shortfalls in those
situations in which the Clearing Fund may be used under Rule 1006. This
provision recognizes the Board's authority to set a cap on the total
amount of Commercial Paper that OCC is authorized to issue. As
discussed above, the Board has initially approved the Commercial Paper
Program for up to $1 billion, but OCC intends to begin issuing Notes in
an amount less than the total authorized amount at the outset of the
program.
OCC would amend the LRMF to add the cash proceeds from the
Commercial Paper Program as one of the liquidity resources that may
comprise OCC's Base Liquidity Resources. The LRMF would further provide
that OCC may count such proceeds as Base Liquidity Resources up to an
amount approved by OCC's Board. This provision would allow the Board to
establish a cap on the amount of Commercial Paper Program proceeds that
may be counted towards OCC's Base Liquidity Resources to account for
the staggering of maturities and the potential risk that a rollover of
expiring Notes may not fund, in which case OCC may need to pivot to
other sources of liquidity. For example, if the Notes were staggered
into two $500 million tranches with 90-day maturities staggered by 45
days, the Board may determine that up to $500 million of the total $1
billion may be counted towards Base Liquidity Resources. OCC
anticipates that the Board would initially provide that Commercial
Paper Program proceeds may not exceed 5% of Base Liquidity Resources.
Any Commercial Paper Program proceeds beyond the amount authorized as
Base Liquidity Resources would be considered excess liquidity. Such
excess would mitigate the risk that a failed rollover of expiring Notes
may otherwise cause OCC's qualifying liquid resources to drop below the
Cover 1 liquidity requirement. The LRMF would provide that factors the
Board may consider in setting the amount of Commercial Paper Program
proceeds that may be counted towards Base Liquidity Resources include,
but are not limited to, OCC's current or anticipated liquidity needs,
the total size of the Commercial Paper Program that the Board has
authorized, the staggering of maturity dates to address rollover risk,
the availability of other liquidity resources, and the size of the
Clearing Fund.
OCC would further amend the LRMF to address the Commercial Paper
Program in the Framework's discussion of the tools available to OCC to
increase its liquidity resources in response to changing business or
market conditions. Currently, those tools include: (1) OCC's authority
to temporarily increase the Clearing Fund Cash Requirement; \18\ (2)
the uncommitted accordion feature that OCC endeavors to maintain in its
syndicated bank credit facility that potentially allows OCC to borrow
additional funds from its existing or new bank syndicated liquidity
providers based on the willingness and ability of the syndicate members
to fund the additional borrowing request; \19\ and (3) OCC authority
under OCC Rule 609 to issue an intraday margin call based on a Clearing
Member's forecasted settlement demands, including for settlement
demands arising under OCC's accord with the National Securities
Clearing Corporation (``NSCC'').\20\ To this list of tools, OCC would
add that the Board may authorize a Commercial Paper Program that allows
OCC to obtain additional liquidity up to the amount approved by the
Board. Similar to the accordion feature of the syndicated bank credit
facility, OCC would note that its ability to secure additional proceeds
up to that approved amount is subject to the ability of the dealers to
place and the willingness of institutional investors to purchase any
additional Notes. The LRMF currently notes that the process of
obtaining additional liquidity through the accordion feature is
expected to take a period of weeks. By comparison, OCC expects it can
issue new debt and receive proceeds under the Commercial Paper Program
on the same day.
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\18\ See OCC Rule 1002(a)(i)(A).
\19\ Exchange Act Release No. 88971, supra note 11, 85 FR at
34258 n. 6 and accompanying text.
\20\ See Exchange Act Release No. 99735 (Mar. 14, 2024), 89 FR
19907 (Mar. 20, 2024) (SR-OCC-2023-007).
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OCC would also amend its RWD Plan to recognize the Commercial Paper
Program proceeds as a tool to address liquidity shortfalls, similar to
the Clearing Fund Cash Requirement and the facilities, among other
tools. The RWD Plan would be further amended to include an overview of
the Commercial Paper Program that summarizes: (i) the material terms of
the program, as discussed above; (ii) the Rules governing how OCC
considers the Commercial Paper Program proceeds when determining the
minimum size of its Clearing Fund, how OCC may use the cash proceeds as
a qualifying liquid resource in the same manner in the same scenarios
in which OCC is authorized to use the Clearing Fund under OCC Rule
1006(a), and how OCC may utilize its Clearing Fund to recover losses
covered through the use of such proceeds, as discussed below; and (iii)
the benefits of the Commercial Paper Program in terms of providing a
prefunded qualifying liquid resource, as well as how OCC would manage
rollover risk through the staggered issuance of Notes. OCC would also
make certain conforming edits to the sections addressing OCC's
management of risks including credit, custody and investment risks to
reflect prior proposed rule changes concerning OCC's management of
investment risk.\21\ Specifically, OCC would revise the RWD Plan to
reflect that under OCC Rule 1006(c) and (f), OCC may use the Clearing
Fund to make good losses or liquidity shortfalls caused by the failure
of an investment counterparty to perform any obligation to OCC when due
with respect to the investment of Clearing Member cash margin (e.g., a
counterparty in which OCC has invested margin cash through overnight
reverse repurchase agreements).
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\21\ See Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR
11776 (Mar. 2, 2022) (SR-OCC-2021-014) (approving amendments to OCC
Rule 1006 to add ``investment counterparties'' with whom OCC has
invested cash margin to the list of counterparties whose failure may
occasion use of the Clearing Fund).
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B. Clearing Fund
In order to ensure that OCC maintains sufficient funds to repay the
Notes as they expire, even if OCC uses the proceeds from the Commercial
Paper Program to meet settlement demands in the event of a Clearing
Member's default, OCC would amend Rule 1001(b)
[[Page 34688]]
(Minimum Clearing Fund Size). Rule 1001(b) currently provides that the
floor for the sizing of the Clearing Fund will be no less than 110% of
the size of OCC's committed facilities plus the Clearing Fund Cash
Requirement. OCC would amend Rule 1001(b) to add the proceeds from the
Commercial Paper Program approved by the Board as Base Liquidity
Resources to that list for purposes of calculating the minimum Clearing
Fund size.\22\ If OCC incurred a loss in a Clearing Member default,
existing Rule 1006 authorizes OCC to charge such loss to the Clearing
Fund. Accordingly, including the Commercial Paper Program proceeds
authorized as Base Liquidity Resources when calculating the minimum
Clearing Fund size helps ensure OCC maintains funds to cover such
losses, like OCC does for its existing committed facilities. Because
OCC plans to replace existing liquidity from its non-bank liquidity
facility with Commercial Paper proceeds, the net effect on the
calculation of the Minimum Clearing Fund Size would be zero. In any
event, the Minimum Clearing Fund Size is not expected to determine the
actual Clearing Fund size. Since the adoption of OCC's current Clearing
Fund methodology in 2018, the Clearing Fund size has never been driven
by the Minimum Clearing Fund Size.\23\
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\22\ Separately, OCC also proposes to remove Interpretation and
Policy (``I&P'') .01 to Rule 1001. That I&P provides that the
provision of Rule 1001(a) that limits the Clearing Fund size from
decreasing by more than five percent from the prior month will not
take effect until one month following the adoption of Rule 1001.
Rule 1001 took effect on September 1, 2018, following the SEC's
approval of that Rule. See Exchange Act Release No. 83735 (July 27,
2018), 83 FR 37855, 37856 n.6 (Aug. 2, 2018) (SR-OCC-2018-008).
Accordingly, I&P .01 to Rule 1001 is no longer relevant and may be
deleted.
\23\ As of December 31, 2024, the Minimum Clearing Fund Size was
$15.95 billion. However, the actual Clearing Fund size as of that
date was $18.49 billion, driven by stress test scenarios (``Sizing
Stress Tests'') in accordance with OCC Rule 1001(a). The Clearing
Fund size may not decrease by more than 5% from the prior month.
Accordingly, only a sustained reduction in shortfalls over an
extended period would reduce OCC's Clearing Fund to the Minimum
Clearing Fund size.
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In connection with this change to Rule 1001, OCC would also amend
OCC Rule 101 to define the term ``Base Liquidity Resources,'' which is
not a term currently used in the OCC Rules. The Liquidity Risk
Management Framework currently defines that term as ``[t]he amount of
committed liquidity resources maintained at all times by OCC to meet
its minimum Cover 1 liquidity resource requirements under the
applicable regulations.'' To better reflect the prefunded nature of the
Commercial Paper Program proceeds, as well as the Clearing Fund Cash
Requirement, OCC proposes to define that term in Rule 101 as the amount
of qualifying liquid resources that OCC maintains at all times to meet
its regulatory requirements. OCC would make the same change to the
definition of the term ``Base Liquidity Resources'' in the LRMF and in
the Executive Summary, as well as reference the definition in Rule 101.
OCC would also amend the monthly Clearing Fund size computation and the
associated definition for ``Minimum Clearing Fund Size'' in its
Clearing Fund Methodology Policy to reflect the addition of Commercial
Paper Program proceeds up to the amount approved by the Board as Base
Liquidity Resources in the calculation of the minimum size of the
Clearing Fund. Similar changes would also be applied to the
articulation of that calculation in OCC's CST Methodology Description
and RWD Plan.
OCC also proposes to amend Rule 1006 (Purpose and Use of Clearing
Fund) to ensure OCC's authority to use the Clearing Fund to make good
losses or expenses that it suffers or provide liquidity to OCC as a
result of OCC's use of the Commercial Paper Program proceeds for any of
the purposes under Rule 1006. In connection with this change, OCC
proposes to restate Rule 1006(a) (Conditions for Clearing Fund Use) for
clarity. Specifically, OCC proposes to:
<bullet> Subdivide and renumber existing clauses (i) through (viii)
into numbered paragraphs, consolidated and restated as addressed below.
<bullet> Consolidate under paragraphs (A) through (E) of proposed
Rule 1006(a)(1) the conditions related to losses arising most directly
from a Clearing Member default and OCC's default management currently
found in existing clauses (i), (ii), (iv), (v) and (vi) of Rule
1006(a), respectively. Current clause (vii), which covers any other
required payments or performance by a Clearing Member, would be
addressed at the outset of proposed Rule 1006(a)(1) by noting that the
Clearing Member performance obligations listed in that paragraph are
without limitation.
<bullet> Consolidate the provisions related to a Clearing Fund
borrowing currently found in the first and second sentences of current
OCC Rule 1006(a) into OCC Rule 1006(a)(2).
<bullet> Renumber existing clause (iii)--related to Guaranty
Substitution Payments--as proposed Rule 1006(a)(3). Proposed Rule
1006(a)(3) would be further amended to ensure parallel construction
with the other paragraphs under Rule 1006(a) and to correct a
typographical error.
<bullet> Renumber existing clause (viii)--related to the failure of
any bank, securities or commodities clearing organization, or
investment counterparty to perform its obligation to OCC when due--as
proposed Rule 1006(a)(4). Proposed Rule 1006(a)(4) would be further
amended to ensure parallel construction with the other paragraphs under
Rule 1006(a), correct a grammatical error, and abbreviate a cross
reference to another paragraph under Rule 1006.
<bullet> Include as Rule 1006(a)(5) the new authority related to
use of the Clearing Fund with respect to the Commercial Paper Program.
<bullet> Remove unnecessary verbiage at the beginning of the last
sentence of current Rule 1006(a), which would be renumbered as proposed
Rule 1006(a)(6).
<bullet> Amend cross references in Rule 1006(h) to the current
clauses under Rule 1006(a) to reflect the proposed paragraph structure.
C. Prefunded Financial Resources
OCC proposes to further amend the Clearing Fund Methodology Policy
to exclude Commercial Paper Program proceeds from the definition of
``Pre-Funded Financial Resources,'' as that term is used in that
policy. The policy uses that term when measuring financial resources
against stress test scenarios for purposes of monitoring the adequacy
of OCC's financial resources to satisfy its regulatory obligations to
maintain financial resources sufficient to withstand a default by the
two CMO Groups \24\ to which it has the largest aggregate credit
exposures in extreme but plausible market conditions (a ``Cover 2''
credit requirement).\25\ That definition currently encompasses the
margin of the defaulting Clearing Member and the Clearing Fund, less
any deficits. The definition excludes certain resources, such as OCC's
assessment powers (i.e., Clearing Member resources that OCC can call
upon, but are not pre-funded) \26\ and OCC's own resources that it has
committed to cover default losses
[[Page 34689]]
(i.e., ``skin-in-the-game''),\27\ which OCC does not use when sizing or
monitoring the adequacy of its Clearing Fund. While the Commercial
Paper Program proceeds would be prefunded and maintained in a Federal
Reserve Bank account, OCC would rely on the Clearing Fund to cover any
loss associated with the use of those proceeds. Accordingly, since the
Clearing Fund is already included in the definition, OCC proposes to
exclude the Commercial Paper Program proceeds from its definition of
Pre-Funded Financial Resources (which as noted above relates to OCC's
Cover 2 monitoring).
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\24\ ``CMO Group'' refers to the legal entity that is the
Clearing Member and any other affiliate entities that control, are
controlled by, or under common control with the Clearing Member.
\25\ See, e.g., 17 CFR 17ad-22(e)(4)(ii); 17 CFR 39.33(a)(1).
OCC has not been designated a covered clearing agency that is
systemically important in multiple jurisdictions or involved in
activities that have a more complex profile. However, OCC has
voluntarily opted to adopt a Cover 2 credit requirement as a covered
clearing agency and a DCO that has elected to become a subpart C
DCO. See Exchange Act Release No. 83406 (June 11, 2018), 83 FR
28018, 28021 (June 15, 2018) (SR-OCC-2018-008).
\26\ See OCC Rule 1006(h).
\27\ See, e.g., Exchange Act Release No. 92038 (May 27, 2021),
86 FR 29861 (June 3, 2021) (SR-OCC-2021-003) (approving changes to
establish a persistent minimum amount of skin-in-the-game).
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OCC also proposes to amend its Capital Management Policy to
distinguish the Commercial Paper Program proceeds from OCC's liquid net
assets funded by equity (``LNAFBE'').\28\ The Capital Management Policy
requires OCC to monitor OCC's LNAFBE for purposes of ensuring that OCC
maintains sufficient funds to cover potential general business losses
so that OCC can continue operations and services as a going concern if
those losses materialize. However, the proceeds of the Commercial Paper
Program would be used exclusively to address liquidity shortfalls
arising from a Clearing Member default or other situation in which OCC
may borrow or otherwise obtain funds using its Clearing Fund under OCC
Rule 1006 and would not be used as working capital or to cover general
business losses. Accordingly, OCC would exclude the cash proceeds of
the Commercial Paper Program from the Capital Management Policy's
definition of LNAFBE. This exclusion is consistent with the current
exclusion of the Minimum Corporate Contribution, which is OCC cash
maintained exclusively as skin-in-the-game to cover default losses or
liquidity shortfalls.
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\28\ Currently, the Capital Management Policy defines LNAFBE as
the level of cash and cash equivalents, no greater than Equity, less
any approved adjustments (e.g., agency-related liabilities such as
Section 31 fees held by OCC and the Minimum Corporate Contribution).
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D. Supporting Institutions
OCC also proposes to make certain other changes to its LRMF and
TPRMF to clarify and distinguish its relationship with the dealers,
agents and Noteholders under OCC's Commercial Paper Program from its
existing relationship with liquidity providers under OCC's committed
facilities. Specifically, those frameworks currently address OCC's
exposure to liquidity providers in terms of the risk that those
institutions would fail to perform their obligations to fund a draw
under the contractual terms of their committed agreements with OCC.
However, these risks would not be present under the Commercial Paper
Program because the Commercial Paper Program proceeds would be
prefunded and maintained by OCC in its Federal Reserve account,
available to address losses or liquidity shortfalls without the need to
draw on a committed arrangement. Accordingly, OCC would amend the LRMF
and TPRMF to clarify that existing references to ``liquidity
providers'' for purposes of monitoring and managing third-party risk
are limited to the liquidity providers under OCC's committed
facilities, not the dealers, agents or Noteholders under OCC's
Commercial Paper Program. Specifically, OCC proposes to amend the LRMF
and TPRMF to clarify that the definition of ``liquidity provider'' and
existing provisions about the on-boarding, ongoing monitoring and off-
boarding of liquidity providers, as that term is used therein or
proposed to be defined, are limited to liquidity providers under OCC's
committed facilities (i.e., counterparties providing liquidity to OCC
under a committed line of credit or committed repurchase agreement), as
is OCC's current practice. Such provisions would not extend to the
Commercial Paper dealers, agent or Noteholders.
Instead, OCC proposes to add a separate section to the LRMF that
would describe OCC's relationship with those institutions supporting
OCC's Commercial Paper Program. That section would note that OCC
maintains relationships with placement dealers and an issuing and
paying agent to support the Commercial Paper Program, and that the
dealers' role is to effect the private placement of the Notes to the
noteholders, while the issuing and paying agent acts as OCC's agent in
connection with the issuance and payment of principal and interest on
the Notes. The LRMF would further note that unlike OCC's relationship
with liquidity providers under OCC's committed facilities, OCC is not
reliant on the dealers or agent to execute a draw to meet same-day
settlement obligations, as discussed above. In addition, the LRMF would
provide that OCC would monitor and manage its relationship with the
dealers and issuing and paying agent as ``Financial Institutions''
under the TPRMF, as that term is defined therein.
OCC would also amend the TPRMF to address how OCC monitors and
manages its relationship with the dealers and issuing and paying agent.
Specifically, OCC would amend the TPRMF to include the dealers and
agent, and the role they play in supporting OCC's Commercial Paper
Program, within the scope of Financial Institutions, which currently
includes OCC's relationships with Clearing Banks, custodians, liquidity
providers and investment counterparties. As such, the on-boarding and
ongoing monitoring of such relationships would be subject to existing
governance through OCC's Credit and Liquidity Risk Working Group
(``CLRWG''), a cross-functional group comprised of representatives from
relevant OCC business units including Treasury, Stress Testing and
Liquidity, Collateral and Third-Party Risk Management. OCC believes
that CLRWG is the appropriate internal working group for reviewing
these relationships given its existing role in managing OCC's liquidity
risks, resources and relationships.
E. Federal Reserve Account
OCC also proposes to amend its Rules and the Cash and Investment
Management Policy to allow for the Commercial Paper Program proceeds to
be held in one of its Federal Reserve Bank accounts. As part of OCC's
designation as a systemically important financial market utility
(``SIFMU'') by the Financial Stability Oversight Council (``FSOC'') on
July 18, 2012, OCC is eligible pursuant to Section 806 of Title VIII of
the Dodd-Frank Act to request the use of certain accounts and services
of Federal Reserve Banks.\29\ OCC has been approved by the Board of
Governors of the Federal Reserve System to maintain a Federal Reserve
Bank account to hold, among other things, cash deposits from its
Clearing Members to satisfy margin, Clearing Fund requirements, and
OCC's corporate funds.\30\ However, OCC Rule 1002 and OCC Rule 604B
impose certain restrictions on the manner in which OCC must hold
Clearing Fund contributions and margin assets.\31\
[[Page 34690]]
Consistent with these requirements, OCC's Federal Reserve Bank account
in which it would maintain the Commercial Paper Program proceeds
currently is limited to Clearing Fund contributions and certain non-
customer cash margin assets.\32\
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\29\ 12 U.S.C. 5465.
\30\ See Federal Reserve Bank of Chicago authorization to
provide accounts and services to Options Clearing Corporation and
Chicago Mercantile Exchange, Inc., in accordance with the Dodd-Frank
Act and Regulation HH, approved March 15, 2016 (<a href="https://www.federalreserve.gov/releases/h2/20160319/h2.pdf">https://www.federalreserve.gov/releases/h2/20160319/h2.pdf</a>). OCC has also
been approved to maintain two additional accounts to serve as
customer segregated accounts as defined under Section 4d of the
Commodity Exchange Act. Since these accounts are segregated margin
accounts, the change discussed herein does not impact these
accounts.
\31\ See OCC Rule 604B(c) (providing authority to commingle
funds held by the Corporation as non-customer margin assets in a
Federal Reserve bank account with cash Clearing Fund contributions);
OCC Rule 1002, I&P .04 (providing authority to commingle cash
Clearing Fund contributions in a Federal Reserve bank account with
non-customer margin assets).
\32\ See Exchange Act Release No. 90100 (Oct. 6, 2020), 85 FR
64603 (Oct. 13, 2020) (SR-OCC-2020-010) (approving proposed rule
changes to allow OCC to commingle certain non-customer margin assets
with Clearing Fund contributions in OCC's Federal Reserve bank
account).
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To safeguard the prefunded cash proceeds from the Commercial Paper
Program, OCC proposes to amend I&P .04 to OCC Rule 1002 and OCC Rule
604B(c)(2) to allow OCC to maintain the Commercial Paper Program
proceeds in the same Federal Reserve Bank account as the Clearing Fund
cash and non-customer cash margin. Like the cash Clearing Fund
contributions, the Commercial Paper Program proceeds are funds that OCC
would use exclusively to manage a Clearing Member default or other
event for which OCC is authorized to use Clearing Fund deposits under
OCC Rule 1006. In addition, OCC believes that the ability to hold the
Commercial Paper Program proceeds in its Federal Reserve bank account
would be consistent with Commission rules for covered clearing agencies
that encourage the use of central bank services to conduct money
settlements,\33\ custody qualifying liquid resources,\34\ and enhance
management of liquidity risk.\35\ Accordingly, OCC believes holding
these funds together with the Clearing Fund cash in a Federal Reserve
Bank account is both prudent and supported by applicable regulatory
requirements. OCC intends to establish a subaccount under its master
Federal Reserve Bank account to segregate the Commercial Paper Program
proceeds from other funds maintained in the master account.
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\33\ 17 CFR 240.17ad-22(e)(9).
\34\ 17 CFR 240.17ad-22(a) (``Qualifying liquid resources'').
\35\ 17 CFR 240.17ad-22(e)(7)(iii).
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In connection with the above changes to OCC's Rules, OCC would also
amend its Cash and Investment Management Policy. Specifically, OCC
would update that policy to recognize the Commercial Paper Program
proceeds would be a form of OCC cash, as opposed to Clearing Member
cash. As defined in the Cash and Investment Management Policy, OCC's
cash includes, among other things, working capital cash related to
future operating costs, inclusive of financial resources held to meet
liquidity and resiliency requirements. In contrast, Clearing Member
cash is cash received from and held by OCC on behalf of its Clearing
Members, including Clearing Fund cash, margin cash, cash held in
liquidating settlement accounts, proceeds from OCC's liquidity
facilities, and investments made with Clearing Member cash. Since the
Commercial Paper Program proceeds are obtained through OCC's issuance
of unsecured debt, such proceeds are a form of OCC cash. However,
unlike other OCC cash, which OCC maintains at creditworthy commercial
banks and may invest in Government securities through reverse
repurchase agreements with investment counterparties, the policy would
provide that the Commercial Paper Program proceeds would be held
exclusively at a Federal Reserve Bank and would not be invested. The
policy would further provide that interest earned on Commercial Paper
Program proceeds held at a Federal Reserve Bank will accrue to the
benefit of OCC. Such accrued interest would help to partially offset
OCC's costs to issue the interest-bearing Notes.
F. Default Management
OCC also proposes to amend its Default Management Policy to provide
for the governance process for using Commercial Paper Program proceeds
in the event of a Clearing Member suspension, settlement bank failure,
or other situation in which OCC may need to draw upon its Clearing Fund
to cover losses or liquidity shortfalls. In such events, the policy
provides that the Chairman, Chief Executive Officer (``CEO'') or Chief
Operating Officer (``COO'') have authority under OCC Rule 1006 to
authorize OCC's Treasury office within its Finance Department to draw
on OCC's committed liquidity facilities or borrow cash deposits
maintained in the Clearing Fund as necessary. In actuality, OCC Rule
1006(f)(2)(A)(iii) currently provides that OCC may use funds it takes
possession of under Rule 1006(f) to borrow or otherwise obtain funds
through any means determined to be reasonable at the discretion of the
Chairman, CEO or COO. OCC's Office of the Chief Executive Officer
(``OCEO''), currently comprised of the CEO and COO, has already
determined that drawing on an existing committed liquidity facility or
borrowing Clearing Fund cash deposits are reasonable means to borrow or
otherwise obtain funds under Rule 1006 in such events. The Default
Management Policy would be amended to note this determination, in place
of the current statement about what OCC Rule 1006 authorizes.
With respect to approving a particular borrowing or draw, OCC would
further amend the Default Management Policy to provide that the OCEO,
OCC's Chief Financial Risk Officer (``CFRO''), Chief Risk Officer
(``CRO''), or their delegates may authorize OCC's Treasury, a business
unit within the Finance Department, to initiate a draw from OCC's
committed facilities or borrow cash deposits maintained in the Clearing
Fund to meet settlement obligations. OCC believes that expanding the
universe of the senior managers or their delegates who are authorized
to approve such measures is prudent to mitigate the operational risk
that one or more of those individuals would not be available to approve
such a time-sensitive request. If those individuals were unavailable to
approve the request, OCC may not be able to obtain the funds in a
timely enough manner and may need to extend settlement obligations
under OCC Rule 505. In addition, OCC would amend the Default Management
policy to provide that the same individuals would have the authority to
approve the use of Commercial Paper Program proceeds in such
situations. The Default Management Policy would further provide that
any other means of borrowing or otherwise obtaining funds requires
approval from the Chairman, CEO or COO, consistent with the
determination required under OCC Rule 1006(f).
(1) Administrative Changes
OCC also proposes to make certain non-substantive changes and
corrections to its rules for clarity, including:
<bullet> OCC would add titles (i.e., ``Clearing Fund Cash
Requirement,'' ``Commercial Paper Program'' and ``Committed
Facilities'') to the descriptions in a list of qualifying liquid
resources that count as Base Liquidity Resources in the LRMF.
<bullet> OCC would correct a cross-reference to the definition of
the term ``qualifying liquid resources'' in the LRMF to conform with
amendments to the Covered Clearing Agency Standards that removed the
numbering of definitions under Exchange Act Rule 240.17Ad-22(a).\36\
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\36\ See Exchange Act Release No. 99149 (Dec. 13, 2023), 89 FR
2714, 2829 (S7-23-22).
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<bullet> Where the LRMF, TPRMF or Cash and Investment Management
Policy define terms at an earlier point in the document, OCC would
carry those
[[Page 34691]]
defined terms through the remainder of the document, as appropriate.
<bullet> Consistent with respect to other policies and
frameworks,\37\ OCC would remove the version number from the Cash and
Investment Management Policy. Such version numbers do not constitute a
rule and are instead reflected in an internal system of record that OCC
uses to manage its policy governance.
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\37\ See Exchange Act Release No. 93436 (Oct. 27, 2021), 86 FR
60499, 60501 (Nov. 2, 2021) (SR-OCC-2021-010).
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Anticipated Effect on and Management of Risk
As a covered clearing agency and DCO, OCC's ability to meet
settlement demands in the event of a Clearing Member default, or the
failure of another participant to meet its obligations to OCC, is
critical to the markets that OCC serves. OCC believes that the overall
effect of the Commercial Paper Program on the risk profile at OCC would
be to reduce liquidity risk associated with OCC's function as a covered
clearing agency and DCO by providing it with an additional liquidity
resource to meet same-day settlement demands in the event of a Clearing
Member default or other scenario in which OCC may access its Clearing
Fund under OCC Rule 1006. In addition, the Commercial Paper Program has
a mix of benefits when compared with OCC's other liquidity resources.
Like the Clearing Fund Cash Requirement, the Commercial Paper Program
would be a prefunded source of liquidity, thus avoiding the operational
risk of drawing on a committed facility when necessary to meet same-day
settlement obligations. Also like the Clearing Fund Cash Requirement,
OCC expects that the Commercial Paper Program would allow OCC to source
new liquidity quickly and efficiently. However, unlike calling for
additional cash from Clearing Members by increasing the Clearing Fund
Cash Requirement, the Commercial Paper Program would not impose
opportunity costs \38\ on its Clearing Members. In addition, like OCC's
non-bank liquidity facility, the Commercial Paper Program would not
increase the concentration of OCC's credit risk to its participants.
That is, by maintaining Commercial Paper Program proceeds as prefunded
financial resources at a Federal Reserve Bank, OCC's liquidity sources
would rely less on committed funding arrangements from financial
institutions to which OCC faces credit risk through other
relationships, including as Clearing Members, settlement banks,
custodians or investment counterparties. As such, OCC believes that the
addition of the Commercial Paper Program would strengthen OCC's
liquidity risk management as part of a diverse set of liquidity
sources.
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\38\ In this context, ``opportunity costs'' refers to Clearing
Members' loss of potential gain when required to deposit cash with
OCC rather than deploying their capital in some other way.
---------------------------------------------------------------------------
The Commercial Paper Program, like any liquidity resource, would
involve certain risks, most of which are standard in any commercial
paper program. OCC has structured the proposed Commercial Paper Program
to address: (1) repayment risk, (2) rollover risk, (3) interest rate
risk, and (4) custody risk.
(1) Repayment Risk
In this context, repayment risk is the risk that OCC would not have
access to sufficient financial resources to repay the face value of the
issued Notes upon maturity. OCC believes that this risk is extremely
remote because the proceeds of the Commercial Paper Program would be
used only in the event of a Clearing Member default or other scenario
in which the Clearing Fund may be charged under OCC Rule 1006. In the
event of a Clearing Member default, OCC would replace the cash, as it
would for any liquidity resource it utilized, with eligible proceeds
from the liquidation of the defaulting Clearing Member's portfolio. OCC
proposes to structure the Commercial Paper Program to mitigate
repayment risk by providing authority under its Rules to charge or
borrow from the Clearing Fund to obtain resources to pay the Notes upon
maturity if OCC used the Commercial Paper Program proceeds to meet
settlement demands. In addition, OCC proposes to amend its rules to
include the Commercial Paper Program proceeds when calculating the
minimum size of the Clearing Fund. Furthermore, as discussed above, the
staggering of maturities would eliminate the risk that the Notes become
due at one time. OCC believes that these measures ensure that OCC will
have access to financial resources to repay the Commercial Paper
Proceeds upon the maturity of the Notes.
(2) Rollover Risk
At the maturity of any Note, OCC would look to fund a new Note,
i.e., ``rollover'' the Note. Rollover risk is the risk that a rollover
of expiring Notes may not fund, leaving OCC without the liquidity
provided by those Notes upon their expiration. As discussed above, OCC
proposes to structure the Commercial Paper Program to manage rollover
risk by staggering the maturities of the Notes it issues, thereby
reducing a concentration in expiring Notes. The proposed rules would
also allow the Board to cap the amount of Commercial Paper Program
proceeds that could be counted towards OCC's Base Liquidity Resources.
Such a cap would further mitigate the risk that a failure to rollover
expiring Notes would reduce OCC's qualifying liquid resources below its
Cover 1 liquidity requirement. In addition, OCC would mitigate this
risk by maintaining a diverse set of other liquidity sources, including
the Clearing Fund Cash Requirement and the committed facilities,
thereby reducing the risk that OCC would be dependent on any one
liquidity source.
(3) Interest Rate Risk
Interest rate risk is the risk that the interest rate that OCC
would pay on the interest-bearing Notes may become dislocated from the
interest rate that OCC earns by holding the Commercial Paper Program
proceeds at the Federal Reserve. Such dislocation could increase OCC's
costs for maintaining the Commercial Paper Program. OCC proposes to
address such interest rate risk by limiting the duration of the Notes
it issues to no more than 180 days. OCC's current plan is to begin
issuing Notes with maturities of 90 days. Based on an analysis of 90-
day commercial paper rates compared to the Interest Rate on Reserve
Balances (``IORB'') and the Interest Rate on Required Reserves
(``IORR'') over the last fifteen years, OCC believes that the impact of
issuing the Notes on OCC's own financials would be minimal.\39\
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\39\ See Exhibit 3C [sic] to File No. SR-OCC-2026-801, supra
note 18 (presenting OCC's analysis).
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(4) Custody Risk
In this context, custody risk is the risk associated with
safeguarding OCC's qualifying liquid resources and ensuring that OCC
has prompt access to those resources to satisfy settlement demands on a
same-day basis if needed. OCC proposes to structure the Commercial
Paper Program to mitigate such custody risk by holding the Commercial
Paper Program proceeds in one of its Federal Reserve Bank accounts. As
part of the U.S. central banking system, the Federal Reserve Bank of
Chicago, where OCC maintains its accounts, is among the safest and most
sound depository institutions in the world. Accordingly, OCC believes
that maintaining the Commercial Paper Program proceeds in its Federal
Reserve bank account along with other qualifying liquid resources would
appropriately safeguard those assets and minimize the risk of OCC's
loss or delay in access to them. In
[[Page 34692]]
addition, OCC would maintain the proceeds in cash and would not invest
the proceeds in Government securities through overnight reverse-
repurchase agreements, as it periodically invests its working capital
and other permitted cash. Holding the proceeds in cash helps ensure
that they will be available to meet settlement demands on a same-day
basis, if needed.
Consistency With the Clearing Supervision Act
The stated purpose of the Clearing Supervision Act is to mitigate
systemic risk in the financial system and promote financial stability
by, among other things, promoting uniform risk management standards for
SIFMUs and strengthening the liquidity of SIFMUs.\40\ Section 805(a)(2)
of the Clearing Supervision Act \41\ also authorizes the Commission to
prescribe risk management standards for the payment, clearing and
settlement activities of designated clearing entities, like OCC, for
which the Commission is the supervisory agency. Section 805(b) of the
Clearing Supervision Act \42\ states that the objectives and principles
for risk management standards prescribed under Section 805(a) shall be
to:
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\40\ 12 U.S.C. 5461(b).
\41\ 12 U.S.C. 5464(a)(2).
\42\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------
<bullet> promote robust risk management;
<bullet> promote safety and soundness;
<bullet> reduce systemic risks; and
<bullet> support the stability of the broader financial system.
The Commission has adopted risk management standards in furtherance
of these objectives and principles.\43\ Specifically, Rule 17ad-22(e)
requires covered clearing agencies, like OCC, to establish, implement,
maintain, and enforce written policies and procedures that are
reasonably designed to meet certain minimum requirements for their
operations and risk management practices on an ongoing basis.\44\
Therefore, the Commission has stated \45\ that it believes it is
appropriate to review changes proposed in advance notices against Rule
17Ad-22 \46\ and the objectives and principles of these risk management
standards as described in Section 805(b) of the Clearing Supervision
Act.\47\
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\43\ See 17 CFR 240.17ad-22.
\44\ 17 CFR 240.17ad-22(e).
\45\ See, e.g., Exchange Act Release No. 99731 (Mar. 13, 2024),
89 FR 19629, 19632-33 (Mar. 10, 2024) (SR-OCC-2023-801).
\46\ 17 CFR 240.17ad-22.
\47\ 12 U.S.C. 5464(b).
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OCC believes that the proposed changes are consistent with Section
805(b) of the Clearing Supervision Act \48\ because the Commercial
Paper Program would provide OCC with access to an additional source of
prefunded qualifying liquid resources within its risk management
toolbox to manage financial obligations more efficiently and
effectively. As described above, the Commercial Paper Program would be
structured to mitigate the risks that arise in connection with
commercial paper programs, including repayment risk, rollover risk,
interest rate risk, and custody risk, thereby promoting robust risk
management consistent with Section 805(b)(1).\49\ For example, OCC
would mitigate custody risk by safekeeping the Commercial Paper
Proceeds in its Federal Reserve Bank account, thereby promoting safety
and soundness consistent with Section 805(b)(2).\50\ In addition, the
proceeds of the Commercial Paper Program would be available for OCC to
meet settlement obligations in the event of a Clearing Member default,
or such other scenarios in which OCC is permitted to use its Clearing
Fund under OCC Rule 1006. Maintaining access to sufficient qualifying
liquid resources mitigates the risk that OCC would exercise its
authority to extend settlement obligations, which could have downstream
impacts on its participants and the markets OCC serves, including the
potential impact OCC's failure to make settlement could have on the
ability of other market participants to meet their own financial
obligations. As FSOC concluded when it designated OCC as a SIFMU under
Title VIII of the Dodd-Frank Act,\51\ ``a failure of or a disruption to
OCC could increase the risk of significant liquidity or credit problems
spreading among financial institutions or markets and thereby threaten
the stability of the financial system of the United States.'' \52\ OCC
believes that by helping ensure that OCC has sufficient qualifying
liquid resources to meet its liquidity demands, the proposed changes
are consistent with paragraphs (3) and (4) of Section 805(b) \53\ by
mitigating systemic risk that could threaten the stability of the
broader financial system. In these ways, the proposed changes are
designed to promote robust risk management, promote safety and
soundness, reduce systemic risks, and support the stability of the
broader financial system.
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\48\ 12 U.S.C. 5464(b).
\49\ 12 U.S.C. 5464(b)(1).
\50\ 12 U.S.C. 5464(b)(2).
\51\ 12 U.S.C. 5463.
\52\ FSOC Annual Report (2012), Appendix A at 187, available at
<a href="https://home.treasury.gov/system/files/261/2012-Appendix-A-Designation-of-Systemically-Important-Market-Utilities.pdf">https://home.treasury.gov/system/files/261/2012-Appendix-A-Designation-of-Systemically-Important-Market-Utilities.pdf</a>.
\53\ 12 U.S.C. 5464(b)(3)-(4).
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Exchange Act Rule 17Ad-22(e)(7)(i) requires that OCC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to maintain sufficient liquid resources at the
minimum in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of foreseeable
stress scenarios that includes, but is not limited to, the default of
the participant family that would generate the largest aggregate
payment obligation for the covered clearing agency in extreme but
plausible market conditions.\54\ As described above, the proposed
change would allow OCC to establish its Commercial Paper Program, which
would in turn help provide OCC with a prefunded qualifying liquid
resource that would enable it to continue to meet its obligations in a
timely manner and address OCC's liquidity demands under stressed or
volatile market conditions. Accordingly, OCC believes that the proposed
changes are consistent with Exchange Act Rule 17Ad-22(e)(7)(i).\55\
---------------------------------------------------------------------------
\54\ 17 CFR 240.17ad-22(e)(7)(i).
\55\ Id.
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Exchange Act Rule 17Ad-22(e)(7) \56\ also promotes the use of
central bank services by a covered clearing agency to conduct money
settlements. Specifically, Exchange Act Rule 17Ad-22(e)(7)(ii) requires
OCC to establish, implement, maintain and enforce written policies and
procedures reasonably designed to hold qualifying liquid resources
sufficient to satisfy its Cover 1 liquidity requirement in the currency
for which OCC has payment obligations owed to Clearing Members.\57\
Exchange Act Rule 17Ad-22(a) defines ``qualifying liquid resources'' to
include, among other things, cash held at the central bank of
issue.\58\ In addition, Exchange Act Rule 17Ad-22(e)(7)(iii) requires
OCC to establish, implement, maintain and enforce written policies and
procedures reasonably designed to use its access to accounts and
services at a Federal Reserve Bank when available and where determined
to be practical by OCC's Board to enhance its management of liquidity
risk.\59\ OCC proposes to maintain the proceeds of the Commercial Paper
Program in U.S. dollars, the currency in which OCC
[[Page 34693]]
conducts its settlements, held in a Federal Reserve Bank account along
with other qualifying liquid resources. Accordingly, OCC believes that
the proposal is consistent with Exchange Act Rules 17Ad-22(e)(7)(ii)
and (iii).\60\
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\56\ 17 CFR 240.17ad-22(e)(7).
\57\ 17 CFR 240.17ad-22(e)(7)(ii).
\58\ 17 CFR 240.17ad-22(a) (``Qualifying liquid resources'').
\59\ 17 CFR 240.17ad-22(e)(7)(iii).
\60\ 17 CFR 240.17ad-22(e)(7)(ii), (iii).
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Exchange Act Rule 17Ad-22(e)(16) requires OCC to establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to safeguard its own and its participants' assets,
minimize the risk of loss and delay in access to these assets, and
invest such assets in instruments with minimal credit, market, and
liquidity risks.\61\ In adopting Exchange Rule 17Ad-22(e)(16),\62\ the
Commission stated that in satisfying the requirements a covered
clearing agency should consider, among other things: (i) whether it
holds its own and its participants' assets at supervised and regulated
entities that have robust accounting practices, safekeeping procedures,
and internal controls that fully protect these assets; (ii) whether it
has prompt access to its assets and the assets provided by
participants, when required; and (iii) whether it evaluates and
understands its exposures to its custodian banks, taking into account
the full scope of its relationships with each.\63\ As discussed above,
OCC believes that the proposed changes are consistent with these
considerations by requiring OCC to hold the Commercial Paper Program
proceeds as qualifying liquid resources in one of its Federal Reserve
Bank accounts, thereby mitigating the custody risk of maintaining such
assets.
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\61\ 17 CFR 240.17ad-22(e)(16).
\62\ Id.
\63\ See Exchange Act Release No. 34-78961, 81 FR at 70786 at
70837 (Oct. 13, 2016).
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For the foregoing reasons, OCC believes that the proposed changes
are consistent with Section 805(b)(1) of the Clearing Supervision Act
\64\ and Rules 17Ad-22(e)(7) and (e)(16) under the Exchange Act.\65\
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\64\ 12 U.S.C. 5464(b)(1).
\65\ 17 CFR 240.17ad-22(e)(7), (16).
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III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action
The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date that the proposed change was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received. The clearing agency shall not implement the proposed change
if the Commission has any objection to the proposed change.
The Commission may extend period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission or the Board of Governors of the Federal Reserve System
providing the clearing agency with prompt written notice of the
extension. A proposed change may be implemented in less than 60 days
from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an earlier date, subject to any conditions imposed
by the Commission. The clearing agency shall post notice on its website
of proposed changes that are implemented.
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 advance
notice is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3240475e571f515d5f5f575c4641724157511c555d44"><span class="__cf_email__" data-cfemail="98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee">[email protected]</span></a>. Please include
file number SR-OCC-2026-801 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to file number SR-OCC-2026-801. 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 of submission. 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
this 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-2026-801 and
should be submitted on or before June 29, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\66\
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\66\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-11378 Filed 6-5-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 8, 2026.
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.