Notice2026-20465
Self-Regulatory Organizations; The Options Clearing Corporation; Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, by The Options Clearing Corporation Concerning Methodology To Allocate Clearing Fund Deposit Requirements Among Its Clearing Members To Better Align the Allocation With the Sizing of the Clearing Fund so Stress Based Risk is Fairly Allotted to Market Participants That Expose OCC to Such Stress Risk
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
October 6, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 192 (Tuesday, October 6, 2026)</title>
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[Federal Register Volume 91, Number 192 (Tuesday, October 6, 2026)]
[Notices]
[Pages 63626-63637]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20465]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106573; File No. SR-OCC-2025-018]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Setting Aside Action by Delegated Authority and Approving
Proposed Rule Change, as Modified by Partial Amendment No. 1, by The
Options Clearing Corporation Concerning Methodology To Allocate
Clearing Fund Deposit Requirements Among Its Clearing Members To Better
Align the Allocation With the Sizing of the Clearing Fund so Stress
Based Risk is Fairly Allotted to Market Participants That Expose OCC to
Such Stress Risk
October 2, 2026.
I. Introduction
On September 26, 2025, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2025-018, pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule
19b-4 \2\ thereunder, to amend its allocation methodology for the
Clearing Fund \3\ deposit requirements of its Clearing Members by
realigning the allocation to correspond to the sizing of the Clearing
Fund so that certain stress-based risk is proportionally allotted to
market participants that expose OCC to such risk.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/company-information/documents-and-archives/by-laws-and-rules">https://www.theocc.com/company-information/documents-and-archives/by-laws-and-rules</a>.
\4\ The Commission published notice of the proposed rule change
in the Federal Register on October 1, 2025. See Securities Exchange
Act Release No. 104111 (Sept. 26, 2025), 90 FR 47383 (Oct. 1, 2025)
(File No. SR-OCC-2025-018) (``Notice of Filing''). On October 7,
2025, OCC filed Partial Amendment No. 1 to append an Exhibit 2 to
documents filed as part of File No. SR-OCC-2025-018 on September 26,
2025 (hereinafter, together, defined as ``Proposed Rule Change'').
Exhibit 2 consists of communication from OCC to its Clearing Members
discussing, amongst other things, the proposed rule change in File
No. SR-OCC-2025-018. On November 3, 2025, the Commission designated
a longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether the proposed rule change should be disapproved.
See Securities Exchange Act Release No. 104173 (Nov. 3, 2025), 90 FR
51424 (Nov. 17, 2025) (File No. SR-OCC-2025-018).
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On December 11, 2025, the Commission, acting through authority
delegated to the Division of Trading and Markets,\5\ approved the
Proposed Rule Change (``Delegated Order'').\6\ On December 18, 2025,
Fidelity Investments (``Fidelity'' or ``Petitioner'') \7\ filed a
notice of its intention to petition for review,\8\ pursuant to Rule 430
of the Commission's Rules of Practice.\9\ Pursuant to Commission Rule
of Practice 431(e), the Delegated Order was stayed by the filing with
the Commission of a notice of intention to petition for review.\10\ On
December 24, 2025, Fidelity submitted its Petition for Review
(``Petition'') of the Delegated Order.\11\ On February 13, 2026, the
[[Page 63627]]
Commission issued a scheduling order, pursuant to Commission Rule of
Practice 431,\12\ granting the Petition and providing until March 12,
2026, for any party or other person to file a written statement in
support of, or in opposition to, the Delegated Order.\13\ On March 12,
2026, Petitioner submitted a written statement in opposition to the
Delegated Order.\14\ The Commission received additional comment from
the public, including from OCC.\15\
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\5\ 17 CFR 200.30-3(a)(12).
\6\ Securities Exchange Act Release No. 104359 (Dec. 11, 2025),
90 FR 58352 (Dec. 16, 2025) (File No. SR-OCC-2025-018). The
Delegated Order also provided notice of filing of Partial Amendment
No. 1, which did not change the purpose of or basis for SR-OCC-2025-
018.
\7\ Fidelity Investments provides clearing, custody, or other
brokerage services through National Financial Services LLC, which is
a Clearing Member of OCC. See <a href="https://www.theocc.com/company-information/member-directory">https://www.theocc.com/company-information/member-directory</a> (last visited Sept. 30, 2026).
\8\ See Letter from Roberto Braceras, General Counsel, Fidelity
(Dec. 18, 2025), available at <a href="https://www.sec.gov/files/rules/sro/occ/2026/34-104359-fidelity-letter-121825.pdf">https://www.sec.gov/files/rules/sro/occ/2026/34-104359-fidelity-letter-121825.pdf</a>.
\9\ 17 CFR 201.430.
\10\ 17 CFR 201.431(e). See Letter from J. Matthew DeLesDernier,
Deputy Secretary, Commission, to Hafez Almiladi, Assistant General
Counsel, OCC (Dec. 18, 2025), available at <a href="https://www.sec.gov/files/rules/sro/occ/2025/34-104359-letter.pdf">https://www.sec.gov/files/rules/sro/occ/2025/34-104359-letter.pdf</a>.
\11\ See Fidelity, Petition for Review of Order Taken by
Delegated Authority Granting Approval of Proposed Rule Change by
Options Clearing Corporation Amending Methodology for Allocation of
Clearing Fund Deposit Requirements (Dec. 24, 2025), available at
<a href="https://www.sec.gov/files/rules/sro/occ/2025/34-104359-petition.pdf">https://www.sec.gov/files/rules/sro/occ/2025/34-104359-petition.pdf</a>.
The Commission received two comments supporting the Petition. See
Letter from Matt Billings, President, Robinhood Financial LLC and
Robinhood Securities, LLC (Dec. 23, 2025) (``Robinhood I''),
available at <a href="https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-687647-2132694.pdf">https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-687647-2132694.pdf</a>; Letter from Jeffrey Starr, Managing
Director, Head of Operations, Charles Schwab & Co., Inc. (Feb. 12,
2026) (``Schwab I''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-703548-2210614.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-703548-2210614.pdf</a>. On January 22, 2026,
OCC submitted a response recommending that the Commission not grant
the Petition. See Letter from Nicole Jakubowski, Deputy General
Counsel and Corporate Secretary, OCC (Jan. 22, 2026) (``OCC I''),
available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-695847-2175634.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-695847-2175634.pdf</a>.
\12\ 17 CFR 201.431.
\13\ See Securities Exchange Act Release No. 104846 (Feb. 13,
2026), 91 FR 8034 (Feb. 19, 2026) (File No. SR-OCC-2025-018).
\14\ See Fidelity, Opposition to Proposed Rule Change by Options
Clearing Corporation Amending Methodology for Allocation of Clearing
Fund Deposit Requirements (``Opposition'') (Mar. 12, 2026),
available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722287-2261554.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722287-2261554.pdf</a>. Concurrently, Petitioner provided
additional information supporting its statement to the Commission
with a request for confidential treatment.
\15\ Comments on the Proposed Rule Change are available at
<a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018.htm">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018.htm</a>.
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The Commission has conducted a de novo review of OCC's proposal,
giving careful consideration to the entire record--including all
comments and statements submitted--to determine whether the proposal is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to a registered clearing agency.
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\16\ Under the Commission's
Rules of Practice, the ``burden to demonstrate that a proposed rule
change is consistent with the Exchange Act and the rules and
regulations issued thereunder . . . is on the self-regulatory
organization that proposed the rule change.'' \17\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\18\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Exchange Act and the applicable rules and
regulations.\19\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\20\
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\16\ 15 U.S.C. 78s(b)(2)(C).
\17\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\18\ Id.
\19\ Id.
\20\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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For the reasons discussed herein, OCC has met its burden to show
that the Proposed Rule Change is consistent with the Exchange Act and
rules and regulations thereunder applicable to OCC, and this order sets
aside the Delegated Order and approves the Proposed Rule Change. In
particular, the Commission finds that the record before the Commission
demonstrates that the Proposed Rule Change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to OCC. More specifically, the Commission finds
that the Proposed Rule Change is consistent with Sections 17A(b)(3)(F),
and (I) of the Exchange Act, and with Exchange Act Rules 17ad-22(e)(2)
and (18).
II. Summary of the Proposal
OCC is registered with the Commission as a clearing agency and, as
such, is an SRO under the Exchange Act.\21\ OCC is the only clearing
agency for standardized U.S. securities options listed on Commission-
registered national securities exchanges (``listed options''). In
addition, OCC serves other financial markets, including the commodity
futures, commodity options, security futures, securities lending, and
the over-the-counter options markets. OCC provides central counterparty
(``CCP'') clearing services for all these markets and performs critical
functions in the clearance and settlement process. OCC's role as a CCP
means that, as part of its function as a clearing agency, it interposes
itself as the buyer to every seller and the seller to every buyer for
certain financial transactions. As the CCP for the listed options
markets in the United States, as well as for certain futures and stock
loans, OCC is exposed to various risks arising from providing clearance
and settlement services to its Clearing Members. Because OCC is
obligated to perform on the contracts it clears, one such risk that OCC
is exposed to is credit risk, including the risk that OCC would not
maintain sufficient financial resources to cover exposures if one of
its Clearing Members defaults.
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\21\ See 15 U.S.C. 78c(a)(26). OCC is also registered with the
U.S. Commodity Futures Trading Commission (``CFTC'') as a
derivatives clearing organization.
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Among the ways that OCC manages the credit risk posed by a
potential Clearing Member default is by periodically collecting margin
collateral from Clearing Members on an individual basis and, to the
extent this margin collateral could be insufficient to cover OCC's
credit exposure in the event of a Clearing Member default, maintaining
a Clearing Fund, which is a mutualized pool of financial resources to
which each Clearing Member is required to contribute. OCC establishes
the size of its Clearing Fund on a monthly basis, in part, at an amount
determined by OCC to be sufficient to protect it against losses
stemming from the default of the two Clearing Member Groups that would
potentially cause the largest aggregate credit exposure for OCC under
stress test scenarios that represent extreme but plausible market
conditions.\22\
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\22\ OCC Rule 1001(a). OCC determines the size of its Clearing
Fund based on the daily output of stress tests conducted using a
range of foreseeable scenarios that utilize standard pre-determined
parameters and assumptions, including: relevant peak historic price
volatilities; shifts in other market factors including, as
appropriate, priced determinants and yield curves; the default of
one or multiple members; forward-looking stress scenarios. See
Notice of Filing, 90 FR at 47384.
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After establishing the size of the Clearing Fund each month, OCC
allocates a percentage of the obligation to contribute to the Clearing
Fund to each Clearing Member. From time to time, OCC has modified its
allocation methodology to more accurately reflect the risk each
Clearing Member poses to OCC.\23\ Currently, each Clearing Member's
contribution to the Clearing Fund is a function of that member's
proportionate share of total risk,\24\ open
[[Page 63628]]
interest,\25\ and volume.\26\ OCC currently uses a one-month lookback
when calculating a member's proportionate share of the Clearing
Fund.\27\
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\23\ See Securities Exchange Act Release No. 69403 (Apr. 18,
2013), 78 FR 24257 (Apr. 24, 2013) (File No. SR-OCC-2013-02)
(replacing OCC's method of calculating Clearing Members'
contributions to OCC's Clearing Fund in proportion to open interest
with a formula based on open interest, total risk, and volume with
relative weightings of 50%, 35%, and 15%, respectively); Securities
Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855 (Aug. 2,
2018) (File No. SR-OCC-2018-008) (modifying OCC's allocation
weighting to better manage its credit exposures to its Clearing
Members by better aligning each Clearing Member's contributions to
the credit risk it poses to OCC).
\24\ Total risk in this context refers to a member's
proportionate share of margin posted to OCC. See OCC Rule
1003(b)(i).
\25\ Open interest is the total number of cleared contracts and
open positions plus units of stock underlying open stock loan or
borrow positions. See Securities Exchange Act Release No. 69403
(Apr. 18, 2013), 78 FR 24257 (Apr. 24, 2013) (File No. SR-OCC-2013-
02).
\26\ OCC Rule 1003(a). The proportionate requirements are
determined over and above the contribution of $500,000 per Clearing
Member. See id.
\27\ See Notice of Filing, 90 FR at 47386.
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In the Proposed Rule Change, OCC proposed to modify the allocation
methodology again to more closely align member obligations with the
risks to which they expose OCC.\28\ Although the current Clearing Fund
allocation methodology contemplates risk as a function of margin, it
does not include a component that accounts for the stressed losses used
to size the Clearing Fund when determining each Clearing Member's
required Clearing Fund contribution. OCC states that the lack of such a
stress loss component creates an inconsistency between the sizing and
allocation across the membership.\29\ To address this inconsistency,
OCC's Proposed Rule Change includes the stress loss component in the
allocation methodology, allowing OCC to more accurately allocate
individual Clearing Fund requirements because they better reflect the
potential risk also known as the directional stressed risk that
Clearing Members present to OCC.
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\28\ See Notice of Filing, 90 FR at 47383 (providing notice of
OCC's proposal to better align the allocation with the sizing of the
Clearing Fund so that stress-based risk is fairly allotted to those
market participants that expose OCC to such stress risk).
\29\ Notice of Filing, 90 FR at 47384 (``OCC's rules require OCC
to size the Clearing Fund monthly based on stress test scenarios
that present extreme but plausible market condition . . . [h]owever,
the current allocation methodology does not include a component that
takes into account the same stressed losses used to size the fund
when determining each Clearing Member's required Clearing Fund
deposit'').
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OCC's Proposed Rule Change would modify OCC's formula for
allocating Clearing Fund Contribution requirements by (a) introducing a
70% Clearing Fund risk-based shortfall allocation based on stress loss
in excess of margin (the ``shortfall''); \30\ and (b) changing the
weighting percentages by reducing the margin allocation from 70% to 15%
and open interest to 0%. These changes would result in a new weighting
scheme of 70% shortfall, 15% margin, and 15% cleared volume.
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\30\ OCC refers to such a shortfall as Stress Loss Over Initial
Margin (``SLOIM''). See generally Letter from Nicole Jakubowski,
Deputy General Counsel and Corporate Secretary, OCC (Mar. 12, 2026)
(``OCC II''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722767-2261914.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722767-2261914.pdf</a>.
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As part of the change to allocation weighting, OCC also proposed
extending the lookback period from one month to three months of data to
align with parameters OCC uses when sizing the Clearing Fund.\31\
Secondly, OCC proposed adopting rules that would authorize OCC to hold
allocation weights constant month-over-month in light of volatile
market conditions.\32\ Finally, OCC proposed clarifying and conforming
changes to the Clearing Fund Methodology Policy (``Policy'') and the
Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity
Risk Management Description (``Methodology Description'').\33\
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\31\ Petitioner does not object to extending the lookback period
used for allocation inputs from one month to three months. See
Petition, at 6 n. 2. See also Opposition, at 9 n.3.
\32\ Petitioner does not object to adopting a new authority
allowing OCC to hold allocation weights constant month-over-month
during periods of heightened market volatility. See Petition, at 6
n. 2. See also Opposition, at 9 n.3.
\33\ In addition to the modifications to the allocation
weighting formula and the authority to hold constant, OCC proposed
non-substantive conforming changes and clarifications, which were
not subject to Fidelity's Petition. See Delegated Order, 90 FR at
58354 (``Such clarifying changes include the removal of
Interpretation and Policy .03 of Rule 1003, which provides for
implementation of the current allocation methodology and is no
longer necessary. The conforming changes also include the
introduction of `shortfall' into the provisions describing OCC's
Clearing Fund allocation methodology across the Rules, Policy, and
Methodology Description. Similarly, OCC would remove references to
`open interest; and other terms that are not relevant to the
proposed allocation methodology.''). The clarifying and conforming
changes are considered as part of the Proposed Rule Change; however,
they were not the subject of concerns raised in the Petition.
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A. Modifications to the Allocation Weighting Formula
OCC proposed replacing the current allocation weighting (70% total
risk, 15% open interest, and 15% volume) with a new weighting that
aligns more closely with OCC's Clearing Fund sizing methodology (70%
shortfall,\34\ 15% margin,\35\ and 15% volume). Under the proposed
weighting scheme, the proposed methodology would be driven primarily by
a Clearing Member's proportionate share of shortfalls and would use the
same Clearing Fund sizing scenarios to calculate these shortfalls.\36\
OCC states that, based on its analysis of different allocation
weightings, this specific allocation scheme generates a balance between
the various risks captured by each component and would align the
Clearing Fund allocation with the exposure driving the size of the
Clearing Fund.\37\ OCC also proposed to align the lookback period for
all allocation-related measures with the parameters used to size the
Clearing Fund by moving from a one-month lookback to a three-month
lookback.\38\
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\34\ As proposed, OCC would define ``shortfall'' to mean ``an
estimated stress loss exposure in excess of margin amounts
aggregated across all accounts of a Clearing Member determined using
the Corporation's margin methodology and such add-on charges as may
be determined pursuant to the Corporation's policies and
procedures.'' See Notice of Filing, 90 FR at 47385.
\35\ ``Margin'' under the proposed rule would have the same
meaning as ``total risk'' under the current rule. OCC states that
using the term ``margin'' rather than ``total risk'' provides better
clarity as to the metric upon which the factor is based. See id. at
47385 n. 12.
\36\ The shortfall component used in the allocation is based on
the highest shortfall across all sizing scenarios for that Clearing
Member on a given business date and will be treated as zero in the
event there are no shortfalls.
\37\ See Notice of Filing, 90 FR at 47385. OCC provided the
results of its analysis in confidential Exhibit 3 to File No. SR-
OCC-2025-018. See id. at 47385 n. 14.
\38\ Petitioner does not object to extending the lookback period
used for allocation inputs from one month to three months. See
Petition, at 6 n. 2. See also Opposition, at 9 n.3.
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Before the Commission published its Delegated Order, OCC provided
and Commission staff reviewed confidential data describing how the
proposed methodology could affect contributions by its Clearing
Members.\39\ OCC observed that, overall, the proposed approach
allocates the Clearing Fund in a more distributed fashion within the
top 10 Clearing Members (as measured by highest Clearing Fund
contribution amounts), with some members experiencing larger changes
relative to other Clearing Members.\40\ Under the proposed methodology,
while the top 10 Clearing Members would have experienced, on average, a
1.28% increase in their Clearing Fund contributions, the top five
Clearing Members within that group would have experienced, on average,
a 2.67% decrease in such contributions.\41\ Outside of the top 10
group, the remaining Clearing Members would have experienced a 1.28%
decrease in average contributions.\42\
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\39\ See Notice of Filing, 90 FR at 47386.
\40\ Id.
\41\ Id.
\42\ Id.
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B. Authority to Hold Constant
As noted above, OCC proposed to adopt rules that would authorize it
to hold allocation weights constant month-over-month in light of
volatile market conditions.\43\ As OCC stated in its
[[Page 63629]]
proposal, when markets are highly volatile during periods of market
stress, elevated margin coverage becomes more commonplace and
consequently may reduce or even eliminate Clearing Fund shortfalls
because of elevated margin requirements.\44\ This is because the
shortfall component represents a stress loss in excess of margin. Thus,
an increase in margin, all else being equal, results in a decreased
shortfall.
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\43\ Petitioner does not object to adopting a new authority
allowing OCC to hold allocation weights constant month-over-month
during periods of heightened market volatility. See Petition, at 6
n. 2. See also Opposition, at 9 n.3.
\44\ See Notice of Filing, 90 FR at 47387.
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As OCC further stated in its proposal, reductions in shortfalls
could cause the resulting Clearing Fund allocation to change
dramatically month-over month.\45\ This is because the proposed changes
to the allocation methodology described above reduce the weight of
margin and give significant weight to shortfall. As a result, an
increase in a Clearing Member's proportionate share of margin would not
offset an equal reduction in that member's proportionate share of
shortfall under the proposed allocation methodology. OCC stated that
the proposed implementation of a three-month lookback would help to
smooth month-over-month changes; \46\ however, OCC stated that it is
possible the extended lookback alone may not be sufficient in the
unlikely event that high volatility and reduced shortfalls persisted
even though OCC did not observe such persistence in its analysis.\47\
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\45\ Id.
\46\ Id.
\47\ Id.
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To address the potential impact of persistent high volatility on
the allocation of Clearing Fund requirements, OCC proposed to adopt
rules that would allow it to hold allocations constant month-over-
month. As proposed, Rule 1003(c) would grant OCC the authority to make
the hold-constant decision at its sole discretion. The rule would
provide that any hold-constant decision would (i) be based upon then-
existing facts and circumstances, (ii) be in furtherance of the
integrity of OCC and the stability of the financial system, and (iii)
take into consideration the legitimate interests of Clearing Members
and market participants. Under the proposed Policy, OCC would exercise
its hold-constant authority by conducting daily analyses of the output
of OCC's sizing stress tests \48\ and, if warranted, by escalating to
the Chair of the Stress Testing Working Group (``STWG'') \49\ or the
Chief Financial Risk Officer so that an STWG meeting be convened to
review, and approve or reject, a hold-constant recommendation.\50\ Such
a recommendation would be required to be supported by an analysis that
may include and is not limited to the percentage of firms generating
shortfalls, the size of peak shortfalls relative to the Clearing Fund
size, a comparison of the Clearing Fund allocation projections to
current requirements, and a breakdown of the allocation projections by
component.\51\ OCC would be required to notify Clearing Members and the
Risk Committee of any hold-constant decision or reversion to the
proportionate approach. Further, OCC would be required to notify the
Commission and the CFTC promptly of any decision to hold allocations
constant and to provide the reasons for such decision.
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\48\ In particular, these tests would be the Cover 2 Sizing
Stress Tests, where ``Cover 2'' means ``sufficient Pre-Funded
Financial Resources, at a minimum, to enable OCC to cover a wide
range of foreseeable stress scenarios that include, but are not
limited to, the default of the two Clearing Member Groups that would
potentially cause the largest aggregate credit exposure in extreme
but plausible market conditions.'' See Notice of Filing, 90 FR at
47384 n.23 and accompanying text. See also Notice of Filing, 90 FR
at 47384 (``As described in the Methodology Description, OCC
leverages a suite of sizing stress tests broadly categorized into
two types: `Systemic Scenarios' and `Idiosyncratic Scenarios.'
Systemic Scenarios are created to capture risk to OCC in an extreme
event impacting all positions mainly driven by risk drivers, while
Idiosyncratic Scenarios are used to assess the impact of extreme
moves of specific equities in a Clearing Member portfolio. [. . .]
OCC selects the largest aggregate stress test exposures as the
primary basis for sizing the Clearing Fund.'').
\49\ See Notice of Filing, 90 FR at 47387 (``OCC believes the
STWG is the appropriate OCC internal governing body to approve or
reject such recommendation given the authority the Management
Committee has delegated to it as the subject matter expert on OCC's
financial risk and liquidity risk stress-testing scenarios, models,
underlying parameters and assumptions, and stress test results.'').
\50\ See Notice of Filing, 90 FR at 47387 n. 24. Likewise, OCC
would have the authority to revert to the proposed allocation
calculation formula, subject to the STWG's prior approval. See
Notice of Filing, 90 FR at 47387.
\51\ See Notice of Filing, 90 FR at 47387 n. 25.
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III. Discussion and Commission Findings
The Commission finds that the Proposed Rule Change is consistent
with the requirements of the Exchange Act and the rules and regulations
thereunder applicable to OCC. More specifically, the Commission finds
that the Proposed Rule Change is consistent with Sections 17A(b)(3)(F)
and (I) of the Exchange Act,\52\ and with Exchange Act Rules 17ad-
22(e)(2) and (18),\53\ as described in detail below.\54\ Also as
described below, commenters' argument regarding the equitable
allocation of dues, fees, and other charges under Section 17A(b)(3)(D)
of the Exchange Act \55\ is misplaced. The Commission therefore
approves the Proposed Rule Change.
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\52\ 15 U.S.C. 78q-1(b)(3)(F), 15 U.S.C. 78q-1(b)(3)(I).
\53\ 17 CFR 240.17ad-22(e)(2) and 17 CFR 240.17ad-22(e)(18).
\54\ In approving this proposed rule change, the Commission has
considered the Proposed Rule Change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\55\ 15 U.S.C. 78q-1(b)(3)(D).
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A. Consistency With Sections 17A(b)(3)(F) and 17A(b)(3)(I) of the
Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that a clearing agency's rules are not designed to permit
unfair discrimination among participants in the use of the clearing
agency.\56\ Section 17A(b)(3)(I) of the Exchange Act requires that the
rules of a clearing agency do not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Section 17A(b)(3)(I) does not require the Commission to make a
finding that OCC chose the option that imposes the least possible
burden on competition. Rather, the Exchange Act requires that the
Commission find that the Proposed Rule Change does not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act, which involves balancing the
competitive effects of the Proposed Rule Change against all other
relevant considerations under the Exchange Act.\57\ Because the
concerns raised by the Petitioner and commenters regarding unfair
discrimination and burdens on competition overlap substantively, this
section addresses them together under the relevant statutory sections.
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78q-1(b)(3)(F).
\57\ See Bradford National Clearing Corp., 590 F.2d 1085, 1105
(D.C. Cir. 1978).
---------------------------------------------------------------------------
The purpose of the Proposed Rule Change is to align the financial
obligations imposed by OCC's rules with the credit risk each Clearing
Member poses to OCC. As described above, OCC maintains the Clearing
Fund to cover OCC's credit exposure in the event of a Clearing Member
default to the extent such exposure is not covered by margin
collateral. The size of the Clearing Fund is a direct function of the
difference between the margin OCC collects from Clearing Members and
the potential losses OCC could face from a member default under extreme
but plausible market conditions, i.e., shortfall.\58\ Collecting such
collateral is necessary to ensure that OCC maintains sufficient
financial resources to manage its credit risk. The greater the
potential
[[Page 63630]]
shortfall, the greater the size of the Clearing Fund.\59\ Currently,
however, the size of each Clearing Member's contribution is unrelated
to the share of the shortfall it presents to OCC.
---------------------------------------------------------------------------
\58\ See Notice of Filing, 90 FR at 47384 (defining shortfall as
the estimated stress loss exposure in excess of margin
requirements).
\59\ See OCC Rule 1001(a) (explaining that the size of the
Clearing Fund is set at an amount determined sufficient to protect
against losses under stress test scenarios that represent extreme
but plausible market conditions).
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Both the Petition and several comments received after the Petition
address the burden on competition, as described in detail below.\60\
Petitioner states that the proposal overstates the risk posed by agency
brokers \61\ in that the allocation methodology would ``require agency
brokers to contribute to the Clearing Fund substantially in excess of
the risk they generate, while allowing proprietary trading firms and
market makers to contribute substantially less than their risk profile
warrants--resulting in a loss-allocation framework in which agency
brokers subsidize any loss created by other distinct cohorts.'' \62\
---------------------------------------------------------------------------
\60\ See Petition, at 11-15 (suggesting that the proposal
imposes an inappropriate burden on competition by unfairly
discriminating against agency brokers serving retail clients). See
also Opposition, at 13-20. See also generally Letter from Jeffrey
Starr, Managing Director, Head of Operations, Charles Schwab & Co.,
Inc. (Mar. 12, 2026) (``Schwab II''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722707-2261854.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722707-2261854.pdf</a>; Letter from Matthew Morningstar, Group Managing
Director, Chief Legal Officer, LPL Financial (Mar. 20, 2026) (``LPL
Letter''), available at <a href="https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-731607-2277094_0.pdf">https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-731607-2277094_0.pdf</a>; and Letter from Jessica
Giroux, Chief Legal Officer, American Securities Association (Mar.
19, 2026) (``ASA Letter''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-729927-2274615.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-729927-2274615.pdf</a>.
\61\ Although Petitioner states that ``the relative default risk
of each member is fundamental to the equitable allocation of
Clearing Fund contributions,'' it also states that the ``proposed
allocation change greatly overstates the risk posed by the agency-
broker model, compared to the risks posed by different business
models such as proprietary trading firms and market makers.'' See
Petition, at 11. See also Opposition, at 13-19.
\62\ See Petition, at 11. Under the Proposed Rule Change,
Petitioner estimates that its contribution obligations will increase
by approximately 67%. Id., at 3, 9, and 17. See also Schwab II, at 4
(``Specifically, Schwab's monthly Clearing Fund contribution is
projected to increase by approximately 40% under the Re-Weighted
Formula. At the same time, principal trading firms, including
quantitative trading firms, market makers, and other broker-dealers
engaged primarily or solely in principal trading [. . .] would see
only modest increases (e.g., 1.28%)--or even decreases--in their
Clearing Fund contributions under the Re-Weighted Formula.''
(emphasis in original)). See also LPL Letter, at 2. See also
generally ASA Letter.
---------------------------------------------------------------------------
Petitioner and some commenters suggest that, unlike Clearing Fund
sizing, the proposed Clearing Fund allocation does not align with each
Clearing Member's relative default likelihood as well as expected
losses, and that the relative default likelihood of an agency broker is
distinct from that of proprietary trading firms and market makers due
to structural differences.\63\ Petitioner states that theoretical
exposure to market direction (via, in some cases, many individual
accounts) for agency brokers does not necessarily translate into real-
world default risk,\64\ and that, unlike proprietary and market-making
firms, whose losses hit their books immediately, stress losses
attributable to agency brokers are borne by individual customers and
would first be absorbed by the defaulting customers' net equity and
available margin collateral.\65\ Petitioner also states that agency
brokers frequently have access to additional forms of loss protection,
including fidelity bonds, insurance coverage, and clearing deposits by
introducing brokers.\66\
---------------------------------------------------------------------------
\63\ See Petition, at 12-14; Opposition, at 14-17; Schwab II, at
5-6; and LPL Letter, at 3.
\64\ See Petition, at 12 (``OCC's stress-testing methodology
does not account for key structural and regulatory features of
agency brokerage that materially reduce the actual likelihood of
agency-broker default [. . .] put simply, two customers may short
the same options, but may not default at the same time.''). See also
LPL Letter, at 3 (``Retail order flow is typically highly
diversified across a large number of customers, strategies, and
underlying securities. Unlike institutional trading strategies that
may involve concentrated directional positions, retail activity
tends to consist of smaller positions spread across a large number
of accounts and a variety of asset classes. This volume and
diversification reduce the likelihood that a single market event or
exposure would result in large losses concentrated on a single
intermediary or clearing participant.'').
\65\ See Petition, at 12; and Opposition, at 14-15. See also
Schwab II, at 5 (``OCC's new stress-based shortfall approach ignores
the fact that when an Agency Broker's customer fails to pay or
deliver, 100% of the loss does not need to be covered by OCC-
collected margin with any shortfall being covered by Clearing Fund
resources. Instead, the Agency Broker business model has built-in
regulatory protections that mitigate the risk of Clearing Fund
resources being needed to cover an Agency Broker customer default.
FINRA Rule 4210 provides one such protection by requiring Agency
Brokers to collect margin when they extend credit to their customers
to finance transactions in exchange-listed options. Collecting
margin protects Agency Brokers from customer credit risk because the
collected margin serves as collateral for the transaction,
mitigating the extent of any loss to the firm if the customer
ultimately fails to pay for or deliver the securities subject to the
transaction.'') (footnotes omitted).
\66\ See Petition, at 12; Opposition, at 15. See also Schwab II,
at 5 (``Because Agency Brokers have resources to mitigate losses
stemming from customer failures to pay or deliver, the likelihood of
Agency Broker defaults is lower than anticipated by the Proposed
Rule Change. Even in the event of an Agency Broker default, a
significant portion of any loss may be covered before any need to
rely on OCC resources. If an Agency Broker covers a significant
portion of the loss before OCC resources are needed, then OCC-
collected margin may fully cover the remaining portion of the loss
without needing to rely on the Clearing Fund. Even if OCC-collected
margin does not fully cover the loss, any margin shortfall would be
significantly smaller than if OCC resources were needed to cover
100% of the loss.'').
---------------------------------------------------------------------------
Lastly, Petitioner states that the proposed allocation formula
overstates relative credit risk posed by agency brokers compared to
proprietary trading firms and market-makers because the contribution
requirements are driven primarily by OCC's new stress loss metric, and
the proposed allocation change minimizes operational risk that can lead
to member default since proprietary trading firms and market makers
face greater operational risk than agency brokers.\67\ The Petitioner
states that, unlike agency brokers, ``[p]roprietary trading firms and
market-makers face greater operational risk than agency brokers because
they often employ high-volume, programmatic trading strategies. When
these strategies fail--through system errors, algorithmic malfunctions,
or breakdowns in intraday controls and hedging--the resulting losses
can scale with their trading volumes and open interest, introducing
more systemic risk.'' \68\ As a result, by removing open interest
entirely and instead focusing on shortfall, the Petitioner states that
the proposal would compound structural disparities in the Clearing Fund
methodology between agency brokers and proprietary and market-making
firms, thereby disadvantaging retail-facing agency brokers and unfairly
discriminating against that type of business model.\69\
---------------------------------------------------------------------------
\67\ See Petition, at 12-14; Opposition, at 16-17. See also
Schwab II, at 6. One commenter also states that the proposed
extended lookback period could prevent Clearing Fund allocations
from fully capturing all relevant risks to OCC. Id., at 9. The
Proposed Rule Change, however, is focused solely on the allocation
of collateral contribution requirements, not on the sizing those
requirements. See Notice of Filing, 90 FR at 47384 (``While the
changes would not affect the overall size of the Clearing Fund, some
Clearing Members would see their allocation increase while others
would see their allocation decrease.''). The commenter also
suggested potential alternatives to achieve the goals of the
Proposed Rule Change without ``disproportionately impacting'' agency
brokers (e.g., phase in the re-weighted formula on which the
allocation methodology relies, permit agency broker-dealers to use
certain offsets in net capital requirements). See Schwab II at 8-9.
The alternatives suggested by commenters do not alter the
Commission's determination that the Proposed Rule Change, as
designed, is consistent with the applicable statute, rules, and
regulations. While there may be more than one reasonable way to
address a given risk, the existence of an alternative does not, in
and of itself, render the proposed approach inconsistent with
applicable law. Additionally, Rule 17ad-22(e) generally provides
CCAs with flexibility in designing their written policies and
procedures, rather than to take a strictly prescriptive approach.
See, e.g., Securities Exchange Act Release No. 78961 (Sept. 28,
2016), 81 FR 70786, at 70795-97, and 70800-01 (Oct. 13, 2016) (File
No. S7-03-14). This means that clearing agencies have the
flexibility to tailor their policies and procedures to the risks
posed by their particular businesses.
\68\ See Petition, at 13. See also Opposition, at 16.
\69\ See Opposition, at 13-14.
---------------------------------------------------------------------------
[[Page 63631]]
OCC states that the proposed allocation is business model-neutral
because if a Clearing Member is required to increase its contribution
under the new allocation, that is because that Clearing Member
contributes more tail risk than it is currently being charged for, and
that any burden on competition imposed is necessary and appropriate in
furtherance of the purposes of the Exchange Act.\70\ OCC states that it
``has a single class of members subject to a single Clearing Fund--
there are not separate rules or requirements applicable to particular
classes of Clearing Members'' and, ``[i]n fact, the PRC is designed to
more fairly allocate Clearing Fund contributions to those Clearing
Members who present increased tail risk.'' \71\ OCC states that the
proposed methodology ``considers only the risk that Clearing Members
introduce into the clearing system, and is agnostic to external
characterizations of the nature of their business.'' \72\ OCC also
states that the proposed approach ``reflects a measured, data-driven
calculation that was vetted closely by regulators, Clearing Members,
and others [. . .].'' \73\ OCC further states, ``[t]he change in
allocation methodology necessarily means that the deposit requirement
for some Clearing Members will increase because they present higher
risk to OCC in a default scenario, represented by shortfall, than is
apportioned under the current methodology, while the deposit
requirement of other Clearing Members will decrease correspondingly
based on a lower risk profile.'' \74\ Based on the underlying impact
data confidentially submitted to the Commission, OCC states that of the
top 15 largest Clearing Fund allocations for June 2026 under the
proposal, nine Clearing Members would have seen an increased
allocation, ranging from +8.69% to +104.78%, and six Clearing Members
would have seen a decreased allocation, ranging from -4.79% to -
39.97%.\75\ OCC states that the Clearing Members who would have
experienced higher allocations ``are not limited to those who generally
describe themselves as serving retail customers. Some Clearing Members
who serve retail customers would in fact see their allocation
decrease.'' \76\
---------------------------------------------------------------------------
\70\ See OCC II, at 7-8 (``Far from being unfair or
discriminatory, the new allocation method more fairly allocates tail
risk and places all Clearing Members on a more level playing
field.'').
\71\ See OCC II, at 7 (emphasis in original).
\72\ See Letter from Nicole Jakubowski, Deputy General Counsel
and Corporate Secretary, OCC, at 1 (June 17, 2026) (``OCC III''),
available at <a href="https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-840179-2567787.pdf">https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-840179-2567787.pdf</a> See id., at 2 (``OCC seeks to
clarify that OCC does not view its Clearing Members based on public
perceptions on the nature of their business but strictly by the risk
each Clearing Member introduces to OCC. The revised methodology does
not allocate the fund by the type of customers that use a particular
Clearing Member, but rather by the tail risk presented by each
Clearing Member. Tail risk is a product of the positions held by the
Clearing Members.'') (footnote omitted).
\73\ See OCC I, at 3.
\74\ See OCC II, at 5.
\75\ See OCC III, at 2.
\76\ Id.
---------------------------------------------------------------------------
Additionally, OCC states that because the proposed allocation
methodology more accurately measures Clearing Fund deposits based on
the tail risk represented by a particular Clearing Member to OCC in the
event of a default, the proposal is ``designed to appropriately
apportion contributions so that Clearing Members who do not cause
significant tail risk are not required to subsidize those who do cause
such risk.'' \77\ As detailed below, several commenters support OCC's
proposed Clearing Fund reallocation and its effect on mutualization of
losses, stating that the proposal would enhance resilience of the
clearing system in the markets OCC serves and more appropriately align
structural incentives for Clearing Members to manage the risks they
bring into the system in the face of OCC's evolving risk profile.\78\
OCC and the supportive commenters point out that, due to ``tremendous
growth and innovation in the options markets'' \79\--such as the rise
of new products like options on cryptocurrencies, the introduction of
new expiry days, extended trading hours, and increased retail investor
participation--certain developments ``can increase non-linear tail
exposures, making shortfalls a particularly relevant measure for
allocating mutualized default resources.'' \80\ One such commenter
states that the proposal realigns the incentives around loss
mutualization,\81\ adding that ``[w]here clearing members are able to
introduce risks that are not fully reflected in their Clearing Fund
contributions, those risks are effectively subsidized by others in the
mutualized pool, undermining both fairness and the integrity of the
risk management framework.'' \82\ This commenter further states that
ensuring that Clearing Fund contributions are commensurate with the
risks OCC faces ``is therefore a critical component of the safety and
soundness of OCC and the broader market ecosystem.'' \83\
---------------------------------------------------------------------------
\77\ See OCC II, at 1.
\78\ See generally Letter from Stuart Bourne, CEO, BofA
Securities, Inc.; Stephen John Berger, Managing Director, Global
Head of Government & Regulatory Policy, Citadel Securities; and
Alicia Crighton, Global co-head of Futures, Global head of Clearing,
Goldman Sachs & Co. LLC (Apr. 2, 2026) (``Goldman Letter''),
available at <a href="https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-739727-2297854.pdf">https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-739727-2297854.pdf</a>; Letter from Boudewijn Duinstra,
CEO, ABN AMRO Clearing USA LLC (Apr. 16, 2026) (``ABN AMRO
Letter''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-755167-2324074.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-755167-2324074.pdf</a>; and Letter from Jackie Mesa,
Chief Operating Officer and Senior Vice President of Global Policy,
FIA (Mar. 12, 2026) (``FIA Letter''), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722227-2261394.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722227-2261394.pdf</a>. Specifically, one commenter stated that the inherent
loss mutualization of the Clearing Fund ``creates a collective
responsibility among clearing members to robustly manage the risk of
the positions they introduce to the clearinghouse.'' See Goldman
Letter, at 2.
\79\ See Goldman Letter, at 3 (``The average daily volumes have
nearly doubled since 2020, surpassing 60 million contracts per day.
[. . .] The OCC's Clearing Fund as of the end of last year had grown
to over $21 billion dollars, nearly doubling over the last decade,
highlighting the growth and change in complexity and risk profile
over time.''). See also OCC II, at 8 (``OCC, and the listed options
industry more broadly, have seen a well-documented increase in
retail trading activity since 2019. [. . .] In fact, OCC has seen a
shift in the type of firms that drive its Cover 1 exposure, from
institutional participants to agency brokers.'').
\80\ See Goldman Letter, at 3.
\81\ See Goldman Letter, at 2 (``While central clearing delivers
significant benefits to the markets [. . .] it also boosts the
exposure clearing members (and by extension their customers) have to
each other, especially as the OCC is the only clearinghouse for U.S.
listed options. In the event a clearing member defaults, if the
losses exceed the defaulting clearing member's margin on deposit and
its own Clearing Fund contribution, the OCC will utilize the
Clearing Fund contributions of other, non-defaulting clearing
members to manage the default.'') (footnotes omitted).
\82\ See Goldman Letter, at 2.
\83\ Goldman Letter, at 2.
---------------------------------------------------------------------------
Regarding relative likelihood of default, OCC states that the
Clearing Fund and the applicable regulatory requirements \84\ are not
designed to address the probability of default, but rather the degree
of loss if and after a default occurs.\85\ OCC states that neither
OCC's Rules nor federal securities laws ``provide for OCC to discount
or haircut the financial resources it must maintain to meet OCC's Cover
2 standard by reference to the creditworthiness of the Clearing Members
generating the Cover 2 exposures.'' \86\ Rather, OCC states that it
assesses a Clear Member's credit worthiness through ``other processes
for addressing the probability of a member's default, including
Commission-approved margin requirements, membership standards (and
ongoing monitoring of members' adherence to
[[Page 63632]]
those standards), and protective measures.'' \87\ Moreover, OCC states
that despite the fact that agency brokers collect customer margin as an
internal buffer before potentially resorting to OCC's Clearing Fund in
the event of a Clearing Member default, ``agency brokers may choose to
keep this excess margin at the firm, which puts these resources outside
the reach of OCC in the event of the Clearing Member's failure. Because
it does not have access to this increased margin in the event of a
default, OCC does not realize a reduced tail risk associated with that
Clearing Member in the event that Clearing Member in fact defaults.''
\88\
---------------------------------------------------------------------------
\84\ See 17 CFR 240.17ad-22(e)(4).
\85\ See OCC II, at 8 (``The Clearing Fund and Exchange Act Rule
17ad-22(e)(4) are not designed to address the probability of
default, but rather the degree of loss given default. The proposed
allocation appropriately does not take into account the likelihood
of default; that is not what the Clearing Fund is for.'' (emphasis
in the original)).
\86\ OCC II, at 8.
\87\ OCC II, at 8.
\88\ OCC II, at 8.
---------------------------------------------------------------------------
Lastly, regarding Petitioner's statements on operational risk, the
proposed removal of open interest as a component of the allocation
methodology, and the proposed shortfall-focused approach, OCC states
that the ``SLOIM methodology is [sic] more appropriate way to apportion
the costs of tail risk to the Clearing Members who actually create that
risk'' and, as such, ``if the risk in excess of margin associated with
a particular Clearing Member increases, that Clearing Member's Clearing
Fund allocation likewise increases.'' \89\ Further, OCC states that
``the Petition provides no support for why operational risk necessarily
scales with open interest.'' \90\ Rather, OCC states that other
metrics, such as shortfall, ``are more closely aligned with the actual
market and tail risk that Clearing Member activity produces.'' \91\ OCC
additionally states that ``open interest does not account for the
sizeable and growing presence of trading in options with zero days to
expiration (so-called `0DTE' options), particularly among retail
traders.'' \92\ OCC further states that it is not required to select
the least restrictive means of complying with the Exchange Act for a
particular subset of members.\93\
---------------------------------------------------------------------------
\89\ OCC II, at 6. As noted above, SLOIM is synonymous with
shortfall. See supra note 30.
\90\ OCC II, at 8.
\91\ OCC II, at 8.
\92\ OCC II, at 8.
\93\ See OCC II, at 6 (``To the extent that the commenters
suggest that OCC is required to evaluate and select the least
restrictive means of complying with the Exchange Act for a
particular subset of members, that is an incorrect characterization
of the legal standard the PRC must meet. The question at issue is
whether the PRC is consistent with the Exchange Act, not whether the
PRC will impose increased costs on a particular Clearing Member.'').
---------------------------------------------------------------------------
As noted above, supporting commenters state that the proposal
appropriately realigns incentives and is consistent with recognized
international CCP clearing practices, both generally and specifically
as to the shortfall-based calculation. For example, one commenter
states that the proposal is ``a well-reasoned shift toward ensuring
that clearing members whose portfolios produce the greatest stress
exposures bear a proportionate share of the mutualised resources
required to manage those risks.'' \94\ Another commenter states that
the proposed allocation methodology ``which emphasizes stress losses in
excess of margin (`shortfall') while incorporating margin and cleared
volume, represents a thoughtful and well-reasoned shift toward a
stress-centric allocation.'' \95\ Other commenters state that the focus
on such a shortfall, or SLOIM, addresses the misaligned incentives
existing in the current market, where although ``[s]hortfall is an
important measure of the likelihood that OCC would need to draw on the
mutualized Clearing Fund'', under the present methodology, Clearing
Members ``whose activities drive growth in the size of the overall
Clearing Fund today are not responsible for funding that increase.''
\96\ These commenters state that ``[b]y better funding tail risk ex
ante, the proposal also reduces the likelihood of abrupt and
destabilizing Clearing Fund reallocations during periods of market
stress.'' \97\
---------------------------------------------------------------------------
\94\ See FIA Letter, at 1.
\95\ See Letter from Joanna Mallers, Secretary, PTG, at 2 (Mar.
17, 2026), available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-727487-2270874.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-727487-2270874.pdf</a>. The commenter adds that ``[b]y
eliminating the open-interest component and extending the lookback
period to three months, OCC has demonstrated a commitment to
achieving more stable and representative measures.'' Id.
\96\ See Goldman Letter, at 2.
\97\ Id. See also ABN Amro Letter, at 1 (``We strongly believe
that any allocation to prefund a clearing fund should be based on
the principle that a potential defaulter should cover as far as
possible the potential credit risk that its positions and those it
guarantees for its clients pose to the CCP and thus via risk
mutualization to the other clearing members. [. . .] In our view,
Shortfall (i.e. stress loss in excess of margin assets) better
accounts for the non-linearity of credit risk exposures and
potential losses in portfolios than Margin (or some multiple of it)
that is calibrated rather to normal, less volatile market
conditions.'').
---------------------------------------------------------------------------
In response to the commenters' concerns regarding the impact on
agency brokers serving retail customers, the Commission acknowledges
that the Proposed Rule Change would result in some Clearing Members'
allocations increasing while other Clearing Members' allocations would
decrease. Based on the Commission's review, however, the change would
not impose any burden on competition not necessary or appropriate. The
rights afforded to Clearing Members are accompanied by a set of
obligations, including an obligation to provide assets to OCC as
collateral. The amount of collateral required varies from member to
member, and, therefore, the relative burden of such obligations also
varies from member to member. To the extent OCC's rules impose burdens
that impact competition between Clearing Members, such burdens must be
both necessary and appropriate.
As described above, OCC's role as a CCP exposes it to credit risk
in the event of a Clearing Member default. One of the tools \98\ OCC
uses to maintain sufficient financial resources to manage a potential
Clearing Member default is the collection of collateral, including
Clearing Fund deposits.\99\ OCC determines the amount of Clearing Fund
deposits that it needs to hold based on Clearing Member shortfall
calculations, which, as described above, account for losses that would
exceed the margin collateral posted by a given Clearing Member. The
change OCC proposed would, similarly, allocate Clearing Fund
requirements based, in part, on shortfall to align with the risk the
Clearing Fund is designed to mitigate. Although changing the allocation
methodology will increase the collateral obligations of some Clearing
Members while reducing the collateral obligations of others, the change
is necessary to ensure the burden of posting collateral is tied to the
purpose of that collateral. Therefore, to the extent the change in
allocation may impose a burden, that burden is necessary to align the
collateral obligations with the risk such collateral is designed to
cover.
---------------------------------------------------------------------------
\98\ Clearing Fund deposits serve as a secondary buffer on top
of OCC's initial collection of margin to cover credit exposures that
could arise under normal market conditions. See Securities Exchange
Act Release No. 95319 (July 19, 2022), 87 FR 44167 (July 25, 2022)
(File No. SR-OCC-2022-001) (As a CCP, OCC ``interposes itself as the
buyer to every seller and seller to every buyer for financial
transactions. As the CCP for the listed options markets in the U.S.,
as well as for certain futures, OCC is exposed to the risk that one
or more of its members may fail to make a payment or to deliver
securities. OCC addresses such exposures, in part, by requiring its
members to provide collateral, including margin collateral. [. . .]
Typically, margin is designed to cover such exposures during normal
market conditions''). See also 17 CFR 240.17ad-22(b)(2).
\99\ Clearing Fund deposits serve to cover credit exposures
under a wide range of foreseeable stress scenarios, including the
default of a participant family in extreme but plausible market
conditions. See Notice of Filing, at 47384. See also 17 CFR
240.17ad-22(e)(4)(iii).
---------------------------------------------------------------------------
Whether the relative burden of providing Clearing Fund collateral
is appropriately distributed among OCC's Clearing Members must be based
on the method for allocating such obligations.
[[Page 63633]]
Based on both the language of the proposed rule and the impact data
provided by OCC and reviewed by the Commission, the proposal allocates
Clearing Fund contribution requirements based on the credit risk
presented by a Clearing Member's portfolio, not the member's business
model. The addition of shortfall as the most heavily weighted factor in
OCC's allocation methodology would help to calibrate a Clearing
Member's obligation to post collateral to the extent to which that
member makes it necessary for OCC to collect such collateral in the
first place. As noted above, a Clearing Member would be in a position
to change its Clearing Fund requirement by changing the positions it
submits for clearing. The extent to which the change affects a member
over time, therefore, is at least in part a function of the changes in
the positions the Clearing Member submits for clearing at OCC. For
example, if the proposed changes had been put in place in 2023, one
Clearing Member who would have seen a 1.1% reduction in its Clearing
Fund requirements \100\ while the same member would have seen a 47.08%
increase if the change were implemented in 2026.\101\ Such a change in
potential impact of the Proposed Rule Change is a function of it being
designed to address the Clearing Member's risk rather than any unfair
discrimination by OCC.
---------------------------------------------------------------------------
\100\ See supra note 37 (Confidential Exhibit 3 to File No. SR-
OCC-2025-018).
\101\ See underlying impact data submitted confidentially to the
Commission alongside OCC III, at 2.
---------------------------------------------------------------------------
Although the Petitioner and commenters state that the Proposed Rule
Change would disproportionately impact Clearing Members serving retail
investors, the proposed rule text is not based upon a specific business
model or organizational structure. Instead, it is based on the risk
that each Clearing Member brings to OCC. To the extent the Proposed
Rule Change would require some members to contribute more to the
Clearing Fund, such a burden is appropriate given that it reflects the
proportionate share of the shortfall that could arise out of such
member's default. Removing open interest and focusing on shortfall in
the allocation methodology would more accurately account for tail risks
posed by developments in the options markets, such as the rise of 0DTE
products, increased participation by retail traders, and heightened
options trading volume.\102\ Based upon the Commission's review and
analysis of the data provided confidentially by OCC, the Proposed Rule
Change is designed to address risk presented by Clearing Members and
not target retail or agency brokers, or other specific business models,
contrary to the assertions of the Petitioner or other commenters.\103\
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\102\ Open interest captures the number of positions open at the
end of the trading day. Open interest will not include trades that
expire the same day they are executed. Similarly, open interest will
not reflect trades opened and closed by offsetting trades on the
same day. Therefore, open interest will not account for the risk
posed by such positions because it is an end-of-day metric.
\103\ See confidential Exhibit 3 to File No. SR-OCC-2025-018 and
underlying impact data submitted confidentially alongside OCC III.
---------------------------------------------------------------------------
Additionally, the Commission disagrees with the Petitioner as to
whether operational risk necessarily scales with open interest.
Further, Petitioner acknowledges that volume, which would remain an
input in the allocation methodology, can help capture operational
risk.\104\ Rather than focusing on open interest or relying exclusively
or primarily on volume, the proposal's shortfall-based approach helps
apportion the burden of providing the collateral necessary to cover
tail risk to the Clearing Members whose cleared positions pose such
risk to OCC. As a practical matter, and specifically as to Petitioner's
statements regarding the likelihood of default, the Commission agrees
with OCC that it would be unable to rely on assets outside of its
control in the context of a Clearing Member default.\105\ Moreover, the
current design of the Clearing Fund, assuming default, is unchanged.
---------------------------------------------------------------------------
\104\ See Petition, at 2. Additionally, as noted above, the
Proposed Rule Change is one in a series of changes that, since 2013,
have reduced the role of open interest in allocating Clearing Fund
contributions. See Securities Exchange Act Release No. 69403 (Apr.
18, 2013), 78 FR 24257 (Apr. 24, 2013) (File No. SR-OCC-2013-02) and
Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR
37855 (Aug. 2, 2018) (File No. SR-OCC-2018-008). Regarding these
prior matters, commenters supported shifting the weights in favor of
risk over open interest See, e.g., Letter from Andrej Bolkovic, CEO,
ABN AMRO Clearing Chicago LLC (June 26, 2018), available at <a href="https://www.sec.gov/comments/sr-occ-2018-008/occ2018008-3952920-167052.pdf">https://www.sec.gov/comments/sr-occ-2018-008/occ2018008-3952920-167052.pdf</a>
(stating that the then current Clearing Fund allocation methodology
disincentived Clearing Members from appropriately managing the risk
they present to OCC by underweighting total risk and overweighting
open interest); Letter from Kurt Eckert, Partner, Wolverine
Execution Services, LLC (July 12, 2018), available at <a href="https://www.sec.gov/comments/sr-occ-2018-008/occ2018008-4038120-168568.pdf">https://www.sec.gov/comments/sr-occ-2018-008/occ2018008-4038120-168568.pdf</a>
(agreeing that a change shifting allocation weights in favor of risk
over open interest better aligns incentives for each Clearing Member
to reduce the risk it introduces to the Clearing Fund).
\105\ When calculating the financial resources it must maintain
to cover extreme but plausible market conditions, OCC's policies and
procedure must be reasonably designed to include prefunded resources
exclusive of resources that are not prefunded. See 17 CFR 240.17ad-
22(e)(4)(iv).
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Further, based on the Commission's review of the record, the
proposed amendment to the allocation methodology is not unfairly
discriminatory because it is reasonably designed to align
responsibility for mitigating risk with the activity generating such
risk. Although the proposed changes will result in a shift in
collateral requirements with some Clearing Members being required to
post more collateral and some to post less collateral,\106\ such a
shift in collateral requirements will relate directly to the risk that
each member presents to OCC as represented by that Clearing Member's
shortfall calculation.
---------------------------------------------------------------------------
\106\ See Notice of Filing, 90 FR at 47386.
---------------------------------------------------------------------------
The proposed change is not designed to permit unfair discrimination
among current or future Clearing Members in the use of OCC's clearance
and settlement services and facilities. Rather, the proposed changes
would require each Clearing Member to post collateral to cover the risk
posed by the positions that member submits for clearing at OCC over and
above the coverage provided by such member's margin collateral. As
Clearing Members change the positions they submit for clearing, the
relevant collateral requirements will change as well to reflect the
change in risk associated with the new position.\107\ For example, if
the proposed changes had been put in place in 2023, one Clearing Member
who would have seen a 1.1% reduction in its Clearing Fund requirements
\108\ while the same member would have seen a 47.08% increase if the
change were implemented in 2026.\109\ Such a change in potential impact
of the Proposed Rule Change is a function of the Clearing Member's risk
rather than any unfair discrimination by OCC. The Proposed Rule Change
is, therefore, not designed to permit unfair discrimination of OCC's
Clearing Members.
---------------------------------------------------------------------------
\107\ Similarly, a Clearing Member may reduce its shortfall
calculation by posting additional margin collateral because
shortfall represents a stress loss in excess of margin. See supra p.
9.
\108\ See supra note 37 (Confidential Exhibit 3 to File No. SR-
OCC-2025-018).
\109\ See underlying impact data submitted confidentially to the
Commission alongside OCC III, at 2.
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Separately, Petitioner and some commenters state that increasing
Clearing Fund contribution requirements for certain types of Clearing
Members would result in higher costs in the form of pass-through costs
and limited access to the markets for which OCC clears that would
disproportionately harm retail investors, and, thus, is inconsistent
with the
[[Page 63634]]
regulatory requirement of protecting investors and the public
interest.\110\ Specifically, Petitioner states that OCC's proposed
formula will result in higher costs to agency brokers, who will be
forced to pass those costs through to their clients, a majority of whom
are retail investors.\111\ Petitioner and opposing commenters state
that these pass-through costs will lead to reducing customer access to
the markets for which OCC clears, providing more limited products or
services, or imposing higher costs on retail customers.\112\
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\110\ See Petition, at 15; Opposition, at 19-20; Schwab II, at
7; and LPL Letter, at 2.
\111\ See Petition, at 15; and Opposition, at 19-20 (Petitioner
states that the proposal's ``significantly increased costs would
place pressure on agency brokers to raise fees, limit product
offerings, or restrict access to listed options strategies for
retail investors. In turn, retail customers could face reduced
access to listed options, which serve as important tools for hedging
portfolio risk, generating income, and managing market exposure.'').
\112\ Id. See also LPL Letter, at 2 (``[R]etail focused firms
would face materially higher clearing costs and operational burdens
[. . .] When broker-dealers serving individual investors face higher
clearing costs or materially increased capital requirements, they
are forced to consider limiting access to products, increasing fees,
or reducing the availability of trading in those products for
smaller accounts.''); and Schwab II, at 7 (Schwab states that the
proposal's impact ``has real, tangible consequences for Agency
Brokers and the millions of retail investors that they serve [. . .]
For firms, a requirement to contribute substantially more capital to
the Clearing Fund would meaningfully increase the cost of doing
business. While some Agency Brokers may account for that increase in
operating costs by raising fees, others may limit the products that
are available to retail investors. Either result would limit
participation in the market for exchange-listed options to investors
that are able to pay higher fees and Principal Trading Firms that
will not be impacted by (or may even benefit under) the Re-Weighted
Formula.'').
---------------------------------------------------------------------------
With regard to potential pass-through costs to or limited access
for retail investors, OCC states that the Petitioner ``fails to
acknowledge the very purpose of the rule, which is to mitigate and
apportion risk based on the risk profile of the activity at issue,''
\113\ OCC states that irrespective of whether pass-through costs or
limited access would result from the proposal, the Petitioner does not
provide supporting data, nor disputes OCC's data-driven process.\114\
OCC adds that ``increased cost to certain market participants based on
the increased tail risk they pose to OCC and the market does not equate
to `investor harm.' '' \115\ Additionally, supporting commenters
suggest that the proposal could address concentration in the clearing
ecosystem, where options clearing capacity is concentrated in a small
number of members.\116\ These commenters state that ``[a] more risk-
sensitive allocation also supports more efficient use of members'
constrained balance sheet resources, which is important to maintaining
consistent liquidity provision under evolving bank capital and
liquidity requirements.'' \117\ Supporting commenters state that the
amount of clearing capacity Clearing Members provide is driven by many
factors, including whether risks are being appropriately mutualized
across participants, and state that the proposal would align the
Clearing Fund contributions with the amount of risk Clearing Members
bring to OCC and, thus, would give Clearing Members ``additional
confidence to expand the amount of clearing capacity they can
provide.'' \118\ OCC and supporting commenters also state that the
Proposed Rule Change reflects a consistency of approach with evolving
market expectations, standard business practices and regulatory
developments \119\ as well as with recent regulatory developments.\120\
---------------------------------------------------------------------------
\113\ OCC I, at 3.
\114\ See OCC I, at 3; and OCC II, at 9.
\115\ See OCC II, at 9.
\116\ See Goldman Letter, at 4 (``Options clearing is
concentrated within a small number of clearing members, which could
make it harder for investors to find the capacity to clear the full
extent of their portfolios and risk management strategies,
particularly when markets are volatile. Ensuring that mutualized
risk is allocated in proportion to tail exposure is particularly
important in a concentrated clearing ecosystem, where misaligned
incentives can discourage marginal expansions of capacity.'').
\117\ See Goldman Letter, at 4.
\118\ See Goldman letter, at 4. See also ABN AMRO Letter, at 1
(``[T]he proposed changes to the allocation methodology for the
clearing fund of OCC are appropriate. In particular as the
contributions to the clearing fund will be better aligned with the
risk exposure of each clearing member under stressed market
conditions, which are exactly those that the clearing fund is meant
to cover for the case of a large clearing member default.'').
\119\ See FIA Letter, at 2 (``This [shift toward a stress-
aligned allocation] reflects a broader industry trend: global CCPs
increasingly rely on stress-based metrics to allocate mutualised
resources in a manner that is consistent with both fairness and
effective risk management.''); Goldman Letter, at 4 (``OCC's
proposal aligns with international central counterparty clearing
practices concerning Clearing Fund allocation and is in line with
the Principles for Financial Markets Infrastructure''). See also OCC
II, at 1, 5-7.
\120\ See OCC II, at 1-2 (``This SLOIM approach is consistent
with recent regulatory developments, such as the Commission's orders
granting ICE Clear Credit LLC (`ICE Clear') and CME Securities
Clearing Inc. (`CMESC') registration as clearing agencies for U.S.
Treasury securities using allocation methodologies based on SLOIM
calculations that are similar to OCC's proposed approach.''). See
also generally OCC II, at 4-6.
---------------------------------------------------------------------------
Based on the Commission's review of the record, the Petitioner's
statements about pass-through costs and limited access affecting retail
investors are outside the scope of the Proposed Rule Change. The
Proposed Rule Change pertains only to the allocation of Clearing Fund
requirements to Clearing Members; it does not prescribe whether or how
these Clearing Members would pass costs associated with such Clearing
Fund requirements onto their clients. Indeed, Section 17A(b)(3)(E) of
the Exchange Act requires that the rules of a clearing agency do not
impose any schedule of prices, or fix rates or other fees, for services
rendered by its participants.\121\ Consistent with that requirement,
the Proposed Rule Change does not impose a schedule of fees or attempt
to fix prices for the services that OCC's Clearing Members charge to
their customers. This is consistent with other collateral requirements
that OCC imposes on its Clearing Members.\122\ As with all collateral
requirements imposed by OCC on its Clearing Members, it is entirely
within the individual Clearing Member's discretion and control--and
entirely outside of OCC's knowledge or control--whether and how the
Clearing Member passes on such collateral requirements to its
customers. To the extent a change in collateral obligations may impact
competition, that concern is addressed separately above in this
section.
---------------------------------------------------------------------------
\121\ 15 U.S.C. 78q-1(b)(3)(E).
\122\ See Securities Exchange Act Release No. 102768 (Apr. 3,
2025), 90 FR 15274, 15281 (Apr. 9, 2025) (File No. SR-OCC-2024-010).
---------------------------------------------------------------------------
Therefore, for the reasons stated above, the Proposed Rule Change
is consistent with Sections 17A(b)(3)(F) and 17A(b)(3)(I) of the
Exchange Act.\123\
---------------------------------------------------------------------------
\123\ 15 U.S.C. 78q-1(b)(3)(F) and 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
B. Section 17A(b)(3)(D) of the Exchange Act
Section 17A(b)(3)(D) of the Exchange Act requires that the rules of
the clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among participants.\124\ The requirement
to pledge collateral to the Clearing Fund is not a due, fee, or other
charge, which relate to a payment rather than the pledging of
collateral.\125\ When amending parts of the Exchange Act in 1975 to
establish a national market
[[Page 63635]]
system and a system for nationwide clearance and settlement of
securities transactions, Congress intended that the references to dues,
fees, and other charges in Section 17A(b)(3)(D) contemplated payment
for services rendered (rather than the pledging of collateral).\126\
Consistent with this Congressional intent, the Commission has
distinguished such collateral from working capital.\127\
---------------------------------------------------------------------------
\124\ 15 U.S.C. 78q-1(b)(3)(D).
\125\ See Due, Merriam-Webster (defining a due as something
owed, such as a payment or obligation required by law or custom)
(last visited Sept. 30, 2026), available at <a href="https://www.merriam-webster.com/dictionary/due#dictionary-entry-2">https://www.merriam-webster.com/dictionary/due#dictionary-entry-2</a>; Fee, Merriam-Webster
(defining a fee as a fixed charge for a service) (last visited Sept.
30, 2026), available at <a href="https://www.merriam-webster.com/dictionary/fee#dictionary-entry-1">https://www.merriam-webster.com/dictionary/fee#dictionary-entry-1</a>; and Charge Merriam-Webster (defining charge
by reference to an expense or cost) (last visited Sept. 30, 2026),
available at <a href="https://www.merriam-webster.com/dictionary/charge#dictionary-entry-2">https://www.merriam-webster.com/dictionary/charge#dictionary-entry-2</a>. See also Fee, Ballentine's Law Dictionary
(3rd ed. 2010).
\126\ See S. REP. 94-75, at 124 (1975) reprinted in 1975
U.S.C.C.A.N. 179, 301 (stating that the provision ``does not
preclude the clearing agency from imposing fees for services which
it renders''). Cf. id. at 96 (citing examples of dues, fees, and
other charges an exchange may charge as those ``in connection with
such matters as effecting transactions on the exchange, use of
communication services operated by the exchange, and clearing and
settling transactions through exchange maintained facilities'').
\127\ See Securities Exchange Act Release No. 16900 (June 17,
1980), 45 FR 41920, 41929 (June 23, 1980) (stating that ``the rules
of the clearing agency should limit the purposes for which the
clearing fund may be used to protecting participants and the
clearing agency (i) from the defaults of participants and (ii) from
clearing agency losses (not including day-to-day operating
expenses)'').
---------------------------------------------------------------------------
OCC requires its Clearing Members to pay a variety of dues, fees,
and other charges as defined in its schedule of fees.\128\ Such
obligations include monthly dues for ancillary services, per contract
clearing fees, and potential other charges such as OCC's operational
loss fee.\129\ The obligation to contribute collateral to the Clearing
Fund is different in nature. Specifically, Clearing Fund contributions
are collateral held to cover potential losses, but not a fee collected
by OCC for performing a service. Such collateral must be returned to
the contributing member to which it belongs upon termination of
membership.\130\ The equitable allocation requirements of Section
17A(b)(3)(D) \131\ are not relevant here because they pertain
specifically to dues, fees, and other charges among participants, which
do not include contributions to the Clearing Fund.
---------------------------------------------------------------------------
\128\ See OCC Schedule of Fees, available at <a href="https://www.theocc.com/company-information/schedule-of-fees">https://www.theocc.com/company-information/schedule-of-fees</a>.
\129\ The operational loss fee is an amount OCC would charge to
its members to raise additional capital should OCC's liquid net
assets funded by equity fall below defined thresholds. See
Securities Exchange Act Release No. 104510 (Dec. 23, 2025), 90 FR
61480 (Dec. 31, 2026) (File No. SR-OCC-2025-020).
\130\ See OCC Rule 1009.
\131\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
One commenter states that the Proposed Rule Change does not provide
for the equitable allocation of reasonable fees, but that it
disproportionately impacts broker-dealers that clear options trades for
their retail and institutional customers in a way that amounts to
unfair discrimination among clearing members.\132\ The commenter goes
on to state that the proposed change disproportionately impacts agency
brokers in that it deemphasizes operational risk, and projects that
such a change would increase its Clearing Fund contribution requirement
by approximately 40%.\133\ As discussed above, the commenters' argument
regarding the equitable allocation of dues, fees, and other charges is
misplaced. The Commission recognizes that the proposed change in
allocation will shift the relative burden of each Clearing Member to
meet its Clearing Fund obligations, but such burdens are considered
above in the context of Section 17A(b)(3)(I) of the Exchange Act.\134\
---------------------------------------------------------------------------
\132\ Schwab II at 2. See also Opposition at 2 (stating that the
Proposed Rule Change inequitably shifts Clearing Fund costs to one
set of Clearing Members and subsidizes the riskier activities of
other Clearing Members.'')
\133\ Schwab II, at 4. Similarly, Petitioner states that the
proposed allocation change substantially minimizes operational risk
as a risk that can lead to member default. Petition, at 13.
\134\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
C. Consistency With Rule 17ad-22(e)(2) Under the Exchange Act
Rule 17ad-22(e)(2) under the Exchange Act requires, in part, that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to provide for
governance arrangements that are clear and transparent \135\ and that
specify clear and direct lines of responsibility.\136\
---------------------------------------------------------------------------
\135\ 17 CFR 240.17ad-22(e)(2)(i).
\136\ 17 CFR 240.17ad-22(e)(2)(v).
---------------------------------------------------------------------------
Both Petition and comments received after the Petition are directly
related to governance, transparency, and clarity, as described in
detail below.
With regard to governance more broadly, the Petitioner states that
OCC failed to meaningfully consult with agency brokers in developing
the proposed allocation change.\137\ The Petitioner acknowledges that
OCC presented the proposal to its Financial Risk Advisory Council
(``FRAC''), but states that OCC cannot rely on the FRAC to vet its
proposals because not all Clearing Members participate in it.\138\ One
commenter states that it was not until OCC provided more comprehensive
impact data in November 2025 that the commenter understood the full
impact of the Proposed Rule Change.\139\ Commenters also recommend that
OCC establish a process and procedure to periodically review, and
update as needed, the manner in which it allocates its Clearing Fund to
members.\140\
---------------------------------------------------------------------------
\137\ Petition, at 20.
\138\ Petition, at 21. Another commenter made similar
statements. See Schwab II at 11 (``The fact that OCC discussed the
Proposed Rule Change with the [FRAC] and a Clearing Member
Roundtable before the proposal was filed with the Commission does
not mean that clearing members were provided with useful information
that was adequate to understand the full impact of the Proposed Rule
Change.'').
\139\ Schwab II, at 10.
\140\ Letter from Katie Kolchin, CFA, Managing Director, Head of
Equity & Options Market Structure and Joseph Corcoran, Managing
Director and Associate General Counsel, SIFMA, at 2 (Mar. 11, 2026)
available at <a href="https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-721767-2260154.pdf">https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-721767-2260154.pdf</a>. See also Letter from Matt Billings,
President, Robinhood Financial LLC and Robinhood Securities, LLC, at
2 (June 15, 2026) (``It is only appropriate, therefore, that the OCC
periodically reassess and, when empirically justified, update the
formula, as it has in the past and as it now proposes to do.'')
(footnote omitted), available at <a href="https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-826881-2530405.pdf">https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-826881-2530405.pdf</a>.
---------------------------------------------------------------------------
OCC states that, between 2023 and 2025 it spent considerable time
and traded considerable correspondence with Clearing Members in which
OCC shared data related to costs to Clearing Members and answered their
questions.\141\ OCC states further that it provided data to Clearing
Members, including the Petitioner, in November 2023, December 2023,
January 2024, and May 2024, and discussed the Proposed Rule Change at a
September 25, 2025, meeting of OCC's FRAC Risk Management
Committee.\142\ OCC also commits to presenting results of its annual
review of its allocation methodology to the FRAC and FRAC Risk
Management Committee on an annual basis going forward.\143\
---------------------------------------------------------------------------
\141\ OCC I, at 3.
\142\ OCC I, at 4.
\143\ OCC III, at 2.
---------------------------------------------------------------------------
The substance of the Proposed Rule Change, as well as related data,
was presented through several channels over the course of multiple
years. OCC presented the substance of the Proposed Rule Change as well
as related data to members, including the Petitioner, as early as 2023.
The Commission does not agree with the Petitioner's argument that OCC
cannot rely on the FRAC to vet its proposals because not all Clearing
Members participate in it. Such an argument would necessitate that OCC
form an advisory committee comprising representation from each Clearing
Member to be consulted prior to the filing of any proposed rule change
that could impact members, which is not required by either the Exchange
Act or the Commission's rules.\144\
---------------------------------------------------------------------------
\144\ See 15 U.S.C. 78q-1(b)(3)(C) (requiring only rules to
ensure fair representation of shareholders and participants in the
administration of a clearing agency's affairs); 17 CFR 240.17ad-
25(j) (contemplating board solicitation, consideration, and
documentation of such consideration of the views of participants and
stakeholders). The Commission approved updates to OCC's governance
arrangements as recently as December 2024 to align with applicable
rules and regulations. See Securities Exchange Act Release No.
101792 (Dec. 2, 2024), 89 FR 97127 (Dec. 6, 2024) (File No. SR-OCC-
2024-015).
---------------------------------------------------------------------------
[[Page 63636]]
Further, Petitioner states that the Proposed Rule Change offers
only a superficial analysis of the impact on individual clearing
members.\145\ Petitioner states that it cannot quantify the impact of
the proposed allocation change on agency brokers versus proprietary
trading firms versus market makers because OCC treats member-specific
Clearing Fund information as confidential.\146\ Petitioner
acknowledges, however, that it has data regarding how the Proposed Rule
Change would impact its own Clearing Fund requirements.\147\ Petitioner
and commenters acknowledge receipt of updated impact data since
November 2025.\148\ However, Petitioner and commenters have not
provided data to support the premise that the Proposed Rule Change
would categorically disadvantage agency brokers to the benefit of OCC's
other Clearing Members.
---------------------------------------------------------------------------
\145\ See Petition, at 16. One commenter states that the
Delegated Order relied on high-level data provided by OCC explaining
that its top 10 clearing members would, on average, experience a
1.28% increase in their Clearing Fund contributions. Schwab II, at
11.
\146\ See Opposition, at 17-18. Another commenter recommends
that the Commission should ``[r]equire OCC to provide a
comprehensive economic analysis of the proposed changes, including
stress test results, estimated impact on clearing fund sizing by
business model, differentiated risk analysis for retail vs.
institutional activity, and assessment of alternative approaches.''
ASA Letter, at 2.
\147\ See Opposition, at 17-18.
\148\ See Opposition, at 10 (``During the comment period, OCC
also communicated to clearing members that data reflecting firm-
specific impacts to Clearing Fund requirements could be provided
`upon request.'''); Schwab II, at 10 (``It was not until OCC
provided more comprehensive impact data in November 2025 that Schwab
understood the full impact of the Proposed Rule Change.'').
---------------------------------------------------------------------------
In its submission of the Proposed Rule Change to the Commission,
OCC stated that Exhibits 3, 5B, and 5C to File No. SR-OCC-2025-018,
which contain internal policies and procedures as well as an impact
analysis and assessment, were entitled to confidential treatment
because they contained commercial and financial information that is not
customarily released to the public and is treated as the private
information of OCC. Consistent with commenters' statements about
impacts to their respective businesses, OCC committed to parallel
reporting during which daily Clearing Fund requirement projections will
be made available.\149\ In contrast to Petitioner's and commenters'
statements regarding impact, the data provided by OCC to the Commission
as recently as June 17, 2026, demonstrates that the impact on agency
brokers is not so clear cut.\150\ The data is consistent with OCC's
statement that some Clearing Members who serve retail customers would
in fact see their allocation decrease.\151\ Further, OCC has committed
to consult with members through its existing governance arrangements
\152\ on an at least annual basis.
---------------------------------------------------------------------------
\149\ See Exhibit 3 to SR-OCC-2025-018.
\150\ See generally OCC III. As part of submitting OCC III, OCC
also provided to the Commission confidential data underlying summary
statements made in its public comment letter dated June 17, 2026.
\151\ See OCC III, at 2.
\152\ See OCC, Risk Committee Charter, at III. A., available at
<a href="https://www.theocc.com/getcontentasset/e71a4c1d-52dc-4c95-aeb1-98dab9159f41/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/risk_committee_charter.pdf">https://www.theocc.com/getcontentasset/e71a4c1d-52dc-4c95-aeb1-98dab9159f41/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/risk_committee_charter.pdf</a>; (``From time to time, the Committee may
receive reports and guidance relating to financial risk issues from,
among others, the OCC Financial Risk Advisory Council [FRAC] and, in
the exercise of its fiduciary judgment, shall take such guidance
into account in the performance of its functions and
responsibilities.''). See also generally Securities Exchange Act
Release No. 100194 (May 21, 2024), 89 FR 46205 (May 28, 2024) (SR-
OCC-2024-005) (supplementing OCC's governance arrangements to
provide for Board oversight of and Risk Committee obligation for
consultation with the newly established FRAC Risk Management
Committee to comply with CFTC's governance rules).
---------------------------------------------------------------------------
Based on a review of the record, the data provided by OCC was
sufficient to allow the Commission to understand the impact of the
Proposed Rule Change at an individual Clearing Member level. The
information that OCC provided in the public portion of its filing was
summary data describing the overall impact of the Proposed Rule Change.
However, the data that OCC provided confidentially to the Commission
was more detailed. In its confidential Exhibit 3 to File No. SR-OCC-
2025-018,\153\ OCC included Clearing Member level data describing the
largest changes in allocation of the Proposed Rule Change in terms of
both dollar and percentage impact. OCC provided such data both for a
single month as well as an average set of effects over the course of
five months, also at the individual Clearing Member level.
Subsequently, OCC provided updated data showing the projected effect of
the Proposed Rule Change at an individual Clearing Member level.\154\
As a result, OCC provided sufficient information in its confidential
submission to allow the Commission to assess the effects of the
Proposed Rule Change as well as how those effects would have changed
over the course of time, including on a member-by-member basis.
---------------------------------------------------------------------------
\153\ See Notice of Filing, at 47385, n. 14.
\154\ See underlying impact data submitted confidentially
alongside OCC III.
---------------------------------------------------------------------------
Separate from the concerns raised by the Petitioner, the Proposed
Rule Change would amend the arrangements governing OCC's allocation of
Clearing Fund requirements; specifically, the proposed authority to
hold allocations constant month-over-month. As noted above, Petitioner
does not challenge this aspect of the Proposed Rule Change.\155\ As
such, the following analysis of the proposed authority here is
consistent with that stated in the Delegated Order.\156\ OCC's proposal
to hold allocations constant to address the potential impact of
persistent high volatility is subject to a review process initiated by
OCC staff and implemented by the STWG, a panel delegated by OCC
management as the relevant subject matter expert. As proposed, OCC
staff would be required to base the hold-constant recommendation on
daily analyses of stress test results and in consideration of a non-
exhaustive list of factors before escalating it to the STWG or the
Chief Financial Risk Officer. The STWG or the Chief Financial Risk
Officer would have the authority to accept or reject the hold-constant
recommendation. This same review process would be implemented if OCC
staff recommends a reversion to the proportionate approach.
Additionally, OCC staff would be required to provide notification of
(1) a hold-constant decision or reversion to Clearing Members and the
Risk Committee; and (2) a hold-constant decision to the Commission and
CFTC, with reasons for such a decision provided to the regulators. This
recommendation review process provided for in OCC's rules and policies
would help facilitate governance arrangements that specify clear and
direct lines of responsibility.
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\155\ Petitioner does not object to adopting a new authority
allowing OCC to hold allocation weights constant month-over-month
during periods of heightened market volatility. See Petition, at 6
n. 2. See also Opposition, at 9 n.3.
\156\ See Delegated Order, 90 FR at 58355.
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Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(2) under the Exchange Act.\157\
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\157\ 17 CFR 240.17ad-22(e)(2).
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D. Consistency With Rule 17ad-22(e)(18) Under the Exchange Act
Rule 17ad-22(e)(18)(ii) under the Exchange Act requires, in part,
that a covered clearing agency establish, implement, maintain, and
enforce written policies and procedures reasonably designed to
establish objective, risk-based, and publicly disclosed criteria for
participation, which require participants to have
[[Page 63637]]
sufficient financial resources and robust operational capacity to meet
obligations arising from participation in the clearing agency.\158\
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\158\ 17 CFR 240.17ad-22(e)(18)(ii). The Commission did not
receive any comments on the Proposed Rule Change directly related to
objective, risk-based, and publicly disclosed criteria for
participation.
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OCC manages its credit exposures, in part, through the resources
held in its Clearing Fund. Such resources are sized to address stress
losses in excess of margin; however, the current allocation methodology
does not consider the extent to which a member poses risk to OCC that
exceeds its potential margin contributions. As a requirement of
participation, each Clearing Member is required to contribute financial
resources to fund the Clearing Fund. The methodology for allocating
such contributions is not currently aligned with the methodology for
setting the size of the Clearing Fund itself. As described above, OCC
proposed to revise its allocation methodology to align the weighting of
variables and lookback period more closely with OCC's methodology for
sizing the Clearing Fund. As a result, the proposed changes would more
closely align a member's financial obligations to OCC with the credit
risk the member poses without entirely removing consideration of other
factors. To address the possibility that the proposed weighting
methodology could cause an inappropriate allocation of requirements due
to persistent, high volatility, the Proposed Rule Change would
authorize OCC to hold allocation requirements constant month-over-month
where doing so would be in furtherance of the integrity of OCC and the
stability of the financial system, and take into consideration the
legitimate interests of Clearing Members and market participants. These
changes would further align Clearing Members' obligations with the
exposures such members pose to OCC while also providing flexibility to
respond to extreme market volatility. Such alignment is consistent with
Rule 17ad-22(e)(18)(ii) because it would help ensure that Clearing Fund
contribution requirements, which are a requirement for participation in
OCC, are risk-based and objective.
Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(18)(ii) under the Exchange Act.\159\
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\159\ 17 CFR 240.17ad-22(e)(18)(ii).
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IV. Conclusion
For the foregoing reasons, the Commission finds that the Proposed
Rule Change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities association.
It is therefore ordered, pursuant to Rule 431 of the Commission's
Rules of Practice, that the earlier action taken by delegated
authority, Exchange Act Release No. 104359 (Dec. 11, 2025), 90 FR 58352
(Dec. 16, 2025), is set aside and, pursuant to Section 19(b)(2) of the
Act, the Proposed Rule Change (SR-OCC-2025-018), as modified by
Amendment No. 1, hereby is approved.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-20465 Filed 10-5-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 6, 2026.
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