Notice2026-21845
Cboe Clear U.S., LLC; Order Granting an Application, as Amended, for Temporary Registration as a Clearing Agency Under Section 17A of the Securities Exchange Act of 1934
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 27, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 206 (Tuesday, October 27, 2026)</title>
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[Federal Register Volume 91, Number 206 (Tuesday, October 27, 2026)]
[Notices]
[Pages 67624-67641]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21845]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106723; File No. 600-47]
Cboe Clear U.S., LLC; Order Granting an Application, as Amended,
for Temporary Registration as a Clearing Agency Under Section 17A of
the Securities Exchange Act of 1934
October 22, 2026.
I. Introduction
On June 30, 2026, Cboe Clear U.S., LLC (``CCUS'') filed with the
Securities and Exchange Commission (``Commission'') an application on
Form CA-1 under Section 17A of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ seeking to register as a clearing agency to
provide central counterparty (``CCP'') services for binary options that
are securities.\2\ In its application, CCUS requests temporary
registration as a clearing agency under Section 17A(b) of the Exchange
Act and pursuant to 17 CFR 240.17ab2-1 (``Rule 17Ab2-1'').\3\ Notice of
the application (``Notice'') was published for comment in the Federal
Register on July 24, 2026.\4\ CCUS amended its application on July 7
and 17, August 18, September 4, and October 1,\5\ 2026 (as amended,
``Application'').\6\
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\1\ 15 U.S.C. 78q-1.
\2\ See Application, Exhibit J at 2; Exhibit S at 3-5. CCUS
defines a ``binary option'' to mean a ``Securities Contract that
provides for a fixed cash settlement payment upon the occurrence or
non-occurrence of a specified trigger event, with no payment if the
trigger does not occur, and a fixed maximum payment equal to the
exercise settlement amount if it does.'' See Application, Exhibit E-
2 (``CCUS Rules''), Rule 101(h) (``General,'' ``Definitions,''
``Binary Option''), at 2-3. CCUS defines a ``Security Contract,''
inter alia, to mean a contract that: (i) constitutes a ``security''
under Section 3(a)(10) of the Exchange Act; (ii) is listed and
traded on a national securities exchange registered with the
Commission under Section 6 of the Exchange Act; and (iii) is cleared
by CCUS. See CCUS Rules, at Rule 101(ttt) (``General,''
``Definitions,'' ``Security Contract''), at 8.
\3\ See 17 CFR 240.17ab2-1(c).
\4\ Release No. 34-105960 (July 21, 2026), 90 FR 46817 (July 24,
2026) (``Notice'').
\5\ On August 18 and September 4, 2026, CCUS amended its
application to update certain exhibits for which confidential
treatment has been requested. On October 1, 2026, CCUS amended its
application as follows: adding as Exhibit E-6 its Certificate of
Good Standing; adding as Exhibit J-2 a copy of CCUS's public
disclosures under the CPMI-IOSCO Principles for Financial Market
Infrastructures; and amending Exhibits A, E-2, E-3, J, L, O, and S,
as further described in this order. In a separate release, the
Commission has issued by delegated authority a notice of the October
1, 2026 amendments to the Application. Release No. 34-106610 (Oct.
6, 2026), 91 FR 64709 (Oct. 9, 2026). The Commission will consider
any comments received regarding the October 1, 2026 amendment prior
to taking any action on the Application with respect to permanent
registration. See 17 CFR 240.17ab2-1(c) (providing that, not later
than nine months from the date of any temporary registration is made
effective, the Commission will grant registration or institute
proceedings in accordance with Section 19 of the Exchange Act).
\6\ Non-confidential aspects of the Application and the exhibits
thereto cited in this order, are available on the Commission's
website at: <a href="https://www.sec.gov/rules-regulations/commission-orders-notices/other-commission-orders-notices-information/ccus-form-ca-1">https://www.sec.gov/rules-regulations/commission-orders-notices/other-commission-orders-notices-information/ccus-form-ca-1</a>.
References to the Application throughout this order refer to the
Application as most recently amended on October 1, 2026.
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The Commission received one comment letter, as well as a response
from CCUS.\7\ The comment letter supports approval of CCUS's request
for temporary registration as a ``stopgap;'' as to permanent
registration, it raises concerns as to the risk of vertically
integrated solutions and requests that the Commission consider the
capital costs and risks of a more fragmented clearing structure.\8\ The
comment letter received, and CCUS's response thereto,\9\ are discussed
in Parts III and IV.
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\7\ The public comment file for the Application is available on
the Commission's website at: <a href="https://www.sec.gov/rules-regulations/public-comments/600-47">https://www.sec.gov/rules-regulations/public-comments/600-47</a>.
\8\ Letter from Joanna Mallers, Secretary, PTG, dated Sept. 8,
2026 (``PTG'').
\9\ Letter from Dale Michaels, President, Cboe Clear U.S., LLC,
dated Sept. 25, 2026 (``CCUS Response'').
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This order grants CCUS's request for temporary registration as a
clearing agency with an exemption from certain requirements as to which
the Commission is directed to make a determination under Sections
17A(b)(3)(B) and (F) for a period of 18 months from the date of this
order, for the reasons set forth in Parts III and IV below.
II. Statutory Standard for Registration as a Clearing Agency
Clearing agencies are broadly defined under the Exchange Act and
undertake a variety of functions,\10\ including providing the services
of a CCP.\11\ Pursuant to Section 17A of the Exchange Act and Rule
17Ab2-1 thereunder, an entity that meets the definition of a clearing
agency must register with the Commission.\12\ Section 17A(b)(1) also
states that, upon the Commission's motion or upon a clearing agency's
application, the Commission may conditionally or unconditionally exempt
a clearing agency from any provisions of Section 17A or the rules or
regulations thereunder if the Commission finds that such exemption is
consistent with the public interest, the protection of investors, and
the purposes of Section 17A, including the prompt and accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds.\13\
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\10\ 15 U.S.C. 78c(a)(23)(A) (providing the definition of
``clearing agency''); see also Release No. 34-78961 (Sept. 28,
2016), 81 FR 70786, 70897 (Oct. 13, 2016) (``CCA Standards Adopting
Release'') (stating that clearing agencies are broadly defined in
the Exchange Act and undertake a variety of functions).
\11\ See 17 CFR 240.17ad-22(a)(2) (defining ``central
counterparty'' as a clearing agency that interposes itself between
counterparties to securities transactions, acting functionally as
the buyer to every seller and the seller to every buyer).
\12\ 15 U.S.C. 78q-1(b); 17 CFR 240.17ab2-1 (``Rule 17Ab2-1'').
\13\ 15 U.S.C. 78q-1(b)(1).
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In addition to the requirements set forth in Rule 17Ab2-1, Section
19(a)(1) of the Exchange Act establishes the standard for Commission
review of an application for registration as a clearing agency.
Pursuant thereto, the Commission shall grant registration of a clearing
agency if it finds that the requirements of the Exchange Act and the
rules and regulations thereunder with respect to the applicant are
satisfied.\14\ The Commission shall deny such registration if it does
not make such finding.\15\
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\14\ 15 U.S.C. 78q-1; 15 U.S.C. 78s(a)(1).
\15\ 15 U.S.C. 78s(a)(1).
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The requirements of the Exchange Act applicable to clearing
agencies are set forth in Section 17A and the rules and regulations
thereunder.\16\ Accordingly,
[[Page 67625]]
to grant CCUS's Application for registration as a clearing agency, the
Commission must find that the Application satisfies the requirements of
Section 17A(b) of the Exchange Act and rules and regulations
thereunder, including the determinations set forth in paragraphs (A)
through (I) of Section 17A(b)(3) of the Exchange Act.\17\ Pursuant to
Rule 17Ab2-1(c), the Commission, upon the request of a clearing agency,
may grant registration of the clearing agency but exempt the registrant
from one or more of the requirements as to which the Commission is
directed to make a determination pursuant to Section 17A(b)(3) of the
Exchange Act, provided that any such registration shall be effective
only for eighteen months from the date the registration is made
effective (or such longer period as the Commission may provide by
order).\18\
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\16\ Rules for registered clearing agencies include
recordkeeping requirements, 17 CFR 240.17a-1; the filing process for
proposed rule changes, 17 CFR 240.19b-4; rules addressing operations
and risk management, governance and conflicts of interest, and plans
for recovery and wind-down at, respectively, 17 CFR 240.17ad-22
(``Rule 17Ad-22''), 240.17ad-25 (``Rule 17Ad-25''), and 240.17ad-26
(``Rule 17Ad-26''); and the requirements set forth in Regulation
Systems Compliance and Integrity, 17 CFR 242.1000 et seq.
(``Regulation SCI''). The Commission conducts ongoing monitoring of
registered clearing agencies through its supervisory program for
registered clearing agencies. The Commission also assesses
compliance with Commission rules by conducting examinations and
investigations. See 15 U.S.C. 78q(b); 15 U.S.C. 78u(a).
\17\ 15 U.S.C. 78s(a); 15 U.S.C. 78q-1(b)(3)(A)-(I). The
determinations are described further below.
\18\ See 17 CFR 240.17ab2-1(c)(1); see also, e.g., Release No.
34-105562 (May 27, 2026), 91 FR 32151 (May 29, 2026) (granting
temporary registration to Paxos Securities Settlement Company, LLC
in 2026 for a period not to exceed 18 months) (``Paxos Order'');
Release No. 34-25740 (May 24, 1988), 53 FR 19839 (May 31, 1988)
(granting temporary registration to the Government Securities
Clearing Corporation in 1988 for a period of 36 months) (``GSCC
Order'').
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After a clearing agency's application for registration is granted,
the clearing agency must continue to satisfy the requirements of the
Exchange Act and the rules and regulations thereunder. In the context
of temporary registration, the clearing agency must satisfy the
requirements of the Exchange Act and the rules and regulations
thereunder, except as to requirements, rules, or regulations to which
an exemption has been provided. The Commission has explained that
``[a]n approval of clearing agency registration does not mean that no
further modifications of the applicant's rules, systems, procedures, or
practices are needed.'' \19\ Rather, the Commission stated that a
registered clearing agency's obligation to continue to satisfy the
requirements of the Exchange Act and the rules and regulations
thereunder means that ``[t]he self-regulatory obligations of [a] fully
registered clearing agenc[y] cannot end'' after registration.\20\ To
ensure such compliance, the Commission stated that it ``will continue
to use its oversight, inspection, and enforcement authority as
necessary and appropriate to further the purposes of the [Exchange]
Act.'' \21\
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\19\ See Release No. 34-69838 (June 24, 2013), 78 FR 39027,
39029 (June 28, 2013) (approving an application by the Fixed Income
Clearing Corporation for permanent registration as a clearing
agency).
\20\ See Release No. 34-20221 (Sept. 23, 1983), 48 FR 45167,
45171 (Oct. 3, 1983) (approving nine applications for permanent
registration as a clearing agency).
\21\ Id.
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III. Review of Application Under Statutory Standard for Registration
Consistent with the requirements in Sections 17A and 19(a)(1) of
the Exchange Act described above, the Commission below analyzes the
Application against each of the statutory requirements under Section
17A(b)(3)(A) through (I) to be registered as a clearing agency.\22\
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\22\ See 15 U.S.C. 78q-1(b)(3)(A)-(I) (describing the statutory
determinations that the Commission must make regarding the rules and
structure of a clearing agency to grant registration). In 1980, the
Commission published a statement of the views and positions of
Commission staff regarding the requirements of Section 17A. See
Release No. 34-16900 (June 17, 1980), 45 FR 41920 (June 23, 1980).
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A. Organization and Capacity
1. Statutory Standard: Section 17A(b)(3)(A)
Section 17A(b)(3)(A) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
such clearing agency is so organized and has the capacity to be able to
facilitate the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts, and
transactions for which it is responsible, to safeguard securities and
funds in its custody or control or for which it is responsible, to
comply with the provisions of the Exchange Act and the rules and
regulations thereunder, to enforce (subject to any rule or order of the
Commission pursuant to Section 17(d) or 19(g)(2) of the Exchange Act)
compliance by its participants with the rules of the clearing agency,
and to carry out the purposes of Section 17A of the Exchange Act.\23\
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\23\ 15 U.S.C. 78q-1(b)(3)(A).
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Consistent with this standard, the Commission does not assess in
this order whether CCUS's ultimate implementation of the rules,
policies, and procedures set forth in its Application will comply with
each of the Commission's rules for clearing agencies, as CCUS is not
yet operating as a (securities) clearing agency.\24\ Rather, under
Section 17A(b)(3)(A) of the Exchange Act, the Commission assesses
whether CCUS is so organized and has the capacity to comply with the
provisions of the Exchange Act and the rules and regulations
thereunder,\25\ by analyzing CCUS's organization and governance, as
well as its operational arrangements.\26\ Under this standard, the
registration of a clearing agency ``depends on a prediction about
compliance with the law.'' \27\ Section 17A assumes that ``an applicant
would produce a business plan that, if faithfully executed, would
comply'' with the Exchange Act.\28\ To make its required statutory
determination under Section 17A(b)(3)(A), the Commission must ``find[]
that the applicant is able and likely to comply,'' and upon
registration and commencement of operations as a registered clearing
agency, compliance with Section 17A(b)(3)(A) ``is likely to be carried
out.'' \29\
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\24\ See supra notes 25-26 and accompanying text (explaining
that approval of clearing agency registration does not mean that no
further modifications of the applicant's rules, systems, procedures,
or practices are needed and that the obligations of a fully
registered clearing agency cannot end after registration). CCUS is a
derivatives clearing organization (``DCO'') registered with the
Commodity Futures Trading Commission (``CFTC'') that has elected to
be a ``Subpart C'' DCO pursuant to 17 CFR part 39, subpart C.
Subpart C establishes requirements for financial resources, system
safeguards, default rules and procedures, risk management, recovery
and wind-down, and certain other topics consistent with
international standards and with Rule 17Ad-22(e). See CCA Standards
Adopting Release, 81 FR at 70866.
\25\ See 15 U.S.C. 78q-1(b)(3)(A). With respect to CCUS's
ability to safeguard securities and funds for which it is
responsible, the Commission addresses that topic in Part III.E, in
conjunction with discussing Section 17A(b)(3)(F) of the Exchange
Act, which requires, among other things, that the rules of the
clearing agency are designed to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible. With respect to
CCUS's ability to enforce compliance by its participants with the
rules of the clearing agency, the Commission addresses that topic in
Part III.F in conjunction with discussing Section 17A(b)(3)(G) of
the Exchange Act, which requires that the rules of the clearing
agency provide that its participants shall be appropriately
disciplined for violation of any provision of the rules of the
clearing agency.
\26\ In Part III.E, the Commission further analyzes CCUS's
capacity to conduct risk management consistent with the statutory
requirements for safeguarding securities and funds set forth in
Section 17A(b)(3)(F) of the Exchange Act.
\27\ Bd. of Trade of City of Chicago v. S.E.C., 883 F.2d 525,
533 (7th Cir. 1989) (vacating Delta Government Options Corporation
(``Delta'')'s temporary registration as a clearing agency and
remanding to the Commission to decide whether Delta's proprietary
trading system would operate as an unregistered national securities
exchange in violation of Sections 5 and 6 of the Exchange Act).
\28\ Id. at 533-34.
\29\ Id. at 534 (emphasis in original).
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2. Summary of Proposed Operations
The following is an overview of CCUS's proposed clearing
operations.
[[Page 67626]]
(a) Proposed Services
The Application states that CCUS seeks to provide CCP services to
market participants for ``cash settled, binary security options,
including among others, security options overlying key performance
indicators (`KPIs') reported by certain issuers of stock [`Binary KPI
Options'].'' \30\ CCUS states that these Binary KPI Options ``will be
fully margined,'' ensuring that once trades are initially settled with
CCUS, ``all potential price movements will be covered by posted
margin.'' \31\ CCUS also states that these Binary KPI Options will
trade on Cboe Exchange, Inc. (``Cboe Exchange''), a national securities
exchange registered with the Commission which is also a direct, wholly-
owned subsidiary of Cboe Global Markets, Inc. (``CGM'').\32\ In its
Application, CCUS requests registration for Cboe Exchange to offer
Binary KPI Options in a ``regulated securities environment.'' \33\
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\30\ See Application, Exhibit J, at 1.
\31\ See Application, Exhibit J, at 2.
\32\ See Application, Exhibit J, at 1.
\33\ See Application, Exhibit J, at 2.
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The Rules require, among other things, that clearing members who
seek to clear Securities Contracts (including Binary KPI Options) must
be registered as a broker-dealer with the Commission under the Exchange
Act.\34\ The Application states that CCUS ``acknowledges that the Rules
do not at this time reference all of the categories of participants
enumerated in Section 17A(b)(3)(B) of the Exchange Act,'' \35\ as
discussed further in Part III.B.1. CCUS states it will offer customer,
firm, and market-maker clearing accounts,\36\ classifying every account
under the CCUS Rules according to whether it holds the funds or assets
for the benefit of: (i) retail and/or institutional investors of a
clearing member; \37\ (ii) a proprietary account of a broker-dealer
client of a clearing member (``PAB Account''); \38\ (iii) a clearing
member; \39\ or (iv) a market-maker (either as the clearing member's
client, or the clearing member itself).\40\ CCUS describes its
different treatment of account types by citing Exchange Act
requirements.\41\ For example, CCUS requires that all funds and assets
held by CCUS for a broker-dealer clearing member's retail or
institutional clients (``Securities Customers'') must be maintained in
a Securities Customer Account to satisfy the requirements of Rule 15c3-
3.\42\ Additionally, CCUS Rules state that settlement obligations for
contracts that a clearing member designates for its Customer Account or
PAB Account shall not be offset against contracts the clearing member
designates for its own Member Property Account or Market-Maker
Account.\43\
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\34\ See Application, Exhibit J, at 3; CCUS Rules, at Rule
301(e)(3)(ii) (``Clearing Members,'' ``General Eligibility
Requirements of Clearing Members''), at 21. CCUS states that the
CCUS Rules would require clearing members who are broker-dealers to
``maintain the appropriate authorizations to hold customer funds in
accordance with Rule 15c3-3.'' See Application, Exhibit J, at 3.
\35\ See Application, Exhibit S, at 3 (i.e., ``other registered
clearing agencies, registered investment companies, banks, insurance
companies[,] and other classes of persons designated as appropriate
by the Commission''); see also 15 U.S.C. 78q-1(b)(3)(B).
\36\ See Application, Exhibit J, at 8.
\37\ See CCUS Rules, at Rule 101(dd) (``General,''
``Definitions,'' ``Customer Account''), at . 5 (defining a
``Customer Account'' of broker-dealer clearing members as including
a ``Securities Customer Account''); Rule 101(uuu) (``General,''
``Definitions, ``Securities Customer Account''), at 9 (defining
``Securities Customer Account'' to mean, inter alia, an account the
broker-dealer clearing member has with CCUS in which the broker-
dealer clearing member maintains Securities Contracts and associated
collateral solely on behalf of its securities customers, subject to
any applicable requirements, including Rule 15c3-3).
\38\ See CCUS Rules, at Rule 101(mmm) (``General,''
``Definitions,'' ``PAB Account''), at 8 (defining a ``PAB Account''
to mean an account that: (i) a broker-dealer clearing member carries
for another broker-dealer, other than a market-maker account (ii)
which holds Securities Contracts and related funds proprietary to
that other broker-dealer (and are not held for the benefits of its
customers), other than a Market-Maker Account; and (iii) is not a
Member Property Account). Id; see also infra notes 51-52.
\39\ See CCUS Rules, at Rule 101(hhh) (``General,''
``Definitions,'' ``Member Property Account''), at 7 (defining a
``Member Property Account'' to mean an account that a clearing
member has with CCUS in which the broker-dealer clearing member
maintains Securities Contracts and related funds (including initial
margin) solely on its own behalf, other than a Market-Maker
Account); see also infra note 52.
\40\ See CCUS Rules, at Rule 101(ggg) (``General,''
``Definitions,'' ``Market-Maker Account''), at 7 (defining a
``Market-Maker Account'' to mean an account that a clearing member
has with CCUS in which the broker-dealer clearing member maintains
Securities Contracts and related funds (including initial margin)
either in its capacity as a Market-Maker or on behalf of a Market-
Maker for which it clears; see also CCUS Rules, at Rule 101(fff)
(``General,'' ``Definitions,'' ``Market-Maker''), at 7 (defining
``Market-Maker'' to mean, inter alia, a member of a national
securities exchange or national securities association who is not
required to be treated as a ``customer'' under Rule 15c3-3 under the
Exchange Act). 17 CFR 240.15c3-3.
\41\ See Application, Exhibit J, at 8-9.
\42\ See CCUS Rules, at Rule 309(e) (``Clearing Members,''
``Customer Accounts, Member Property Accounts, PAB Accounts, and
Market-Maker Accounts''), at 33 (``All funds and assets held by Cboe
Clear US on behalf of Securities Customers of a BD Clearing Member
shall be maintained in a Securities Customer Account, segregated
from Futures Customer Accounts and from the BD Clearing Member's
proprietary accounts, in accordance with Applicable Law'');
Application, Exhibit J, at 8 (``Customer clearing accounts will hold
funds on behalf of Clearing Members' customers as defined in [Rule
15c3-3]'').
\43\ See CCUS Rules, at Rule 404(b) (``Clearing, Settlement, and
Delivery of Contracts,'' ``Offset and Settlement''), at 46.
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(b) Risk Management
In Exhibit J, the Application provides information regarding CCUS's
risk management framework. CCUS states its risk management framework is
intended to: (i) reduce the potential impact of a Clearing Member
Default via credit risk management standards and ongoing monitoring;
and (ii) ensure that CCUS has sufficient financial and liquidity
resources to manage the default of its two clearing member groups that
would cause the largest aggregate credit exposure and at least the
single clearing member group that would cause the largest aggregate
liquidity exposure, in each case, in extreme but plausible market
conditions.\44\
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\44\ See Application, Exhibit J, at 5. See also CCUS Rules, at
Rule 101(hh) (``General,'' ``Definitions,'' ``Default Financial
Resources Requirement''), at 5 (defining CCUS's ``Default Financial
Resources Requirement'' to mean ``the amount of financial resources
required to enable [CCUS] to meet its obligations to Clearing
Members notwithstanding the default of the two Clearing Members,
including any affiliates, generating the largest financial exposures
for [CCUS] in extreme but plausible market conditions'').
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CCUS states its risk management framework addresses counterparty
risk through its financial responsibility requirements for clearing
members, as well as CCUS's ability to impose protective measures
against clearing members who fail to comply with applicable
requirements.\45\ Regarding counterparty risk and liquidity risk
management, CCUS cites its: (i) internal credit scoring process for
clearing members; (ii) credit limits; (iii) daily risk monitoring; (iv)
margin collection; and (v) option premium settlement.\46\
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\45\ See Application, Exhibit J, at 5.
\46\ See Application, Exhibit J, at 5.
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CCUS states that it employs back-testing and stress-testing but
that these tools' risk management function for binary options that are
securities differs from other products it clears in its current
capacity as a DCO because binary options are fully margined (i.e.,
fully collateralized) and margin provided pursuant to this requirement
covers all price movements.\47\ Citing the fully margined nature of
binary options, CCUS states its total cash obligation would be limited
to aggregate initial margin.\48\ Nonetheless, CCUS also describes
additional tools that it generally has available under its rules to
manage liquidity risk, including its rights to partial tear-ups and
full tear-ups.\49\
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\47\ See Application, Exhibit J, at 5. For example, CCUS
explains that traditional stress testing designed to measure tail-
risk exposure beyond collected margin is not applicable to binary
security options. Id. at 7.
\48\ See Application, Exhibit J, at 5.
\49\ See Application, Exhibit J, at 7.
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[[Page 67627]]
While binary security options would be fully margined (i.e., fully
collateralized), CCUS states that it does not require prefunding of
margin requirements.\50\ Therefore, prior to the completion of CCUS's
daily settlement cycle, CCUS faces intraday exposure associated with
any unsettled positions of any defaulting clearing member.\51\ CCUS
states this intraday exposure is mitigated through: (i) the bounded
nature of binary security option's payouts (i.e., $0.00 or a maximum
payout of $1.00); (ii) intra-day margin calls made in response to
CCUS's near real-time monitoring of clearing members' exposure; and
(iii) CCUS's default waterfall.\52\
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\50\ See Application, Exhibit J, at 5.
\51\ See Application, Exhibit J, at 5-6.
\52\ See Application, Exhibit J, at 6.
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CCUS does not anticipate that clearing binary security options will
generate material liquidity risk beyond this ``intraday settlement
timing gap.'' \53\ In addition to limiting liquidity risk, CCUS states
that the binary security option's fully margined, bounded-payout
structure also mitigates: (i) procyclicality risk (i.e., fixed exposure
prevent market stress from increasing margin requirements); (ii) wrong-
way risk (i.e., CCUS's exposure to defaulting clearing member remains
fixed despite contributing market conditions); (iii) model risk (i.e.,
the discrete payoff eliminates margin models' tail-risk
understatement); and (iv) concentration risk (i.e., the collateralized,
discrete payoffs prevent position concentration from generating
outsized tail risk).\54\
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\53\ See Application, Exhibit J, at 6.
\54\ See Application, Exhibit J, at 6, n.1.
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CCUS states its stress test methodology is designed to ensure that
its guaranty fund's size is at least equal to the largest theoretical
loss to CCUS resulting from the default of the two clearing members
(including any affiliated clearing members) in extreme but plausible
market conditions.\55\ To determine this theoretical loss, CCUS states
that it measures each clearing member group's shortfall between: (i)
the stress loss; and (ii) initial margin requirement in each clearing
account (subject to the restriction that Customer Account gains will
not offset PAB Account losses).\56\ Given the binary securities
options' bounded-payout structure, CCUS states that its risk management
accounts for the potential risk of losses between: (i) CCUS's novation
of a trade; and (ii) the completion of CCUS's daily settlement cycle
(i.e., when CCUS collects the funds from its clearing members
associated with all unsettled positions).\57\
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\55\ See Application, Exhibit J, at 7; see also supra note 61
(explaining that traditional stress testing designed to measure
tail-risk exposure beyond collected margin is not applicable to
binary security options).
\56\ See Application, Exhibit J, at 7.
\57\ See Application, Exhibit J, at 7.
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To address potential credit losses, the Rules grant CCUS assessment
powers of its non-defaulting clearing members on a pro rata basis
relative to its Guaranty Fund Deposit requirement.\58\ The Application
states that CCUS may assess its non-defaulting clearing members in
relation to their required Guaranty Fund Deposit.\59\ If a single
clearing member defaults, CCUS states that it may assess the non-
defaulting clearing members up to 300% of this amount; for multiple
clearing member defaults, CCUS may assess the non-defaulting clearing
members up to 600% of this amount.\60\ Assessments would only be called
for in the event the Initial Margin and Guaranty Fund Deposits of the
defaulting clearing member(s), CCUS's contributed capital, and the
mutualized guaranty fund are exhausted.\61\
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\58\ See CCUS Rules, at Rule 507(a) (``Obligations of [CCUS],''
``Assessments''), at 57 (``Payment of Assessment Amounts that
replenish the Guaranty Fund shall be made by Clearing Members on the
basis of the same proportionality at the time of the Default that
resulted in the assessment''); Application, Exhibit J, at 7.
\59\ See Application, Exhibit J, at 8 (``CCUS assesses each
Clearing Member on a pro rata basis relative to its Guaranty Fund
Deposit requirement''); CCUS Default Management Plan, Section 3.8
(``Assessments'')), at 5, available at <a href="https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf">https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf</a>.
\60\ See Application, Exhibit J, at 7 (``CCUS will maintain
assessment powers sized to 300% of non-Defaulting Clearing Member's
Guaranty Fund Deposit requirements if a single Clearing Member
Defaults and 600% for multiple Clearing Member Defaults during the
Cooling Off Period as defined in the Default Management Plan''); see
also CCUS Rules, at Rule 507(d) (``Obligations of [CCUS],''
``Assessments''), at 59 (``Assessments on Clearing Members shall not
exceed the thresholds set forth in the Default Management Plan'');
CCUS Default Management Plan, Section 3.8 (``Assessments'')), at 5,
available at <a href="https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf">https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf</a>.
\61\ See Application, Exhibit J, at 7.
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CCUS describes several operational risk management practices.
Regarding trade processing, CCUS states it employes ``near real-time
monitoring for any errors generated during trade processing.'' \62\
After Cboe Exchange submits a pre-matched trade, CCUS validates the
transaction based on the trade record, and CCUS novates the trade upon
successful validation.\63\ For product validation, CCUS states that its
validation check ensures submitted dates are valid settlement dates
(i.e., business days, exclusive of Federal Reserve holidays).\64\ For
account validation, CCUS states that it confirms the good standing of
each clearing member's clearing account.\65\ CCUS states that it will
reject all transactions that are not novated by its specified
deadlines.\66\ CCUS's clearing members will be responsible to CCUS to
settle their option premiums and Initial Margin deficits at each
settlement cycle.\67\ For expiring binary options, an underlying
reference price will be provided by Cboe Exchange to CCUS to determine
the final settlement price for each binary option strike.\68\
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\62\ See Application, Exhibit J, at 7-8. CCUS states that any
cancellation or amendment of a submitted transaction from Cboe
Exchange requires CCUS's manual intervention. Id. at 8.
\63\ See CCUS Rules, at Rule 401(b) (``Clearing, Settling, and
Delivery of Contracts,'' ``Submission of Trades''), at 41 (``Upon
matching of a trade effected on or pursuant to the rules of a
Participating Exchange, the Participating Exchange shall promptly
submit to Cboe Clear US a trade report generated by the electronic
trading system of the Exchange. The report shall show for each
trade, as applicable: (i) the identity of each Clearing Member; (ii)
whether bought or sold; (iii) quantity; (iv) delivery month; (v) the
price; (vi) whether for Member Property Account, Market-Maker
Account, PAB Account, or Customer Account; (vii) the clearing date;
(viii) transaction time; (ix) the trade source; (x) the product
type; (xi) the ticker symbol; (xii) the series/contract date; (xiii)
whether the trade is a put or a call; (xiv)the strike price; (xv)
the account type; (xvi) the allocation indicator; (xvii) the
Clearing Member Trade Agreement (``CMTA'') indicator; (xvii) the
given-up Clearing Member; and (vii) such other information as may be
required by Cboe Clear US''); Application, Exhibit J, at 8.
\64\ See Application, Exhibit J, at 8.
\65\ See Application, Exhibit J, at 8.
\66\ See Application, Exhibit J, at 8.
\67\ See Application, Exhibit J, at 8.
\68\ See Application, Exhibit J, at 8.
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(c) Technology and Systems
In the Application, CCUS describes its system safeguards and
disaster recovery, describing its (i) information technology
infrastructure; (ii) information security; and (iii) physical
security.\69\ Regarding information technology infrastructure, the
Application states that CCUS's systems will be hosted in a ``virtual
private cloud (`VPC') environment across a minimum of (2)
geographically disparate regions.'' \70\ The Application also states
that the ``system will have the ability to run with either region as
the `primary' and failover either parts or all of the application to
the `secondary' region when needed.'' \71\
---------------------------------------------------------------------------
\69\ See Application, Exhibit K, at 1.
\70\ See Application, Exhibit K, at 1.
\71\ See Application, Exhibit K, at 1.
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The Application states that CCUS ``relies on Cboe's supporting
technology infrastructure in physical data centers and facilities to
provide access into CCUS's technology infrastructure.'' \72\ Regarding
information security and physical security, the Application states
[[Page 67628]]
that: (i) ``Cboe's policies, procedures, and controls are built upon
industry best practices;'' and (ii) are intended to ``prevent
unauthorized access to its information and networks across both
physical datacenters and the VPC environment.'' \73\ Separately,
regarding backup systems, the Application describes CCUS's system
design, approach to operational resilience,\74\ availability and
disaster recovery,\75\ and data backup.\76\
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\72\ See Application, Exhibit K, at 1.
\73\ See Application, Exhibit K, at 1.
\74\ See Application, Exhibit M, at 1.
\75\ See Application, Exhibit M, at 1-2.
\76\ See Application, Exhibit M, at 2.
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3. Organization, Governance, and Analysis
(a) Organization
The Application demonstrates that CCUS is a limited liability
company (``LLC'') that is: (i) duly formed under the laws of the state
of Delaware; and (ii) in good standing in the state of Delaware.\77\
The Application identifies that Cboe Clear Digital Holdings, LLC
(``Cboe Digital'') owns 100% of CCUS \78\ and serves as CCUS's sole
member (``LLC Member'').\79\ As noted above, the Application also
states that CCUS is a DCO registered with the CFTC.\80\ Pursuant to its
registration as a DCO with the CFTC, CCUS currently offers regulated
clearing services for cash-settled index futures on digital assets
indices.\81\
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\77\ See Application, Exhibit E-6 (Certificate of Good Standing
for ``CBOE Clear U.S., LLC'' from the Office of the Delaware
Secretary of State (dated Sept. 18, 2026)).
\78\ See Application, Exhibit E-3 (``Ninth Amended and Restated
Limited Liability Company Agreement of CBOE Clear U.S., LLC,'' dated
Oct. 1, 2026) (``LLC Agreement''), Exhibit A, at 14. The Application
identifies that Cboe Digital Exchange, LLC (``Digital Exchange'') is
Cboe Digital's sole member. See id., Signature Page, at 14.
\79\ See Application, Exhibit A, at 1.
\80\ See Application, Exhibit C; see also Exhibit J at 2
(describing CCUS as a ``Subpart C'' DCO under CFTC regulations).
\81\ See Application, Exhibit J, at 1.
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In its Application, CCUS provides its proposed LLC Agreement that
identifies how CCUS will govern the management and operation of CCUS,
including the relationship between CCUS's Board of Directors
(``Board'') and the LLC Member.\82\ In particular, Section V of the
proposed LLC Agreement (``Management of the Company'') states that:
CCUS ``shall be managed by and all decisions regarding [CCUS] shall be
made by [the LLC Member],'' subject to the LLC Member's delegation of
authority ``over the business and affairs of [CCUS] to the Board.''
\83\ The LLC Member's delegation to the Board explicitly includes the
``full, exclusive[,] and complete discretion'' to: (i) ``manage and
control the business and affairs of [CCUS];'' (ii) ``to make all
decisions affecting the business and affairs of [CCUS];'' and (iii)
``to take all such actions as it deems necessary or appropriate to
accomplish the purposes of [CCUS] as set forth herein.'' \84\ The
proposed LLC Agreement also states that the Board shall not
``approve,'' ``undertake,'' or ``authorize any other Person to approve
or undertake'' 17 specific actions without the prior written consent of
the LLC Member ``[n]otwithstanding anything to the contrary contained
[in the LLC Agreement].'' \85\ The proposed LLC Agreement may not be
amended without the written consent of the LLC Member.\86\
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\82\ See Application, Exhibit E-3 (LLC Agreement). Capitalized
terms not defined in this order are defined in the Application.
\83\ See Application, Exhibit E-3, (LLC Agreement), Sections
(V)(a)-(b) (``Management of the Company''), at 2-3.
\84\ See Application, Exhibit E-3, (LLC Agreement), Sections
(V)(b) (``Management of the Company''), at 2-3.
\85\ See Application, Exhibit E-3 (LLC Agreement), Section X(l)
(``General Provisions,'' ``Required Member Consent''), at 8-9.
Specifically, the LLC Agreement states that the Board ``shall not,''
without prior consent of the LLC Member: ``(i) enter into, approve
or adopt an annual business plan or annual budget, provided that any
such annual business plan or annual budget shall first be reviewed
and approved by the Board; (ii) appoint a new President, Chief
Financial Officer, Chief Risk Officer, Chief Compliance Officer,
Chief Regulatory Officer, any executive vice president or any other
officer comprising senior management of the Company, or the
termination (other than for cause) of or material change in the
compensation (including equity compensation) of any then-existing
President, Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer, Chief Risk Officer, any executive vice president
or any other officer comprising senior management of the Company;
(iii) acquire or dispose of any business or any material assets;
(iv) approve, recommend, consummate or participate in any Sale
Transaction; (v) cause any material change in the line(s) of
business of the Company and its subsidiaries, taken as a whole, from
the business conducted by the Company and its subsidiaries as of the
date hereof; (vi) create, authorize, offer, issue or sell to any
Person any Interests or any interests or other instruments directly
or indirectly convertible, exercisable or exchangeable for
Interests; (vii) admit a new Member to the Company; (viii) create or
grant any security interest, encumbrance or guarantee on the assets
of the Company or any of its subsidiaries; (ix) incur indebtedness
for borrowed money; (x) approve, initiate or consummate a
reorganization, liquidation or dissolution of the Company; (xi)
initiate or settle any litigation or any other action, suit or
similar proceeding; (xii) finalize or settle any administrative or
judicial disputes with any taxing or other governmental authority;
(xiii) select, cause appointment or replace the auditors of the
Company or its Subsidiaries, following recommendation of the Audit
Committee and approval of the Board; (xiv) file any tax returns and
statements with respect to the Company or any subsidiary or the
assets of the Company or any subsidiary; (xv) amend any accounting
policy or make any tax election or decision or change in tax
classification of the Company; (xvi) amend the Company's
organizational documents or documents related to the Interests; or
(xvii) redeem, repurchase or otherwise acquire any Interests or
other instruments directly or indirectly convertible, exercisable or
exchangeable for Interests.'' Id.
\86\ See Application, Exhibit E-3 (LLC Agreement), Section X
(``General Provisions''), (o), at 12.
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The proposed LLC Agreement includes a ``Limitation on Exercise of
Reserved Authorities,'' which would prohibit the Member's exercise of
any authority pertaining to CCUS's ability to comply with the
requirements of Section 17A of the Exchange Act or the rules and
regulations thereunder.\87\ Specifically, this section states that the
Member ``shall not exercise any consent, right, or other authority
reserved to [the Member]'' if that exercise would: (i) impair the
Board's authority to direct the operations of CCUS consistent with
Section 17A of the Exchange Act; \88\ (ii) deny or impair the fair
representation of CCUS's participants as contemplated by Section
17A(b)(3)(C) of the Exchange Act; \89\ or (iii) prevent the Board from
being composed or operate in a manner required by the Exchange Act or
Rule 17Ad-25 thereunder.\90\
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\87\ See Application, Exhibit E-3 (LLC Agreement), Section V(k)
(``Management of the Company,'' ``Limitation on Exercise of Reserved
Authorities'') at 8.
\88\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(i) (``Management of the Company,'' ``Limitation on Exercise of
Reserved Authorities''), at 8.
\89\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(ii) (``Management of the Company,'' ``Limitation on Exercise of
Reserved Authorities''), at 8.
\90\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(iii) (``Management of the Company,'' ``Limitation on Exercise
of Reserved Authorities''), at 8.
---------------------------------------------------------------------------
CCUS states that it is an indirect, wholly-owned subsidiary of CGM,
its ultimate corporate parent.\91\ The Application states that CGM: (i)
is a public company owned by public shareholders; (ii) is listed for
trading on the Cboe BZX Exchange; and (iii) owns ``a number of direct
wholly-owned subsidiaries'' and ``a variety of indirect subsidiaries
(including CCUS).'' \92\ Referencing CGM's governing documents, the
Application states that CGM's subsidiaries include self-regulatory
organizations (``SROs'') registered with the Commission as national
securities exchanges.\93\ The CGM Certificate explicitly distinguishes
among CGM subsidiaries based on whether the subsidiary is a national
[[Page 67629]]
securities exchange (defining ``any national securities exchanges
controlled, directly or indirectly by [CGM]'' as a ``Regulated
Securities Exchange Subsidiary'').\94\ The CGM Certificate also
includes specific representations pertaining to CGM ``being the
ultimate parent of [any] Regulated Securities Exchange Subsidiaries.''
\95\ CCUS states that these representations include CGM's submitting to
U.S. regulatory authority,\96\ safeguarding sensitive SRO
information,\97\ and committing CGM and its personnel to compliance
with, and cooperation under, the federal securities laws.\98\ The
Application states that the CGM Certificate was adopted when ``CGM
controlled national securities exchanges and did not control any
registered securities clearing agencies, and the defined term
`Regulated Securities Exchange Subsidiary' refers to national
securities exchanges controlled by CGM.'' \99\ CCUS also states that
CGM is ``evaluating adopting a governance policy providing that it will
give due regard to the principles in Articles Fourteenth through
Sixteenth of the CGM Certificate with respect to any registered
securities clearing agency it controls, including CCUS, in the same
manner as those principles apply to its Regulated Securities Exchange
Subsidiaries.'' \100\
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\91\ See Application, Exhibit A, at 1; Exhibit C.
\92\ See Application, Exhibit C.
\93\ See Application, Exhibit A at 1 n.1 (describing the ``Third
Amended and Restated Certificate of Incorporation of Cboe Global
Markets, Inc.,'' dated October 16, 2017 (the ``CGM Certificate'');
see also CGM Certificate. <a href="https://cdn.cboe.com/resources/regulation/cboe-global-markets-certificate-of-incorporation.pdf">https://cdn.cboe.com/resources/regulation/cboe-global-markets-certificate-of-incorporation.pdf</a>.
\94\ See Application, Exhibit A at 1 n.1 (emphasis original);
see also CGM Certificate, Article Fifth, (a) (``Definitions''), (i)
(``Regulatory Securities Exchange Subsidiary''), at 3.
\95\ See Application, Exhibit A at 1 n.1. See also CGM
Certificate, Articles Fourteenth-Sixteenth, at 10-12.
\96\ See Application, Exhibit A at 1 n.1. See also, e.g., CGM
Certificate, Article Fourteenth at 10-11 (``The Corporation, its
directors, officers, agents and employees, irrevocably submit to the
jurisdiction of the U.S. federal courts, the SEC, and the Regulated
Securities Exchange Subsidiaries, for the purposes of any suit,
action or proceeding pursuant to U.S. federal securities laws or the
rules or regulations thereunder, commenced or initiated by the SEC
arising out of, or relating to, the Regulated Securities Exchange
Subsidiaries' activities (and shall be deemed to agree that the
Corporation may serve as the U.S. agent for purposes of service of
process in such suit, action or proceeding), and hereby waive, and
agree not to assert by way of motion, as a defense or otherwise in
any such suit, action or proceeding, any claims that they are not
personally subject to the jurisdiction of the U.S. federal courts,
the SEC, and the Regulated Securities Exchange Subsidiaries, that
the suit, action or proceeding is an inconvenient forum or that the
venue of the suit, action or proceeding is improper, or that the
subject matter thereof may not be enforced in or by such courts or
agency'').
\97\ See Application, Exhibit A at 1 n.1. See also, e.g., CGM
Certificate, Article Fifteenth, at 11 (``To the fullest extent
permitted by applicable law, all confidential information pertaining
to the self-regulatory function of Regulated Securities Exchange
Subsidiaries (including but not limited to disciplinary matters,
trading data, trading practices and audit information) contained in
the books and records of any Regulated Securities Exchange
Subsidiary that shall come into the possession of the Corporation
shall: (1) not be made available to any Persons (other than as
provided in the next sentence) other than to those officers,
directors, employees and agents of the Corporation that have a
reasonable need to know the contents thereof; (2) be retained in
confidence by the Corporation and the officers, directors, employees
and agents of the Corporation; and (3) not be used for any
commercial purposes[. . . .] The books and records related to the
business of a Regulated Securities Exchange Subsidiary shall be
subject at all times to inspection and copying by the SEC and the
Regulated Securities Exchange Subsidiary'').
\98\ See Application, Exhibit A at 1 n.1. See also, e.g., CGM
Certificate, Article Sixteenth, at 11 (``The Corporation shall
comply with the federal securities laws and the rules and
regulations thereunder and shall cooperate with the SEC, and each
Regulated Securities Exchange Subsidiary pursuant to and to the
extent of its regulatory authority, and shall take reasonable steps
necessary to cause its agents to cooperate with the SEC and, where
applicable, the Regulated Securities Exchange Subsidiaries pursuant
to their regulatory authority, with respect to such agents'
activities related to the Regulated Securities Exchange
Subsidiaries'').
\99\ See Application, Exhibit A at 1 n.1.
\100\ See Application, Exhibit A at 1 n.1.
---------------------------------------------------------------------------
Exhibits H-1 and H-2 explain the relationship between CGM and
CCUS,\101\ identifying four wholly-owned CGM subsidiaries above CCUS:
(i) Cboe Digital (the LLC Member); \102\ (ii) Digital Exchange (Cboe
Digital's sole member); \103\ (iii) Cboe Digital Intermediate Holdings,
LLC (``Intermediate Holdings,'' Digital Exchange's sole member); \104\
and (iv) Cboe Digital Holdings, Inc. (``Holdings, Inc.,'' Intermediate
Holdings' sole member).\105\ The Application states that CCUS's
officers ``may have reporting relationships to other CGM businesses''
(i.e., other CGM subsidiaries).\106\ CCUS explains that ``those
reporting relationship will correspond to the departments with which
the officers' or employees' duties are associated.'' \107\ The
Application also states that CGM and CCUS are parties to: (i) a
``Master Intercompany Services & License Agreement;'' and (ii) a
related ``Services and Expense Sharing Agreement.'' \108\ Under these
agreements, certain ``affiliates of CGM provide shared services'' to
CCUS, such as ``accounting and payroll.'' \109\ The Application states
that CGM will allocate the costs for these shared services and other
expenses (such as technology costs, professional fees, and facility
costs) to CCUS in accordance with the Agreement.\110\
---------------------------------------------------------------------------
\101\ See Application, Exhibit H-1 (Audited Financial Statements
for Year Ending Dec. 31, 2025), at 9; Exhibit H-2 (Audited Financial
Statements for Year Ending Dec. 31, 2024, at 9.
\102\ See Application, Exhibit H-1, at 9 (stating that Cboe
Digital is: (i) ``the sole [m]ember of [CCUS];'' and (ii) ``a
Delaware Limited Liability Company formed on October 16, 2017 as a
holding company for [CCUS]''); Exhibit H-2, at 9 (same). See also
supra note 85 and accompanying text.
\103\ See Application, Exhibit H-1, at 9 (stating that Digital
Exchange is: (i) ``the sole [m]ember of [Cboe Digital];'' (ii) ``a
Delaware Limited Liability Company formed on February 4, 2010;'' and
(iii) ``a Designated Contract Market (`DCM') regulated by the
CFTC''); Exhibit H-2, at 9 (same); see also supra note 85 and
accompanying text.
\104\ See Application, Exhibit H-1, at 9 (stating Intermediate
Holdings is: (i) ``the parent and sole [m]ember of [Digital
Exchange];'' and (ii) ``a Delaware Limited Liability Company formed
on November 29, 2017''); Exhibit H-2, at 9 (same).
\105\ See Application, Exhibit H-1, at 9 (stating: (i)
Intermediate Holdings is ``a wholly[-]owned subsidiary of [Holdings,
Inc];'' and (ii) Holdings, Inc. is ``a wholly[-]owned subsidiary of
[CGM]''); Exhibit H-2, at 9 (same).
\106\ See Application, Exhibit C. Exhibit C also states that
``other employees of CGM businesses assigned to work on [CCUS]'' may
also have reporting relationships to other CGM subsidiaries. Id.
\107\ See Application, Exhibit C.
\108\ See Application, Exhibits H-1 at 8; H-2 at 8.
\109\ See Application, Exhibits H-1 at 8; H-2 at 8.
\110\ See Application, Exhibits H-1 at 8; H-2 at 8.
---------------------------------------------------------------------------
(b) Governance
Under the proposed LLC Agreement, CCUS's Board will consist of
between three to eleven directors (``Directors''). The LLC Member will
appoint each Director (including one Director who Cboe Digital will
designate as Chair).\111\ The Application states that CCUS's Board will
consist of: (i) a majority of independent Directors \112\
(``Independent Directors''); \113\ and (ii) at least two Directors who
are market participants.\114\ In addition to the delegation of
authority under the LLC Agreement,\115\ the Board's charter (``Board
Charter'') states the Board's responsibilities also include: (i) risk
management oversight; (ii) service provider oversight; (iii)
consideration of stakeholder views; and (iv) conflict of interest
policies.\116\
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\111\ See Application, Exhibit E-3 (LLC Agreement), Section V(c)
(``Management of the Company;'' ``Number; Election; Tenure;
Compensation; Reimbursement'') at 3.
\112\ See Application, Exhibit E-3 (LLC Agreement), Section
V(d)(i) (``Management of the Company;'' ``Board Composition
Requirements'') at 3.
\113\ Application, Exhibit E-3 (LLC Agreement), Exhibit B
(Definitions), at 15 (defining an Independent Director as a
Director: (i) who is ``not an executive, officer, or employee of
[CCUS] or an affiliate;'' and (ii) is an ``Independent Director'' as
``defined in [Rule] 17ad-25 [under the Exchange Act]'').
\114\ Application, Exhibit E-3 (LLC Agreement), Section V(d)(ii)
(``Management of the Company;'' ``Board Composition Requirements'')
at 3. The Board will ``determine[] and define[]'' the Directors who
are ``market participants.'' Id.
\115\ See supra note 91 and accompanying text.
\116\ See Application, Exhibit E-1-74 (``Board Charter;''
``Certain Responsibilities of Board''), at 3.
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The Application lists the current membership of CCUS's Board, which
consists of a total of seven Directors (including a Chair, four
Independent Directors, and two market participant
[[Page 67630]]
Directors).\117\ Exhibit A identifies the Board's Chair, four
Independent Directors, and two market participant Directors.\118\ This
Board composition is consistent with the LLC Agreement's requirements
regarding: (i) total size (the Board's seven directors complies with
the requirement to be between three and eleven directors); \119\ (ii)
Independent Directors (the Board's four Independent Directors complies
with the requirement that Board's majority of its seven total members
be Independent Directors); \120\ and (iii) market participant Directors
(the Board includes the required two market participant
Directors).\121\
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\117\ See Application, Exhibit A at 2.
\118\ See Application, Exhibit A at 2.
\119\ See Application, Exhibit E-3 (LLC Agreement), Section V(c)
(``Management of the Company,'' ``Number; Election; Tenure;
Compensation; Reimbursement''), at 3 (``The Board shall consist of
between three (3) and eleven (11) directors'').
\120\ See Application, Exhibit E-3 (LLC Agreement), Section
V(d)(i) (``Management of the Company,'' ``Board Composition
Requirements''), at 3 (``A majority of the Directors shall be
Independent Directors'').
\121\ See Application, Exhibit E-3 (LLC Agreement), Section
V(d)(ii), (``Management of the Company,'' ``Board Composition
Requirements,''), at 3 (``The board shall include at least two (2)
Directors who are market participants'').
---------------------------------------------------------------------------
In addition to the LLC Member and the Board, Exhibit A identifies
that the following entities/persons will control or direct the
management and policies of CCUS: (i) CCUS's audit committee (``Audit
Committee,'' comprised of Directors according to the CCUS Rules, the
Board Charter, and the Audit Committee Charter); (ii) CCUS's Risk
Management Committee (``RiskCo,'' comprised of Directors, clearing
members, customers of clearing members, according to the CCUS Rules,
the Board Charter, and the RiskCo Charter); and (iii) five CCUS
executives.\122\ The Application states that CCUS, its Board, Audit
Committee, RiskCo, and its executives will control or direct the
management and policies of CCUS pursuant to its LLC Agreement, its
Rules, and the Board Charter.\123\ In addition to the LLC Agreement and
CCUS Rules, the RiskCo and the Audit Committee will each control or
direct the management and policies of CCUS pursuant to their respective
charters.\124\ CCUS's nominating committee (``Nominating Committee'')
will nominate for appointment by the LLC Member, the members of the
RiskCo and Audit Committee from among its Directors, pursuant to the
Nominating Committee Charter.\125\
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\122\ See Application, Exhibit A at 1; Exhibit B at 1-3
(identifying the five (5) executives: (i) Mr. Dale Michaels, Head of
CCUS; (ii) Ms. Lauren Arbid, Head of CCUS Market Structure; (iii)
Mr. Joshua Iverson, CCUS Chief Risk Officer; (iv) Ms. Jennifer
Fuentes, CCUS Chief Compliance Officer; and (v) Mr. Michael
Margolis, Head of CCUS Legal).
\123\ See Application, Exhibit A, at 2; see also Exhibit E-3;
Exhibit E-2 (CCUS Rules); Exhibit E-1.74 (Board Charter).
\124\ See Application, Exhibit A, at 2; see also Exhibit E-1.73
(Audit Committee Charter), Exhibit E-1.94 (RiskCo Charter).
\125\ See Application, Exhibit A, at 2; see also Exhibit E-1.75
(Nominating Committee Charter). See also Application, Exhibit E-3
(LLC Agreement), Section V(i)(iii), (``Management of the Company,''
``Committees,'' ``Nominating Committee''), at 6 (``The Board shall
appoint and oversee a Nominating Committee [. . .] which shall
consist of a minimum of three (3) individuals, a majority of whom
shall be independent Directors'').
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The Audit Committee Charter states the Audit Committee's
responsibilities include the ``independent and objective oversight of
the financial statement and financial reporting process, the systems of
internal accounting and financial controls, and the internal audit
function and the annual independent audit of the Company's financial
statements.'' \126\ Specifically, the Audit Committee Charter states
that the Audit Committee will assist the Board's oversight of, without
limitation: (i) the integrity of CCUS's financial statements; (ii)
CCUS's compliance with legal and regulatory requirements as they may
impact CCUS's financial statements or financial disclosures; (iii)
CCUS's independent auditors' qualifications and independence; (iv) the
performance of CCUS's independent auditors; and (v) the internal audit
function.\127\ The Audit Committee Charter also states that the Audit
Committee ``shall consult with the CGM Audit Committee prior to taking
action'' in the event that ``CCUS matters may relate to or involve CCUS
affiliates, such as [CGM].'' \128\
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\126\ See Application, Exhibit E-1.73 (Audit Committee Charter),
at 1. See also Application, Exhibit E-3 (LLC Agreement), Section
V(i)(iv), (``Management of the Company,'' ``Committees,'' ``Audit
Committee''), at 7 (``The Board shall appoint and oversee an Audit
Committee [. . .] which shall consist of a minimum of three (3)
individuals, a majority of whom shall be independent Directors'').
\127\ See Application, Exhibit E-1.73 (Audit Committee Charter),
at 1.
\128\ See Application, Exhibit E-1.73 (Audit Committee Charter),
at 1.
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The RiskCo Charter states that the RiskCo is ``an advisory
committee to the Board with regard to any matters that could materially
affect the risk profile of [CCUS]'' as a DCO under CFTC Rule 39.24 and
as a clearing agency registered with the Commission under Section 17A
of the Exchange Act and Rule 17Ad-25(d) thereunder.\129\ Specifically,
the RiskCo Charter states that the RiskCo will advise the Board on: (i)
material changes to CCUS's risk models, default management procedures,
financial resources, and credit risk management, as well as material
revisions to CCUS's policies governing the framework, testing, and
calculation, as applicable, of the aforementioned matters; (ii)
material changes to standards and requirements for clearing member
eligibility and participation; (iii) consideration of applications for
membership as CCUS clearing members; (iv) clearing of any new products
that have margining, liquidity, default management, pricing, or other
risk characteristics that differ materially from those currently
cleared by CCUS; (v) material changes to CCUS's risk monitoring
practices; (vi) regulatory proposals that may pose a novel question or
regulatory risk prior to implementation, including advising the Board
as to whether and how such changes may impact regulation; and (viii)
any other material risk management issues, including risk management
policy, financial safeguards, financial surveillance and membership
issues.\130\
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\129\ See Application, Exhibit E-1.94 (RiskCo Charter), at 1;
see also 15 U.S.C. 78q-1 et seq.; 17 CFR 240.17ad-25.
\130\ See Application, Exhibit E-1.94 (RiskCo Charter), at 2-3.
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(c) Analysis
With respect to organization and governance, CCUS's Application
demonstrates that it is an LLC organized in the State of Delaware in
good standing.\131\ As described above and in Exhibit A of the
Application, the following persons will control or direct the
management and policies of CCUS: (i) the LLC Member; (ii) its Board;
(ii) its Audit Committee; (iv) its RiskCo; and (v) its executives.\132\
In addition, per Exhibit E-3, the Application sets forth that CCUS has
a written board charter establishing the purpose, composition, chair
selection, term, director election, vacancy, removal and resignation,
meetings, committees, succession procedures, confidentiality, and
conflicts of interest expectations for the Board. These charters are
extensive, detailed, and provide for delineation of roles and
responsibilities among the Board, executives, and the LLC Member.
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\131\ See supra note 78 and accompanying text.
\132\ See Application, Exhibit A, at 1.
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In the Application, CCUS provides the written charters for its
Board, Audit Committee, RiskCo, and Nominating Committee, which
include, inter alia, provisions for each board committee addressed to
purpose, membership, and responsibilities.\133\ Such delineation of
roles and responsibilities of Board committee members is one way the
[[Page 67631]]
Application demonstrates that CCUS meets the statutory standard in
Section 17A(b)(3)(A).\134\ Where appropriate, such charters also
establish composition requirements for a majority of Independent
Directors, consistent with the Commission's rules for clearing agency
governance.\135\ The Board committees have distinguishable areas of
focus and are designed to operate within the larger corporate
framework, which is another way the Application demonstrates that CCUS
meets the statutory standard in Section 17A(b)(3)(A) and is so
organized and has the capacity to comply with the Exchange Act and
rules and regulations thereunder.\136\
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\133\ See Application, Exhibit E-1.74 (Board Charter); E-1.73
(Audit Committee Charter); Exhibit E-1.94 (RiskCo Charter); Exhibit
1-75 (Nominating Committee Charter).
\134\ See id.
\135\ See, e.g., 17 CFR 240.17ad-25(b), (c), (d), (e).
\136\ See supra note 15 (summarizing the Commission rules
applicable to registered clearing agencies).
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Under the proposed LLC Agreement, the Board could not amend the LLC
Agreement without the written consent of Cboe Digital (as sole member),
and any such amendment must comply with Section 19(b) of the Exchange
Act and the rules thereunder.\137\ This provision would prevent the
Board from revising how CCUS operates unless the Board obtains the LLC
Member's consent, even if the Board and the LLC Member--its parent
company--are likely to have aligned views. However, as discussed above,
the proposed LLC Agreement also includes provisions demonstrating that
the LLC Member cannot ``exercise any consent, right, or other authority
reserved to [the LLC Member]'' if that exercise would: (i) impair the
Board's authority to direct the operations of CCUS consistent with
Section 17A of the Exchange Act; \138\ (ii) deny or impair the fair
representation of CCUS's participants as contemplated by Section
17A(b)(3)(C) of the Exchange Act; \139\ or (iii) prevent the Board from
being composed or operate in a manner required by the Exchange Act or
Rule 17Ad-25 thereunder.\140\ Ultimately, to the extent CCUS would seek
to alter the provisions of its proposed LLC Agreement and charters,
revisions to its rules, policies and procedures, including these types
of governing documents, are required to be filed with the Commission as
proposed rule changes pursuant to Section 19(b) of the Exchange Act and
rules thereunder, including Rule 19b-4, and the Commission will review
any such changes for consistency with the Exchange Act and the rules
and regulations thereunder.\141\
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\137\ See Application, Exhibit E-3 (LLC Agreement), Section X(o)
(``General Provisions''), at 12; 15 U.S.C. 78s(b); 17 CFR 240.19b-4.
\138\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(i) (``Management of the Company,'' ``Limitation on Exercise of
Reserved Authorities''), at 8.
\139\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(ii) (``Management of the Company,'' ``Limitation on Exercise of
Reserved Authorities''), at 8.
\140\ See Application, Exhibit E-3 (LLC Agreement), Section
V(k)(iii) (``Management of the Company,'' ``Limitation on Exercise
of Reserved Authorities''), at 8.
\141\ See 15 U.S.C. 78s(b); 17 CFR 240.19b-4.
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CCUS's governance arrangements include a process for classifying
certain directors as independent. The Nominating Committee Charter
states that the Nominating Committee is responsible for developing
standards for ``whether [a] candidate would qualify as an Independent
Director consistent with Section V of the LLC Agreement, and whether
the candidate has any known material relationship with [CCUS] or any
affiliate thereof, an owner, a participant, or a representative of
another stakeholder.'' \142\ Consistent with the Nominating Committee
Charter, the Nominating Committee will consist of a majority of
Independent Directors.\143\ Under the LLC Agreement, the LLC Member may
remove any Director (including an Independent Director) ``with or
without cause,'' which could cause the Nominating Committee to be
composed of less than a majority of Independent Directors; however, the
proposed LLC Agreement makes clear that the LLC Member would not
exercise any right or other authority that prevents the Board from
being composed or operating in a manner required by the Exchange Act or
applicable regulations, including Rule 17Ad-25.\144\ The Nominating
Committee also is responsible for considering the views of participants
and other relevant stakeholders regarding material developments in the
Company's risk management and operations on a recurring basis,
including whether a potential candidate's appointment would reflect the
range of different business strategies, models, and sizes across
participants, as well as the range of customers and clients the
participants serve.\145\ The Nominating Committee is also responsible
for considering the views of other stakeholders who may be affected by
the decisions of CCUS, including transfer agents, settlement banks,
nostro agents, liquidity providers, and technology or other service
providers.\146\ As discussed further below, these provisions relate to
whether participants have fair representation in the selection of
directors.
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\142\ See Application, Exhibit E-1-1.75 (Nominating Committee
Charter) at 4.
\143\ See Application, Exhibit E-1-1.75 (Nominating Committee
Charter) at 2 (``A majority of the Directors serving on the
Committee shall be Independent Directors in at least the same
majority percentage as required for the Board''); see also 17 CFR
240.17ad-25(c)(2) (setting forth requirements for the composition of
the Nominating Committee).
\144\ See Application, Exhibit E-3 (LLC Agreement), Section V(f)
(``Management of the Company,'' ``Resignation''), at 5 (``Any one or
more of the Directors (i) shall automatically, without any further
action by the Board or the Member, be removed from such position due
to such Director's death, and (ii) may be removed from such
position, either with or without cause, by the Member'') (emphasis
added).
\145\ See Application, Exhibit E-1-1.75 (Nominating Committee
Charter) at 3.
\146\ See Application, Exhibit E-1-1.75 (Nominating Committee
Charter) at 3-4.
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Although neither the LLC Member nor CGM will carry out regulatory
functions, their activities with respect to the operation of CCUS must
be consistent with, and must not interfere with, CCUS's self-regulatory
obligations. In this regard, (i) the proposed LLC Agreement's
limitation on the LLC Member's exercise of authority; \147\ and (ii)
the representation in Exhibit A that CGM recognizes a possible
discrepancy in its Certificate's representations pertaining to its
national securities exchange subsidiaries versus clearing agency
subsidiaries are two ways that the Application helps demonstrate
consistency with the requirements of Section 17A(b)(3)(A) of the
Exchange Act.\148\ Both reflect an intent by the LLC Member and CGM to
ensure that CCUS has sufficient independence to execute its
responsibilities as a registered clearing agency, which the governing
documents of other self-regulatory organizations that have been granted
registration are similarly designed to incorporate.\149\ Additionally,
both are designed to: (i) help maintain the independence of CCUS's
regulatory function; and (ii) facilitate the ability of CCUS to carry
out its regulatory responsibilities in a manner consistent with the
requirements of Section 17A(b)(3)(A), which requires a clearing agency
to be so organized and have the capacity to carry out the purposes of
the Exchange Act. Whether CCUS operates in compliance with the Exchange
Act, however, depends on how CCUS, the LLC Member, and CGM in practice
implement the governance and other
[[Page 67632]]
provisions that are the subject of this Order.
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\147\ See supra notes 88-91 and accompanying text.
\148\ See supra note 101 and accompanying text.
\149\ See, e.g., Release Nos. 34-104146 (Sept. 30, 2025), 90 FR
47880 (Oct. 2, 2025) (order granting exchange registration of Texas
Stock Exchange LLC); Release No. 34-101777 (Nov. 27, 2024), 89 FR
97092 (Dec. 6, 2024) (order granting exchange registration of 24X
National Exchange LLC); Release No. 34-100539 (July 15, 2024), 89 FR
58848 (July 19, 2024) (order granting exchange registration of MIAX
Sapphire, LLC).
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With respect to its operational arrangements and capacity to
facilitate prompt and accurate clearance and settlement, as generally
described in Part III.A.2 above, CCUS systems and processes will enable
trade submission, matching, novation, settlement and settlement fails
management and will promote business continuity. CCUS's rules, policies
and procedures demonstrate that CCUS has processes in place to support
and oversee these clearing agency operations via its governance
processes. These governance processes further demonstrate that CCUS is
so organized and has the capacity to facilitate prompt and accurate
clearance and settlement and to comply with the Exchange Act and rules
and regulations thereunder. For example, the Application describes that
CCUS may receive staffing support in the form of CCUS's officers who
``may have reporting relationships to other CGM businesses'' (i.e.,
other CGM subsidiaries).\150\ CCUS explains that ``those reporting
relationship will correspond to the departments with which the
officers' or employees' duties are associated.'' \151\
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\150\ See Application, Exhibit C (stating ``other employees of
CGM businesses assigned to work on [CCUS]'' may also have reporting
relationships to other CGM subsidiaries).
\151\ See Application, Exhibit C.
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Additionally, the Board will oversee the Chief Risk Officer,
receiving ``reports directly from the Chief Risk Officer from time to
time.'' \152\ Per the RiskCo Charter, the Chief Risk Officer will also
provide ``regular reports'' to the RiskCo, as well as, ``as necessary,
the President and the Chief Compliance Officer.'' \153\ These
provisions allow the Chief Risk Officer to raise and escalate any
issues pertaining to risk management directly to the Board, RiskCo, and
each of these officers. This level of direct access to decision makers
is another way the Application demonstrates that CCUS would be so
organized and have the capacity to comply with the provisions of the
Exchange Act and the rules and regulations thereunder.
---------------------------------------------------------------------------
\152\ See Application, Exhibit E-3 (LLC Agreement), Section
V(m)(ii), (``Management of the Company,'' ``Officers''), at 9.
\153\ See Application, Exhibit E-1-94 (RiskCo Charter), at 3.
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For the reasons discussed above, the Commission determines that
CCUS is so organized and has the capacity to be able to facilitate the
prompt and accurate clearance and settlement of securities
transactions, to safeguard securities and funds in its custody or
control or for which it is responsible, and to comply with the
provisions of the Exchange Act and the rules and regulations
thereunder.
B. Participation Standards
1. Statutory Standard: Section 17A(b)(3)(B)
Section 17A(b)(3)(B) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency provide that any (i) registered broker
or dealer, (ii) other registered clearing agency, (iii) registered
investment company, (iv) bank, (v) insurance company, or (vi) other
person or class of persons as the Commission, by rule, may from time to
time designate as appropriate to the development of a national system
or the prompt and accurate clearance and settlement of securities
transactions may become a participant in such clearing agency.\154\
Section 3(a)(24) of the Exchange Act defines a ``participant'' with
respect to a clearing agency as any person who uses a clearing agency
to clear or settle securities transactions or to transfer, pledge,
lend, or hypothecate securities, and further states that the term does
not include a person whose only use of a clearing agency is (i) through
another person who is a participant or (ii) as a pledgee of
securities.\155\
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\154\ Section 17A(b)(3)(B) of the Exchange Act also states that
the rules of the clearing agency are subject to the provisions of
Section 17A(b)(4) of the Exchange Act.
\155\ 15 U.S.C. 78c(a)(24).
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2. Summary of Application
The CCUS Rules specify the entities that can become clearing
members. The definition of ``clearing member'' is ``an FCM Clearing
Member, a BD Clearing Member, or Direct Clearing Member. . . .'' \156\
A BD clearing member is defined as a ``Person that (i) is registered as
a broker dealer under Section 15(b) of the Securities Exchange Act;
(ii) has completed a Clearing Member Application; and (iii) has been
granted clearing privileges by Cboe Clear US specifically with respect
to Securities Contracts.'' \157\
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\156\ CCUS Rules, at Rule 101(v) (``Definitions).
\157\ CCUS Rules, at Rule 101(j) (``Definition'').
---------------------------------------------------------------------------
As previously discussed in Part III.A.2.a), in its Application CCUS
``acknowledges that the Rules do not at this time reference all of the
categories of participants enumerated in Section 17A(b)(3)(B) of the
Exchange Act.'' \158\ In Exhibit J, CCUS explains that under its rules,
clearing member applicants must meet financial responsibility
requirements, which vary based on the nature of the applicant's
business and include disqualification criteria pursuant to which it may
disapprove an application if the person is subject to a statutory
disqualification. To become a clearing member, an applicant must
execute the Clearing Member Agreement and satisfy CCUS's eligibility
criteria. As a general matter, a clearing member must consent to abide
by CCUS Rules, agree that CCUS Rules are part of the terms and
conditions of every contract or transaction that it may make or have
with CCUS, and agree to maintain adequate controls to ensure continued
satisfaction of financial and operational obligations of itself and its
customers, as applicable. Currently, CCUS has established that a
clearing member must be either a registered futures commission merchant
(``FCM'') or a registered broker-dealer.\159\ In Exhibit S, CCUS also
explains that with the exception of Direct Clearing Members, clearing
members eligible to clear securities products, either for their own
accounts or the account of a customer, must be registered broker-
dealers . . .'' \160\
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\158\ See Application, Exhibit S, at 3 (i.e., ``other registered
clearing agencies, registered investment companies, banks, insurance
companies[,] and other classes of persons designated as appropriate
by the Commission''); see also 15 U.S.C. 78q-1(b)(3)(B).
\159\ Application, Exhibit J, at 3.
\160\ Application, Exhibit S, at 3.
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As noted above, CCUS also provides in the CCUS Rules for
participation by ``Direct Clearing Members.'' That is defined as an
entity that is registered under the Exchange Act and submits trades for
clearing at CCUS only on behalf of its own accounts, has completed a
Clearing Member Agreement, and has been granted clearing privileges by
CCUS. CCUS Rules provide, for the avoidance of doubt, that a Direct
Clearing Member may not carry customer accounts, submit customer
transactions for clearing, or otherwise facilitate access to CCUS for
customers or other participants.\161\ In Exhibit O, CCUS explains that
Direct Clearing Members are legal entities (not individuals) that trade
exclusively for their own proprietary accounts and may include
proprietary trading firms, commercial firms, corporations,
institutional investors, or other market participants that seek direct
access to CCUS's clearing services. CCUS Rules provide that such
entities must be registered either under the Exchange Act or the
Commodity Exchange Act. CCUS explains that although such entities would
not be registered as broker-
[[Page 67633]]
dealers (under the Exchange Act) or FCMs (under the Commodity Exchange
Act), such Direct Clearing Members are entities that may possess the
financial resources, risk management capabilities, operational
infrastructure, and organizational resilience necessary to support a
direct clearing relationship. CCUS also states in Exhibit O that
applicants seeking to become Direct Clearing Members would be subject
to CCUS's membership review and approval process, including an
evaluation of the firm's financial condition, governance, operational
capabilities, risk management framework, legal authority and ability to
satisfy its obligations to CCUS.
---------------------------------------------------------------------------
\161\ CCUS Rules, at Rule 101, mmm (``Definitions'').
---------------------------------------------------------------------------
Because CCUS has not provided for all categories of participants
enumerated in Section 17A(b)(3)(B) of the Exchange Act, including
registered clearing agencies, registered investment companies, banks,
insurance companies, or other classes of persons designated as
appropriate by the Commission, CCUS is requesting temporary
registration as a clearing agency and an exemption from the
requirements of Section 17A(b)(3)(B) for a period of 18 months.
Accordingly, the Commission is not, at this time, making a
determination as to whether CCUS's Application satisfies the
requirements of Section 17A(b)(3)(B) of the Exchange Act. As discussed
further below in Part IV, pursuant to Rule 17Ab2-1(c), the Commission
is granting CCUS's request for temporary registration with an exemption
from Section 17A(b)(3)(B) of the Exchange Act for a period of 18
months.
C. Fair Representation
1. Statutory Standard: Section 17A(b)(3)(C)
Section 17A(b)(3)(C) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency assure a fair representation of its
shareholders (or members) and participants in the selection of its
directors and administration of its affairs.\162\
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\162\ See 15 U.S.C. 78q-1(b)(3)(C). Section 17A(b)(3)(C) of the
Exchange Act also states that the Commission may determine that the
representation of participants is fair if they are afforded a
reasonable opportunity to acquire voting stock of the clearing
agency, directly or indirectly, in reasonable proportion to their
use of such clearing agency.
---------------------------------------------------------------------------
2. Summary of Application and Analysis
Under Section 17A(b)(3)(C) of the Exchange Act, the Commission
considers whether the Application provides fair representation both to
shareholders (or members) and to participants in the selection of
directors and the administration of affairs. In doing so, the
Commission undertakes an analysis of the documents in the Application
that govern or otherwise affect the selection of directors by the
clearing agency and the administration of its affairs. Such documents
include, for example, the constitution, articles of incorporation,
bylaws, rules, and written policies or procedures. Such analysis
considers both qualitative and quantitative factors, including the
number of board positions that a clearing agency may reserve for
shareholders or to represent participants, as well as the existence of
provisions in governing documents that may impede representation in the
selection of directors or the administration of affairs. The Commission
also considers the overall organization of the clearing agency, the
nature of the products it clears, and the structure of the market it
serves, including the nature of existing clearing and settlement
arrangements in the market served, the existence of other clearing
agencies that offer comparable services and how they are structured,
and the size of the market served by the applicant, to evaluate whether
the representation proposed by the applicant is consistent with the
requirements of the Exchange Act.\163\ Finally, because CCUS will
operate the KPI Options Business in the same existing legal entity
where it provides futures clearing services, the Commission considers
CCUS's existing arrangements to the extent they indicate whether CCUS,
as an entity, would provide fair representation to shareholders and
participants of its KPI Options Business.
---------------------------------------------------------------------------
\163\ Accordingly, the level of participant representation
needed to ensure fair representation consistent with the Exchange
Act may vary depending on the facts and circumstances, including the
market or markets to which the application is directed.
---------------------------------------------------------------------------
Under Section 3(a)(7) of the Exchange Act, the term ``director'' is
defined as ``any director of a corporation or any person performing
similar functions with respect to any organization, whether
incorporated or unincorporated.'' \164\ When an applicant is not
organized as a corporation, the Commission assesses whether the
directors under its business form are performing functions similar to
the directors of a corporation. CCUS is organized as a member-managed
LLC, which places control over CCUS with the LLC Member. This
organizational and management structure differs from registered
clearing agencies that are organized as corporations,\165\ or organized
as LLCs but operate as manager-managed LLCs.\166\ As a result, below
the Commission considers whether the role of director as set forth in
CCUS's LLC Agreement is consistent with the statutory definition of
director, in order to assess whether shareholders and participants have
fair representation in its selection consistent with Section
17A(b)(3)(C) of the Exchange Act.
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\164\ See 15 U.S.C. 78c(a)(7).
\165\ See, e.g., Amended and Restated By-Laws of CME Securities
Clearing, Inc., dated Dec. 13, 2024, stating, ``The business and
affairs of the Corporation shall be managed by or under the
direction of the Board of Directors which may exercise all such
powers of the Corporation except as may be otherwise prohibited by
the DGCL, the Certificate of Incorporation or by these By-Laws or
except to the extent delegated to a committee pursuant to the Rules
or a Charter.'', available at: <a href="https://www.sec.gov/files/cmesc-ca-1-exhibit-e-2a-2-amended-restated-bylaws-12-13-24.pdf">https://www.sec.gov/files/cmesc-ca-1-exhibit-e-2a-2-amended-restated-bylaws-12-13-24.pdf</a>.
\166\ See, e.g., Amended and Restated Limited Liability Company
Agreement of Paxos Securities Settlement Company, LLC, dated Sept.
20, 2023 (stating, ``The business and affairs of the Company will be
managed, operated and controlled by or under the direction of the
Board, and the Board will have, and is hereby granted, the full and
complete power, authority and discretion for, on behalf of and in
the name of the Company, to take such actions as it may in its sole
discretion deem necessary or advisable to carry out any and all of
the objectives and purposes of the Company, subject only to the
terms of this Agreement.''), available at: <a href="https://www.sec.gov/files/rules/other/pssc-form-ca-1-exhibit-e-1.pdf">https://www.sec.gov/files/rules/other/pssc-form-ca-1-exhibit-e-1.pdf</a>.
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Under the proposed LLC Agreement, CCUS is managed by, and with some
decisions regarding CCUS reserved to, the LLC Member. The LLC Member
has delegated its authority over the business and affairs of CCUS to
the Board, but as described in Part III.A.3 above regarding the
Applicant's organization, the LLC Agreement makes the Board's exercise
of many business decisions contingent upon the sole written approval of
the Member. However, the LLC Agreement makes clear that, ``[f]or
purposes of the Exchange Act and the rules and regulations thereunder,
each Director shall constitute a `director' within the meaning of
Section 3(a)(7) of the Exchange Act.'' \167\ Additionally, the proposed
LLC Agreement states that, ``notwithstanding anything to the contrary
in [the LLC Agreement], the Member shall not exercise any consent right
or other authority reserved to it under [the LLC Agreement] in a manner
that: impairs the board's authority to direct the operations of [CCUS]
consistent with Section 17A of the Exchange Act; denies or impairs the
fair representation of participants of [CCUS] contemplated by Section
17A(b)(3)(C) of
[[Page 67634]]
the Exchange Act; or prevents the Board from being composed or
operating in a manner required by the Exchange Act or applicable SEC
regulations, including Rule 17Ad-25.\168\ These provisions in the LLC
Agreement make clear that the Member's reserved authority would not
prevent the Board from performing those functions necessary for CCUS to
meet the requirements of the Exchange Act and the rules thereunder,
including the requirements as to board composition and governance under
Rule 17Ad-25. These above-described provisions of the proposed LLC
Agreement make clear that the role of a Director on the Board is
intended to perform similar functions--such as serving as the governing
body, responsible for oversight--as performed by a ``director'' as
defined in Section 3(a)(7) of the Exchange Act on the board of
directors of an incorporated corporation.
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\167\ See Application, Exhibit E-3 (LLC Agreement), Section V(c)
(``Management of the Company,'' ``Number; Election; Tenure;
Compensation; Reimbursement''), at 3.
\168\ See Application, Exhibit E-3 (LLC Agreement), Section V(k)
(``Management of the Company,'' ``Limitation on Exercise of Reserve
Authorities''), at 8.
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Having concluded that the Board under the proposed LLC Agreement
would perform similar functions as the board of directors of a
corporation, the Commission next evaluates fair representation
consistent with Section 17A(b)(3)(C) of the Exchange Act.
With respect to the fair representation of the shareholders (or
members), under the proposed LLC Agreement, as described above, CCUS is
managed by, with some decisions regarding CCUS reserved to, the LLC
Member. The Board will consist of between three and eleven Directors.
The LLC Member appoints all Directors, and also designates which
Director serves as Chair of the Board. The LLC Member is also able to
remove any Director with or without cause. The LLC Member's ability to
retain or delegate all decision-making authority for CCUS, and to
appoint and remove all Directors, demonstrates that the LLC Member has
meaningful representation in the selection of directors and
administration of CCUS's affairs.
With respect to fair representation of participants, CCUS's parent
is the LLC Member, and under the structure set forth in the draft LLC
Agreement, the Application includes no provision to make CCUS voting
stock available for purchase to participants.\169\ Two positions on the
Board, however, are reserved for Directors who are market participants
as defined and determined by the Board.\170\ In defining and
determining who are ``market participants'' eligible to serve as
Directors, the LLC Agreement makes clear, as previously discussed that
(i) ``Director'' has the same meaning as ``director'' in Section
3(a)(7) of the Exchange Act and (ii) the Member shall not exercise any
consent right or other authority reserved to it under [the LLC
Agreement] in a manner that: impairs the board's authority to direct
the operations of [CCUS] consistent with Section 17A of the Exchange
Act; denies or impairs the fair representation of participants of
[CCUS] contemplated by Section 17A(b)(3)(C) of the Exchange Act; or
prevents the Board from being composed or operating in a manner
required by the Exchange Act or applicable SEC regulations, including
Rule 17Ad-25. In addition, although the number of positions on the
Board for market participants is fixed at two, currently the two
participant-representatives constitute approximately 29 percent of
Directors on the Board, suggesting that the Board provides
representation for participant-representatives in the administration of
the affairs of the clearing agency.\171\
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\169\ As such, CCUS operates in a manner that is different from
some other registered clearing agencies, which are constituted of
clearing member owners with the right to purchase voting stock. Cf.
Release No. 34-104281 (Dec. 1, 2025), 90 FR 55926, 55935 (Dec. 4,
2025) (order approving registration for CME Securities Clearing,
Inc.); Release No. 34-104762 (Jan. 30, 2026), 91 FR 5528, 5536 (Feb.
6, 2026) (order approving registration for the Treasury Business of
ICE Clear Credit); see also, e.g., Organization Certificate of the
Depository Trust Company, available at <a href="https://www.dtcc.com/legal/rules-and-procedures">https://www.dtcc.com/legal/rules-and-procedures</a>.
\170\ See Application, Exhibit E-3. For use of the term ``market
participant,'' see also 7 U.S.C. 7a-1(c)(2)(Q) (establishing that
under the core principles for DCOs set forth in the Commodity
Exchange Act, each DCO registered with the CFTC is obligated to
ensure that the composition of the governing board or committee of
the DCO includes market participants).
\171\ See Application, Exhibit A, dated September 23, 2026.
Changes to the composition of the Board, such as to the total number
of Directors or to the number of Director positions allocated to
market participants, would constitute a proposed rule change under
Section 19(b) of the Exchange Act subject to Commission review. See
15 U.S.C. 78s; 17 CFR 240.19b-4.
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As previously discussed, Section 17A(b)(3)(B) also requires that
participants have fair representation in the selection of directors.
Accordingly, it is important to consider the role of the Nominating
Committee in the selection of directors. As discussed above, the
Nominating Committee is constituted by a majority of Independent
Directors and tasked with considering the views of participants and
other relevant stakeholders regarding material developments in CCUS's
risk management and operations on a recurring basis, including whether
a potential nominee's appointment would reflect the range of different
business strategies, models, and sizes across participants, as well as
the range of customers and clients the participants serve. The
Nominating Committee's composition requirement for a majority of
Independent Directors (which can include participant-representatives),
and requirement to consider participant views when evaluating potential
candidates to serve as a Director, provides meaningful representation
to participants in the selection of Directors.
Taken together, the above discussed provisions clarifying the ways
in which the LLC Member's reserved authority will not interfere with
Board functioning consistent with the Exchange Act, providing
representation on the Board for Directors to represent market
participants, and directing the Nominating Committee to consider
participant viewpoints in the evaluation of all candidates for Director
provide for fair representation to CCUS's participants in the selection
of directors and the administration of CCUS's affairs, consistent with
Section 17A(b)(3)(C) of the Exchange Act.
For the reasons discussed directly above, the Commission determines
that the rules of CCUS assure fair representation in the selection of
its directors and administration of its affairs consistent with Section
17A(b)(3)(C) of the Exchange Act.
D. Fees
1. Statutory Standard: Section 17A(b)(3)(D) and (E)
Section 17A(b)(3)(D) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency provide for the equitable allocation
of reasonable dues, fees, and other charges among its
participants.\172\ Section 17A(b)(3)(E) of the Exchange Act states that
a clearing agency shall not be registered unless the rules of the
clearing agency do not impose any schedule of prices, or fix rates or
other fees, for services rendered by its participants.\173\
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\172\ 15 U.S.C. 78q-1(b)(3)(D).
\173\ 15 U.S.C. 78q-1(b)(3)(E).
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2. Summary of Application and Analysis
CCUS's Application includes a fee schedule that sets forth the fees
CCUS will charge as clearing fees in connection with its plans to clear
Binary KPI Options listed and traded on Cboe Exchange.\174\ CCUS has
published a fee schedule to include a fee of $0.0002 (2
[[Page 67635]]
basis points) per contract.\175\ CCUS's fees are publicly available on
the CCUS website.\176\
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\174\ Application, Exhibit E-4.
\175\ Id.; see also CCUS, <a href="https://www.cboe.com/solutions/clearing/us#clearing-fees">https://www.cboe.com/solutions/clearing/us#clearing-fees</a>. These fees became effective on August 31,
2026.
\176\ Id.; see also CCUS's website at <a href="https://www.cboe.com/solutions/clearing/us#clearing-fees">https://www.cboe.com/solutions/clearing/us#clearing-fees</a>.
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As described in the Application, CCUS shall have the right to
invoice clearing members and accept payment as prescribed by CCUS, or
to offset any fees, charges or other amounts other than fines or
penalties) due to CCUS, and shall have the right to instruct an
Approved Depository Institution, if applicable, to debit the clearing
member's account to offset any amounts due to CCUS.\177\
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\177\ CCUS Rules, at Rule 312.
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In response to the Application, one commenter noted that because
CCUS sets its own fee schedule as a subsidiary of CGM, the Commission
should also examine whether those fees reflect arm's length
pricing.\178\ In its response letter, CCUS explains that it has
submitted its proposed fee schedule as Exhibit E-4 to the Application,
demonstrating transparent and reasonable pricing. CCUS further states
that its rules require that its fees and charges be imposed on a
reasonable and nondiscriminatory basis, consistent with Section
17A(b)(3)(D), and that any CCUS fee schedule will be subject to the
Commission's oversight through the rule-filing process under Section
19(b) of the Exchange Act.\179\
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\178\ PTG at 4.
\179\ CCUS Response, at 5.
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As CCUS describes in its response letter, the Application
identifies CCUS's proposed fee schedule and the rules governing any
fees that it will assess on its clearing members, as described above.
With respect to allocating the fees equitably, CCUS's per contract fees
are based on each clearing member's usage. With respect to the
reasonableness of such fees, the per contract basis for each fee is a
common approach to applying fees among registered clearing agencies to
clearing members, as it enables clearing members and their customers to
determine the appropriate volume of transactions to execute and submit
for clearing with CCUS and, in so doing, to anticipate the precise
costs they will incur for such activity. In the Commission's view,
CCUS's approach provides for equitable allocation of reasonable dues,
fees, and other charges amongst its participants. Accordingly, the
Commission determines that the Application is consistent with Section
17A(b)(3)(D) of the Exchange Act.
Separately, any fees, dues or other charges that CCUS intends to
assess must be filed as a proposed rule change pursuant to Section
19(b) of the Exchange Act and Rule 19b-4 thereunder.\180\ Clearing
agency fees are subject to the requirements of the Exchange Act,
including Section 17A(b)(3)(D), and thus, the Commission would consider
if any future fees are consistent with Section 17A(b)(3)(D) when such
future fees are filed as a proposed rule change.\181\
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\180\ See 15 U.S.C. 78s(b); 17 CFR 240.19b-4; see also
Application, Exhibit E-4 (acknowledging its obligations to submit
changes to fees for regulatory approval through publicly available
filings).
\181\ 15 U.S.C. 78q-1(b)(3)(D); see also 15 U.S.C. 78s(b)
(requiring proposed rule changes to be filed by the Commission,
which shall publish notice thereof and give interest persons an
opportunity to respond). Some proposed rule changes regarding dues,
fees, or charges take effect upon filing. See 15 U.S.C.
78s(b)(3)(A)(ii); see also 15 U.S.C. 78s(b)(3)(C) (specifying when
the Commission may temporarily suspend the immediate effectiveness
of such filings).
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In addition, a review of CCUS's current fee schedule of a fee of
$0.0002 (2 basis points) per contract shows that CCUS does not impose
any schedule of prices, or fix rates or other fees, for services
rendered by its clearing members.\182\ The Commission therefore
determines that the Application is consistent with the requirements of
Section 17A(b)(3)(E) of the Exchange Act.
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\182\ See Application, Exhibit E-4.
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E. Rules Designed To Promote Prompt and Accurate Clearance and
Settlement and the Safeguarding of Securities and Funds
1. Statutory Standard: Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency are designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, to assure the safeguarding of securities and funds which
are in the custody or control of the clearing agency or for which it is
responsible, to foster cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions, to
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions, and, in general, to protect investors and the public
interest. It also states that a clearing agency shall not be registered
unless the Commission determines that the rules are not designed to
permit unfair discrimination in the admission of participants or among
participants in the use of the clearing agency, or to regulate by
virtue of any authority conferred by the Exchange Act matters not
related to the purposes of this section or the administration of the
clearing agency.
2. Summary of Application and Analysis
The Commission's rules for clearing agencies provide for the
safeguarding of securities and funds and promote prompt and accurate
clearance and settlement by establishing specific requirements for a
clearing agency's rules, policies and procedures related to operations
and risk management. Specifically, these requirements address rules and
procedures for the collection of margin, the composition of the
guaranty fund, default management and loss allocation, and the
management of other risks associated with the custody, clearing, and
settlement of securities.\183\ To analyze under Section 17A(b)(3)(F) of
the Exchange Act an application seeking to provide CCP services, the
Commission considers a clearing agency's rules concerning its account
structures, margin system, guaranty fund, default management, and loss
allocation processes.
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\183\ See 17 CFR 240.17ad-22(e)(4), (e)(6), (e)(13), (23)(ii);
240.17ad-26.
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In the context of this Application, CCUS has requested temporary
registration with an exemption from certain requirements under Section
17A(b)(3)(F) for a period of 18 months, as discussed further in Part
IV. Accordingly, below the Commission analyzes the Application under
Section 17A(b)(3)(F) only with respect to the rules of the clearing
agency for BD Clearing Members (i.e., registered broker-dealers and
Direct Clearing Members, each as set forth in the CCUS Rules.
(a) Account Structure and Safeguarding of Securities and Funds
The Rules provide for several types of accounts. All funds
deposited by a clearing member with CCUS on behalf of the clearing
member's own account shall be held in a Member Property Account or a
Market-Maker Account, as applicable.\184\ All funds and assets held by
CCUS on behalf of Securities Customers of a BD Clearing Member shall be
maintained in a Securities Customer Account, segregated from Futures
Customer Accounts and from the BD Clearing Member's proprietary
[[Page 67636]]
accounts.\185\ All funds and assets held by CCUS in a PAB Account will
be segregated from funds and assets held in Customer Accounts, Member
Property Accounts, and Market Maker Accounts and will be treated as
belonging to the carried broker-dealer.\186\ Each clearing member shall
establish and maintain account(s), including any customer segregated
accounts, at an Approved Depository Institution for the payment of
Initial Margin, Variation Margin, and any other Obligations due to the
CCUS pursuant to the Rules.\187\
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\184\ CCUS Rules, at Rule 309(e).
\185\ CCUS Rules, at Rule 309(e).
\186\ CCUS Rules, at Rule 309(f).
\187\ CCUS Rules, at Rule 405(a)
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Guaranty Fund Deposits must be made in cash and will be held in a
settlement bank approved for the purpose by CCUS.\188\
---------------------------------------------------------------------------
\188\ CCUS Rules, at Rule 505(c), (d).
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(b) Margin System
According to the Rules, each clearing member shall deposit Initial
Margin in the quantity not less than the applicable Initial Margin
Requirement as determined by CCUS at the times prescribed by CCUS.\189\
The Rules also require each clearing member to establish Initial Margin
Requirements for its Customers at a level that is not less than 100% of
CCUS's Initial Margin Requirements with respect to each product and
portfolio and commensurate with the risk presented by each customer
account and in such amount as is communicated by CCUS from time to
time.\190\
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\189\ CCUS Rules, at Rule 403(c).
\190\ CCUS Rules, at Rule 403(a).
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(c) Guaranty Fund
The Rules provide that CCUS will establish and maintain a Guaranty
Fund to collateralize financial exposures.\191\ The Guaranty Fund is
comprised of Guaranty Fund Deposits by clearing members to satisfy any
Guaranty Fund Requirements and has two components: a Minimum Guaranty
Fund Requirement and an Exposure-Based Guaranty Fund Requirement.\192\
clearing members must satisfy a Minimum Guaranty Fund Requirement of
$100,000.00 per clearing member.\193\ Clearing members will be required
to meet the Exposure-Based Guaranty Fund Requirement if the CCUS's
Default Financial Resources Requirement exceeds the Corporate
Contribution amount plus the total combined Minimum Guaranty Fund
Requirement provided by all clearing members.\194\ The Default
Financial Resources Requirement is the amount of financial resources
required to enable CCUS to meet its obligations to clearing members
notwithstanding the default of the two clearing members, including any
affiliates, generating the largest financial exposures for CCUS in
extreme but plausible market conditions.\195\
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\191\ CCUS Rules, at Rule 504(a).
\192\ CCUS Rules, at Rule 504(b).
\193\ CCUS Rules, at Rule 504(c).
\194\ CCUS Rules, at Rule 504(d).
\195\ CCUS Rules, at Rule 101(hh).
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(d) Default Management and Loss Allocation
In the Rules, the ``Default Management Plan'' is the plan set forth
by CCUS for the management of a Clearing Member Default.\196\ If a
clearing member is in Default, Collateral held with respect to such
clearing member's Member Property Accounts or Market-Maker Accounts,
and any other of such Clearing Member's assets held by, pledged to or
otherwise available CCUS, may be applied to discharge the Obligations
of such clearing member to CCUS.\197\ The Rules further state Guaranty
Funds Deposits from a Defaulting Clearing Member will be applied to
mitigate the Default Loss prior to applying CCUS capital contributed as
Default Financial Resources.\198\ If all Collateral from a clearing
member in Default is insufficient to cover Default Losses caused by
that clearing member, then CCUS capital contributed as Default
Financial Resources will be used in its entirety before applying any
Guaranty Fund Deposits from non-Defaulting Clearing Members.\199\
Assessments on clearing members to replenish the Guaranty Fund shall
not exceed the thresholds set forth in the Default Management
Plan.\200\
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\196\ CCUS Rules, at Rule 101(kk); see also CCUS Default
Management Plan, available at <a href="https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf">https://cdn.cboe.com/resources/membership/CCUS-Default-Management-Plan.pdf</a>.
\197\ CCUS Rules, at Rule 502(c).
\198\ CCUS Rules, at Rule 504(e).
\199\ CCUS Rules, at Rule 504(g).
\200\ CCUS Rules, at Rule 507. ``Assessment Amount'' is defined
as ``the total assessment amount levied by [CCUS] at a single time
upon all Clearing Members in order for [CCUS] to maintain an
adequate Guaranty Fund.'' CCUS Rules, at Rule 101(f).
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The Rules state that CCUS may use Default Financial Resources to
fund Non-Default Losses, which are defined as ``a Clearing Member's
collateral losses due to the failure or insolvency of an Approved
Depository Institution.'' \201\ Non-Default Losses will be funded
proportionately by CCUS's current corporation contribution and the
Clearing Member Guaranty Fund Deposits, pursuant to the Default
Management Plan.\202\
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\201\ CCUS Rules, at Rules 504(h), 101(jjj).
\202\ CCUS Rules, at Rule 504(h).
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(e) Conclusion
With respect to its rules as applied to BD Clearing Members, the
Application describes a comprehensive risk management framework
consistent with Commission rules that help ensure CCUS will collect
sufficient margin to cover its exposures, maintain an appropriately
sized Guaranty Fund, and be able to manage a default and allocate
losses appropriately, if or when needed. CCUS's risk management
framework is designed to address the particular features of CCUS's
proposed structure, i.e., to manage the risks presented by BD Clearing
Members and Direct Clearing Members submitting Binary KPI Options for
clearing. For these reasons and as discussed in more detail above in
Parts III.E.2.a) through d), the Commission determines that CCUS Rules
as to the BD Clearing Members and Direct Clearing Members are designed
to promote the prompt and accurate clearance and settlement of
securities transactions, assure the safeguarding of securities and
funds which are in its custody or control or for which it is
responsible, and protect investors and the public interest as set forth
in Section 17A(b)(3)(F) of the Exchange Act. The Commission also
determines that CCUS Rules as to the BD Clearing Members and Direct
Clearing Members do not regulate by virtue of any authority conferred
by the Exchange Act matters not related to the purposes of Section 17A
of the Exchange Act or the administration of the clearing agency.
The Commission is not, at this time, making a determination
regarding the CCUS Rules under Section 17A(b)(3)(F) of the Exchange Act
for the types of participants set forth in the Exchange Act other than
registered broker-dealers--namely, clearing agencies, registered
investment companies, banks, or insurance companies. Because the
Application does not address the other types of participants, the
Commission is not, at this time, making a determination as to whether
CCUS Rules foster cooperation and coordination with persons engaged in
the clearance and settlement of securities transactions, or remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of securities
transactions. The Commission also is not, at this time, making a
determination that CCUS Rules are not designed to permit unfair
discrimination in the admission of
[[Page 67637]]
participants or among participants in the use of the clearing agency.
As discussed further below in Part IV, pursuant to Rule 17Ab2-1(c), the
Commission is granting CCUS's request for temporary registration with
an exemption from requirements of Section 17A(b)(3)(F) of the Exchange
Act for a period of 18 months.
F. Participant Discipline
1. Statutory Standard and Analysis: Section 17A(b)(3)(G)
Section 17A(b)(3)(G) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency provide that (subject to any rule or
order of the Commission pursuant to Sections 17(d) or 19(g)(2) of the
Exchange Act) its participants shall be appropriately disciplined for
violation of any provision of the rules of the clearing agency by
expulsion, suspension, limitation of activities, functions, and
operations, fine, censure, or any other fitting sanction.
With respect to discipline and sanctions, the CCUS Rules provide
that CCUS can restrict, suspend, or terminate clearing privileges and
fine clearing members. Under CCUS Rule 607(a), CCUS states it has the
authority to take any actions it deems in the best interest of CCUS or
the clearing members.\203\ CCUS Rule 607(b) and (c) further state that
CCUS shall have the power to suspend or revoke clearing privileges or
authorize the assessment of fines or charges against clearing members
for engaging in conduct inconsistent with just and equitable principles
of trade or engaging in acts detrimental to the interest or welfare of
CCUS.\204\
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\203\ CCUS Rule 607(a).
\204\ CCUS Rule 607(b)-(c).
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Specifically, CCUS Rule 601(a) provides situations under which CCUS
may summarily suspend any clearing member, including default, statutory
disqualification, failing to meeting clearing member eligibility, the
discovery of false or misleading representations made by the clearing
member, breach or material violation of the CCUS Rules, or if CCUS
determines that suspension is necessary for the protection of CCUS,
clearing members, customers, or the general public.\205\ Additionally,
CCUS Rule 606 lays out the circumstances in which CCUS can restrict or
terminate clearing privileges.\206\
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\205\ CCUS Rule 601(a).
\206\ CCUS Rule 606(a).
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CCUS also has the power to assess fines against clearing members
that fail to make timely and accurate submission to CCUS of notices,
report, or other information required under the CCUS Rules.\207\ Under
CCUS Rule 604(a), CCUS may publish a schedule of fines for clearing
members that fail to make timely and accurate submissions to CCUS of
notices, reports, or other information required under the CCUS Rules
and other minor violations of the CCUS Rules.\208\
---------------------------------------------------------------------------
\207\ CCUS Rule 604(a)-(b).
\208\ CCUS Rule 604(a).
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CCUS has procedures for enforcing rules and disciplining clearing
members that are consistent with the requirements of the Exchange Act.
The CCUS Rules provide CCUS with authority to discipline clearing
members for rule violations and to impose each of the sanctions
enumerated in the Exchange Act. Accordingly, the Commission determines
that the CCUS Rules provide that CCUS's clearing members shall be
appropriately disciplined for violation of any provision of the rules
consistent with the requirements of Section 17A(b)(3)(G) of the
Exchange Act.
2. Statutory Standard and Analysis: Section 17A(b)(3)(H)
Section 17A(b)(3)(H) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency, in general, provide a fair procedure
with respect to the disciplining of participants, the denial of
participation to any persons seeking participation therein, and the
prohibition or limitation by the clearing agency of any person with
respect to access to services offered by the clearing agency.\209\
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\209\ Section 17A(b)(3)(H) of the Exchange Act also states that
the rules of the clearing agency must be in accordance with the
provisions of Section 17A(b)(5) of the Exchange Act.
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(a) Application for Participation
When a participant application is submitted to CCUS, CCUS states it
shall have the sole discretion to determine whether any applicant meets
the clearing privileges qualifications as detailed in Rule 301 under
the CCUS Rules, and CCUS shall disapprove an application and deny the
grant of clearing member status where an applicant has failed to meet
any requirements.\210\ Additionally, CCUS states it shall have no
liability to any applicant who is denied clearing member status.\211\
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\210\ CCUS Rules, at Rule 302(b).
\211\ CCUS Rules, at Rule 301(b).
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Upon completion of the application process, CCUS states it shall
determine whether to approve or disapprove the application and will
promptly give the applicant written notice of the decision. If CCUS
denies an application to become a clearing member, CCUS shall give the
applicant notice of its decision, setting forth the grounds for the
denial, and notes that the decision shall be the final action of CCUS.
Any applicant to become a clearing member who has been denied clearing
privileges pursuant to this Rule 302 shall not be eligible for re-
application during the six months immediately following such
denial.\212\ Under CCUS Rules, Rule 301 further states that the
notification of the written decision can be delayed if for example an
applicant is the subject of an inquiry, investigation, or proceeding
conducted by an SRO or governmental authority that involves the
applicant's fitness to be a clearing member and CCUS will defer acting
on the application until the matter is resolved.\213\
---------------------------------------------------------------------------
\212\ CCUS Rules, at Rule 302(e).
\213\ CCUS Rules, at Rule 302(c).
---------------------------------------------------------------------------
(b) Clearing Member Discipline
Once an entity is a participant, CCUS Rules outline the process
CCUS will follow when imposing sanctions on clearing members. CCUS Rule
608 outlines the authority of the Chief Compliance Officer, the
Compliance Department, the Chief Regulatory Officer and the Regulatory
Division. The Chief Compliance Officer and the Compliance Department
will be assisted by the Chief Regulatory Officer and the Regulatory
Division, with respect to disciplinary proceedings.\214\ Under the
direction of the Chief Regulatory Officer, the Regulatory Division will
determine the nature and scope of CCUS's inquiries and investigations
and will perform its regulatory functions, including conducting
disciplinary proceedings. The Regulatory Division will have the
authority to: (i) initiate inquiries; (ii) request that participants
appear for an interview, which may be conducted under oath; (iii)
request documents and/or other tangible evidence; (iv) review other
transaction activity; (v) gather any additional information the
Compliance Department it deems necessary; (vi) prepare investigative
reports, make determinations as to whether reasonable cause exists to
believe that a rule violation has been committed, and make
recommendations as to what charges should be brought; (vii) recommend
the commencement of a disciplinary proceeding pursuant to Chapter 6 of
the CCUS Rules; (viii) prosecute alleged violations of CCUS Rules; (ix)
represent
[[Page 67638]]
the Regulatory Division before the Business Conduct Committee during
the phases of the disciplinary process consisting of settlement offers
and hearings; (x) issue and serve statements of charges on clearing
members; (xi) review denials of access to CCUS for disciplinary
reasons; and (xii) issue appearance and document requests as provided
in CCUS Rules.\215\
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\214\ CCUS Rules, at Rule 608(a).
\215\ CCUS Rules, at Rule 608(a). See also, CCUS Rules at Rule
603. CCUS further states it will refer to the Chief Regulatory
Officer and the Regulatory Division for appropriate action, as
determined based on the nature of the conduct including: (i) a
violation by a clearing member of the CEA, CFTC Regulations, the
Exchange Act, SEC Regulations, or CCUS Rules; (ii) any neglect or
refusal by a clearing member to comply with any applicable order or
direction of CCUS; (iii) any error, delay or other conduct by a
clearing member that materially and adversely affects the operations
of CCUS; (iv) a failure of a clearing member to provide adequate
personnel or facilities, including the supervision for its
transactions cleared with CCUS.
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If CCUS decides to impose a suspension on a clearing member, CCUS
Rules require CCUS to send a notice to the clearing member that will
state in general terms how pending transactions, open positions, and
other pending matters will be affected and what steps are to be
taken.\216\
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\216\ CCUS Rules, at Rule 601(b) et seq.
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If a clearing member defaults under CCUS Rules,\217\ receives a
suspension, or CCUS determines that the financial or operational
condition of a clearing member could adversely affect CCUS or cleared
markets, CCUS may take certain action to restrict or terminate clearing
privileges.\218\ Additionally, CCUS may also impose protective measures
related to a clearing member's clearing activity such as increasing
initial margin requirements, prohibiting excess margin withdraws,
imposing additional capital, margin, financial reporting or other
requirements, or ``take any other actions it deems proper or in the
best interest'' of CCUS or its clearing members.\219\
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\217\ The rule outlines default as being in accordance with CCUS
Rules 502(a) and 601(a).
\218\ CCUS Rules, at Rule 606(a).
\219\ CCUS Rules, at Rule 606(c).
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If CCUS imposes a fine against a clearing member which is included
in the schedule of fines, CCUS will give notice for such fines to the
clearing member that specifies (1) the rule(s) violated; (2) the act or
omission constituting each such violation; (3) the fine imposed for
each violation; and (4) the date by which such determination becomes
final and such fine must be paid or contested as provided below, which
date shall be not less than 30 days after the date of service of such
written statement.\220\ The maximum fine imposed on the schedule of
fines shall not exceed $5,000 per violation.\221\
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\220\ CCUS Rules, at Rule 604(b).
\221\ CCUS Rules, at Rule 604(c).
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(c) Hearing and Appeals Process
Under CCUS Rules, applicants who have been denied approval to
become a clearing member and clearing members who have received a
sanction including fines, suspensions, and restrictions or terminations
of clearing member services may appeal such decisions. For appeals of
fines under CCUS Rule 604, a clearing member may appeal the fine in
writing to CCUS. The matter will then be referred to the Chief
Regulatory Officer and the Regulatory Division and will be subject to
review by the Business Conduct Committee (``BCC'') Panel.\222\
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\222\ CCUS Rules, at Rule 604(d). See also CCUS Rules, at 604(e)
stating that the BCC Panel may impose one or more of the
disciplinary sanctions authorized by CCUS if it finds the clearing
member violated the CCUS Rules.
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For appeals of disciplinary actions under CCUS Rule 603(a), the
clearing member has 15 days to submit a petition for review to which
CCUS has an opportunity to respond and then the clearing member has the
opportunity submit a final reply.\223\ The review will be conducted by
the Board or a committee of the Board composed of at least three
directors whose decision must be ratified by the Board.\224\ Any
Director who participated in the matter before the BCC Panel or other
committee may not participate in any review of that matter by the
Board.\225\ The review shall be based solely on the record including
the petition for review and any subsequent responses, unless the
introduction of new information is allowed by the Board.\226\ The Board
may affirm, reverse or modify, in whole or in part, the decision of the
BCC Panel in a written final decision.\227\ Additionally, the Board may
initiate a review of a decision made by the BCC Panel and such review
will follow the procedures outlined in this paragraph.\228\
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\223\ CCUS Rules, at Rule 901(a).
\224\ CCUS Rules, at Rule 901(b).
\225\ Id.
\226\ Id. New issues can be raised by the Board and the other
party will be allowed to address such new issues.
\227\ Id.
\228\ CCUS Rules, at Rule 901(c).
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For appeals of application denials, suspensions, or restrictions or
terminations of clearing member services, the aggrieved party must file
an application for review within 30 days of the notice of action.\229\
If they party needs additional time to produce the application for
review, they can submit an application for the extension of time which
will be decided by the Chairman of the Appeals Committee and shall be
final.\230\
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\229\ CCUS Rules, at Rule 902(c)(i); see also CCUS Rules, at
Rule 602(a). CCUS further states in the rule, that the request for a
hearing does not ``impair the validity or stay the effect of the
suspension upon which the request for hearing is made.'' In
addition, CCUS states that the reversal of a suspension will not
invalidate acts CCUS has taken prior to the reversal or modification
of the suspension.
\230\ CCUS Rules, at Rule 902(c)(ii).
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The CCUS Appeals Committee that is responsible for the review of
such appeals will be appointed by the Chairman of the Board of
Directors with the approval of the Board on an annual basis as well as
when there are changes to the composition of the committee during the
year.\231\ Members of the appeals committee serve a one-year term until
the next annual reappointment of the committee, or the individual
resigns or is removed by the Board.\232\ Once a application for a
hearing is sent to the Appeals Committee, it will appoint a hearing
panel of no less than three persons.\233\
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\231\ CCUS Rules, at Rule 203(g).
\232\ Id.
\233\ CCUS Rules, at Rule 902(d)(i).
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All relevant materials for the hearing will be provided to the
parties at least 72 hours prior to the date of the hearing.\234\ The
applicant is entitled to be represented by counsel at the hearing.\235\
Each of the parties will be permitted to make an opening statement,
present witnesses and documentary evidence, cross- examine opposing
witnesses and present closing arguments orally or in writing as
determined by the panel.\236\ The panel will also have the right to
question all parties and witnesses to the hearing.\237\ The panel's
decision will be made in writing and will include the reasons
supporting the conclusions of the panel.\238\
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\234\ CCUS Rules, at Rule 902(d)(ii).
\235\ CCUS Rules, at Rule 902(f)(ii).
\236\ CCUS Rules, at Rule 902(f)(iv).
\237\ Id.
\238\ CCUS Rules, at Rule 902(f)(v).
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The decision of the panel of the Appeals Committee can be subject
to review by the Board either on its own motion within 30 days after
issuance, upon written request submitted by the applicant, by the
President of CCUS or by the Chairman of the committee whose action was
subject to the prior review of the Appeals Committee, within 15 days
after issuance of the decision.\239\ The petition must be in writing
and specify the findings and conclusions to which exceptions are taken
together with the reasons for such
[[Page 67639]]
exceptions.\240\ Parties may petition to submit a written argument to
the Board and may request an opportunity to make an oral argument
before the Board. The Board, or a committee of the Board, will have
sole discretion to grant or deny either request.\241\
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\239\ CCUS Rules, at Rule 902(g)(i). The Commission notes that
there are two subsections marked (g) in this rule.
\240\ Id.
\241\ Id.
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As described above, the CCUS Rules address the discipline of
clearing members, denial of applications, and prohibitions or
limitations imposed by the clearing agency with respect to access to
services offered by the clearing agency. CCUS has established rules and
procedures that describe in detail the process taken by CCUS both when
reviewing applications to become clearing members and when disciplining
existing clearing members. The CCUS Rules ensure that written
notification with reasoning is provided to any applicant whose
application has been denied and to any clearing member who is being
sanctioned for a violation of the CCUS Rules. Once the appropriate
notification is provided, the affected party is afforded an opportunity
to appeal the denial or sanction by requesting a hearing at which the
affected party may be represented by counsel. The Commission therefore
determines that the CCUS Rules provide a fair procedure consistent with
Section 17A(b)(3)(H) of the Exchange Act.
G. Burden on Competition
1. Statutory Standard: Section 17A(b)(3)(I)
Section 17A(b)(3)(I) of the Exchange Act states that a clearing
agency shall not be registered unless the Commission determines that
the rules of the clearing agency do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act. In addition, Section 17A(a)(2) of the Exchange Act
directs the Commission, having due regard for the maintenance of fair
competition among brokers, dealers, clearing agencies, and transfer
agents, to use its authority under the Exchange Act to facilitate the
establishment of a national system for the prompt and accurate
clearance and settlement of transactions in securities (``National
System'') and to facilitate the establishment of linked or coordinated
facilities for the clearance and settlement of transactions in
securities.\242\
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\242\ 15 U.S.C. 78q-1(a)(2).
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2. Summary of Application and Analysis
As described throughout this order, CCUS proposes to operate a
registered clearing agency that provides CCP services for binary
options that are securities. In assessing whether the rules of a
clearing agency impose or do not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act under Section 17A(b)(3)(I) of the Exchange Act, the Commission
considers the impact of the Applicant's rules on competition among
brokers, dealers, clearing agencies, and transfer agents, and on
competition between the Applicant and these entities.\243\ Where there
is a burden on competition, the Commission must determine if that
burden is necessary or appropriate consistent with the determination
required by Section 17A(b)(3)(I) of the Exchange Act.\244\
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\243\ See, e.g., GSCC Order, 53 FR at 19845.
\244\ See Bradford Nat'l Clearing Corp. v. S.E.C., 590 F.2d 1085
(D.C. Cir. 1978) (explaining that Congress intended to give the
Commission ``exceptionally broad powers'' to determine the precise
structure of the National System and placed ``slightly more emphasis
on rapid development and national availability'' with respect to the
National System than the national market system).
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In the context of impacts on competition among clearing agencies,
one commenter--while generally supportive of CCUS's request for
temporary registration as a time-limited bridge that allows innovative,
investor-protective products to reach the market--is ``fully opposed''
to CCUS becoming a ``permanent fixture'' of the listed options market,
as a second, fully registered clearing agency alongside the Options
Clearing Corporation (``OCC'').\245\ While acknowledging that its
concern is ``structural rather than a comment on [CCUS's] present
intentions,'' the commenter opposes adding to the National System for
Clearance and Settlement a ``vertically integrated clearing structure''
such as characterizes the U.S. futures market, where, as the commenter
describes, each major exchange group operates its own
clearinghouse.\246\ The commenter supports instead a central, industry
utility clearing model, of the kind OCC has provided for listed options
as a registered clearing agency.
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\245\ PTG at 2.
\246\ PTG at 3.
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The commenter states that the Commission should consider the
broader market structure implications of this Application before
granting permanent registration, explaining its view that a vertically
integrated ``monopolistic market structure ``is the kind of structure
Section 17A of the Exchange Act was designed to avoid.\247\ The
commenter explains that the pool of firms capable of serving as
clearing members in the listed options market is limited due to the
substantial capital, operational, and risk management infrastructure
that clearing membership requires. In the commenter's view, a more
fragmented structure with multiple clearing agencies would add to the
costs of clearing membership among this limited group--and therefore
the associated costs borne by market participants as their clients--
through the potential for higher clearing fees, capital inefficiencies
that result from holding positions that could offset but for multiple
clearing agencies, and the loss of portfolio margining benefits.\248\
The commenter also argues that, in addition to increased costs, an
additional clearing agency introduces structural risk into the market
ecosystem for listed options. The commenter states that the structural
change associated with a second clearing agency will require routing
new product categories through less proven exchange-affiliated clearing
agencies rather than an industry utility. Nonetheless, the commenter
explains that its members are ``frustrated with OCC's pace of
innovation'' and that OCC is unable to currently provide clearing
services for Binary KPI Options.\249\ The commenter also acknowledges
that the binary options to be cleared by CCUS have a comparatively
simple risk profile relative to conventional options, which may
mitigate the potential for procyclicality, wrong-way risk, model risk,
and concentration risk.\250\
---------------------------------------------------------------------------
\247\ Id.
\248\ Id. at 2.
\249\ Id.
\250\ PTG. at 2.
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The Commission acknowledges PTG's comments as outlined above.
Currently pending before the Commission however, is an application for
temporary registration. PTG's points relate to permanent registration
and therefore are more appropriately addressed in any future Commission
order related to permanent registration. That said, the risks and costs
associated with changes to the structure of the listed options market
will be evaluated during the period of CCUS's temporary registration by
the Commission and market participants alike.
CCUS's clearing model and its ability to quickly bring to market
clearing services for innovative product types for which there is
market demand supports both innovation and competition in the market
for clearing services, consistent
[[Page 67640]]
with the purposes of Section 17A of the Exchange Act. And, more
broadly, CCUS's Application does not impose any burden not necessary or
appropriate in furtherance of the purposes of the Exchange Act. As CCUS
states, its clearing infrastructure ``has been built specifically with
open-access clearing top of mind,'' and CCUS intends to pursue cross-
margining arrangements that may benefit investors and citing the
experience of its European affiliate.\251\ The Commission, has long
viewed cross-margining arrangements between separately registered
clearing agencies as a well-established mechanism for achieving margin
efficiencies and facilitating the purposes of Section 17A of the
Exchange Act. In other markets including the U.S. Treasury market, the
Commission has approved applications for registration by new clearing
agencies to help bring innovative products to market that serve
investors and the public interest. The Commission agrees, as CCUS
contends, that new clearing agencies, structured consistently with the
requirements of Section 17A and Commission rules thereunder, can bring
enhancements to market resilience by expanding access to central
clearing and promoting effective risk management.\252\
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\251\ CCUS Response at 4.
\252\ Id.
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Accordingly, for the reasons discussed above, and based on the
facts and circumstances presented by this Application, the Commission
determines, pursuant to Section 17A(b)(3)(I) of the Exchange Act, that
the Application does not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of Section 17A
of the Exchange Act.\253\
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\253\ 15 U.S.C. 78q-1(b)(3)(I).
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IV. Temporary Registration and Exemption
CCUS has requested, pursuant to Rule 17Ab2-1(c), that the
Commission grant CCUS temporary registration as a clearing agency with
an exemption from certain requirements as to which the Commission is
directed to make a determination under Sections 17A(b)(3)(B) and (F) of
the Exchange Act for a period of 18 months.\254\ With respect to
Section 17A(b)(3)(B), as discussed in Part III.B.2, CCUS has not
provided in its Application for participation standards addressing all
categories of participants enumerated in Section 17A(b)(3)(B) of the
Exchange Act, including registered clearing agencies, registered
investment companies, banks, insurance companies, or other classes of
persons designated as appropriate by the Commission. Relatedly, as
discussed in Part III.E.2, CCUS has not provided CCUS Rules under
Section 17A(b)(3)(F) of the Exchange Act addressing these same
categories of participants. For the reasons discussed below, pursuant
to Section 17A(b) of the Exchange Act and Rule 17Ab2-1(c) thereunder,
the Commission is granting CCUS's request for temporary registration as
a clearing agency and finds that an exemption from the above-described
requirements of Sections 17A(b)(3)(B) and (F) of the Exchange Act is
consistent with the public interest, the protection of investors, and
the purposes of Section 17A, including the prompt and accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds.\255\
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\254\ See Application, Exhibit S, at 3-4.
\255\ See 15 U.S.C. 78q-1(b)(1).
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CCUS explains that its request for temporary registration would
enable CCUS to meet market demand for Binary KPI Options in a regulated
securities trading environment while other securities clearing agencies
are not prepared or able to provide clearing agency services for these
products. In its request, CCUS explains that its Application would not
affect existing standardized securities options products traded on
national securities exchanges and cleared by OCC, and that CCUS and its
affiliates have a long history of close, successful, and productive
relationships with other option exchanges and OCC. One commenter also
expressed support for CCUS's request for temporary registration, as
previously discussed in Part III.G.2, because it would serve as a
``time-limited bridge'' that allows innovative products to reach the
market sooner than would be possible through the existing registered
clearing agency that serves the listed options market.\256\
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\256\ PTG at 2.
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CCUS states that not establishing participation standards for these
other categories of participants listed in Section 17A(b)(3)(B) is
appropriate, citing ``the nature of the product, the categories of
market participants who have indicated an interest in clearing Binary
KPI Options, CCUS's risk management and liquidity framework, the
broker-dealer customer protection framework and other factors.'' \257\
In Exhibit S, CCUS explains that it would be prepared to consider the
feasibility and appropriateness of the other types of participants
enumerated in Section 17A(b)(3)(B) during the period of its temporary
registration,\258\ and reiterates in its response letter that it would
demonstrate compliance with all applicable clearing agency requirements
within 18 months of its approval for temporary registration.\259\
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\257\ See Application, Exhibit S, at 3-4.
\258\ See id. at 4.
\259\ CCUS Response at 1.
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With respect to these requests for exemptive relief from Section
17A(b)(3)(B) and (F) of the Exchange Act, made in connection with its
request for temporary registration, the Commission finds such relief is
consistent with the public interest, the protection of investors, and
the purposes of Section 17A of the Exchange Act for two reasons. First,
providing clearing services only to BD Clearing Members is an
appropriate, and incremental step, for bringing to the securities
market Binary KPI Options. The Application establishes a comprehensive
framework for the management of risk surrounding binary options that
are securities, and commenters agree Second, CCUS has represented that
it will consider including other entities during the period of
temporary registration. Providing relief from Section 17A(b)(3)(B),
which the Commission has granted before, allows prospective clearing
agencies to develop their participation standards on an incremental
basis because the financial and operational membership standards for
such market participants depends, in part, on the extent and manner in
which the clearing agency allocates losses resulting from member
defaults, and the development of such participation standards will
inform the overall risk profile and risk management framework of the
registered clearing agency.\260\ In the absence of such participation
standards, the Commission cannot assess under Section 17A(b)(3)(F)
whether clearing agency rules implementing participation standards for
the categories of participants enumerated in Section 17A(b)(3)(B) are
designed to promote the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds.\261\ Further, in the absence of such participation standards
and associated rules, the Commission cannot assess whether the CCUS
Rules foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions, to remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of securities
transactions,
[[Page 67641]]
and are not designed to permit unfair discrimination in the admission
of participants or among participants in the use of the clearing agency
because these requirements are primarily directed to assessing how the
Application addresses the different categories of participation in its
rules.\262\ Accordingly, assessment of these provisions of Section
17A(b)(3)(F) requires that CCUS Rules incorporate the other enumerated
categories of participants. With respect to the participation
categories provided (i.e., BD Clearing Members and Direct Clearing
Members), the Commission has assessed and found that CCUS Rules do
promote the prompt and accurate clearance and settlement of securities
transactions and assure the safeguarding of securities and funds. In so
doing, the Application and CCUS Rules demonstrate consistency with the
purposes of Section 17A of the Exchange Act (including the protection
of investors and the public interest). Therefore, the Commission is
providing exemptive relief from requirements under Section 17A(b)(3)(F)
on a temporary basis to enable CCUS time to develop its rules,
policies, and procedures as to the other participation categories
enumerated and ensure such rules, policies and procedures are
consistent with the requirements of Section 17A(b)(3)(F). Temporary
relief is appropriate and consistent with the public interest and the
protection of investors because existing CCUS Rules, as applied to BD
Clearing Members and Direct Clearing Members, are consistent with
promoting the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of funds and
securities.\263\ Specifically, the reasons discussed in Part III.E.2,
CCUS rules provide a comprehensive risk management framework for BD
Clearing Members and Direct Clearing Members consistent with the
purposes of Section 17A of the Exchange Act. Granting exemptive relief
from this provision permits CCUS to operate on a temporary basis with
respect to BD Clearing Members and Direct Clearing Members, is in the
public interest and consistent with the protection of investors because
it enables CCUS to evaluate its risk management framework as to
registered broker-dealers and participants that meet the definition of
Direct Clearing Members while it considers how best to incorporate the
other categories of participants enumerated in Section 17A(b)(3)(B) and
whether its risk management standards need to be adjusted to account
for the way the other categories might interact with the clearing
agency and the risks they would bring via their participation.
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\260\ See GSCC Order, supra note 17, at 19843.
\261\ See 15 U.S.C. 78q-1(b)(3)(F); 15 U.S.C. 78q-1(b)(3)(B).
\262\ See 15 U.S.C. 78q-1(b)(3)(F).
\263\ See 15 U.S.C. 78q-1(b)(1) (providing the Commission
exemptive authority when an exemption are ``consistent with the
public interest, the protection of investors, and the purposes of
this section, including the prompt and accurate clearance and
settlement of securities transactions and the safeguarding of
securities and funds'').
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Furthermore, such exemptive relief is consistent with the public
interest, the protection of investors and purposes of 17A because while
CCUS operates under temporary registration, CCUS must continue to
satisfy its obligations under Rule 17Ab2-1 and Form CA-1, including
submission of any amendments to its Form CA-1 application. As a
registered clearing agency and self-regulatory organization, CCUS also
will be obligated to file changes to its rules, policies, and
procedures pursuant to Section 19(b) and Rule 19b-4 under the Exchange
Act.\264\ CCUS also would be subject to recordkeeping requirements,
Commission supervision as a registered clearing agency, and
examinations under the Exchange Act.
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\264\ See id.; see also 15 U.S.C. 78s.
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For the reasons described above, the Commission is granting CCUS's
request for temporary registration with an exemption from the
requirements of Section 17A(b)(3)(B) and (F) described above for a
period of 18 months from the date of this order.\265\
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\265\ The requirements of Sections 17A(b)(3)(B) and (F) are
discussed above in Part III.B and Part III.E respectively.
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V. Conclusion
For the reasons discussed above, pursuant to Section 17A(b) of the
Exchange Act and Rule 17Ab2-1(c) thereunder, the Commission is
exempting CCUS from certain of the requirements of Section 17A(b)(3)(B)
and (F) as described in this order and has determined that CCUS's
Application otherwise satisfies the requirements of Section 17A of the
Exchange Act and the rules and regulations thereunder. Accordingly, the
Commission is granting CCUS's request for temporary registration for a
period of 18 months.\266\
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\266\ 15 U.S.C. 78q-1(b)(2).
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It is therefore ordered, pursuant to Sections 17A and 19(a) of the
Exchange Act and Rule 17Ab2-1(c) thereunder, that the application for
temporary registration as a clearing agency filed by Cboe Clear U.S.,
LLC (File No. 600-47) be, and hereby is, approved, and that CCUS is
granted exemptions from certain of the requirements in Section
17A(b)(3)(B) and (F) of the Exchange Act for the reasons described in
this order and subject to the terms and other qualifications set forth
in the Application, to be effective for not more than 18 months from
the date of this order.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-21845 Filed 10-26-26; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on October 27, 2026.
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