80 FR 27431 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Enhance the Measurement Used To Establish Minimum Capital Requirements for Banks Approved To Issue Letters of Credit

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 92 (May 13, 2015)

Page Range		27431-27432
FR Document		2015-11480

Federal Register, Volume 80 Issue 92 (Wednesday, May 13, 2015)

[Federal Register Volume 80, Number 92 (Wednesday, May 13, 2015)]
[Notices]
[Pages 27431-27432]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-11480]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74894; File No. SR-OCC-2015-007]

Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change To Enhance the Measurement Used To
Establish Minimum Capital Requirements for Banks Approved To Issue
Letters of Credit

May 7, 2015.
On March 6, 2015, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2015-007 pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ On March 25, 2015, the proposed rule change was
published for comment in the Federal Register.\3\ The Commission did
not receive any comments on the proposed rule change. This order
approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 74536 (March 19, 2015),
80 FR 15846 (March 25, 2015) (SR-OCC-2015-007).
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I. Description

OCC is amending its by-laws and rules in order to enhance the
measurement used to establish minimum capital requirements for banks
approved to issue letters of credit that may be deposited by clearing
members as a form of margin asset. Currently, OCC's Rule 604,
Interpretation and Policy .01, requires U.S. banks to have $100,000,000
or more in shareholders' equity, and non-U.S. banks to have
$200,000,000 or more in shareholders' equity, in order to be approved
as an issuer of letters of credit that may be deposited by clearing
members to meet their margin obligations at OCC. The purpose of these
minimum capital requirements is to ensure that issuers of letters of
credit whose letters of credit are deposited at OCC as a margin asset
by clearing members have the ability to honor a demand for payment by
OCC under such letters of credit should a need to do so arise, such as
in the case of a clearing member default.
The financial requirements set forth in OCC's Rule 604 concerning
issuers of letters of credit have been in place for many years.\4\
However, since OCC adopted Rule 604 and Interpretation and Policy .01
under Rule 604, bank financial reporting standards have changed. Today,
bank regulators place a greater emphasis on Tier 1 Capital as opposed
to shareholders' equity \5\ such that Tier 1 Capital is now considered
the primary component of a bank's total regulatory capital.\6\
Moreover, OCC notes that Tier 1 Capital is a more conservative measure
of a bank's financial health as it ignores subordinated debt,
intermediate-term preferred stock, cumulative and long-term preferred
stock and a portion of a bank's allowance for loan and lease losses.
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\4\ See Securities and Exchange Act Release No. 19422 (January
12, 1983), 48 FR 2481 (SR-OCC-1982-08).
\5\ Tier 1 Capital is the measure used by the Basel Committee on
Banking Supervision to measure the financial health of a bank. The
goal of the Basel Committee on Banking Supervision is to strengthen
the regulation, supervision and risk management of the banking
sector. The Basel Committee on Banking Supervision's most recent set
of reform measures, Basel III, is located at: http://www.bis.org/publ/bcbs189.pdf.
\6\ See https://www.kansascityfed.org/Publicat/BasicsforBankDirectors/BasicsforBankDirectors.pdf.
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OCC believes that by measuring a bank's financial health based on
Tier 1 Capital, instead of shareholders' equity, OCC will reduce its
credit risk to banks issuing letters of credit deposited by clearing
members as a form of margin asset. As stated above, Tier 1 Capital is a
more conservative measure of a bank's

[[Page 27432]]

financial health. Should OCC need to demand payment on a letter of
credit deposited by a clearing member as a margin asset, such as in the
case of a clearing member default, it is less likely that the bank
issuing such letter of credit will not perform upon its payment
commitment because the bank will be required to hold a greater amount
of capital in order to be an OCC letter of credit bank. In turn, credit
risk presented to OCC as a result of accepting letters of credit as a
form of margin asset is reduced.\7\
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\7\ OCC does not anticipate that the proposed rule change will
impact any of the banks already approved to issue letters of credit
that may be deposited by clearing members as a form of margin since
all such banks maintain amounts of Tier 1 Capital that exceed, as
applicable, $100 million for U.S. banks or $200 million for Non-U.S.
banks.
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In light of the more universal acceptance of Tier 1 Capital for
bank financial reporting standards and the potential to reduce the
credit risk associated with the issuance of letters of credit, OCC is
amending Rule 604, Interpretation and Policy .01, to substitute Tier 1
Capital for shareholders' equity. Pursuant to the rule change, as
approved, OCC is also adding paragraph ``c'' to Interpretation and
Policy .01 under Rule 604 to adopt a definition of Tier 1 Capital that
leverages the definition of Tier 1 Capital used by a bank's regulatory
agency. OCC believes that such a definition is appropriate given that
OCC accepts letters of credit from banks regulated by different
regulatory authorities.\8\ In addition, OCC is making a conforming
change to OCC Rule 604, Interpretation and Policy .04, so that any one
bank may not issue letters of credit for an individual clearing member
exceeding 15% of the bank's Tier 1 Capital (instead of shareholders'
equity).
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\8\ See OCC Rule 604(c). For example, OCC accepts letters of
credit issued by banks regulated by The Federal Reserve Board, The
Office of the Comptroller of the Currency, The Australian Prudential
Regulation Authority and The German Federal Financial Supervisory
Authority.
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II. Discussion and Commission Findings

Section 19(b)(2)(C) of the Act \9\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to such
organization.
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\9\ 15 U.S.C. 78s(b)(2)(C).
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The Commission finds that the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act, which requires, among other
things, that the rules of a clearing agency are designed to assure the
safeguarding of securities and funds which are in the custody and
control of the clearing agency or for which it is responsible.\10\ The
rule change, as proposed, should help ensure the safeguarding of
securities and funds which are in the custody and control of OCC, or
for which OCC is responsible, because OCC will assess banks that issue
letters of credit to be deposited as margin by clearing members using a
more conservative capital requirement. This more conservative capital
requirement thereby increases the likelihood that the bank will have
the ability to honor a demand for payment made by OCC. For the same
reason, OCC believes that the adoption of a more conservative capital
requirement for banks approved to issue letters of credit that may be
deposited by clearing members as a form of margin asset is consistent
with the requirement of Rule 17Ad-22(d)(3), promulgated under the Act,
which requires OCC hold assets in a manner that minimizes risk of loss
or delay in access to them.\11\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ 17 CFR 240.17Ad-22(d)(3).
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III. Conclusion

On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, and in
particular, with the requirements of Section 17A of the Act \12\ and
the rules and regulations thereunder.
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\12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-OCC-2015-007) be, and it
hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11480 Filed 5-12-15; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 80, No. 92 / Wednesday, May 13, 2015 / Notices 27431

consistent with the protection of communications relating to the I. Description
investors and the public interest, as it proposed rule change between the OCC is amending its by-laws and
will enable the Exchange to meet its Commission and any person, other than rules in order to enhance the
proposed implementation date of May 8, those that may be withheld from the measurement used to establish
2015, which will help facilitate the public in accordance with the minimum capital requirements for
implementation of harmonized rules provisions of 5 U.S.C. 552, will be banks approved to issue letters of credit
related to the adjustment and available for Web site viewing and that may be deposited by clearing
nullification of erroneous options printing in the Commission’s Public members as a form of margin asset.
transactions across the options Reference Room, 100 F Street NE., Currently, OCC’s Rule 604,
exchanges. For this reason, the Washington, DC 20549, on official Interpretation and Policy .01, requires
Commission designates the proposed business days between the hours of U.S. banks to have $100,000,000 or
rule change to be operative upon 10:00 a.m. and 3:00 p.m. Copies of the more in shareholders’ equity, and non-
filing.23 filing also will be available for U.S. banks to have $200,000,000 or
At any time within 60 days of the inspection and copying at the principal more in shareholders’ equity, in order to
filing of the proposed rule change, the office of the Exchange. All comments be approved as an issuer of letters of
Commission summarily may received will be posted without change; credit that may be deposited by clearing
temporarily suspend such rule change if the Commission does not edit personal members to meet their margin
it appears to the Commission that such identifying information from obligations at OCC. The purpose of
action is necessary or appropriate in the submissions. You should submit only these minimum capital requirements is
public interest, for the protection of information that you wish to make to ensure that issuers of letters of credit
investors, or otherwise in furtherance of available publicly. All submissions whose letters of credit are deposited at
the purposes of the Act. If the should refer to File Number SR– OCC as a margin asset by clearing
Commission takes such action, the ISEGemini–2015–11 and should be members have the ability to honor a
Commission shall institute proceedings submitted on or before June 3, 2015. demand for payment by OCC under
to determine whether the proposed rule such letters of credit should a need to
should be approved or disapproved. For the Commission, by the Division of
Trading and Markets, pursuant to delegated do so arise, such as in the case of a
IV. Solicitation of Comments authority.24 clearing member default.
Robert W. Errett, The financial requirements set forth
Interested persons are invited to
Deputy Secretary. in OCC’s Rule 604 concerning issuers of
submit written data, views, and
letters of credit have been in place for
arguments concerning the foregoing, [FR Doc. 2015–11483 Filed 5–12–15; 8:45 am]
many years.4 However, since OCC
including whether the proposed rule BILLING CODE 8011–01–P
adopted Rule 604 and Interpretation and
change is consistent with the Act.
Policy .01 under Rule 604, bank
Comments may be submitted by any of
SECURITIES AND EXCHANGE financial reporting standards have
the following methods:
COMMISSION changed. Today, bank regulators place a
Electronic Comments greater emphasis on Tier 1 Capital as
• Use the Commission’s Internet opposed to shareholders’ equity 5 such
[Release No. 34–74894; File No. SR–OCC–
comment form (http://www.sec.gov/ 2015–007]
that Tier 1 Capital is now considered
rules/sro.shtml); or the primary component of a bank’s total
• Send an email to rule-comments@ Self-Regulatory Organizations; The regulatory capital.6 Moreover, OCC
sec.gov. Please include File Number SR– Options Clearing Corporation; Order notes that Tier 1 Capital is a more
ISEGemini–2015–11 on the subject line. Approving Proposed Rule Change To conservative measure of a bank’s
Enhance the Measurement Used To financial health as it ignores
Paper Comments subordinated debt, intermediate-term
Establish Minimum Capital
• Send paper comments in triplicate Requirements for Banks Approved To preferred stock, cumulative and long-
to Brent J. Fields, Secretary, Securities Issue Letters of Credit term preferred stock and a portion of a
and Exchange Commission, 100 F Street bank’s allowance for loan and lease
NE., Washington, DC 20549–1090. May 7, 2015. losses.
All submissions should refer to File On March 6, 2015, The Options OCC believes that by measuring a
Number SR–ISEGemini–2015–11. This Clearing Corporation (‘‘OCC’’) filed with bank’s financial health based on Tier 1
file number should be included on the the Securities and Exchange Capital, instead of shareholders’ equity,
subject line if email is used. To help the Commission (‘‘Commission’’) the OCC will reduce its credit risk to banks
Commission process and review your proposed rule change SR–OCC–2015– issuing letters of credit deposited by
comments more efficiently, please use 007 pursuant to Section 19(b)(1) of the clearing members as a form of margin
only one method. The Commission will Securities Exchange Act of 1934 asset. As stated above, Tier 1 Capital is
post all comments on the Commission’s (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 a more conservative measure of a bank’s
Internet Web site (http://www.sec.gov/ On March 25, 2015, the proposed rule
4 See Securities and Exchange Act Release No.
rules/sro.shtml). Copies of the change was published for comment in
19422 (January 12, 1983), 48 FR 2481 (SR–OCC–
submission, all subsequent the Federal Register.3 The Commission 1982–08).
amendments, all written statements did not receive any comments on the 5 Tier 1 Capital is the measure used by the Basel
asabaliauskas on DSK5VPTVN1PROD with NOTICES

with respect to the proposed rule proposed rule change. This order Committee on Banking Supervision to measure the
change that are filed with the approves the proposed rule change. financial health of a bank. The goal of the Basel
Committee on Banking Supervision is to strengthen
Commission, and all written the regulation, supervision and risk management of
24 17 CFR 200.30–3(a)(12). the banking sector. The Basel Committee on
1 15 U.S.C. 78s(b)(1).
23 For purposes only of waiving the 30-day Banking Supervision’s most recent set of reform
2 17 CFR 240.19b–4. measures, Basel III, is located at: http://
operative delay, the Commission has also
considered the proposed rule’s impact on 3 Securities Exchange Act Release No. 74536 www.bis.org/publ/bcbs189.pdf.
efficiency, competition, and capital formation. See (March 19, 2015), 80 FR 15846 (March 25, 2015) 6 See https://www.kansascityfed.org/Publicat/

15 U.S.C. 78c(f). (SR–OCC–2015–007). BasicsforBankDirectors/BasicsforBankDirectors.pdf.

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27432 Federal Register / Vol. 80, No. 92 / Wednesday, May 13, 2015 / Notices

financial health. Should OCC need to to assure the safeguarding of securities October 19, 1965 (79 Stat. 985; 22 U.S.C.
demand payment on a letter of credit and funds which are in the custody and 2459), Executive Order 12047 of March
deposited by a clearing member as a control of the clearing agency or for 27, 1978, the Foreign Affairs Reform and
margin asset, such as in the case of a which it is responsible.10 The rule Restructuring Act of 1998 (112 Stat.
clearing member default, it is less likely change, as proposed, should help ensure 2681, et seq.; 22 U.S.C. 6501 note, et
that the bank issuing such letter of the safeguarding of securities and funds seq.), Delegation of Authority No. 234 of
credit will not perform upon its which are in the custody and control of October 1, 1999, Delegation of Authority
payment commitment because the bank OCC, or for which OCC is responsible, No. 236–3 of August 28, 2000 (and, as
will be required to hold a greater because OCC will assess banks that appropriate, Delegation of Authority No.
amount of capital in order to be an OCC issue letters of credit to be deposited as 257 of April 15, 2003), I hereby
letter of credit bank. In turn, credit risk margin by clearing members using a determine that the objects to be
presented to OCC as a result of more conservative capital requirement. included in the exhibition ‘‘Three
accepting letters of credit as a form of This more conservative capital Paintings by Johan Christian Dahl,’’
margin asset is reduced.7 requirement thereby increases the imported from abroad for temporary
In light of the more universal likelihood that the bank will have the exhibition within the United States, are
acceptance of Tier 1 Capital for bank ability to honor a demand for payment of cultural significance. The objects are
financial reporting standards and the made by OCC. For the same reason, OCC imported pursuant to a loan agreement
potential to reduce the credit risk believes that the adoption of a more with the foreign owner or custodian. I
associated with the issuance of letters of conservative capital requirement for also determine that the exhibition or
credit, OCC is amending Rule 604, banks approved to issue letters of credit display of the exhibit objects at The
Interpretation and Policy .01, to that may be deposited by clearing Metropolitan Museum of Art, New York,
substitute Tier 1 Capital for members as a form of margin asset is New York, from on or about June 1,
shareholders’ equity. Pursuant to the consistent with the requirement of Rule 2015, until on or about June 30, 2016,
rule change, as approved, OCC is also 17Ad–22(d)(3), promulgated under the and at possible additional exhibitions or
adding paragraph ‘‘c’’ to Interpretation Act, which requires OCC hold assets in venues yet to be determined, is in the
and Policy .01 under Rule 604 to adopt a manner that minimizes risk of loss or national interest. I have ordered that
a definition of Tier 1 Capital that delay in access to them.11 Public Notice of these Determinations
leverages the definition of Tier 1 Capital be published in the Federal Register.
used by a bank’s regulatory agency. OCC III. Conclusion
FOR FURTHER INFORMATION CONTACT: For
believes that such a definition is On the basis of the foregoing, the further information, including a list of
appropriate given that OCC accepts Commission finds that the proposal is the exhibit objects, contact the Office of
letters of credit from banks regulated by consistent with the requirements of the Public Diplomacy and Public Affairs in
different regulatory authorities.8 In Act, and in particular, with the the Office of the Legal Adviser, U.S.
addition, OCC is making a conforming requirements of Section 17A of the Department of State (telephone: 202–
change to OCC Rule 604, Interpretation Act 12 and the rules and regulations 632–6471; email: section2459@
and Policy .04, so that any one bank thereunder. state.gov). The mailing address is U.S.
may not issue letters of credit for an It is therefore ordered, pursuant to Department of State, L/PD, SA–5, Suite
individual clearing member exceeding Section 19(b)(2) of the Act,13 that the 5H03, Washington, DC 20522–0505.
15% of the bank’s Tier 1 Capital proposed rule change (SR–OCC–2015–
Dated: May 6, 2015.
(instead of shareholders’ equity). 007) be, and it hereby is, approved.
Kelly Keiderling,
II. Discussion and Commission For the Commission, by the Division of
Principal Deputy Assistant Secretary, Bureau
Findings Trading and Markets, pursuant to delegated
of Educational and Cultural Affairs,
authority.14
Section 19(b)(2)(C) of the Act 9 directs Department of State.
Robert W. Errett,
the Commission to approve a proposed [FR Doc. 2015–11557 Filed 5–12–15; 8:45 am]
Deputy Secretary.
rule change of a self-regulatory BILLING CODE 4710–05–P
[FR Doc. 2015–11480 Filed 5–12–15; 8:45 am]
organization if it finds that the proposed
BILLING CODE 8011–01–P
rule change is consistent with the
requirements of the Act and the rules DEPARTMENT OF STATE
and regulations thereunder applicable to [Public Notice 9131]
such organization. DEPARTMENT OF STATE
The Commission finds that the [Public Notice 9132] In the Matter of the Review of the
proposed rule change is consistent with Designation of al-Qa’ida (and Other
Section 17A(b)(3)(F) of the Act, which Culturally Significant Objects Imported Aliases) as a Foreign Terrorist
requires, among other things, that the for Exhibition Determinations: ‘‘Three Organization Pursuant to Section 219
rules of a clearing agency are designed Paintings by Johan Christian Dahl’’ of the Immigration and Nationality Act
Exhibition
7 OCC does not anticipate that the proposed rule Based upon a review of the
change will impact any of the banks already SUMMARY: Notice is hereby given of the Administrative Record assembled in
approved to issue letters of credit that may be following Determinations: Pursuant to this matter pursuant to Section
deposited by clearing members as a form of margin the authority vested in me by the Act of 219(a)(4)(C) and (b) of the Immigration
asabaliauskas on DSK5VPTVN1PROD with NOTICES

since all such banks maintain amounts of Tier 1
Capital that exceed, as applicable, $100 million for
and Nationality Act, as amended (8
U.S. banks or $200 million for Non-U.S. banks.
10 15 U.S.C. 78q–1(b)(3)(F). U.S.C. 1189(a)(4)(C), (b)) (‘‘INA’’), and in
8 See OCC Rule 604(c). For example, OCC accepts 11 17 CFR 240.17Ad–22(d)(3). consultation with the Attorney General
12 In approving this proposed rule change, the
letters of credit issued by banks regulated by The and the Secretary of the Treasury, the
Federal Reserve Board, The Office of the Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
Secretary of State concludes that the
Comptroller of the Currency, The Australian
Prudential Regulation Authority and The German formation. See 15 U.S.C. 78c(f). circumstances that were the basis for the
Federal Financial Supervisory Authority. 13 15 U.S.C. 78s(b)(2). 2009 decision to maintain the
9 15 U.S.C. 78s(b)(2)(C). 14 17 CFR 200.30–3(a)(12). designation of the aforementioned

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Document Created: 2015-12-16 07:47:21
Document Modified: 2015-12-16 07:47:21

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 27431