80 FR 45690 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving a Proposed Rule Change To Codify Procedures for Resizing the Options Clearing Corporation's Clearing Fund on a Monthly Basis and Increasing Such Clearing Fund Size on an Intra-Month Basis

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 147 (July 31, 2015)

Page Range		45690-45691
FR Document		2015-18770
Federal Register, Volume 80 Issue 147 (Friday, July 31, 2015)
[Federal Register Volume 80, Number 147 (Friday, July 31, 2015)]
[Notices]
[Pages 45690-45691]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-18770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75528; File No. SR-OCC-2015-013]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change To Codify Procedures for 
Resizing the Options Clearing Corporation's Clearing Fund on a Monthly 
Basis and Increasing Such Clearing Fund Size on an Intra-Month Basis

July 27, 2015.
    On June 19, 2015, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2015-013 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on June 26, 2015.\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. 75260 (June 22, 2015), 
80 FR 36867 (June 26, 2015) (SR-OCC-2015-013).
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I. Description

    According to OCC, it is amending Rule 1001(a) to codify the 
Commission's recent approval of and non-objection to procedures for 
resizing the clearing fund on a monthly basis and increasing such 
clearing fund size on an intra-month basis to ensure OCC maintains 
sufficient financial resources consistent with

[[Page 45691]]

regulatory requirements (``Procedures'').\4\
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    \4\ See Securities Exchange Act Release No. 74980 (May 15, 
2015), 80 FR 29364 (May 21, 2015) (SR-OCC-2015-009) and Securities 
Exchange Act Release No. 74981 (May 15, 2015), 80 FR 29367 (May 21, 
2015) (SR-OCC-2015-811). OCC recently amended the Procedures. See 
Securities Exchange Act Release No. 75255 (June 22, 2015), 80 FR 
36869 (June 26, 2015) (SR-OCC-2015-012) (changing the method by 
which certain dashboard reports are distributed).
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    Specifically, OCC recently adopted the Procedures which, according 
to OCC, are designed to clarify for clearing members and market 
participants the manner in which OCC would resize the clearing fund on 
a monthly basis and, if necessary, collect additional financial 
resources through intra-day margin calls and intra-month increases of 
the clearing fund.\5\ According to OCC, under the Procedures, OCC 
continues to size the clearing fund on the first business day of each 
month, with the clearing fund size equal to a base amount and an 
additional prudential margin of safety determined by OCC, currently set 
at $1.8 billion. The base amount is equal to the peak five-day rolling 
average of clearing fund draws \6\ observed over the preceding three 
calendar months. Under the Procedures, OCC must issue an intra-day 
margin call in the event that a projected draw on the clearing fund 
under stress tests conducted by OCC exceeds 75% of the then-current 
size of OCC's clearing fund. In addition, OCC must increase the size of 
the clearing fund intra-month where a projected draw, after taking into 
account intra-day margin collected under the Procedures, exceeds 90% of 
the then-current size of the clearing fund.
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    \5\ Id.
    \6\ According to OCC, clearing fund draws are the amounts that 
OCC would have been required to draw against the clearing fund under 
the daily idiosyncratic default and minor systemic default scenario 
calculations conducted by OCC (i.e., the amount of projected losses 
not covered by margin deposits or deposits in lieu of margin).
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    According to OCC, it is amending Rule 1001(a) to codify, in 
accordance with the Procedures, the process by which such clearing fund 
size: (i) Is determined and set on a monthly basis, and (ii) may be 
increased on an intra-month basis. OCC believes that the proposed rule 
change provides greater transparency to clearing members and other 
market participants, because OCC's practices with regard to the monthly 
sizing of the clearing fund and OCC's ability to increase the clearing 
fund intra-month in accordance with the Procedures would be codified in 
the text of Rule 1001(a).

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \7\ 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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    \7\ 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 \8\ and Rule 17Ad-22(b)(3) of the 
Act.\9\ Rule 17Ad-22(b)(3) of the Act requires OCC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain sufficient financial resources to 
withstand, at a minimum, a default by the participant family to which 
it has the largest exposure in extreme but plausible market 
conditions.\10\ OCC is amending Rule 1001(a) to reflect the process by 
which OCC determines its clearing fund size on a monthly basis and 
increases its clearing fund size on an intra-month basis. As stated 
above, OCC already adopted Procedures that reflect this change.\11\ By 
amending Rule 1001(a) to codify the Procedures, as described above, and 
thus permitting OCC to take action pursuant to the Procedures, OCC 
should be able to be more responsive to sudden increases in exposure 
and less sensitive to short-run reductions in exposure that could 
inappropriately reduce the overall size of the clearing fund. As a 
result, OCC should be in a better position to maintain sufficient 
financial resources to withstand, at a minimum, a default by the 
participant family to which it has the largest exposure in extreme but 
plausible market conditions.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ Id.
    \11\ See supra note 4.
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    For these same reasons, OCC's rule change is consistent with 
Section 17A(b)(3)(F) of the Act,\12\ which requires, in part, that the 
rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and 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. By maintaining financial resources in this manner, OCC is 
less likely to be subject to disruptions in its operations as a result 
of a default of a participant family, thereby facilitating the prompt 
and accurate clearance and settlement of securities transactions and 
assuring the safeguarding of securities and funds which are in the 
custody or control of OCC or for which it is responsible.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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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 \13\ and the 
rules and regulations thereunder.
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    \13\ 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,\14\ that the proposed rule change (SR-OCC-2015-013) be, and it 
hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Robert W. Errett,
Deputy Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-18770 Filed 7-30-15; 8:45 am]
 BILLING CODE 8011-01-P
45690 Federal Register / Vol. 80, No. 147 / Friday, July 31, 2015 / Notices

We periodically inspect the and the number of series and classes of directed to: (i) Desk Officer for the
operations of all funds to ensure their the fund. The estimated average burden Securities and Exchange Commission,
compliance with the provisions of the hours are made solely for purposes of Office of Information and Regulatory
Act and the rules under the Act. Our the Paperwork Reduction Act and are Affairs, Office of Management and
staff spends a significant portion of its not derived from quantitative, Budget, Room 10102, New Executive
time in these inspections reviewing the comprehensive, or even representative Office Building, Washington, DC 20503,
information contained in the books and survey or study of the burdens or by sending an email to: Shagufta_
records required to be kept by rule 31a– associated with our rules and forms. Ahmed@omb.eop.gov; and (ii) Pamela
1 and to be preserved by rule 31a–2. Based on conversations with Dyson, Director/Chief Information
There are 3146 funds currently representatives of the fund industry and Officer, Securities and Exchange
operating as of December 31, 2014, all past estimates, our staff estimates that Commission, c/o Remi Pavlik-Simon,
of which are required to comply with the average cost of preserving books and 100 F Street NE., Washington, DC 20549
rule 31a–2. Based on conversations with records required by rule 31a–2 is or send an email to: PRA_Mailbox@
representatives of the fund industry and approximately $74,782 annually per sec.gov. Comments must be submitted to
past estimates, our staff estimates that fund.8 As discussed previously, there OMB within 30 days of this notice.
each fund currently spends 220 total are 3,146 funds currently operating, for Dated: July 27, 2015.
hours per year complying with rule a total cost of preserving records as
Robert W. Errett,
31a–2. Our staff estimates that the 220 required by rule 31a–2 of approximately
hours spent by typical fund would be Deputy Secretary.
$235,264,172 per year.9 Our staff
split evenly between administrative and understands, however, based on [FR Doc. 2015–18765 Filed 7–30–15; 8:45 am]
computer operation personnel,5 with previous conversations with BILLING CODE 8011–01–P
110 hours spent by a general clerk at a representatives of the fund industry,
rate of $57 per hour and 110 hours spent that even in the absence of rule 31a–2
by a senior computer operator at a rate funds would already spend SECURITIES AND EXCHANGE
of $87 per hour.6 Based on these approximately half of this amount COMMISSION
estimates, our staff estimates that the ($117,632,086) to preserve these same
[Release No. 34–75528; File No. SR–OCC–
total annual burden for all funds to books and records, as they are also 2015–013]
comply with rule 31a–2 is 692,120 necessary to prepare financial
hours at an estimated cost of statements, meet various state reporting Self-Regulatory Organizations; The
$49,832,640.7 requirements, and prepare their annual Options Clearing Corporation; Order
The hour burden estimates for federal and state income tax returns. Approving a Proposed Rule Change To
retaining records under rule 31a–2 are Therefore, we estimate that the total Codify Procedures for Resizing the
based on our experience with registrants annual cost burden for all funds as a Options Clearing Corporation’s
and our experience with similar result of compliance with rule 31a–2 is Clearing Fund on a Monthly Basis and
requirements under the Act and the approximately $117,632,086 per year. Increasing Such Clearing Fund Size on
rules under the Act. The number of The estimate of average burden hours an Intra-Month Basis
burden hours may vary depending on, is made solely for the purposes of the
among other things, the complexity of Paperwork Reduction Act, and is not July 27, 2015.
the fund, the issues faced by the fund, derived from a comprehensive or even On June 19, 2015, The Options
a representative survey or study of the Clearing Corporation (‘‘OCC’’) filed with
legible, true, and complete printout of the record; costs of Commission rules and forms. the Securities and Exchange
and (C) means to access, view, and print the The collection of information under Commission (‘‘Commission’’) the
records; and must separately store, for the time
required for preservation of the original record, a rule 31a–2 is mandatory for all funds. proposed rule change SR–OCC–2015–
duplicate copy of the record on any medium An agency may not conduct or sponsor, 013 pursuant to Section 19(b)(1) of the
allowed by rule 31a–2(f). In the case of records and a person is not required to respond Securities Exchange Act of 1934
retained on electronic storage media, the fund, or to, a collection of information unless it (‘‘Act’’) 1 and Rule 19b–4 thereunder.2
person that maintains and preserves records on its
behalf, must establish and maintain procedures: (i) displays a currently valid control The proposed rule change was
To maintain and preserve the records, so as to number. published for comment in the Federal
reasonably safeguard them from loss, alteration, or The public may view the background Register on June 26, 2015.3 The
destruction; (ii) to limit access to the records to documentation for this information Commission did not receive any
properly authorized personnel, the directors of the
fund, and the Commission (including its examiners collection at the following Web site, comments on the proposed rule change.
and other representatives); and (iii) to reasonably www.reginfo.gov. Comments should be This order approves the proposed rule
ensure that any reproduction of a non-electronic change.
original record on electronic storage media is 8 This estimate is based on staff’s 2012 estimate
complete, true, and legible when retrieved. of costs of preserving books and records required I. Description
5 However, the hour burden may be incurred by
by rule 31a–2 ($70,000), adjusted for inflation to
a variety of fund staff, and the type of staff position January 2015 values using the Personal
According to OCC, it is amending
used for compliance with the rule may vary widely Consumption Expenditures Chain-Type Price Index Rule 1001(a) to codify the Commission’s
from fund to fund. (‘‘PCE Index’’). The values of the PCE Index are recent approval of and non-objection to
6 The estimated salary rates are derived from available from the Bureau of Economic Analysis, a procedures for resizing the clearing fund
SIFMA’s Office Salaries in the Securities Industry bureau of the Department of Commerce. See Bureau
2013, modified by Commission staff to account for of Economic Analysis, Table 2.8.6. Real Personal
on a monthly basis and increasing such
asabaliauskas on DSK5VPTVN1PROD with NOTICES

an 1800-hour work-year and multiplied by 2.93 to Consumption Expenditures by Major Type of clearing fund size on an intra-month
account for bonuses, firm size, employee benefits Product, Monthly, Chained Dollars (Last Revised on basis to ensure OCC maintains sufficient
and overhead. March 2, 2015), available at http://www.bea.gov/ financial resources consistent with
7 This estimate is based on the following iTable/iTable.cfm?ReqID=9&step=1#reqid=9&
calculations: 3146 funds × 220 hours = 692,120 total step=3&isuri=1&903=83. Thus, $70,000 (2012
hours; 692,120 hours/2 = 346,060 hours; 346,060 × estimate) × 11,163.6 (Jan. 2015 PCE Index value)/ 1 15 U.S.C. 78s(b)(1).
10,449.7 (2012 PCE Index value) = $74,782 (Jan. 2 17 CFR 240.19b–4.
$57 rate per hour for a clerk = $19,725,420; 346,060
× $87 rate per hour for a computer operator = 2015 inflation adjusted estimate). 3 Securities Exchange Act Release No. 75260

$30,107,220; $19,725,420 + $30,107,220 = 9 This estimate is based on the following (June 22, 2015), 80 FR 36867 (June 26, 2015) (SR–
$49,832,640 total cost. calculation: 3,146 funds × $74,782 = $235,264,172. OCC–2015–013).

VerDate Sep<11>2014 17:44 Jul 30, 2015 Jkt 235001 PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 E:\FR\FM\31JYN1.SGM 31JYN1
Document Created: 2015-12-15 12:59:14
Document Modified: 2015-12-15 12:59:14
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 45690