81 FR 35402 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation's Membership Approval Process
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 106 (June 2, 2016)
Federal Register Volume 81, Issue 106 (June 2, 2016)
| Page Range | 35402-35405 | |
| FR Document | 2016-13039 |
[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)] [Notices] [Pages 35402-35405] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-13039] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77938; File No. SR-OCC-2016-007] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation's Membership Approval Process May 27, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on May 16, 2016, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change The purpose of this proposed rule change is to: (i) Vest the authority to approve or disapprove new membership applications with OCC's Risk Committee,\3\ and (ii) delegate authority to the Executive Chairman or President of OCC to approve new membership applications provided that: (a) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (b) the Risk Committee is given not less than five business days to determine that the application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. --------------------------------------------------------------------------- \3\ OCC's Risk Committee is a committee of OCC's Board of Directors. See OCC's By-Laws Article III, Section 9. --------------------------------------------------------------------------- II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose The purpose of this proposed rule change is to streamline OCC's membership approval process by: (i) Allowing OCC's Executive Chairman or President to approve pro forma applications for clearing membership, and (ii) to vest ultimate authority with OCC's Risk Committee, not its Board, to approve or disapprove applications for clearing membership that are not approved by either OCC's Executive Chairman or President. To this end, OCC is proposing to: (i) Vest the authority to approve or disapprove new membership applications with OCC's Risk Committee, and (ii) delegate authority to the Executive Chairman or President of OCC to approve new membership applications provided that: (a) It is not recommended by the Risk Committee's designated delegates or agents that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (b) the Risk Committee is given not less than five business days to determine that the application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. The practical effect of the proposed rule change is that either OCC's Executive Chairman or President would be approving most applications for clearing membership at OCC since most applicants for clearing membership choose to have their application presented for approval only when such approval is pro forma in nature (i.e., the applicant meets all of the clearing membership requirements at OCC and there is no need to impose additional membership requirements). OCC believes that the proposed rule change would better allocate the time and resources of the Board and Risk Committee and ensure applications for clearing membership are considered in a timely manner. Background OCC believes that its membership criteria are objective standards that are designed not to unfairly discriminate in [[Page 35403]] the admission of participants to OCC,\4\ as well as to provide for fair and open access to OCC.\5\ Currently, the authority to approve or disapprove new applications for clearing membership resides with the Board.\6\ Under Article V, Section 2 of OCC's By-Laws, OCC's Risk Committee, including its designated delegates or agents, is responsible for reviewing applications for clearing membership, and the Risk Committee is responsible for making a recommendation of approval or disapproval to the Board (in part, relying on OCC's Management's review and recommendation).\7\ OCC's management (``Management'') performs the substantive review of applications for clearing membership on behalf of the Risk Committee. Management reviews a given application against OCC's membership criteria, which are set forth in Article V of OCC's By-Laws as well as Chapters 2 and 3 of OCC's Rules. Based on its review, Management, as the subject matter expert on OCC's membership criteria, either recommends an application for approval without conditions, recommends an application for approval with conditions (in accordance with OCC's By-Laws, Article V, Section 1, Interpretation and Policy .06), or does not recommend an application for approval. The Risk Committee, based on Management's review of the application, recommends a course of action to OCC's Board. OCC's Board then approves or disapproves applications for clearing membership based on the Risk Committee's recommendation. --------------------------------------------------------------------------- \4\ See 15 U.S.C. 78q-1(b)(3)(F). \5\ See 7 U.S.C. 7a-1(c)(2)(C)(iii)(III). \6\ See OCC's By-Laws Article V, Section 2. \7\ See OCC's By-Laws Article V, Section 2. The Risk Committee, from a practical perspective, has designated OCC's management as its agent to review applications for clearing membership. OCC's management reviews applications for clearing membership and makes a recommendation to the Risk Committee concerning the applicant's satisfaction of OCC's membership criteria. --------------------------------------------------------------------------- Moreover, since the rules of the Commission and the Commodity Futures Trading Commission require OCC to have rules that do not unfairly discriminate in the admission of participants and provide fair and open access,\8\ OCC believes that, under its rules, it is required to admit applicants for clearing membership that clearly meet OCC's membership criteria, and therefore, the Board's ultimate approval of an application for clearing membership for which Management does not recommend approval with conditions or disapproval is pro forma. From a timing perspective, applications for clearing membership often do not track the Risk Committee or Board's regular meeting schedule and, on occasion, the Board has had to convene a special meeting for the sole purpose of considering an application for clearing membership or otherwise seek [sic] approval via unanimous written consent, which is an inefficient use of the Board's time and resources. In an effort to better allocate the time and resources of OCC's Board and Risk Committee as well as streamline its clearing membership approval process, OCC is proposing the amendments to Articles V and VIII of its By-Laws as well as the Board and Risk Committee Charters described below. The effect of such amendments is that either OCC's Executive Chairman or President would approve most applications for clearing membership, thereby allowing the Board and the Risk Committee to better allocate their time and resources. --------------------------------------------------------------------------- \8\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C). --------------------------------------------------------------------------- Changes To Vest Authority of New Applicant Approvals With the Risk Committee OCC is proposing to amend Article V, Section 2 of its By-Laws to vest the authority to approve or disapprove new applicants for clearing membership with the Risk Committee. OCC believes that the members of the Board comprising the Risk Committee are capable of appropriately acting on membership applications. The Risk Committee is currently delegated the authority to (1) review applications for clearing membership and recommend approval or disapproval thereof to the Board, (2) conduct hearings if requested by applicants whose applications are proposed to be disapproved, and (3) review and approve or disapprove requests by clearing members to expand clearing activities.\9\ Therefore, OCC believes that requiring the Board to approve or disapprove an application for clearing membership that has already been reviewed by, and received a recommendation for approval or disapproval from, the Risk Committee is redundant and represents an inefficient use of the Board's time. Accordingly, OCC believes that the Risk Committee is the appropriate governing body in which to vest ultimate authority to approve or disapprove applications for clearing membership.\10\ Should the Risk Committee propose to disapprove an application for clearing membership, the Risk Committee must first provide the applicant an opportunity to be heard and present evidence on its own behalf (as is currently the case today with respect to the Board's decision to disapprove an application for clearing membership).\11\ --------------------------------------------------------------------------- \9\ See Section IV of the Risk Committee Charter attached hereto as Exhibit 5B. \10\ The Board would continue to oversee OCC's membership criteria and ongoing membership standards through its authority to approve changes to OCC's By-Laws and Rules (and specifically those By-Laws and Rules that concern membership). The Risk Committee would inform the Board, at the Board's next regularly scheduled meeting, of applications for clearing membership pursuant to proposed Article V, Section 2(c) of the By-Laws. \11\ See OCC's By-Laws Article V, Section 2. Typically, however, if OCC's due diligence review reveals issues that would prevent the Board or the Risk Committee from approving an application for clearing membership, the applicant voluntarily remediates such issues prior to the presentation of the application for clearing membership to the Risk Committee. --------------------------------------------------------------------------- In order to effect the foregoing, and in addition to proposed changes to Article V, Section 2 of the By-Laws, OCC is proposing conforming changes to Article V, Sections 1 and 3 of the By-Laws as well as the Board and Risk Committee Charters.\12\ Such conforming changes would identify that the Risk Committee, and not the Board, would approve applications for clearing membership. Additionally, OCC is proposing changes to Article VIII, Section 2 of the By-Laws (as well as the Board and Risk Committee Charters) to identify that the Risk Committee, and not the Board, would set initial clearing fund requirements in connection with the approval of an application for clearing membership. --------------------------------------------------------------------------- \12\ Marked versions of the Board and Risk Committee Charters are attached as Exhibits 5A and 5B. --------------------------------------------------------------------------- Delegation of Authority To Approve Applications for Membership to the Executive Chairman or President of OCC In order to better streamline OCC's membership application approval process, and allow the Board and the Risk Committee to more efficiently allocate their time, OCC is proposing additional amendments to Article V, Section 2 of its By-Laws to allow OCC's Executive Chairman or its President to approve certain applications for clearing membership. As described above: (i) OCC believes that, based on the applicable rules of the Commission and the Commodity Futures Trading Commission, applications for clearing membership that clearly meet OCC's membership criteria must be approved,\13\ and (ii) applications for clearing members do not necessarily track the Risk Committee or Board's regular meeting schedule and, on occasion, the Board has had to convene in a special meeting for the sole purpose of considering a clearing member [[Page 35404]] application or otherwise seek approval via unanimous written consent, which is not a good use of either the Board or the Risk Committee's time and resources. Therefore, OCC is proposing to amend Article V, Section 2 of its By-Laws to delegate the authority to approve applications for clearing membership to the Executive Chairman or President of OCC provided that: (i) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (ii) the Risk Committee is given not less than five business days from the date it is notified by its designated delegates or agents that the Executive Chairman or President intends to approve a given application to determine that such application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. If five business days pass and no member of the Risk Committee notifies Management that a given application for clearing membership should be reviewed at a meeting of the Risk Committee, then the Executive Chairman and President shall have the authority to approve the application for clearing membership. This proposed change would have the effect of allowing either OCC's Executive Chairman or the President to approve most applications for clearing membership received by OCC. Neither the Executive Chairman nor the President would be allowed to disapprove an application for clearing membership. Instead, if either the Executive Chairman or President determined he could not approve an application for clearing membership, the application would be considered by the Risk Committee for approval or disapproval at its next regularly scheduled meeting. OCC believes that allowing the Executive Chairman or President to approve applications for clearing membership that clearly meet OCC's membership criteria would allow the Board and the Risk Committee to allocate their time to more efficiently and effectively. --------------------------------------------------------------------------- \13\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C). --------------------------------------------------------------------------- (2) Statutory Basis OCC believes that the proposed rule change is consistent with Section 17A(b)(3)(F) \14\ of the Act because it is designed to remove impediments to a national system for the prompt and accurate clearance and settlement of securities transactions by streamlining OCC's membership approval process. By vesting the authority to approve or disapprove applications for clearing membership with the Risk Committee and by delegating authority to the Executive Chairman or the President to approve new applications provided that: (i) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (ii) the Risk Committee is given not less than five business days to determine that the application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period, OCC will not subject applicants for clearing membership to the regular meeting cycle of the Board or the Risk Committee, particularly when the approval of an application for clearing membership is pro forma in nature. Additionally, by streamlining OCC's membership approval process in this manner, OCC's Board and Risk Committee will be able to deploy their time and resources in a more efficient manner and allow the Board and Risk Committee more time to focus on other matters of significance to OCC and its role as a systemically important financial market utility. As a result, OCC believes the proposed rule change is also reasonably designed to provide for governance arrangements that are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \15\ applicable to clearing agencies and support the objectives of owners and participants in accordance with Rule 17Ad- 22(d)(8).\16\ The proposed rule change is not inconsistent with any rules of OCC, including those rules proposed to be amended. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78q-1(b)(3)(F). \15\ 15 U.S.C. 78q-1. \16\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- (B) Clearing Agency's Statement on Burden on Competition OCC does not believe that the proposed rule change would impact or impose a burden on competition.\17\ OCC believes that the proposed rule change would not disadvantage or favor any particular user of OCC's services in relationship to another user because it would apply equally to all potential users of OCC, and would not impact current users of OCC. For the foregoing reasons, OCC does not believe that the proposed rule change would have any impact or impose a burden on competition. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78q-1(b)(3)(I). --------------------------------------------------------------------------- (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-OCC-2016-007 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-OCC-2016-007. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the [[Page 35405]] proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_16_007.pdf. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2016-007 and should be submitted on or before June 23, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\ --------------------------------------------------------------------------- \18\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-13039 Filed 6-1-16; 8:45 am] BILLING CODE 8011-01-P
![35402 Federal Register / Vol. 81, No. 106 / Thursday, June 2, 2016 / Notices
Additional Permitted Cover is SECURITIES AND EXCHANGE in Item IV below. OCC has prepared
substantially similar to existing forms of COMMISSION summaries, set forth in sections (A), (B),
Permitted Cover, will be subject to the and (C) below, of the most significant
[Release No. 34–77938; File No. SR–OCC– aspects of these statements.
same valuation haircuts as currently
2016–007]
applied to currently accepted bonds of
(A) Clearing Agency’s Statement of the
the same issuer and within the same Self-Regulatory Organizations; The Purpose of, and Statutory Basis for, the
maturity bucket, and will be subject to Options Clearing Corporation; Notice Proposed Rule Change
both absolute limits and relative limits, of Filing of Proposed Rule Change
consistent with the existing issuer limits Related to The Options Clearing (1) Purpose
for Permitted Cover and the Collateral Corporation’s Membership Approval
and Haircut Policy. The Commission Process The purpose of this proposed rule
believes that the proposed rule change change is to streamline OCC’s
May 27, 2016. membership approval process by: (i)
is intended to allow Clearing Members
Pursuant to Section 19(b)(1) of the Allowing OCC’s Executive Chairman or
more flexibility in meeting their margin
Securities Exchange Act of 1934 President to approve pro forma
and guaranty fund requirements without
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 applications for clearing membership,
compromising ICE Clear Europe’s risk
notice is hereby given that on May 16, and (ii) to vest ultimate authority with
management function.
2016, The Options Clearing Corporation OCC’s Risk Committee, not its Board, to
The Commission therefore finds that (‘‘OCC’’) filed with the Securities and approve or disapprove applications for
the proposed rule change is designed to Exchange Commission (‘‘Commission’’) clearing membership that are not
promote the prompt and accurate the proposed rule change as described approved by either OCC’s Executive
clearance and settlement of securities in Items I, II, and III below, which Items Chairman or President. To this end,
transactions and, to the extent have been prepared primarily by OCC. OCC is proposing to: (i) Vest the
applicable, derivative agreements, The Commission is publishing this authority to approve or disapprove new
contracts, and transactions, and to notice to solicit comments on the membership applications with OCC’s
assure the safeguarding of securities and proposed rule change from interested Risk Committee, and (ii) delegate
funds which are in the custody or persons. authority to the Executive Chairman or
control of the clearing agency or for I. Clearing Agency’s Statement of the President of OCC to approve new
which it is responsible and, in general, Terms of Substance of the Proposed membership applications provided that:
to protect investors and the public Rule Change (a) It is not recommended by the Risk
interest. Committee’s designated delegates or
The purpose of this proposed rule agents that the Risk Committee impose
IV. Conclusion change is to: (i) Vest the authority to additional membership criteria upon the
approve or disapprove new membership applicant pursuant to Section 1,
On the basis of the foregoing, the applications with OCC’s Risk
Commission finds that the proposal is Interpretation and Policy .06 of Article
Committee,3 and (ii) delegate authority V of OCC’s By-Laws, and (b) the Risk
consistent with the requirements of the to the Executive Chairman or President Committee is given not less than five
Act and in particular with the of OCC to approve new membership business days to determine that the
requirements of Section 17A of the Act 9 applications provided that: (a) It is not application should be reviewed at a
and the rules and regulations recommended that the Risk Committee
meeting of the Risk Committee and the
thereunder. impose additional membership criteria
Risk Committee has not requested that
It is therefore ordered, pursuant to upon the applicant pursuant to Section
the application be reviewed at a meeting
Section 19(b)(2) of the Act,10 that the 1, Interpretation and Policy .06 of
of the Risk Committee within such five
proposed rule change (File No. SR– Article V of OCC’s By-Laws, and (b) the
day period. The practical effect of the
ICEEU–2016–004) as amended by Risk Committee is given not less than
proposed rule change is that either
five business days to determine that the
Amendment No. 1, be, and hereby is, OCC’s Executive Chairman or President
application should be reviewed at a
approved.11 would be approving most applications
meeting of the Risk Committee and the
For the Commission, by the Division of for clearing membership at OCC since
Risk Committee has not requested that
Trading and Markets, pursuant to delegated most applicants for clearing
the application be reviewed at a meeting
authority.12 membership choose to have their
of the Risk Committee within such five
day period. application presented for approval only
Robert W. Errett,
when such approval is pro forma in
Deputy Secretary. II. Clearing Agency’s Statement of the nature (i.e., the applicant meets all of
[FR Doc. 2016–13042 Filed 6–1–16; 8:45 am] Purpose of, and Statutory Basis for, the the clearing membership requirements
BILLING CODE 8011–01–P Proposed Rule Change at OCC and there is no need to impose
In its filing with the Commission, additional membership requirements).
OCC included statements concerning OCC believes that the proposed rule
the purpose of and basis for the change would better allocate the time
proposed rule change and discussed any and resources of the Board and Risk
asabaliauskas on DSK3SPTVN1PROD with NOTICES
comments it received on the proposed Committee and ensure applications for
rule change. The text of these statements clearing membership are considered in
9 15 U.S.C. 78q–1.
may be examined at the places specified a timely manner.
10 15 U.S.C. 78s(b)(2).
11 In approving the proposed rule change, the
1 15
Background
U.S.C. 78s(b)(1).
Commission considered the proposal’s 2 17 CFR 240.19b–4.
impact on efficiency, competition and capital 3 OCC’s Risk Committee is a committee of OCC’s
OCC believes that its membership
formation. 15 U.S.C. 78c(f). Board of Directors. See OCC’s By-Laws Article III,
criteria are objective standards that are
12 17 CFR 200.30–3(a)(12). Section 9. designed not to unfairly discriminate in
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the admission of participants to OCC,4 for clearing membership often do not Committee propose to disapprove an
as well as to provide for fair and open track the Risk Committee or Board’s application for clearing membership,
access to OCC.5 Currently, the authority regular meeting schedule and, on the Risk Committee must first provide
to approve or disapprove new occasion, the Board has had to convene the applicant an opportunity to be heard
applications for clearing membership a special meeting for the sole purpose of and present evidence on its own behalf
resides with the Board.6 Under Article considering an application for clearing (as is currently the case today with
V, Section 2 of OCC’s By-Laws, OCC’s membership or otherwise seek [sic] respect to the Board’s decision to
Risk Committee, including its approval via unanimous written disapprove an application for clearing
designated delegates or agents, is consent, which is an inefficient use of membership).11
responsible for reviewing applications the Board’s time and resources. In an In order to effect the foregoing, and in
for clearing membership, and the Risk effort to better allocate the time and addition to proposed changes to Article
Committee is responsible for making a resources of OCC’s Board and Risk V, Section 2 of the By-Laws, OCC is
recommendation of approval or Committee as well as streamline its proposing conforming changes to
disapproval to the Board (in part, clearing membership approval process, Article V, Sections 1 and 3 of the By-
relying on OCC’s Management’s review OCC is proposing the amendments to Laws as well as the Board and Risk
and recommendation).7 OCC’s Articles V and VIII of its By-Laws as Committee Charters.12 Such conforming
management (‘‘Management’’) performs well as the Board and Risk Committee changes would identify that the Risk
the substantive review of applications Charters described below. The effect of Committee, and not the Board, would
for clearing membership on behalf of the such amendments is that either OCC’s approve applications for clearing
Risk Committee. Management reviews a Executive Chairman or President would membership. Additionally, OCC is
given application against OCC’s approve most applications for clearing proposing changes to Article VIII,
membership criteria, which are set forth membership, thereby allowing the Section 2 of the By-Laws (as well as the
in Article V of OCC’s By-Laws as well Board and the Risk Committee to better Board and Risk Committee Charters) to
as Chapters 2 and 3 of OCC’s Rules. allocate their time and resources. identify that the Risk Committee, and
Based on its review, Management, as the not the Board, would set initial clearing
subject matter expert on OCC’s Changes To Vest Authority of New fund requirements in connection with
membership criteria, either recommends Applicant Approvals With the Risk the approval of an application for
an application for approval without Committee clearing membership.
conditions, recommends an application OCC is proposing to amend Article V,
for approval with conditions (in Section 2 of its By-Laws to vest the Delegation of Authority To Approve
accordance with OCC’s By-Laws, Article authority to approve or disapprove new Applications for Membership to the
V, Section 1, Interpretation and Policy applicants for clearing membership with Executive Chairman or President of OCC
.06), or does not recommend an the Risk Committee. OCC believes that In order to better streamline OCC’s
application for approval. The Risk the members of the Board comprising membership application approval
Committee, based on Management’s the Risk Committee are capable of process, and allow the Board and the
review of the application, recommends appropriately acting on membership Risk Committee to more efficiently
a course of action to OCC’s Board. applications. The Risk Committee is allocate their time, OCC is proposing
OCC’s Board then approves or currently delegated the authority to (1) additional amendments to Article V,
disapproves applications for clearing review applications for clearing Section 2 of its By-Laws to allow OCC’s
membership based on the Risk membership and recommend approval Executive Chairman or its President to
Committee’s recommendation. or disapproval thereof to the Board, (2) approve certain applications for clearing
Moreover, since the rules of the conduct hearings if requested by membership. As described above: (i)
Commission and the Commodity applicants whose applications are OCC believes that, based on the
Futures Trading Commission require proposed to be disapproved, and (3) applicable rules of the Commission and
OCC to have rules that do not unfairly review and approve or disapprove the Commodity Futures Trading
discriminate in the admission of requests by clearing members to expand Commission, applications for clearing
participants and provide fair and open clearing activities.9 Therefore, OCC membership that clearly meet OCC’s
access,8 OCC believes that, under its believes that requiring the Board to membership criteria must be
rules, it is required to admit applicants approve or disapprove an application approved,13 and (ii) applications for
for clearing membership that clearly for clearing membership that has clearing members do not necessarily
meet OCC’s membership criteria, and already been reviewed by, and received track the Risk Committee or Board’s
therefore, the Board’s ultimate approval a recommendation for approval or regular meeting schedule and, on
of an application for clearing disapproval from, the Risk Committee is occasion, the Board has had to convene
membership for which Management redundant and represents an inefficient in a special meeting for the sole purpose
does not recommend approval with use of the Board’s time. Accordingly, of considering a clearing member
conditions or disapproval is pro forma. OCC believes that the Risk Committee is
From a timing perspective, applications the appropriate governing body in applications for clearing membership pursuant to
which to vest ultimate authority to proposed Article V, Section 2(c) of the By-Laws.
4 See 15 U.S.C. 78q–1(b)(3)(F). 11 See OCC’s By-Laws Article V, Section 2.
5 See 7 U.S.C. 7a–1(c)(2)(C)(iii)(III).
approve or disapprove applications for Typically, however, if OCC’s due diligence review
6 See OCC’s By-Laws Article V, Section 2. clearing membership.10 Should the Risk reveals issues that would prevent the Board or the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
7 See OCC’s By-Laws Article V, Section 2. The Risk Committee from approving an application for
Risk Committee, from a practical perspective, has 9 See Section IV of the Risk Committee Charter clearing membership, the applicant voluntarily
designated OCC’s management as its agent to attached hereto as Exhibit 5B. remediates such issues prior to the presentation of
review applications for clearing membership. OCC’s 10 The Board would continue to oversee OCC’s the application for clearing membership to the Risk
management reviews applications for clearing membership criteria and ongoing membership Committee.
membership and makes a recommendation to the 12 Marked versions of the Board and Risk
standards through its authority to approve changes
Risk Committee concerning the applicant’s to OCC’s By-Laws and Rules (and specifically those Committee Charters are attached as Exhibits 5A and
satisfaction of OCC’s membership criteria. By-Laws and Rules that concern membership). The 5B.
8 See 15 U.S.C. 78q–1(b)(3)(F) and 7 U.S.C. 7a– Risk Committee would inform the Board, at the 13 See 15 U.S.C. 78q–1(b)(3)(F) and 7 U.S.C. 7a–
1(c)(2)(C). Board’s next regularly scheduled meeting, of 1(c)(2)(C).
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proposed rule change between the response to this proposal.4 This order According to the Exchange, members
Commission and any person, other than approves the proposed rule change. will have the discretion to establish the
those that may be withheld from the applicable time period for each of the
II. Description of the Proposed Rule
public in accordance with the counts maintained under the Market
Change
provisions of 5 U.S.C. 552, will be Wide Risk Protection, provided that the
available for Web site viewing and The Exchange proposed to introduce selected period is within minimum and
printing in the Commission’s Public two activity-based risk protection maximum time parameters that will be
Reference Room, 100 F Street NE., measures that will be mandatory for all established by the Exchange and
Washington, DC 20549, on official members: (1) The ‘‘Order Entry Rate
announced via circular.10 By contrast,
business days between the hours of Protection,’’ which prevents members
the Exchange’s proposal does not
10:00 a.m. and 3:00 p.m. Copies of such from entering orders at a rate that
exceeds predefined thresholds,5 and (2) establish minimum or maximum values
filing also will be available for for the order entry or execution
inspection and copying at the principal the ‘‘Order Execution Rate Protection,’’
which prevents members from parameters described in (1) and (2)
office of OCC and on OCC’s Web site at above. Nevertheless, the Exchange will
http://www.theocc.com/components/ executing orders at a rate that exceeds
their predefined risk settings (together, establish default values 11 for the time
docs/legal/rules_and_bylaws/sr_occ_16_
‘‘Market Wide Risk Protection’’). The period, order entry, and contracts traded
007.pdf.
Exchange will announce the parameters in a circular to be
All comments received will be posted implementation date of the proposed distributed to members. The Exchange
without change; the Commission does rule in a circular to be distributed to represented that such default values
not edit personal identifying members prior to implementation.6 will apply only to members that do not
information from submissions. You Pursuant to proposed Rule 714(d), submit their own parameters for the
should submit only information that ‘‘Market Wide Risk Protection,’’ the Market Wide Risk Protection
you wish to make available publicly. All Exchange’s trading system (the measures.12
submissions should refer to File ‘‘System’’) will maintain one or more
Number SR–OCC–2016–007 and should Under proposed Rule 714(d), the
counting programs on behalf of each System will trigger the Market Wide
be submitted on or before June 23, 2016. member that will track the number of Risk Protection when it determines that
For the Commission, by the Division of orders entered and the number of the member has either (1) entered a
Trading and Markets, pursuant to delegated contracts traded on ISE Mercury.7
authority.18
number of orders exceeding its
Members may also use multiple
designated allowable order rate for the
Robert W. Errett, counting programs to separate risk
specified time period, or (2) executed a
Deputy Secretary. protections for different groups
number of contracts exceeding its
[FR Doc. 2016–13039 Filed 6–1–16; 8:45 am] established within the member.8 The
designated allowable contract execution
counting programs will maintain
BILLING CODE 8011–01–P
separate counts, over rolling time rate for the specified time period.13 If
periods specified by the member, for the member’s thresholds have been
each count of: (1) The total number of exceeded, the Market Wide Risk
SECURITIES AND EXCHANGE Protection will be triggered and the
COMMISSION orders entered; and (2) the total number
of contracts traded.9 System will automatically reject all
subsequent incoming orders entered by
[Release No. 34–77931; File No. SR– 4 The Commission received one anonymous the member on ISE Mercury. In
ISEMercury–2016–07] comment letter that read ‘‘[g]ood.’’ See Letter from addition, if the member has opted in to
Anonymous, dated May 3, 2016. this functionality, the System will
Self-Regulatory Organizations; ISE 5 The Exchange stated that it will initiate the
Mercury, LLC; Order Approving automatically cancel all of the member’s
Order Entry Rate Protection pre-open, but in a
Proposed Rule Change Related to manner that allows members time to load their existing orders.14 The Market Wide Risk
Market Wide Risk Protection orders without inadvertently triggering the Protection will remain engaged until the
protection. The Exchange further noted that it will member manually (e.g., via email)
establish and communicate the precise initiation
May 26, 2016.
time via circular and prior to implementation. See
Notice, supra note 3, at 22141 n.4. Protection will be comprised of parameter (2). The
I. Introduction 6 See Notice, supra note 3, at 22141. Exchange further explained that contracts executed
7 Unlike similar risk protection measures on the agency and contra-side of a two-sided
On March 29, 2016, ISE Mercury, LLC crossing order will be counted separately for the
available on ISE Mercury’s affiliated exchanges, the
(the ‘‘Exchange’’ or ‘‘ISE Mercury’’) filed Market Wide Risk Protection functionality for ISE Order Execution Rate Protection. See Notice, supra
with the Securities and Exchange Mercury will not apply cross-market to its affiliated note 3, at 22141.
10 See Notice, supra note 3, at 22141. The
Commission (‘‘Commission’’) pursuant exchanges. Cf., e.g., Securities Exchange Act
Release Nos. 77489 (Mar. 31, 2016), 81 FR 20004 Exchange stated that it anticipated setting these
to Section 19(b)(1) of the Securities minimum and maximum time parameters at one
(Apr. 6, 2016) (SR–ISE–2016–08) (notice describing
Exchange Act of 1934 (‘‘Act’’) 1 and Rule International Securities Exchange, LLC’s Market second and a full trading day, respectively. See id.
19b–4 thereunder,2 a proposed rule Wide Risk Protection functionality); and 77488 at n.9.
change to introduce new activity-based (Mar. 31, 2016), 81 FR 20021 (Apr. 6, 2016) (SR– 11 See proposed Rule 714(d); see also Notice,
risk protection functionality. The ISEGemini–2016–03) (notice describing ISE Gemini, supra note 3, at 22141.
LLC’s Market Wide Risk Protection functionality). 12 See Notice, supra note 3, at 22141.
proposed rule change was published for See also Notice, supra note 3, at 22141 n.6. 13 Id.; see also proposed Rule 714(d)(1).
asabaliauskas on DSK3SPTVN1PROD with NOTICES
comment in the Federal Register on 8 The Exchange stated that it will explain how Specifically, after a member enters or executes an
April 14, 2016.3 No substantive members can go about setting up risk protections order, the System will look back over the specified
comment letters were received in for different groups (e.g., business units) in a time period to determine whether the member has
circular issued to members. See Notice, supra note exceeded the relevant thresholds. See Notice, supra
3, at 22141 n.7. note 3, at 22141. In the Notice, the Exchange
18 17 CFR 200.30–3(a)(12). 9 See proposed Rule 714(d). The Exchange provided examples illustrating how the Market
1 15 U.S.C. 78s(b)(1). clarified that a member’s allowable order rate for Wide Risk Protection functionality would work
2 17 CFR 240.19b–4. both for order entry and order execution
the Order Entry Rate Protection will be comprised
3 See Securities Exchange Act Release No. 77569 of parameter (1), while the allowable contract protections. See Notice, supra note 3, at 22141–42.
(April 8, 2016), 81 FR 22140 (‘‘Notice’’). execution rate for the Order Execution Rate 14 Proposed Rule 714(d)(2).
VerDate Sep<11>2014 18:30 Jun 01, 2016 Jkt 238001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\02JNN1.SGM 02JNN1](https://thefederalregister.org/doc/81_FR_35508/page/4.svg)
Document Created: 2016-06-02 01:22:54
Document Modified: 2016-06-02 01:22:54
| 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 | 81 FR 35402 |
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