81 FR 51220 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning Enhancements to The Options Clearing Corporation's Governance Arrangements
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 149 (August 3, 2016)
Federal Register Volume 81, Issue 149 (August 3, 2016)
| Page Range | 51220-51237 | |
| FR Document | 2016-18320 |
[Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)] [Notices] [Pages 51220-51237] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-18320] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78438; File No. SR-OCC-2016-002] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning Enhancements to The Options Clearing Corporation's Governance Arrangements July 28, 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 July 15, 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 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 This proposed rule change by The Options Clearing Corporation (``OCC'') concerns modifications and enhancements to OCC's governance arrangements. OCC is proposing to amend its Certificate of Incorporation, By-Laws, and Board of Directors (``Board'') Charter to require that only one Management Director serve on OCC's Board (as opposed to the current requirement of two Management Directors). Moreover, OCC is proposing to amend its By-Laws and Rules to delete all references to the title and responsibilities of the Management Vice Chairman. In addition, OCC is proposing to amend its By-Laws to: (i) Provide that the Compensation and Performance Committee (``CPC'') \3\ and [[Page 51221]] the Audit Committee (``AC'') each will be chaired by a Public Director; (ii) modify the composition requirements of the Risk Committee (``RC'') to, among other things, provide that an Exchange Director be a member of the Risk Committee; (iii) provide for action by the OCC Board in the nomination process for Member Directors and Public Directors; (iv) eliminate term limits for Public Directors; and (v) consolidate By-Law sections that identify the committees of the Board into a single section of the By-Laws. Finally, OCC is proposing amendments to the Charters of the Board and the AC, CPC, Governance and Nominating Committee (``GNC''), RC, and Technology Committee (``TC'') (collectively, ``Board Committees'' or ``Committees'' and each a ``Board Committee'' or ``Committee'') that stem from scheduled reviews of such documents. --------------------------------------------------------------------------- \3\ As described below, the Performance Committee would be renamed as the Compensation and Performance Committee. --------------------------------------------------------------------------- All capitalized terms not defined herein have the same meaning as set forth in the OCC By-Laws and Rules. 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 implement a number of modifications and enhancements to OCC's governance arrangements. Specifically, as a result of the Board's continual evaluation of OCC's governance arrangements, OCC is proposing to change the composition requirements of its Board to require that one Management Director serves on OCC's Board (as opposed to two) and to eliminate the role of Management Vice Chairman to provide more clarity and transparency regarding the status of these roles at OCC. In addition, OCC is proposing to amend its By-Laws to, among other things: (i) Provide that the CPC and the AC each will be chaired by a Public Director to underscore and reinforce the independence of those committees and align with governance best practices and practices of other self-regulatory organizations; (ii) modify the composition requirements of the RC, including to provide that an Exchange Director be a member of the RC to provide the RC with additional expertise and unique perspective on matters such as market risk and special risks arising from trading practices and strategies, and new products; (iii) provide for Board action in the nomination process for Member Directors and Public Directors of OCC's Board to ensure an appropriate level of oversight and participation by the Board in determining its own composition and that the composition of the Board fulfils its needs for particular skills and qualifications; (iv) eliminate term limits for Public Directors in the interest of ensuring that OCC has access to the full benefits of a Public Director's understanding and learning, with respect to OCC and the markets OCC serves, as that knowledge develops over time; and (v) consolidate By-Laws sections that identify the committees of the Board into a single section of the By-Laws to provide more clarity and transparency to OCC's participants regarding the existence and composition of such Committees. OCC is also proposing amendments to the Charters of OCC's Board, AC, CPC, GNC, RC, and TC that stem from scheduled reviews of such documents. The proposed amendments to the Board and Committee Charters are designed, in general, to provide more clarity and transparency around the oversight functions and responsibilities of the Board and each of its Committees and provide for a more comprehensive and robust oversight framework for the financial reporting, audit and compliance, compensation and performance, governance and nomination, risk, and technology functions at OCC. The proposed amendments to OCC's Certificate of Incorporation, By- Laws, Rules, Board and Committee Charters, and Amended and Restated Stockholders Agreement are described in detail below. Proposed Amendments to OCC's Certificate of Incorporation OCC is proposing to amend its Certificate of Incorporation to state that the number of Management Directors serving on OCC's Board shall be such number as shall be fixed by or pursuant to OCC's By-Laws.\4\ The purpose of this proposed change is ultimately to require that only one Management Director shall serve on OCC's Board as OCC is also proposing to amend its By-Laws to state that one Management Director shall serve on OCC's Board (as discussed in more detail below). The proposed amendments would also ensure consistency between all of OCC's governing documents concerning the number of Management Directors on OCC's Board. OCC's Certificate of Incorporation and By-Laws currently state that OCC's Board shall be composed of Members Directors, Exchange Directors, Public Directors, and two Management Directors. Recently, however, there has been a vacancy for one Management Director position and only one Management Director is serving on the Board at this time.\5\ OCC's Board continually evaluates the leadership structure at OCC, including the appropriate number of Management Directors for OCC's Board, and in light of recent experience since the vacancy of the second Management Director position, believes that amending the Board composition to require one Management Director on OCC's Board would continue to provide an appropriate level of management representation in the Board- level oversight of OCC. The Executive Chairman, as Management Director, would continue to represent management's viewpoint on OCC's Board. Moreover, the Board has access to OCC's management team, which ensures that the Board has continued access to management's perspectives on the business and affairs of OCC. Furthermore, OCC notes that, prior to the addition of a second Management Director seat in 2013, OCC has historically had only one Management Director serving on its Board.\6\ Accordingly, OCC believes that the [[Page 51222]] proposed amendments would continue to provide for prudent governance arrangements at OCC. OCC is also proposing conforming changes to the Board Charter as described below. --------------------------------------------------------------------------- \4\ The number of Management Directors required to serve on OCC's Board would be stipulated by Article III, Section 1 of OCC's By-Laws. Article XI, Section 1 of OCC's By-Laws states that Article III of the By-Laws may not be amended by action of the Board without the approval of the holders of all of the outstanding Common Stock of the Corporation entitled to vote thereon. Accordingly, any proposed change in the number of Management Directors required to serve on OCC's Board would continue to be subject to stockholder approval. \5\ In 2014, the Commission approved a proposed rule change providing that OCC's President would not be considered a Management Director and, therefore, only one Management Director (the Executive Chairman) currently serves on the Board. See Securities Exchange Act Release No. 73785 (December 8, 2014), 79 FR 73915 (December 12, 2014) (SR-OCC-2014-18). \6\ In 2013, the Commission approved a proposed rule change by OCC to provide for the separation of the powers and duties combined in the office of OCC's Chairman of the Board of Directors into two offices, Chairman and President, and to create an additional directorship to be occupied by the President. See Securities Exchange Act Release No. 34-[sic]70076 (July 30, 2013), 78 FR 47449 (August 5, 2013) (SR-OCC-2013-09). --------------------------------------------------------------------------- Proposed Amendments to OCC's By-Laws and Rules Number of Management Directors on OCC's Board OCC is proposing to amend Article III, Section 1 of its By-Laws to state that only one Management Director will serve on OCC's Board (as opposed to the current requirement of two). As noted above, OCC's Board continually evaluates the leadership structure at OCC, including the appropriate number of Management Directors for OCC's Board, and believes that amending the Board composition to require one Management Director on OCC's Board would continue to provide an appropriate level of management representation in the Board-level oversight of OCC. OCC is also proposing conforming changes to Article III, Sections 10 (Resignations) and 12 (Filling of Vacancies and Newly Created Directorships) of the By-Laws to reflect that only one Management Director, the Executive Chairman, would be serving on OCC's Board. Elimination of Management Vice Chairman Role OCC proposes to amend its By-Laws and Rules to eliminate the role of Management Vice Chairman. The office of Management Vice Chairman has been vacant for a number of years and has not been included in the Board's current discussions regarding management succession planning. During that time, the thought process surrounding leadership roles at OCC has evolved. OCC believes that any of the responsibilities of the Management Vice Chairman are already appropriately handled by other officers of OCC, primarily the Executive Chairman and President (or where applicable, other officers such as the Secretary or Directors such as the Member Vice Chairman) \7\ and as a result, this role is being eliminated from OCC's By-Laws and Rules. OCC believes the proposed amendments would more accurately reflect the current state of affairs regarding the office, ensure consistency across all of OCC's governing documents, and provide more clarity and transparency regarding OCC's intended governance arrangements. --------------------------------------------------------------------------- \7\ For example, under proposed revisions to Article IV, Section 7, the Member Vice Chairman would preside over Board and stockholder meetings in the absence of the Executive Chairman. --------------------------------------------------------------------------- In particular, OCC is proposing to amend (i) By-Laws Article I.A.(13); Article II, Section 4; Article III, Section 15; Article IV; Article V, Sections 1 and 3; Article VI, Section 17; Article VIII, Section 5; Article IX, Sections 12 and 14 and (ii) Rules 305, 309, 309A, 505, 609A, 801, 804, 805, 901, 903, 1104, 1106, 1309, 1402, 1405, 1604, 1610, 2104, 2110, and 2408 to remove all references to and responsibilities of the role of Management Vice Chairman. Committee Descriptions and Other Conforming By-Law Amendments OCC is proposing to amend Article III of its By-Laws in order to provide descriptions of the AC, CPC, GNC, RC, and TC in a single section of the By-Laws. Specifically, OCC is proposing to consolidate existing Article III, Section 4 (which concerns the GNC) and existing Article III, Section 9 (which concerns the RC,\8\ the TC,\9\ and the Board's ability to designate persons to serve on Committees, generally), into Article III, Section 4 and add descriptions of the CPC and AC to Article III, Section 4 of its By-Laws in order to provide a more transparent, centralized, and unified statement describing all of the Board Committees. In addition, OCC proposes to make a non- substantive drafting clarification to existing language being relocated from Article III, Section 9 to the introductory section of Article III, Section 4 to clarify that the Board is required to designate persons to serve on the specifically enumerated Committees therein. --------------------------------------------------------------------------- \8\ The description of the RC in proposed Article III, Section 4(d) of the By-Laws would reflect changes to OCC's existing policy regarding the composition of the RC in order to conform the By-Law provision to changes recommended as a result of the annual review of the RC Charter (as discussed below). See infra note 15, and related text. \9\ The Commission recently approved a proposed rule change by OCC to adopt a Technology Committee of the Board of Directors. See Securities Exchange Act Release No. 77042 (February 3, 2016), 81 FR 6915 (February 9, 2016) (SR-OCC-2015-018). --------------------------------------------------------------------------- The proposed description of the AC would reflect existing requirements in the AC and GNC Charters that, on an annual basis, the Board of Directors shall appoint an AC selected from among the directors recommended by the then-constituted GNC after consultation with the Executive Chairman and shall serve at the pleasure of the Board, provided that no Management Director may serve on the Audit Committee. The proposed description of the AC would also include a new requirement that the chairman of the AC shall be designated by the Board from among the Public Director member(s) of the Committee (as described further below). The proposed description of the CPC would reflect the existing requirement that, on an annual basis, the Board of Directors shall appoint a CPC and that the CPC generally consists of the Executive Chairman, the Member Vice Chairman, and at least one Public Director.\10\ Consistent with the preceding sentence, all of the CPC members will be selected by the Board from among the directors recommended by the then-constituted GNC after consultation with the Executive Chairman and shall serve at the pleasure of the Board. The proposed description would also include a new requirement that the chairman of the CPC shall be designated by the Board from among the Public Director member(s) of the Committee (as described further below). OCC believes that consolidating the descriptions of all Board Committees into Article III, Section 4 of its By-Laws would provide more clarity and transparency to OCC's participants regarding the existence and composition of such Committees. --------------------------------------------------------------------------- \10\ The proposed description of the CPC in the By-Laws includes the general requirement that CPC shall include the Executive Chairman, the Member Vice Chairman, and at least one Public Director. The proposed description is not intended to change the more specific CPC composition requirements in the CPC Charter that the committee consist of a Public Director chair, the Executive Chairman, the Member Vice Chairman, and three or more other directors appointed annually by the Board. --------------------------------------------------------------------------- OCC is proposing amendments to Article IV, Section 1 of the By-Laws to provide that the Board will elect the Executive Chairman and Vice Chairman of the Board upon the nomination of the GNC and also elect the President of OCC (in addition to the Secretary and Treasurer). In addition, OCC proposes amendments to Article IV, Section 7 to delete a requirement that the Member Vice Chairman preside at the meetings of any Committee of the Board of Directors charged with the responsibility for evaluating the performance and compensation of officers as the CPC would now be chaired by a Public Director. OCC also proposes amendments to clarify that the Member Vice Chairman would preside over meetings of the Board and stockholders in the absence of the Executive Chairman because the President cannot preside over meetings of the Board.\11\ --------------------------------------------------------------------------- \11\ See OCC's By-Laws Article IV, Section 8. --------------------------------------------------------------------------- Compensation and Performance Committee and Audit Committee Independence In addition to the proposed changes described above, OCC is also proposing [[Page 51223]] changes to the Board Committee descriptions in proposed Article III, Sections 4(a) and (b) of the By-Laws to reflect the requirement that a Public Director \12\ chair the AC and the CPC. The GNC recently performed a review of governance trends and best practices among self- regulatory organizations as they relate to board-level compensation committees.\13\ The review was undertaken in order to further the Board's oversight of employee compensation and benefits, recognizing that the CPC primarily functions as a compensation committee (although it also has broad oversight responsibilities for financial and budget matters). The review highlighted that having the CPC chaired by a Public Director (rather than a Member Director,\14\ which is currently the case) would be more consistent with governance best practices and practices of other self-regulatory organizations. Moreover, such a change would ensure that compensation and related decisions are undertaken in a way that is likely to support objective judgment and independence unfettered by potential conflicts that may exist by having a Member Director chair the CPC given OCC's self-regulatory responsibilities. The Board agreed with the GNC's recommendation. --------------------------------------------------------------------------- \12\ See Article III Section 6A of OCC's By-Laws regarding Public Directors. \13\ The GNC Charter provides, in relevant part, that the purpose of the GNC is to review on a regular basis the overall corporate governance of OCC and recommend improvements to the Board when necessary. \14\ See OCC's By-Laws Article III, Section 3 and Section 5. --------------------------------------------------------------------------- Additionally, the GNC reviewed proposed regulatory standards for audit committees of self-regulatory organizations that would require such audit committees to be independent based on facts determined by a given self-regulatory organization's board of directors. Such review caused the GNC to recommend to the Board that a Public Director should be required to chair the AC in order to align with governance best practices for audit committees and to support the objectivity of the AC. The Board agreed with the GNC's recommendation. Moreover, and in furtherance of the goal of AC independence, any currently serving Management Director(s) would not be eligible to serve on the AC. Risk Committee Membership OCC is proposing to amend Article III of its By-Laws to modify the composition requirements of OCC's RC. Existing Article III, Section 9 of OCC's By-Laws currently requires that the RC shall consist of the Executive Chairman, the Member Vice Chairman, at least three other Member Directors selected on a basis that shall not discriminate against any Exchange, and one or more Public Directors. OCC is proposing to replace this description of the RC with new Article III, Section 4(d), which would relocate and modify the RC composition requirements to (i) provide that an Exchange Director \15\ be a member of the RC and (ii) require that at least one Member Director serve on the RC (as opposed to the current minimum requirement of four Member Directors) and (iii) remove a specific requirement that one of the Member Directors on the RC be the Member Vice Chairman. --------------------------------------------------------------------------- \15\ See Article III Section 6 of OCC's By-Laws regarding Exchange Directors. --------------------------------------------------------------------------- The GNC reviewed the membership composition of the RC and determined that one Exchange Director should be a member of the RC. Historically, the RC did not include Exchange Directors because Member Directors were much more directly concerned with the risk management and membership function of OCC due to the mutualization of risk among Clearing Members as well as the fact that Clearing Members are responsible for the contribution of margin and clearing fund deposits. Given the evolution of the markets for which OCC provides clearance and settlement services, OCC now believes that an Exchange Director should be a member of the RC. Exchange Directors have expertise and unique perspective on matters such as market risk as well as sophistication as to special risks arising from trading practices, strategies and new products. In addition, the GNC recommended, and the Board approved, a reduction in the minimum composition requirement for Member Directors on the RC to allow for greater flexibility in the selection of Directors with the requisite skills and expertise to serve on the RC. OCC believes that Member Director participation on the RC is vital and would therefore continue to require that at least one Member Director serves on the RC. OCC also believes, however, that it is necessary and appropriate to maintain flexibility to ensure that the RC is comprised of those Directors that have the appropriate mix of knowledge and expertise necessary to provide for the prudent oversight of risk matters at OCC. Nomination Process for Member Directors and Public Directors OCC is proposing to make amendments to Article III, Sections 5 and 6A; Article IV, Section 1; and adopt Amendment No. 1 to Amended and Restated Stockholders Agreement to provide for Board action in the nomination process for Member Directors, Public Directors, the Executive Chairman, and Member Vice Chairman in conformance with the process set forth in the GNC Charter.\16\ Currently, Board action is not a part of the annual election process for Member Directors and Public Directors as described in the By-Laws and the Amended and Restated Stockholders Agreement. The proposed amendments would provide that such persons would be nominated by the GNC for purposes of the Board's annual election process and then confirmed by the Board. OCC believes that the proposed rule change would help ensure an appropriate level of oversight and participation by the full Board in determining its own composition and that the composition of the Board fulfils its needs for particular skills and qualifications. --------------------------------------------------------------------------- \16\ The GNC Charter had already been reviewed by OCC in 2014 and approved by the Commission. See Securities Exchange Act Release No. 72564 (July 8, 2014), 79 FR 40824 (July 14, 2014) (SR-OCC-2014- 09). --------------------------------------------------------------------------- Elimination of Public Director Term Limits OCC is proposing to amend Article III, Section 6A of its By-Laws, Section IV.1. of the GNC Charter, and Section II.D. of the Board Charter in order to remove term limits for Public Directors. OCC believes it is appropriate to eliminate term limits for Public Directors because the learning curve for directors of OCC is significant. It is generally recognized that it often takes several years for directors who come from outside the industry to achieve the particularized degree of knowledge and understanding about the business that is necessary to provide significant value. Additionally, the GNC reviewed OCC's term limit policy for Public Directors in light of benchmark data and governance trends and determined that the elimination of term limits for Public Directors is consistent with governance arrangements at large corporations.\17\ Therefore, OCC is proposing to remove its term limits for Public Directors in the interest of assuring that OCC has access to the full benefit of a Public Director's understanding and learning, with respect to OCC and the markets OCC serves, as it develops over time. --------------------------------------------------------------------------- \17\ According to the 2014 Spence Stuart Board Index, among S&P 500 companies, very few boards (only 3%--or 16 companies) specify director term limits. Of these, none imposes a term limit that is less than 10 years. The most common term limit is 15 years, and the longest term limit is 30 years. --------------------------------------------------------------------------- [[Page 51224]] Proposed Amendments to Board and Board Committee Charters Amendments to the Board Charter and the Fitness Standards OCC proposes amendments to the Board Charter that are intended to: (i) Harmonize the description of the Board's obligations in the Board Charter with the description of the Board's obligations in OCC's By- Laws and Rules; (ii) better align the Board Charter with the Board's Corporate Governance Principles and By-Laws; (iii) reflect recent changes involving Board Committee Charters; (iv) in general, restate the Board's oversight responsibilities in a manner designed to provide for prudent governance arrangements in light of OCC's role as a systemically important financial market utility; and (v) make certain non-substantive administrative changes to the Charter. The proposed amendments are described in more detail below. Membership and Organization OCC proposes amendments to Section II of the Board Charter regarding membership and organization requirements to reflect the elimination of the role of Management Vice Chairman as described above. As a result, in the event that the Executive Chairman is absent or disabled, the Member Vice Chairman shall preside over meetings of the Board. OCC also proposes amendments that would allow for additional meetings of the Board being called as the Board deems appropriate (such meetings shall be called by the Executive Chairman or his designee) and to specify that the Executive Chairman shall consult with the Corporate Secretary (in addition to other directors or officers) when establishing Board meeting agendas. OCC also proposes amendments intended to strengthen the Board's governance framework and practices surrounding meetings in executive sessions by providing added structure regarding the convening and attendance of executive sessions and promoting the enhanced recordation of important meeting events and discussions. In particular, the proposed amendments would: (i) Require that the Board meet in executive session at each regular meeting of the Board; (ii) allow the Board to determine who will participate in such sessions; (iii) provide for the exclusion of management, invited guests, and individual directors from executive sessions where discussions may involve certain sensitive matters or conflicts of interest; and (iv) require the Board to select a Director to chair executive sessions in the absence of the Executive Chairman. The proposed amendments would also require that Board meeting minutes reflect, at least in summary fashion, the general matters discussed in an executive session. Specifically, the chair of the executive session would determine whether separate minutes of the executive sessions are to be recorded as well as determine the level of detail to be included in such minutes, provided that Board meeting minutes must, at a minimum, reflect that an executive session was convened and broadly describe the topic(s) discussed. In addition, OCC proposes to amend the Board Charter to state that the Board is comprised of one Management Director, rather than two Management Directors, in conformance with the proposed Certificate of Incorporation and By-Laws changes described above. The Board Charter would also be amended to reflect an increase in the number of Public Directors serving on the Board from three to five.\18\ --------------------------------------------------------------------------- \18\ The Commission approved the increase in the minimum number of Public Directors on OCC's Board from three to five in July 2014. See Securities Exchange Act Release No. 72564 (July 8, 2014), 79 FR 40824 (July 14, 2014) (SR-OCC-2014-09). --------------------------------------------------------------------------- Additionally, in order to achieve a balanced representation on the Board among Member Directors, OCC proposes amendments to the Board Charter to state that the considerations involved in determining the nomination of Member Directors should include the volume of business transacted with OCC during the prior year and the mix of Member Directors that are primarily engaged in agency trading on behalf of retail customers or individual investors. The proposed amendments reinforce the existing requirement in Article III, Section 5 of OCC's By-Laws that the GNC shall endeavor to achieve balanced representation among Clearing Members on the Board of Directors to assure that: (i) Not all Member Directors are representatives of the largest Clearing Member Organizations based on the prior year's volume, and (ii) the mix of Member Directors includes representatives of Clearing Member Organizations that are primarily engaged in agency trading on behalf of retail customers or individual investors. OCC proposes to remove geographic location of Clearing Members as a factor for consideration as OCC believes that location is no longer a significant consideration given modern technology and the evolution of the industry. OCC also proposes to add language to the Board Charter to discourage Directors from attending meetings of the Board by telephone as currently provided in the Code of Conduct for OCC Directors. Attendance by telephone would be generally discouraged because OCC believes the Board may be less likely to have the kind of interaction that leads to fully informed discussions and decisions than if Board members were to meet in person. Responsibilities of the Board OCC proposes amendments to the Board Charter that are primarily intended to: (i) Harmonize the description of the Board's obligations in the Board Charter with the description of the Board's obligations in OCC's By-Laws and Rules as well as the Board's Corporate Governance Principles \19\ and (ii) restate the Board's oversight responsibilities in a manner designed to provide for prudent governance arrangements in light of OCC's position as a designated systemically important financial market utility. --------------------------------------------------------------------------- \19\ The purpose of the Board's Corporate Governance Principles is to assist OCC's Board in monitoring the effectiveness of policy and decision making at the Board and management levels. In particular, the Board's Corporate Governance Principles are meant to address OCC's obligations as a systemically important financial market utility to have policies and procedures in place that promote sound governance, including those policies and procedures identified in the Principles for Financial Market Infrastructures published by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions. --------------------------------------------------------------------------- In cases when an obligation of the Board is expressed in both the Board Charter and OCC's By-Laws and Rules, OCC is proposing to remove the obligation from the Board Charter. These charter provisions would be replaced by a general statement that the Board would perform those functions as the Board believes appropriate or necessary, or as otherwise prescribed by rule or regulation, including OCC's By-Laws and Rules.\20\ --------------------------------------------------------------------------- \20\ The proposed change would remove from the Board Charter some of the more specific obligations of the Board as already set forth in the By-Laws and Rules in favor of a more general statement intended to reflect that the Board would perform such functions as necessary or appropriate under OCC's Rules, By-Laws and other rules or regulations. The Board Charter provisions in question can generally be identified by footnote citations to By-Law provisions included in the Board Charter in Exhibit 5C. --------------------------------------------------------------------------- OCC also proposes amendments to Section IV of the Board Charter designed to provide for prudent governance arrangements emphasizing that the Board's oversight role should operate in a manner consistent with its responsibilities as a designated systemically important financial market utility. Specifically, OCC proposes to amend the Charter to state that the responsibilities of the Board include: (i) Overseeing management's activities in managing, operating and developing [[Page 51225]] OCC and evaluating OCC management's performance in executing its responsibilities; (ii) selecting, overseeing and, where appropriate, replacing the Executive Chairman of the Board and the President, providing counsel and advice to the Executive Chairman and the President as well as oversight of the performance of each such officer and of OCC in order to evaluate whether the business is being appropriately managed; (iii) setting expectations about the tone and ethical culture of OCC, and reviewing management's efforts to instill an appropriate tone and culture throughout OCC; (iv) providing oversight of risk assessment and risk management monitoring processes, including with respect to systemic risk and reviewing risk tolerances submitted to the Board for approval by its Risk Committee; (v) performing an annual self-evaluation of its performance, the performance of its Committees, the performance of individual directors and Committee members; and evaluating the Corporate Governance Principles and Fitness Standards; (vi) reviewing the amount of compensation for the Board's Public Directors (i.e., directors who are not affiliated with any national securities exchange or national securities association or with any broker or dealer) as well as reviewing the annual study and evaluation of OCC's system of internal accounting controls; (vii) providing oversight of internal and external audit processes and financial reporting, including approving major changes in auditing and accounting principles and practices; and (viii) oversight of OCC's information technology strategy, infrastructure, resources and risks. In addition, OCC proposes to modify certain existing Board Charter provisions related to the responsibilities of the Board. Specifically, OCC propose [sic] amendments that would specify that, in addition to overseeing major capital expenditures and approving the annual budget and corporate plan, the Board is responsible for reviewing and approving OCC's financial objectives and strategies, capital plan and capital structure, OCC's fee structure, and major corporate plans and actions, as well as periodically reviewing the types and amounts of insurance coverage available in light of OCC's clearing operations. OCC also proposes amendments to specify that the Board's responsibility for fostering OCC's compliance with applicable laws and regulations includes compliance with banking, securities and corporation laws and other applicable regulatory guidance and standards. Additionally, OCC proposes amendments to provisions related to the oversight of succession planning and executive compensation to state more specifically that the Board is responsible for evaluating and fixing the compensation of the Executive Chairman and President; overseeing succession planning, human resource programs, and talent management processes; and overseeing the development and design of employee compensation, incentive and benefit programs.\21\ The proposed amendments would also remove a statement that OCC's Board is responsible for overseeing OCC's processes and framework for assessing, managing and monitoring strategic, financial and operational risk as this function is performed by the RC (as reflected in its Charter) with oversight from the Board. --------------------------------------------------------------------------- \21\ OCC notes that a deleted reference to the evaluation of senior management is now covered by point (i) described in the paragraph above. --------------------------------------------------------------------------- OCC is also proposing non-substantive organizational changes in Section IV of the Board Charter. Specifically, OCC proposes amendments that would combine provisions related to the Board's responsibilities for approving and overseeing OCC's business strategies and monitoring OCC's performance of clearance and settlement services. Other Conforming, Administrative and Non-Substantive Changes In addition to the changes described above, certain of the proposed amendments to the Board Charter are meant to address non-substantive, administrative issues. For example, certain amendments are being proposed to Section III of the Board Charter to reflect the adoption of the TC \22\ the GNC, and renaming of the Performance Committee to the CPC, as described herein. In addition OCC is proposing to amend Section I of the Board Charter to more accurately state that the Board is responsible for providing direction to and overseeing the conduct of the affairs of OCC (as opposed to just managing the business and affairs) and to remove an unnecessarily specific list of OCC stakeholders. OCC also proposes amendments that would require an annual (as opposed to the less specific ``periodic'') review of the Board Charter, including the Corporate Governance Principles and Fitness Standards. --------------------------------------------------------------------------- \22\ See supra note 9. --------------------------------------------------------------------------- Fitness Standards for Directors, Clearing Members and Others OCC also proposes to amend the Fitness Standards to remove descriptions of the categories of directors represented on the Board and the process by which they are nominated for Board service as these descriptions are already maintained in Article III of OCC's By-Laws and the relevant Committee Charters. Eliminating these redundant descriptions in the Fitness Standards would promote efficiency and clarity by eliminating the need to ensure consistency of the same information across multiple documents. The proposed amendments would also underscore that the Fitness Standards are intended to facilitate the performance of OCC's role as a systemically important financial market utility. Common Amendments to Each Committee Charter OCC is proposing to make conforming amendments to the Committee Charters as a result of the Commission approving certain changes to the GNC Charter.\23\ Specifically, OCC proposes to amend each Committee Charter to confirm that each Board Committee has access to all books, records, facilities and personnel of OCC in carrying out the respective Board Committee's purpose and responsibilities. This amendment to the Committee Charters would make explicit a longstanding principle under which each Committee has operated. Additionally, references to the ``Governance Committee'' in each Committee Charter would be changed to the ``Governance and Nominating Committee'' to reflect the formation of the GNC. --------------------------------------------------------------------------- \23\ See supra note 16. --------------------------------------------------------------------------- Furthermore, OCC proposes to delete a provision from each Committee Charter which granted the Chair of each Board Committee the authority to act on behalf of the respective Board Committee in situations in which immediate action was required and convening a Board Committee meeting was impractical. Although this provision also required each Chair to report such actions to the respective Board Committee for ratification as soon as practicable, OCC believes that removing this provision is appropriate from a governance perspective because it supports deliberation and action by a Board Committee as a whole rather than action by a Chair. In addition, historically, each Board Committee has been able to convene when necessary. In addition, OCC is proposing a number of common changes across its Committee Charters to strengthen OCC's Board Committee governance framework and practices surrounding [[Page 51226]] meetings in executive sessions by providing added structure regarding the convening and attendance of executive sessions and promoting the enhanced recordation of important meeting events and discussions. Specifically, each Committee Charter would be amended to: (i) Require that each Committee meet in executive session at each regular meeting of the Committee; (ii) allow the Committee to determine who will participate in such sessions; and (iii) provide for the exclusion of management, invited guests, and individual directors from executive sessions where discussions may involve certain sensitive matters or conflicts of interest. The proposed amendments would also require that each Committee's meeting minutes reflect, at least in summary fashion, the general matters discussed in an executive session. In particular, the Chair (or Acting Chair) would determine whether separate minutes of the executive sessions are to be recorded as well as determine the level of detail to be included in such minutes, provided that Committee meeting minutes must, at a minimum, reflect that an executive session was convened and broadly describe the topic(s) discussed. Additionally, the Committee Charters would be amended to permit any Board Committee to engage specialists or advisors to assist it in carrying out its delegated responsibilities without prior Board approval. Generally speaking, Committees must obtain pre-approval from the Board to hire advisors. While not universal, OCC's understanding is that public company board committees frequently are authorized to engage advisors without board pre-approval at the company's expense to preserve autonomy and independence and to assist them in the execution of their responsibilities as deemed necessary. Under the proposed amendments, each Committee's engagement of an advisor, including fees and expenses, would be referenced in its annual report to the Board. These proposed amendments are intended to foster Committee independence as well as timely Committee access to expertise relevant to the discharge of its delegated responsibilities while preserving Board oversight via the application of existing reporting mechanisms. OCC is also proposing amendments to its Committee Charters to specify that that [sic] each Committee should evaluate its and its individual member's performance on an annual basis (as opposed to regularly) to provide more clarity and specificity regarding the timing of each Committee's self-assessment process. Amendments to the Audit Committee Charter OCC proposes amendments to the AC Charter intended to, among other things: (i) Reinforce the independence of the AC; (ii) more accurately memorialize and expand upon the activities of the AC with respect to the oversight of OCC's financial reporting processes and enhance the independence and objectivity in connection therewith; and (iii) in general, provide more explicit descriptions of the AC's functions and responsibilities. The proposed changes are described in more detail below. Purpose, Membership and Authority OCC proposes changes to Sections I, II and III of the AC Charter related to the purpose, membership and organization, and authority of the AC. In Section I of the AC Charter, OCC proposes to make organizational changes to certain statements regarding the AC's responsibility to serve as an independent and objective party to oversee OCC's system of internal control, compliance environment and processes. These changes are non-substantive in nature. OCC is also proposing to make various non-substantive clarifying and textual changes in Section I, including, for example, replacing the term ``independent accountants'' with ``external auditors'' and replacing ``Corporation'' with ``OCC,'' which would extend throughout the entire AC Charter. The proposed amendments to change ``independent accountants'' to ``external auditors'' are not intended to signify a change in roles or responsibilities but to more accurately state that the activities described in the AC Charter as being performed by ``independent accountants'' are actually performed by a party acting in its capacity as OCC's ``external auditor.'' OCC also proposes amendments to Section II of the AC Charter that are intended to reinforce the independence of the AC. Specifically, the amendments provide that all members of the AC be independent from OCC's management, as determined by the Board from time to time, and that the Chair of the AC be a Public Director.\24\ Additionally OCC proposes an amendment that would clarify that the Management Director, as described in Section 7 of Article III of OCC's By-Laws, is ineligible to serve on the AC.\25\ OCC also proposes to revise the AC Charter to state that the AC will meet regularly, and no less than once annually (as opposed to ``at least annually''), with management, OCC's Chief Financial Officer, Chief Audit Executive (``CAE'') and Chief Compliance Officer (``CCO'') in executive sessions to discuss certain private matters. The purpose of this change is to signify that these meetings and interactions occur more than once per year. Section II of the AC Charter would also be amended to explicitly provide the authority for the CAE and CCO to communicate directly with the Chair of the AC, with respect to any of the responsibilities of the AC, outside of regular meetings to further underscore their independence. Further, OCC proposes an amendment to Section II of the AC Charter under which attendance at an AC meeting by telephone is discouraged. Attendance by telephone would be generally discouraged because OCC believes the Committee may be less likely to have the kind of interaction that leads to fully informed discussions and decisions than if Committee members were to meet in person. --------------------------------------------------------------------------- \24\ The change concerning the AC Chair would conform the AC Charter to proposed Article III, Section 4(a) of OCC's By-Laws, as described above. \25\ In the event OCC has a Non-Executive Chairman, such individual would not be considered a Management Director. --------------------------------------------------------------------------- OCC also proposes to amend the AC Charter to provide that the AC shall make such reports to the Board as deemed necessary or advisable. This proposed change would promote effective communication between the AC and the Board is in line with requirements in other Committee Charters. OCC proposes to amend Section III of the AC Charter to confirm that the AC's authority to hire advisors includes the authority to approve the related fee and retention terms.\26\ In addition to more accurately reflecting current Committee practice, it would conform the AC charter to OCC's other Committee Charters (i.e., the CPC, GNC, RC and TC Charters) with respect their authority to hire advisors and approve related fees and retention terms. As noted above, each of OCC's Committee Charters would be amended to permit any Board Committee to engage specialists or advisors to assist it in carrying out its delegated responsibilities without prior Board approval in order to foster Committee independence as well as timely access to relevant expertise from outside specialists or advisors. The proposed amendments would clarify that this authority also extends to the approval of related fee and retention terms. --------------------------------------------------------------------------- \26\ OCC is also proposing to remove a statement concerning the AC's authority to obtain advice from independent counsel, accountants or others as such statement would be replaced by a broader expression of the AC's authority to hire advisors. --------------------------------------------------------------------------- [[Page 51227]] Functions and Responsibilities OCC also proposes a number of amendments to Section IV of the AC Charter intended to reinforce and expand upon the activities of the AC with respect to the oversight of OCC's financial reporting processes, to enhance the independence and objectivity in connection therewith, and to more explicitly describe the AC's functions and responsibilities. These proposed amendments are described in more detail below. Oversight of External Auditor and Financial Reporting OCC proposes amendments to the AC Charter regarding the AC's oversight of financial reporting and external auditors. The proposed amendments to the AC Charter are intended to more accurately memorialize and expand upon the AC's role with respect to financial reporting at OCC. With respect to financial statements and financial reporting, the proposed amendments explicitly state that the AC is responsible for: (i) Discussing with management and external auditors OCC's audited and unaudited financial statements; (ii) upon management's recommendation, approving OCC's financial statements after reviewing with management and external auditors prior to issuance; \27\ (iii) reviewing with management, external auditors and OCC's Internal Audit Department significant financial reporting issues and judgments made in connection with the preparation of financial statements, critical accounting policies and estimates, any major issues regarding accounting principles and financial statement presentation and the effect of regulatory and accounting initiatives; (iv) approving material changes to OCC's accounting policies; (v) resolving disagreements between management and external auditors regarding financial reporting; and (vi) reviewing and discussing with external auditors any audit problems or difficulties, and management's response thereto. --------------------------------------------------------------------------- \27\ This proposed amendment is intended to restate, clarify, and expand upon an existing statement in the AC Charter regarding the AC's review of annual audited financial statements, which OCC is proposing to delete. --------------------------------------------------------------------------- Additionally, to improve the AC's oversight and evaluation of external auditors, OCC proposes amendments to the AC Charter to state that the AC is required to: (i) Discuss with management the timing and process for implementing a rotation of the engagement partner of the external auditor and any other active audit engagement team partner; (ii) monitor and evaluate the qualifications of both the external auditor and engagement partner; (iii) consider whether there should be a regular rotation of the audit firm itself; and (iv) pre-approve all services provided by the external auditor (as opposed to only non-audit services). Oversight of Internal Audit, Compliance and Compliance-Related Matters OCC is proposing to amend Section IV of the AC Charter in order to more clearly articulate the AC's responsibility for the oversight of Internal Audit. Specifically, OCC proposes amendments to state that the AC's responsibilities include reviewing and approving the Internal Audit Policy on an annual basis and monitoring ongoing internal audit activities. OCC also proposes amendments to state that the AC is responsible for approving OCC's annual internal audit plan and approving any CAE recommendations for removing or deferring any audits from a previously approved internal audit plan to explicitly codify these existing AC practices in the AC Charter. OCC believes that the AC, which serves as an independent and objective party tasked with the oversight of OCC's system of internal control, auditing, accounting, and compliance processes, is the appropriate body to approve OCC's internal audit plan and any CAE recommendations for removing or deferring any audits from a previously approved internal audit plan. The proposed amendments would provide more clarity and transparency regarding OCC's governance arrangements by codifying these responsibilities in the AC Charter. OCC also proposes amendments to Section IV of the Charter to more clearly articulate the AC's responsibility for oversight of compliance and compliance-related matters, including: (i) Annually reviewing and approving OCC's Compliance Policy and employee Code of Conduct; (ii) reviewing and approving the Compliance Department's process for establishing the risk-based annual Compliance Testing Plan, monitoring progress against the annual Compliance Testing Plan, and approving changes to the Compliance Testing Plan recommend by the CCO; and (iii) monitoring ongoing compliance activities by reviewing reports and other communications prepared by the Compliance Department, including updates from the CCO, and inquiring of management regarding steps taken to address items raised. In addition, OCC proposes amendments to clarify the AC's responsibilities with respect to: (i) Reviewing on a regular basis the significant deficiencies and material weaknesses in the design or operation of OCC's internal controls (as such issues are identified by or presented to the AC); (ii) reviewing fraud involving OCC's management or other employees; and (iii) reviewing and approving (as opposed to just establishing) OCC's ``whistleblower'' procedures that govern reporting of illegal or unethical conduct, accounting irregularities and similar matters and discussing any substantive issues identified through such procedures with relevant parties. Oversight of OCC's Chief Audit Executive and Chief Compliance Officer OCC proposes amendments to Section IV of the AC Charter to provide that the CAE and CCO would each report functionally to the AC and administratively to the Executive Chairman.\28\ The proposed amendments would make more explicit the reporting lines for these functions and underscore the independence of the CAE and CCO. In addition OCC proposes to eliminate provisions of the AC Charter that relate to the AC's assessment of the performance of the CAE and Internal Audit Department, the AC's approval of the compensation of the CAE, and the AC's assessment of the Compliance function and replace them with provisions that take into account the involvement of the Executive Chairman in those functions. Specifically, as amended, the AC Charter would state that the AC, in consultation with the Executive Chairman, would review the performance of the Internal Audit function and the CAE, the Compliance function and the CCO, and determine whether to accept or modify the Executive Chairman's recommendations with respect to the performance assessment and annual compensation for each. The proposed changes related to the performance and compensation setting regime for the CAE and CCO are intended to reflect the fact that the CAE and CCO report administratively to the Executive Chairman while reporting functionally to the AC. --------------------------------------------------------------------------- \28\ This change would explicitly note existing reporting lines in the AC Charter, but would not revise those reporting lines. These provisions mirror a comparable provision in the RC Charter with respect to the Chief Risk Officer. --------------------------------------------------------------------------- Amendments to the Compensation and Performance Committee Charter OCC is proposing changes to its CPC Charter to explicitly describe the Committee's functions and responsibilities with respect to OCC's human resources, compensation and employee benefit programs, and [[Page 51228]] insurance programs. The proposed amendments would also provide for CPC oversight of OCC's Capital Plan in recognition of the importance of providing for Board-level oversight to ensure OCC's capital and Capital Plan meet or exceed minimum regulatory standards. The proposed changes are described in more detail below. Purpose, Membership, and Authority OCC is proposing to rename the Performance Committee to the CPC in order to more accurately reflect its role. OCC is also proposing to amend Section I of the CPC Charter to more clearly articulate that the CPC is tasked with assisting the Board in the oversight of OCC's overall performance in promptly and accurately delivering clearance, settlement and other designated industry services and in the accomplishment of other periodically-established corporate goals and objectives in light of OCC's systemically important status. The CPC Charter would further delineate that the CPC is also tasked with (i) recommending the compensation of OCC's Executive Chairman and President and approving the compensation of certain other officers, as appropriate; (ii) overseeing OCC's Capital Plan and financial performance; (iii) overseeing OCC's Human Resources program; (iv) overseeing the structure and design of the employee compensation, incentive and benefit programs; and (v) assisting the Board in reviewing OCC's leadership development and succession planning. Additionally, OCC proposes amendments to Section II of the CPC Charter related to the membership and organization of the CPC. Specifically, OCC proposes amendments to conform the CPC Charter to proposed Article III, Section 4(b) of OCC's By-Laws to state that the Chair of the CPC shall be a Public Director. In addition, OCC proposes changes to Section II of the CPC Charter to elaborate on the CPC's responsibility to discuss and review the performance and compensation levels (including benefits and perquisites such as sign-on bonuses, retention arrangements, relocation arrangements and other financial commitments of OCC) of members of the Management Committee and certain other key officers, as appropriate. OCC also proposes administrative amendments to Section II to clarify that the CPC would meet at least four times per year, which reflects the minimum number of regular meetings in a year in a manner consistent with the charters of other Board Committees, and to delete a provision of the CPC Charter that requires the CPC Chair to meet in private session with the GNC Chair to discuss performance of key officers as well as a provision stating that the Chairs of the AC and RC would be invited to attend the annual meeting to discuss compensation of key officers, including the Chief Risk Officer (``CRO'') and CAE.\29\ The CPC Charter would also be amended to require that minutes of Committee meetings be circulated to the Board in conformance with general requirements applicable to all Board Committees.\30\ --------------------------------------------------------------------------- \29\ These changes are being made to reflect a consultative process as between the Executive Chairman and, as applicable, the RC and Board to discuss the performance of key officers including the CRO and CAE. \30\ This requirement is already included in the AC, GNC, RC, and TC Charters. --------------------------------------------------------------------------- OCC also proposes an amendment to the CPC Charter under which attendance at a CPC meeting by telephone is discouraged. Attendance by telephone would be generally discouraged because OCC believes the Committee may be less likely to have the kind of interaction that leads to fully informed discussions and decisions than if Committee members were to meet in person. In addition, other clarifying and textual changes would be made including, for the reasons stated above, removal of references to the Management Vice Chairman. Additionally, OCC proposes non-substantive organizational changes in Section III regarding the delegation of authority to the Administrative Committee that do not change the meaning of the rule text. Functions and Responsibilities OCC is proposing amendments to Section IV of the CPC Charter to provide explicit descriptions of the Committee's responsibilities with respect to OCC's capital structure, financial planning and corporate goals and objectives; human resources and compensation programs; and employee benefits programs in order to provide a more robust framework for the CPC's oversight functions. The proposed changes are described in more detail below. Additionally, OCC proposes to remove explicit requirements in Section IV that the CPC review the Corporate Plan and Budget and OCC's performance under the Corporate Plan at each regularly scheduled meeting in favor of more general descriptions regarding the CPC's responsibilities for the oversight of the corporate financial planning process, including the corporate budget, and corporate goals and objectives. The proposed amendments are intended to accommodate CPC review of annual Corporate Plans and Budgets and performance thereunder (as currently contemplated by the CPC Charter) as well as consideration of longer-term horizons and implications in the strategic planning process. Oversight of OCC's Capital Plan OCC proposes amendments to Section IV of the CPC Charter to explicitly provide for the CPC's responsibilities in connection with overseeing OCC's capital structure, financial planning, and corporate goals and objectives. Specifically, the proposed amendments would state that the CPC's responsibilities include oversight of management's processes for determining, monitoring and evaluating OCC's Capital Plan,\31\ including maintenance of required regulatory capital, and recommending approval of such plan to the Board. These amendments would also specify that the CPC is responsible for the annual review of OCC's Fee, Refund and Dividend Policies and making recommendations to the Board for changes to such policies and payments, if any, under the Refund and Dividend Policies. In addition, OCC proposes amendments to provide that the CPC's responsibilities include the review and approval of fee changes pursuant to the Capital Plan, review and recommendation to the Board of changes to OCC's fee structure, and oversight of OCC's corporate financial planning process (including reviewing the corporate budget). Moreover, the proposed amendments provide for the CPC's responsibility to review OCC's annual corporate goals and objectives and recommend approval thereof to the Board and routinely receive reports regarding progress in achieving such goals and objectives. The amendments also provide that the CPC is responsible for the periodic review of OCC's insurance program. --------------------------------------------------------------------------- \31\ See Securities Exchange Act Release No. 74387 (February 26, 2015), 80 FR 12232 [sic] (March 6, 2015) (SR-OCC-2014-813). See also Securities Exchange Act Release No. 74452 (March 6, 2015), 80 FR 13058 (March 12, 2015) (SR-OCC-2015-02). --------------------------------------------------------------------------- Oversight of Human Resources and Compensation Programs OCC proposes amendments to Section IV of the CPC Charter to explicitly state that the CPC's responsibilities include review of OCC's Human Resources programs and policies, including OCC's talent acquisition, performance management, training, benefits and succession planning processes and review and approval of the structure, design, and funding as applicable, of employee compensation, incentive and [[Page 51229]] benefit programs. This proposed amendment ensures Board Committee oversight for management's processes for hiring, retaining and developing qualified staff and is consistent with the CPC's oversight of overall succession planning processes. Additionally, OCC is proposing to amend the CPC Charter to clarify that the CPC annually reviews and approves the goals and objectives of the Executive Chairman and President. Further, OCC is proposing amendments to the CPC Charter that would require the CPC to periodically (not less than annually) review and approve the general strategy, policies and programs with respect to salary compensation (including management compensation) and incentive compensation and seek to ensure compensation policies meet evolving compensation practices so that such policies remain effective to attract, motivate and retain executive officers and other key personnel. The proposed amendments would also require the CPC to review and approve the performance and compensation of key employees, such as members of OCC's Management Committee, at the end of each year and to make recommendations to the Board regarding the compensation of the Executive Chairman and the President. Additionally the proposed amendments would require the CPC to review proposed material changes to executive management benefits and to periodically review the compensation of Public Directors and make recommendations to the Board with respect thereto. OCC proposes to remove from the CPC Charter certain statements regarding the review of OCC's performance under the Corporate Plan and the oversight of the administration of OCC's compensation plans as these responsibilities would be covered under the newly proposed descriptions contained therein. OCC believes that it is prudent and appropriate to provide for CPC oversight in the areas of human resources, performance, and compensation and that the proposed amendments will enhance OCC's overall governance arrangements with respect to the oversight and review of performance and compensation at OCC. Oversight of Employee Benefit Programs and Other Responsibilities OCC also proposes amendments to Section IV of the CPC Charter related to the CPC's oversight responsibilities for employee benefit programs. Specifically, OCC would make amendments to the CPC Charter to specify the CPC's responsibilities for oversight, administration, and operation of employee benefit, retiree and welfare benefit plans, including the review of funding plan obligations. The proposed amendments also specify the scope of employee welfare plans that the CPC reviews and the CPC's right to adopt new compensation, retirement and welfare benefit plans or to terminate existing plans other than such plans that require Board action to amend or terminate. In addition, the proposed amendments would provide more clarity regarding the CPC's responsibilities for monitoring the Administrative Committee's duties in connection with retirement and retirement savings plans, investment strategy and performance, plan design and compliance, prudent selection of investment managers and compensation and benefits consultants, and performing such other oversight duties as called for in retirement, retirement and savings, and welfare plan documents. OCC further proposes amendments that state that the CPC is responsible for providing updates to the Board periodically regarding: (i) Actions taken by the CPC with respect to its review of OCC's compensation, retirement and employee welfare plans; (ii) the financial position and performance of these plans; and (iii) adherence to investment guidelines, in each case, where applicable. Amendments to the Risk Committee Charter OCC is proposing amendments to its RC Charter which are primarily intended to enhance OCC's governance arrangements with respect to the RC's oversight functions and responsibilities. OCC also proposes amendments to better align the RC Charter with the OCC By-Laws, including changes in the composition requirements of the RC (as described above) and to reflect the adoption of the TC. The proposed changes are described as follows. Purpose, Membership and Authority OCC proposes amendments to Section I of the RC Charter to provide that the RC would be responsible for coordinating risk oversight with other Board Committees tasked with overseeing certain risks (e.g., the TC, which assists the Board in overseeing OCC's information technology risks) in order to achieve comprehensive and holistic oversight of OCC's risk-related matters. The proposed amendments would also provide that the RC is responsible for the review of material policies and processes associated with risks related to new initiatives. In Section II of the RC Charter, OCC proposes amendments to provide that attendance at a RC meeting by telephone is discouraged. Attendance by telephone would be generally discouraged because OCC believes the Committee may be less likely to have the kind of interaction that leads to fully informed discussions and decisions than if Committee members were to meet in person. OCC also proposes to remove from the RC Charter, and by extension its rules, a requirement that a RC member shall recuse himself from any matter in which his firm has an interest, other than a common interest shared with Clearing Members generally or a particular class of Clearing Members. OCC believes that the identification and handling of conflicts of interest are already appropriately addressed in its Code of Conduct for OCC Directors,\32\ which governs the conduct of all directors equally regardless of category or committee assignment. Furthermore, OCC notes that, as a corporation incorporated in the state of Delaware, OCC's Directors have a fiduciary duty to protect the interests of the corporation and to act in the best interests of its shareholders \33\ and are bound by a duty of loyalty to OCC, which demands that there be no conflict between duty and self-interest and that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director.\34\ --------------------------------------------------------------------------- \32\ See Code of Conduct for OCC Directors available at http://www.optionsclearing.com/components/docs/about/corporate-information/occ-code-of-conduct.pdf. \33\ See Cede & Co. v. Technicolor, 634 A.2d 345, 360-361 (Del. 1993). \34\ See Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939). --------------------------------------------------------------------------- With respect to RC meetings, OCC proposes amendments to state that the RC shall meet regularly, and no less than once annually, (rather than ``at least annually'') with the CRO and members of management (as opposed to other appropriate corporate officers) in separate executive sessions to discuss certain private matters. The purpose of the proposed change is to signify that these meetings occur more frequently than once per year. The proposed changes would also more specifically require that the RC meet in executive session regularly with members of management. The RC would continue to have the discretion to invite any other officers it deems appropriate to meetings in executive session pursuant to the proposed common charter amendments described above. Moreover, and in order to enhance the independence and functional reporting relationship of the CRO to the RC, OCC [[Page 51230]] proposes revisions to explicitly state that the CRO is authorized to communicate with the RC Chair outside of regular meetings. OCC also proposes to amend the RC composition requirements in Section II in order to conform to the proposed By-Law changes discussed above. Specifically, the RC Charter would be revised to state that the RC shall consist of the Executive Chairman, at least one Exchange Director, at least one Member Director, and at least one Public Director. OCC is also proposing an amendment to Section II to require that the RC meet at least six times a year (as opposed to seven) in recognition of the fact that the time allotted for each individual RC meeting has been expanded. Furthermore, OCC proposes to amend Section II of the RC Charter to state that, unless a Chair is elected by the full Board, the members of the RC shall designate a Chair by majority vote. This proposed amendment is in conformance with OCC's current practices for electing Committee Chairs and as described in other Committee Charters. OCC also proposes to amend Section III of the RC Charter to provide that, in addition to RC subcommittees, the RC may also delegate authority to OCC's Management Committee or Enterprise Risk Management Committee. As described herein, the RC is responsible for assisting the Board in overseeing OCC's policies and processes for identifying and addressing strategic, operational, and financial risks and for overseeing the overall enterprise risk management framework implemented by management. The proposed amendment would allow the RC to delegate authority to the Management Committee and Enterprise Risk Management Committee to carry out certain tasks and responsibilities in the day- to-day risk management of OCC and to implement proposals that have been approved in concept by the RC where the RC deems such delegation of authority to be appropriate. Risk Committee Functions and Responsibilities OCC proposes amendments to Section IV of the RC Charter to enhance its governance arrangements in connection with the oversight of membership requirements, margin requirements, the Enterprise Risk Management Program, and a number of other responsibilities. Oversight of Membership and Margin Requirements OCC proposes amendments to the RC Charter to provide a broader description of the RC's oversight of the adequacy and effectiveness of OCC's framework for clearing membership. In general, these changes are not intended to substantively change or eliminate any of the RC's existing responsibilities with respect to its oversight of OCC's clearing membership framework and would continue to encompass the responsibilities currently enumerated in the charter.\35\ Specifically, the RC Charter provisions related to the RC's oversight role with respect to clearing membership issues would be replaced with a more general statement that the RC is responsible for the oversight of OCC's framework for clearing membership, including: (i) Periodically reviewing and revising, as appropriate, OCC's initial and ongoing requirements for clearing membership; \36\ (ii) overseeing the processes established for reviewing and monitoring clearing membership (including in respect of the continuance of potentially problematic members); \37\ and (iii) making recommendations to the Board, as applicable, for final determination in respect the foregoing. --------------------------------------------------------------------------- \35\ For example, individual provisions related to specific types of membership categories and requirements would be replaced by a broader restatement of the RC's responsibilities, which is intended to capture all of the responsibilities enumerated in the deleted provisions. \36\ This proposed provision is a restatement of an existing RC responsibility for periodically reviewing and recommending changes to the initial and ongoing requirements for membership and would also replace and encompass the responsibilities in an existing provision of the RC Charter stating that the RC is responsible for recommending to the Board membership requirements for non-broker- dealers. \37\ This proposed provision would replace and encompass the RC's responsibilities contained in existing RC Charter provisions related to the conducting of hearings for applicants proposed to be disapproved by the RC, the review and approval/disapproval of requests to participate in the Stock Loan Programs, and the approval/disapproval of the continued membership of managed Clearing Members. --------------------------------------------------------------------------- In addition, OCC proposes to modify certain provisions related to the surveillance of Clearing Members and contingency planning for Clearing Member failures. Specifically, OCC proposes to consolidate these provisions to restate that the RC is responsible for the oversight of the adequacy and effectiveness of OCC's contingency plan for Clearing Member failures, including: (i) Reviewing Clearing Member surveillance criteria; (ii) overseeing the management processes for managing Clearing Members that are subject to closer than normal surveillance or are otherwise in or approaching financial or operational difficulty; (iii) imposing and modifying restrictions and requirements already imposed on Clearing Members in a manner consistent with the By-Laws and Rules; \38\ and (iv) making recommendations to the Board in respect of the foregoing. --------------------------------------------------------------------------- \38\ This proposed provision would replace and encompass the responsibilities in an existing RC Charter provision related to the RC's responsibility for reviewing and modifying or reversing restrictions or additional requirements imposed on Clearing Members pursuant to Rule 305. --------------------------------------------------------------------------- OCC proposes similar amendments to the RC Charter to restate the RC's responsibilities in connection with its oversight of margin and clearing fund requirements. OCC proposes to remove certain existing provisions related to the oversight of margin and clearing fund requirements and replace them with a more high level description that would provide that the RC oversees OCC's processes for establishing, monitoring and adjusting margin consistent with the protection of OCC, Clearing Members, or the general public, including: (i) Reviewing and modifying OCC's margin formula, the methodologies used for determining margin and clearing fund requirements, and making recommendations to the Board, as applicable, in respect thereof; \39\ (ii) evaluating (including increasing) the amount of margin required in respect of any contract or position; (iii) establishing and reviewing guidelines for requiring the deposit of additional margin; and (iv) reviewing and approving determinations about assets eligible for deposit as margin or clearing fund as provided in the By-Laws and Rules.\40\ In general, the proposed amendments are not intended to substantively change the RC's responsibilities in the deleted provisions but would instead replace them with a broader description intended to encompass those responsibilities. OCC is proposing, however, to delete an existing RC Charter provision specifically requiring the RC to periodically review the inputs to OCC's margin formula and modify them to the extent it deems such action to be consistent with the protection of OCC, Clearing Members, or the general public. While this specific requirement is being removed from the Charter, OCC believes that the Charter continues to provide an adequate and appropriate oversight framework for the monitoring [[Page 51231]] and development of OCC's margin formula and would provide the RC with continued authority to modify margin formula inputs if it deems such modification to be appropriate.\41\ --------------------------------------------------------------------------- \39\ This proposed provision would include language from an existing Charter provision stating that the RC will review methodologies used for calculating margin and clearing fund requirements. \40\ This proposed provision would replace and encompass the RC's responsibilities contained in existing Charter provisions related to the oversight of acceptable margin and clearing fund assets, including the approval of classes of GSE securities for deposit as margin, prescribing intervals for revaluing debt securities deposited as margin of clearing fund, and specifying haircuts for securities provided as margin. \41\ As noted above, the proposed amendments to the RC Charter provide that the RC is responsible for overseeing the processes established for establishing, monitoring and adjusting margin consistent with the protection of OCC, Clearing Members, or the general public, including reviewing and modifying OCC's margin formula. --------------------------------------------------------------------------- OCC also proposes to delete a provision stating that the RC is responsible for making determinations regarding approval of non-U.S. institutions to issue letters of credit as a form of margin asset because this provision does not accurately reflect the RC's responsibilities. While the RC is responsible for overseeing standards used to admit non-U.S. institutions, OCC's President and Executive Chairman have general responsibility for approving financial institutions seeking to become non-U.S. letter of credit banks and that meet the requirements of OCC Rule 604, Interpretation and Policy .01 (with the exception of certain ``equivalent country'' and ``equivalent institution'' determinations that are required to be made by the RC pursuant to OCC Rule 604, Interpretations and Policies .01(b)(3) and .01(b)(4)(b)). Oversight of OCC's Enterprise Risk Management Program and Risk Tolerances OCC proposes amendments to restate and expand upon the RC's responsibility for overseeing OCC's Enterprise Risk Management program. Currently, the RC is responsible for overseeing the structure, staffing and resources of the Enterprise Risk Management program, reviewing periodic reports regarding the Enterprise Risk Management program, and annually reviewing and assessing the overall program. OCC proposes amendments to the RC Charter that would restate these existing responsibilities and add new responsibilities designed to enhance the risk oversight framework for the Enterprise Risk Management program. Specifically, the proposed amendments would state that the RC is responsible for overseeing OCC's Enterprise Risk Management program, including (in addition to the existing responsibilities noted above), reviewing the systems and procedures that management has developed to manage the risks to OCC's business operations and regularly discussing these systems and procedures with management, reviewing with management the interrelated nature of OCC's risks, and annually approving the Enterprise Risk Management program's goals and objectives. OCC believes that explicitly incorporating these responsibilities into the RC Charter will provide for a more comprehensive oversight framework for the Enterprise Risk Management program. OCC also proposes amendments to restate and expand upon the RC's responsibility for the oversight of OCC's risk appetite and risk tolerances. Currently, the RC Charter provides that the RC is responsible for reviewing and recommending for Board approval the OCC Risk Appetite Statement and reviewing and monitoring OCC's risk profile for consistency with OCC's Risk Appetite Statement. The proposed amendments to the RC Charter would state that, in addition to these responsibilities, the RC would be responsible for reviewing and monitoring determinations regarding appropriate risk tolerances, including reviewing with management on a regular basis management's view of appropriate risk tolerances and assessing whether this view is appropriate, and recommending risk tolerance parameters to the Board. OCC believes that explicitly incorporating these responsibilities into the RC Charter will provide for a more comprehensive oversight framework for OCC's risk appetite and risk tolerances. Other Oversight Responsibilities Section I of the RC Charter currently provides that the RC is responsible for the oversight and review of material policies and processes relating to member and other counterparty risk exposure assessments. OCC proposes amendments to Section IV that would further specify that the RC oversees the adequacy and effectiveness of OCC's processes for setting, monitoring and acting on risk exposures to OCC presented by banks, depositories, financial market utilities and trade sources. OCC believes that the oversight of such risk exposures is critical to ensuring the safety and soundness of OCC and that specifically including this responsibility in the RC Charter will provide for greater clarity and transparency regarding the RC's role in overseeing these risks. Section I of the RC Charter also currently provides that the RC is responsible for the oversight and review of material policies and processes (i) for identifying liquidity risks and (ii) relating to liquidity requirements and the maintenance of financial resources. The proposed amendments to Section IV would further specify that the RC oversees the processes established by OCC for setting, monitoring and managing liquidity needs necessary for OCC to perform its obligations as a systemically important financial market utility. OCC believes that comprehensive oversight of liquidity risks and liquidity risk management is critical to ensuring the safety, soundness, and resilience of OCC and that providing more specificity regarding the RC's responsibilities with respect to liquidity risk will provide for greater clarity and transparency regarding the RC's role in such oversight. In addition, the RC Charter would be amended to provide that the RC and management would discuss on a regular basis the impact on systemic stability that may arise as a result of OCC's actions in responding to an extraordinary market event, including the impending or actual failure of a Clearing Member, and the development of strategies to mitigate these effects. OCC believes it is prudent for management and the RC to engage in regular discussions concerning OCC's actions in extreme market events and the potential impacts on systemic stability given OCC's role as a systemically important financial market utility. OCC also proposes to elaborate on the statement that the RC would perform the responsibilities delegated to it by the Board under OCC's By-Laws and Rules by specifying that this would include the authorization of the filing of regulatory submissions pursuant to such delegation. Additionally, OCC proposes amendments to state that the RC would oversee management's responsibility for handling financial (i.e., credit, market, liquidity and systemic) risks, including the structure, staffing and resources of OCC's Financial Risk Management department. In addition, OCC proposes amendments to state that the RC's oversight responsibilities include: (i) Identifying issues relating to strategic, credit, market, operational, liquidity and systemic risks that should be escalated to the Board for final action and (ii) reviewing, approving and reassessing reporting metrics reflecting the risks for which the RC has oversight. Further, the proposed amendments would specify that the RC oversees OCC's model risk management process, policies and controls, including: (i) Overseeing model risk governance; (ii) reviewing the findings of any third party engaged by management to evaluate OCC's risk models; and (iii) annually reviewing and approving the Model Validation Plan and receiving periodic reports thereunder. Moreover, the amendments would provide that the RC is responsible for reviewing the results [[Page 51232]] of any audits (internal and external), regulatory examinations and supervisory examination reports as to significant risk items or any other matter relating to the areas that the RC oversees, as well as management's responses pertaining to matters that are subject to the oversight of the RC. Conforming, Administrative and Non-Substantive Changes In order to conform the RC Charter to the GNC Charter and AC Charter, OCC proposes amendments to the RC Charter that would eliminate provisions under which the RC Chair attends the year-end CPC meeting to discuss the performance and compensation levels of the CRO. Rather, under the proposed amended RC Charter, the RC, in consultation with the Executive Chairman, would review the performance of the Enterprise Risk Management and Model Validation programs as well as the CRO and determine whether to accept or modify the Executive Chairman's recommendations with respect to the performance assessment and annual compensation for the CRO.\42\ This change reflects the reporting of the CRO to the Executive Chairman for administrative purposes, while preserving functional reporting to the Committee. --------------------------------------------------------------------------- \42\ This change is consistent with comparable changes to the AC Charter with respect to the annual compensation of the CAE and CCO, respectively. --------------------------------------------------------------------------- Further, the proposed amendments confirm that the RC has the responsibility for ratifying, modifying, or reversing action taken by OCC officers that have been delegated authority to consider requests by Clearing Members to expand clearing activities to include additional account types and/or products. Moreover, OCC proposes amendments to the RC Charter to clarify that the RC has the authority to authorize the filing of a regulatory submission pursuant to authority delegated to it by the Board. Amendments to the Governance and Nominating Committee Charter OCC proposes amendments to the GNC Charter to reflect the elimination of term limits for Public Directors as discussed above and to state that attendance of GNC meetings by telephone is discouraged. Attendance by telephone would be generally discouraged because OCC believes the Committee may be less likely to have the kind of interaction that leads to fully informed discussions and decisions than if Committee members were to meet in person. OCC also proposes to delete a provision stating that a designated officer of management shall serve to assist the Committee and act as a liaison between staff and the Committee because OCC believes that experience has shown that designating a formal role for a liaison was unnecessary. Deleting this requirement would also maintain uniformity across all Committee Charters, as no other Committee has a formally designated liaison. OCC also proposes amendments to the GNC Charter to specify that the Chair (or the Chair's designee) shall consult with the Corporate Secretary, in addition to management, to prepare an agenda in advance of each GNC meeting as the Corporate Secretary is responsible for coordinating the preparation and distribution of Board and Board Committee meeting agendas. In addition, OCC is proposing non- substantive drafting changes regarding: (i) The numbering of certain provisions in Section I of the GNC Charter and (ii) the requirements for GNC Committee reports to the Board in Section II of the Charter. Amendments to the Technology Committee Charter OCC is proposing amendments to its TC Charter to require that the Committee meet regularly, and no less than once annually, with OCC's Chief Security Officer (``CSO'') and to provide that the CSO is authorized to communicate with directly with [sic] the Chair of the TC in between meetings of the Committee in order to strengthen the autonomy and independence of the CSO role at OCC. OCC also proposes to amend the TC Charter to provide that the TC shall make such reports to the Board as deemed necessary or advisable. This proposed change would promote effective communication between the TC and the Board is in line with requirements in other Committee Charters. OCC also proposes non- substantive amendments to Section III of the TC Charter to eliminate a provision that referenced approval of non-audit services which appeared to be an inadvertent carry-over from the Audit Committee Charter and to Section IV of the Charter to change the term ``the Company'' to ``OCC'' and ``Board of Directors'' to ``Board.'' 2. Statutory Basis OCC believes that the proposed rule change is consistent with Section 17A of the Act \43\ and the rules thereunder applicable to OCC. OCC's governance arrangements, which include, but are not limited to, OCC's Certificate of Incorporation, By-Laws, the Board Charter, and the Committee Charters promote the effectiveness of OCC's Board and Board Committees' oversight on OCC's business, risk management, and operational processes. OCC believes that the proposed changes to its governance arrangements would enhance the effectiveness of the Board and Board Committees' oversight on such matters and are designed to provide more clarity and transparency with respect to OCC's governance arrangements, thereby promoting the prompt and accurate clearance and settlement of securities transactions, and in general, protecting investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \44\ and ensuring that OCC has clear and transparent governance arrangements consistent with Rule 17Ad-22(d)(8) \45\ thereunder. The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. The statutory basis for the proposed amendments is discussed in more detail below. --------------------------------------------------------------------------- \43\ 15 U.S.C. 78q-1. \44\ 15 U.S.C. 78q-1(b)(3)(F). \45\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to OCC's Certificate of Incorporation, By-Laws, and Rules OCC is proposing to amend its Certificate of Incorporation and By- Laws to modify the composition requirements for OCC's Board to require that only one Management Director shall serve on OCC's board. Currently, there is a vacancy for one Management Director position on the Board (OCC also notes that, prior to the addition of a second Management Director seat in 2013, OCC has historically had only one Management Director serving on its Board). OCC's Board continually evaluates the leadership structure at OCC, including the appropriate number of Management Directors for OCC's Board, and in light of recent experience with the current Management Director vacancy, the Board believes that amending the Board composition to require one Management Director would continue to provide an appropriate level of management representation in the Board-level oversight of OCC. The Executive Chairman, as Management Director, would continue to represent management's viewpoint on OCC's Board. Moreover, the Board has access to OCC's management team, which ensures that the Board has continued access to management's perspectives on the business and affairs of OCC. Accordingly, OCC believes that the proposed amendments to OCC's governance arrangements are designed, [[Page 51233]] in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \46\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \47\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \48\ thereunder. --------------------------------------------------------------------------- \46\ 15 U.S.C. 78q-1(b)(3)(F). \47\ 15 U.S.C. 78q-1. \48\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- OCC is also proposing to amend its By-Laws and Rules to eliminate the role of Management Vice Chairman. The office of Management Vice Chairman has been vacant for a number of years and has not been included in the Board's current discussions regarding management succession planning. OCC believes that the responsibilities of the Management Vice Chairman are appropriately handled by other officers of OCC (and are currently handled by such officers), primarily the Executive Chairman and President, or where applicable, other officers such as the Secretary or directors such as the Member Vice Chairman, and as a result, the title is being eliminated from OCC's By-Laws and Rules. OCC believes the proposed amendments would more accurately reflect the current state of affairs regarding the office of Member Vice Chairman, ensure consistency across all of OCC's governing documents, provide more clarity and transparency regarding OCC's intended governance arrangements, and continue to provide for appropriate and prudent governance arrangements at OCC. Accordingly, OCC believes the proposed amendments are designed in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \49\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \50\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \51\ thereunder. --------------------------------------------------------------------------- \49\ 15 U.S.C. 78q-1(b)(3)(F). \50\ 15 U.S.C. 78q-1. \51\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- The proposed amendments to OCC's By-Laws also would require that the CPC and AC each be chaired by a Public Director, which will help to ensure the objectiveness and independence of those committees. It would also eliminate term limits for Public Directors, allowing OCC's Public Directors the time necessary to develop the particularized degree of knowledge and understanding of OCC's business to ensure that they are able to provide significant value in the governance process. OCC therefore believes that the proposed changes are designed, in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \52\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \53\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \54\ thereunder. --------------------------------------------------------------------------- \52\ 15 U.S.C. 78q-1(b)(3)(F). \53\ 15 U.S.C. 78q-1. \54\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- In addition, the proposed rule change would require that at least one Exchange Director be a member of the RC and would reduce the minimum composition requirement for Member Directors on the RC to allow for greater flexibility in the selection of Directors with the requisite skills and expertise to serve on the RC. The addition of an Exchange Director to the RC will enhance the RC's oversight capabilities by providing additional expertise and unique perspectives on matters such as market risk as well as sophistication as to special risks arising from trading practices, strategies, and new products. Moreover, the reduction in the minimum number of Member Directors serving on the RC would provide OCC with greater flexibility to ensure that the RC is comprised of those Directors that have the appropriate mix of knowledge and expertise necessary to provide for the prudent oversight of risk matters at OCC. It would also continue to ensure the fair representation of Member Directors on OCC's RC as the minimum number Member Directors would be consistent with requirements that the Executive Chairman (as the lone Management Director), one Exchange Director, and at least one Public Director serve on the RC. OCC therefore believes that the proposed amendments are designed, and in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act,\55\ are reasonably designed to be clear and transparent to promote the effectiveness of OCC's risk management procedures in accordance with Rule 17Ad-22(d)(8) \56\ thereunder, and are designed to ensure a fair representation of OCC's members and participants in the administration of its affairs (as they pertain to the oversight of risk matters at OCC) in accordance with Section 17A(b)(3)(C) of the Act.\57\ --------------------------------------------------------------------------- \55\ 15 U.S.C. 78q-1(b)(3)(F). \56\ 17 CFR 240.17Ad-22(d)(8). \57\ 15 U.S.C. 78q-1(b)(3)(C). --------------------------------------------------------------------------- OCC is also proposing a number of other amendments to better align its By-Laws and Board and Board Committee Charters and to provide more clarity and transparency with respect to OCC's governance arrangements. In particular, OCC proposes amendments to Article IV, Section 7 to: (i) Delete a requirement that the Member Vice Chairman preside at the meetings of any committee of the Board charged with reviewing and evaluating the performance and compensation of officers as the CPC would now be chaired by a Public Director and (ii) clarify that the Member Vice Chairman would preside over meetings of the Board and stockholders in the absence of the Executive Chairman because the President cannot preside over meetings of the Board. OCC believes that the proposed changes would provide more clarity, transparency, and accuracy regarding its governance arrangements with respect to the responsibilities of the Member Vice Chairman and President and are therefore designed to ensure that OCC's governance arrangements are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \58\ in accordance with Rule 17Ad-22(d)(8).\59\ --------------------------------------------------------------------------- \58\ 15 U.S.C. 78q-1. \59\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Board Charter and the Fitness Standards The proposed rule change would amend the Board Charter, as described in detail above, to: (i) Harmonize the description of the Board's obligations in the Board Charter with the description of the Board's obligations in OCC's By-Laws and Rules; (ii) reflect recent changes involving Board Committee Charters; (iii) reflect recent changes to the Board's composition; and (iv) in general, restate the responsibilities of the Board in overseeing the management of the affairs of OCC in light of its role as a systemically important financial market utility. The proposed amendments would provide more clarity around the responsibilities of the Board, specifically with respect to its role in: (i) Overseeing management's activities in managing, operating and developing OCC, including the selection, oversight and replacement of key positions (i.e., Executive Chairman, CEO, and the President) as well as evaluating their performance and compensation awards; (ii) setting expectations about the tone and ethical culture at OCC and its ability to ensure compliance with applicable laws and regulations; (iii) reviewing and approving financial objectives and strategies, capital plan and capital structure, fee structure, capital expenditures and budgets; (iv) the oversight of governance processes, [[Page 51234]] including performing annual self-evaluations on a group and individual level; and (v) the oversight of risk assessment and risk tolerances. OCC believes the proposed changes would provide for prudent governance arrangements with respect to the Board's oversight role over OCC as a systemically important financial market utility and are therefore reasonably designed to ensure that OCC has governance arrangements that, in general, protect investors and the public interest consistent with Section 17A(b)(3)(F) of the Act \60\ and are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \61\ applicable to clearing agencies and to support the objectives of owners and participants in accordance with Rule 17Ad-22(d)(8) thereunder.\62\ --------------------------------------------------------------------------- \60\ 15 U.S.C. 78q-1(b)(3)(F). \61\ 15 U.S.C. 78q-1. \62\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- In addition, OCC proposes to amend the Board Charter to state that the Board is comprised of one Management Director, rather than two Management Directors, in conformance with the proposed amendments to the Certificate of Incorporation and By-Laws described above. OCC also proposes amendments to the Fitness Standards to remove redundant descriptions of Board composition and the nomination process and to underscore that the Fitness Standards are intended to facilitate the performance of OCC's role as a systemically important financial market utility. OCC believes that the proposed changes provide additional clarity and transparency regarding its governance arrangements and are therefore designed to ensure that OCC's governance arrangements are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \63\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8).\64\ --------------------------------------------------------------------------- \63\ 15 U.S.C. 78q-1. \64\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Additionally, OCC proposes amendments that would allow for additional meetings of the Board to be called as the Board deems appropriate (such meetings being be called by the Executive Chairman or his designee), which will provide the Board with increased flexibility in performing its oversight functions. Accordingly, OCC believes the proposed amendments to its governance arrangements are designed, in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \65\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \66\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \67\ thereunder. --------------------------------------------------------------------------- \65\ 15 U.S.C. 78q-1(b)(3)(F). \66\ 15 U.S.C. 78q-1. \67\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Common Amendments to the Committee Charters OCC is proposing to make a number of common amendments to the Committee Charters as a result of the Commission approving certain changes to the GNC Charter.\68\ Specifically, OCC proposes to amend each Committee Charter to confirm that each Committee has access to all books, records, facilities and personnel of OCC in carrying out the respective Board Committee's purpose and responsibilities and to delete a provision from each Committee Charter which granted the Chair of each Board Committee the authority to act on behalf of the respective Board Committee in situations in which immediate action was required and convening a Board Committee meeting was impractical. The proposed amendments would ensure that each Committee has access to all books, records, facilities and personnel of OCC in carrying out its respective responsibilities and would support deliberation and action by a Board Committee as a whole, rather than action by solely its Chair, and as a result, would help to ensure that each Committee is able to make fully informed, collective decisions regarding the governance of OCC. OCC therefore believes the proposed amendments are designed in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \69\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \70\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \71\ thereunder. --------------------------------------------------------------------------- \68\ See supra note 16. \69\ 15 U.S.C. 78q-1(b)(3)(F). \70\ 15 U.S.C. 78q-1. \71\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- In addition, OCC is proposing a number of common changes across its Committee Charters to strengthen OCC's Board Committee governance framework and practices surrounding meetings in executive sessions by providing added structure regarding the convening and attendance of executive sessions (and specifically requiring that each Committee meet in executive session at each regular meeting of the Committee) and by promoting the enhanced recordation of important meeting events and discussions by requiring that each Committee's meeting minutes reflect, at a minimum, that an executive session was convened and broadly describe the topic(s) discussed. OCC believes that meetings in executive session are an important tool for Board Committees to discuss matters of a sensitive nature or for which certain persons may have conflicts of interest; however, OCC also believes that it is important that these sessions be documented, at least in summary fashion, in the interest of transparency. OCC therefore believes the proposed amendments providing for added structure regarding the convening, attendance, and recordation of executive sessions are designed, in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \72\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \73\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \74\ thereunder. --------------------------------------------------------------------------- \72\ 15 U.S.C. 78q-1(b)(3)(F). \73\ 15 U.S.C. 78q-1. \74\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Additionally, the Committee Charters would be amended to permit any Board Committee to engage specialists or advisors to assist it in carrying out its delegated responsibilities without requiring pre- approval from the Board. Under the proposed amendments, each Committee's engagement of an advisor, including fees and expenses, would be referenced in its annual report to the Board. These proposed amendments are intended to foster Committee independence as well as timely Committee access to expertise relevant to the discharge of its delegated responsibilities while preserving Board oversight via the application of existing reporting mechanisms. Accordingly, OCC believes that the proposed amendments are designed, in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \75\ and are reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \76\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \77\ thereunder. --------------------------------------------------------------------------- \75\ 15 U.S.C. 78q-1(b)(3)(F). \76\ 15 U.S.C. 78q-1. \77\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- OCC is also proposing amendments to its Committee Charters to specify that that [sic] each Committee should evaluate its and its individual member's performance on an annual basis (as opposed to regularly) to provide more clarity and specificity regarding the timing of each Committee's self- [[Page 51235]] assessment process. OCC believes the proposed amendments are therefore reasonably designed to be clear and transparent to fulfill the public interest requirements in Section 17A of the Act \78\ applicable to clearing agencies in accordance with Rule 17Ad-22(d)(8) \79\ thereunder. --------------------------------------------------------------------------- \78\ 15 U.S.C. 78q-1. \79\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Audit Committee Charter The proposed amendments to the AC Charter are designed to: (i) Underscore the independence of the AC; (ii) underscore and expand upon the activities of the AC with respect to the oversight of OCC's financial reporting processes and enhance the independence and objectivity in connection therewith; (iii) promote effective communication between the CAE, CCO, CFO and the AC and between the AC and the Board; and (iv) in general, provide more explicit descriptions of the AC's functions and responsibilities. Specifically, the proposed changes would underscore the independence of the AC by providing that all members of the AC be independent from OCC's management, as determined by the Board from time to time; that the Chair of the AC be a Public Director; and clarify that the Management Director is ineligible to serve on the AC. The proposed changes would also require the AC to meet regularly, and no less than once annually, (as opposed to at least annually) with management, the CAE, CCO, and CFO in executive sessions to discuss certain private matters and provide the authority for the CAE and CCO to communicate directly with the Chair of the AC with respect to any of the responsibilities of the AC outside of regular meetings to further underscore the independence these roles at OCC. In addition, the proposed changes underscore and expand upon the AC's oversight role in connection with OCC's financial reporting processes, enhance the independence and objectivity in connection therewith, and more explicitly describe the AC's functions and responsibilities with respect to its oversight of external auditors as well as OCC's internal audit and compliance functions (as described in detail above). The proposed amendments would also provide that the AC shall make such reports to the Board as deemed necessary or advisable. OCC believes that by underscoring and reinforcing the independence of the AC in OCC's governance framework, promoting effective communication between certain officers, the AC, and the Board, and providing further clarity around the AC's functions and responsibilities, the proposed changes are reasonably designed to ensure that OCC's governance arrangements with respect to the role of the AC are designed to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \80\ and are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \81\ applicable to clearing agencies and to support the objectives of owners and participants consistent with Rule 17Ad- 22(d)(8).\82\ --------------------------------------------------------------------------- \80\ 15 U.S.C. 78q-1(b)(3)(F). \81\ 15 U.S.C. 78q-1. \82\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Compensation and Performance Committee Charter OCC proposes amendments to the CPC Charter intended to more clearly articulate that the CPC is tasked with assisting the Board in the oversight of OCC's overall performance in promptly and accurately delivering clearance, settlement and other designated industry services and in the accomplishment of other periodically-established corporate goals and objectives in light of OCC's systemically important status. The proposed amendments would provide a more robust framework for the CPC's oversight functions by clearly stating the CPC's role in: (i) Recommending the compensation of OCC's Executive Chairman and President and approving the compensation of certain other officers, as appropriate; (ii) overseeing OCC's Capital Plan, capital structure, financial planning and corporate goals and objectives; (iii) overseeing OCC's Human Resources program; (iv) overseeing the structure and design of the employee compensation, incentive and benefit programs; and (v) assisting the Board in reviewing OCC's leadership development and succession planning. Accordingly, OCC believes that the proposed changes to the CPC Charter are reasonably deigned [sic] to ensure that OCC's governance arrangements with respect to the CPC are designed to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \83\ and are clear and transparent to fulfill the public interest requirements in the Act applicable to clearing agencies and to support the objectives of owners and participants consistent with Rule 17Ad-22(d)(8).\84\ --------------------------------------------------------------------------- \83\ 15 U.S.C. 78q-1(b)(3)(F). \84\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Risk Committee Charter OCC proposes amendments to its RC Charter primarily intended to better align the RC Charter with the OCC By-Laws (including, for example, changes in the composition requirements of the RC and to reflect the adoption of the TC), to restate and elaborate on the responsibilities of the RC, and to replace more granular descriptions with general statements regarding the RC's functions and responsibilities, as described in detail above. In particular, the amendments would restate and expand on the RC's functions and responsibilities with respect to the oversight of membership requirements, margin requirements, the Enterprise Risk Management Program, and OCC's risk appetite and risk tolerances. The proposed amendments also elaborate on the RC's role in overseeing the adequacy and effectiveness of OCC's processes for setting, monitoring and acting on risk exposures to OCC presented by banks, depositories, and financial market utility counterparties and the processes established by OCC for setting, monitoring and managing liquidity needs necessary for OCC to perform its obligations as a systemically important financial market utility. Additionally, in recognition of OCC's role as a systemically important financial market utility, the RC Charter would provide that the RC and management would discuss on a regular basis the impact on systemic stability that may arise as a result of OCC's actions in responding to an extraordinary market event, including the impending or actual failure of a clearing member, and the development of strategies to mitigate these effects. OCC believes that the proposed amendments to the RC Charter provide for comprehensive and robust governance arrangements with respect to the RC's oversight role at OCC and are therefore designed to promote the prompt and accurate clearance and settlement of securities transactions, to assure the safeguarding of securities and funds, and in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \85\ and are reasonably designed to ensure that OCC's governance arrangements are clear and transparent to fulfill the public interest requirements of Section 17A of the Act \86\ applicable to clearing agencies, to support the objectives of owners and participants, and to promote the effectiveness of the clearing agency's [[Page 51236]] risk management procedures as required under Rule 17Ad-22(d)(8).\87\ --------------------------------------------------------------------------- \85\ 15 U.S.C. 78q-1(b)(3)(F). \86\ 15 U.S.C. 78q-1. \87\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Additionally, OCC proposes to delete an existing RC Charter provision specifically requiring the RC to periodically review and modify the inputs to OCC's margin formula and would amend the RC Charter to state that the RC is generally responsible for overseeing the processes established for establishing, monitoring and adjusting margin consistent with the protection of OCC, Clearing Members, or the general public, including reviewing and modifying OCC's margin formula. OCC believes that the proposed amendments continue to provide an adequate and appropriate oversight framework for the monitoring and development of OCC's margin formula and would provide the RC with the continued authority to modify margin formula inputs if it deems such modification to be appropriate. OCC also proposes to delete a provision stating that the RC is responsible for making determinations regarding the approval of non-U.S. institutions to issue letters of credit as a form of margin asset because this provision does not accurately reflect the RC's responsibilities. Accordingly, OCC believes that the proposed changes are reasonably designed to be clear and transparent to promote the effectiveness of the clearing agency's risk management procedures as required under Rule 17Ad-22(d)(8).\88\ --------------------------------------------------------------------------- \88\ Id. --------------------------------------------------------------------------- In addition, OCC proposes amendments to state that the RC shall meet regularly, and no less than once annually, (rather than ``at least annually'') with the CRO and members of management (as opposed to other appropriate corporate officers) in separate executive sessions to discuss certain private matters to provide more specificity regarding the frequency of these meetings (i.e., that these meetings occur more frequently than once per year). The proposed changes would also more specifically require that the RC meet in executive session regularly with members of management. The RC would continue to have the discretion to invite any other officers it deems appropriate to meetings in executive session pursuant to the proposed common charter amendments described above. OCC believes that the proposed amendments provide more clarity and transparency with respect to RC meetings in executive session and are therefore reasonably designed to be clear and transparent to promote the effectiveness of the clearing agency's risk management procedures as required under Rule 17Ad-22(d)(8).\89\ --------------------------------------------------------------------------- \89\ Id. --------------------------------------------------------------------------- Finally, OCC proposes to remove from the RC Charter certain mandatory recusal requirements designed to apply to Member Directors of the RC. OCC believes that the identification and handling of conflicts of interest are already appropriately addressed in its Code of Conduct for OCC Directors, which is a publicly available document that governs the conduct of all directors equally regardless of category or committee assignment. Furthermore, as discussed above, OCC's Directors have a fiduciary duty under Delaware law to protect the interests of the corporation and to act in the best interests of its shareholders and are bound by a duty of loyalty to OCC, which demands that there be no conflict between duty and self-interest and that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director. OCC believes that this specific recusal requirement contained in the RC charter is unnecessary in light of the existing requirements under Delaware law and OCC's Code of Conduct for OCC Directors. Accordingly, OCC believes that its governance arrangements with respect to conflicts of interest for RC members continue to be designed, in general, to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \90\ and are reasonably designed to ensure that OCC's governance arrangements are clear and transparent to fulfill the public interest requirements of Section 17A of the Act \91\ applicable to clearing agencies, to support the objectives of owners and participants, and to promote the effectiveness of the clearing agency's risk management procedures as required under Rule 17Ad-22(d)(8).\92\ --------------------------------------------------------------------------- \90\ 15 U.S.C. 78q-1(b)(3)(F). \91\ 15 U.S.C. 78q-1. \92\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Governance and Nominating Committee Charter OCC proposes amendments to the GNC Charter to reflect the elimination of term limits for Public Directors as discussed above, to state that attendance of GNC meetings by telephone is discouraged, and to delete a provision stating that a designated officer of management shall serve to assist the Committee and act as a liaison between staff and the Committee. The proposed amendments are primarily intended to conform the GNC Charter with proposed changes to the By-Laws and existing practices contained in other Committee Charters and would continue to provide for appropriate governance arrangements with respect to the GNC's oversight role. OCC therefore believes the proposed changes are reasonably designed to ensure that OCC's governance arrangements are clear and transparent to fulfill the public interest requirements of Section 17A of the Act \93\ applicable to clearing agencies as required under Rule 17Ad-22(d)(8).\94\ --------------------------------------------------------------------------- \93\ 15 U.S.C. 78q-1. \94\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendments to the Technology Committee Charter OCC is proposing amendments to its TC Charter to require that the Committee meet regularly, and no less than once annually, with OCC's CSO and to provide that the CSO is authorized to communicate with directly with [sic] the Chair of the TC in between meetings of the Committee. OCC also proposes to amend the TC Charter to provide that the TC shall make such reports to the Board as deemed necessary or advisable. The proposed amendments are designed to strengthen the autonomy and independence of the CSO role at OCC and to promote effective communication between the CSO and the TC and between TC and the Board and are in line with requirements in other Committee Charters. OCC therefore believes the proposed amendments are designed to protect investors and the public interest in accordance with Section 17A(b)(3)(F) of the Act \95\ and are clear and transparent to fulfill the public interest requirements in the Act applicable to clearing agencies and to support the objectives of owners and participants consistent with Rule 17Ad-22(d)(8).\96\ --------------------------------------------------------------------------- \95\ 15 U.S.C. 78q-1(b)(3)(F). \96\ 17 CFR 240.17Ad-22(d)(8). --------------------------------------------------------------------------- Amendment No. 1 to Amended and Restated Stockholders Agreement OCC also proposes to adopt Amendment No. 1 to Amended and Restated Stockholders Agreement in order to provide for Board action in the nomination process for Member Directors, Public Directors, the Executive Chairman and Member Vice Chairman in conformance with the process set forth in the GNC Charter. The proposed change would ensure an appropriate level of Board oversight and participation in the nomination process and provide consistency between the processes described in the GNC Charter and Amended and Restated Stockholders Agreement thereby ensuring that OCC's governance [[Page 51237]] arrangements are clear and transparent to fulfill the public interest requirements of Section 17A of the Act \97\ applicable to clearing agencies as required under Rule 17Ad-22(d)(8).\98\ --------------------------------------------------------------------------- \97\ 15 U.S.C. 78q-1. \98\ 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 have any impact or impose any burden on competition.\99\ The proposed changes to OCC's By-Laws, the Board Charter, and the Committee Charters would promote the effectiveness of OCC's Board and Board Committees' oversight on OCC's business, risk management, and operational processes and provide more clarity and transparency with respect to OCC's governance arrangements. The proposed rule change would also enhance the descriptions of the duties and functions of the Board and its members as well as the AC, the CPC, and the RC. The proposed rule change also promotes more effective governance arrangements for OCC, for example, by removing term limits for Public Directors and requiring the Chair of the AC and the CPC to be Public Directors. As a result, OCC does not believe that the proposed changes would have any impact between or among clearing agencies, Clearing Members, or other market participants. The proposed modifications to OCC's governance arrangements would not unfairly inhibit access to OCC's services or disadvantage or favor any particular user in relationship to another user because they relate to the governance structure of OCC, which affects all users, and do not relate directly to any particular service or particular use of OCC's facilities. --------------------------------------------------------------------------- \99\ 15 U.S.C. 78q-1(b)(3)(I). --------------------------------------------------------------------------- For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not have any impact or impose a burden on competition. (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-2016-002 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-2016-002. 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 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 the 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_002.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-2016-002 and should be submitted on or before August 24, 2016. --------------------------------------------------------------------------- \100\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\100\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-18320 Filed 8-2-16; 8:45 am] BILLING CODE 8011-01-P
![51220 Federal Register / Vol. 81, No. 149 / Wednesday, August 3, 2016 / Notices
requirements and is not related to www.prc.gov. Those who cannot submit interests of the general public in this
security issues. Because the common comments electronically should contact proceeding.
defense and security is not impacted by the person identified in the FOR FURTHER 3. Comments by interested persons
this exemption, the exemption is INFORMATION CONTACT section by are due by August 4, 2016.
consistent with the common defense telephone for advice on filing 4. The Secretary shall arrange for
and security. alternatives. publication of this order in the Federal
Register.
IV. Conclusions FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at By the Commission.
Accordingly, the Commission has Stacy L. Ruble,
determined that, pursuant to 10 CFR 202–789–6820.
Secretary.
50.12(a), the exemption is authorized by SUPPLEMENTARY INFORMATION:
[FR Doc. 2016–18310 Filed 8–2–16; 8:45 am]
law, will not present an undue risk to Table of Contents BILLING CODE 7710–FW–P
the public health and safety, is
consistent with the common defense I. Introduction
and security, and that special II. Notice of Commission Action
III. Ordering Paragraphs SECURITIES AND EXCHANGE
circumstances are present to warrant
issuance of the exemption. Therefore, I. Introduction COMMISSION
the Commission hereby grants SPS an [Release No. 34–78438; File No. SR–OCC–
On July 27, 2016, the Postal Service
exemption from the requirements of 10 2016–002]
filed a notice of a minor classification
CFR 50.46 and 10 CFR part 50,
change regarding the Country Price Lists Self-Regulatory Organizations; The
appendix K, paragraph I.A.5, to allow
for International Mail in Part D of the Options Clearing Corporation; Notice
the use of AREVA’s M5® alloy fuel rod
Mail Classification Schedule (MCS), of Filing of Proposed Rule Change
cladding material in up to eight non-
under Commission rules 39 CFR Concerning Enhancements to The
limiting LTAs at SPS.
Pursuant to 10 CFR 51.32, an 3020.90 and 3020.91.1 The Postal Options Clearing Corporation’s
environmental assessment and finding Service also presents proposed changes Governance Arrangements
of no significant impact related to this to the MCS. Notice at 2; Attachment 1.
The Postal Service states that the July 28, 2016.
exemption was published in the Federal Pursuant to Section 19(b)(1) of the
Register on May 31, 2016 (81 FR 34382). proposed changes are minor in nature
and are not inconsistent with 39 U.S.C. Securities Exchange Act of 1934
Based upon the environmental (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
assessment, the Commission has 3642. Notice at 3.
MCS change. The Postal Service plans notice is hereby given that on July 15,
determined that issuance of this 2016, The Options Clearing Corporation
exemption will not have a significant to provide outbound Priority Mail
Express International (PMEI) service to (‘‘OCC’’) filed with the Securities and
effect on the quality of the human Exchange Commission (‘‘Commission’’)
environment. Cuba. Id. at 1. Accordingly, the Postal
Service seeks to assign Country Group 9 the proposed rule change as described
This exemption is effective upon in Items I, II and III below, which Items
issuance. to Cuba for variable weight PMEI and
Country Group 8 to Cuba for PMEI Flat have been prepared by OCC. The
Dated at Rockville, Maryland, this 27th day Commission is publishing this notice to
Rate Envelope. Id. at 2.
of July 2016. solicit comments on the proposed rule
For the Nuclear Regulatory Commission. II. Notice of Commission Action change from interested persons.
Anne T. Boland, Pursuant to 39 CFR 3020.92, the I. Clearing Agency’s Statement of the
Director, Division of Operating Reactor Commission has posted the Notice on Terms of Substance of the Proposed
Licensing, Office of Nuclear Reactor its Web site and invites comments on
Regulation.
Rule Change
whether the Postal Service’s filings in
[FR Doc. 2016–18375 Filed 8–2–16; 8:45 am] Docket No. MC2016–172 are consistent This proposed rule change by The
BILLING CODE 7590–01–P with the policies of 39 U.S.C. 3642 and Options Clearing Corporation (‘‘OCC’’)
39 CFR 3020 subpart E. Comments are concerns modifications and
due no later than August 4, 2016. The enhancements to OCC’s governance
POSTAL REGULATORY COMMISSION public portions of these filings can be arrangements. OCC is proposing to
accessed via the Commission’s Web site amend its Certificate of Incorporation,
[Docket No. MC2016–172; Order No. 3451] By-Laws, and Board of Directors
(http://www.prc.gov).
(‘‘Board’’) Charter to require that only
New Postal Product The Commission appoints Katrina R.
one Management Director serve on
Martinez to represent the interests of the
AGENCY: Postal Regulatory Commission. OCC’s Board (as opposed to the current
general public (Public Representative)
ACTION: Notice. requirement of two Management
in this docket.
Directors). Moreover, OCC is proposing
SUMMARY: The Commission is noticing a III. Ordering Paragraphs to amend its By-Laws and Rules to
recent Postal Service filing concerning delete all references to the title and
IT IS ORDERED:
minor classification changes to the responsibilities of the Management Vice
1. The Commission establishes Docket
Country Price Lists for International Chairman. In addition, OCC is
No. MC2016–172 to consider matters
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Mail. This notice informs the public of proposing to amend its By-Laws to: (i)
raised by the Notice.
the filing, invites public comment, and Provide that the Compensation and
2. Pursuant to 39 U.S.C. 505, Katrina
takes other administrative steps. Performance Committee (‘‘CPC’’) 3 and
R. Martinez is appointed to serve as an
DATES: Comments are due: August 4,
officer of the Commission (Public
2016. Representative) to represent the
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
ADDRESSES: Submit comments 3 As described below, the Performance Committee
electronically via the Commission’s 1 Notice of United States Postal Service of Minor would be renamed as the Compensation and
Filing Online system at http:// Classification Change, July 27, 2016 (Notice). Performance Committee.
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![Federal Register / Vol. 81, No. 149 / Wednesday, August 3, 2016 / Notices 51221
the Audit Committee (‘‘AC’’) each will best practices and practices of other self- proposed change is ultimately to require
be chaired by a Public Director; (ii) regulatory organizations; (ii) modify the that only one Management Director
modify the composition requirements of composition requirements of the RC, shall serve on OCC’s Board as OCC is
the Risk Committee (‘‘RC’’) to, among including to provide that an Exchange also proposing to amend its By-Laws to
other things, provide that an Exchange Director be a member of the RC to state that one Management Director
Director be a member of the Risk provide the RC with additional shall serve on OCC’s Board (as
Committee; (iii) provide for action by expertise and unique perspective on discussed in more detail below). The
the OCC Board in the nomination matters such as market risk and special proposed amendments would also
process for Member Directors and risks arising from trading practices and ensure consistency between all of OCC’s
Public Directors; (iv) eliminate term strategies, and new products; (iii) governing documents concerning the
limits for Public Directors; and (v) provide for Board action in the number of Management Directors on
consolidate By-Law sections that nomination process for Member OCC’s Board. OCC’s Certificate of
identify the committees of the Board Directors and Public Directors of OCC’s Incorporation and By-Laws currently
into a single section of the By-Laws. Board to ensure an appropriate level of state that OCC’s Board shall be
Finally, OCC is proposing amendments oversight and participation by the Board composed of Members Directors,
to the Charters of the Board and the AC, in determining its own composition and Exchange Directors, Public Directors,
CPC, Governance and Nominating that the composition of the Board fulfils and two Management Directors.
Committee (‘‘GNC’’), RC, and its needs for particular skills and Recently, however, there has been a
Technology Committee (‘‘TC’’) qualifications; (iv) eliminate term limits vacancy for one Management Director
(collectively, ‘‘Board Committees’’ or for Public Directors in the interest of position and only one Management
‘‘Committees’’ and each a ‘‘Board ensuring that OCC has access to the full Director is serving on the Board at this
Committee’’ or ‘‘Committee’’) that stem benefits of a Public Director’s time.5 OCC’s Board continually
from scheduled reviews of such understanding and learning, with evaluates the leadership structure at
documents. respect to OCC and the markets OCC OCC, including the appropriate number
All capitalized terms not defined serves, as that knowledge develops over of Management Directors for OCC’s
herein have the same meaning as set time; and (v) consolidate By-Laws Board, and in light of recent experience
forth in the OCC By-Laws and Rules. sections that identify the committees of since the vacancy of the second
the Board into a single section of the By- Management Director position, believes
II. Clearing Agency’s Statement of the that amending the Board composition to
Laws to provide more clarity and
Purpose of, and Statutory Basis for, the require one Management Director on
transparency to OCC’s participants
Proposed Rule Change OCC’s Board would continue to provide
regarding the existence and composition
In its filing with the Commission, of such Committees. an appropriate level of management
OCC included statements concerning OCC is also proposing amendments to representation in the Board-level
the purpose of and basis for the the Charters of OCC’s Board, AC, CPC, oversight of OCC. The Executive
proposed rule change and discussed any GNC, RC, and TC that stem from Chairman, as Management Director,
comments it received on the proposed scheduled reviews of such documents. would continue to represent
rule change. The text of these statements The proposed amendments to the Board management’s viewpoint on OCC’s
may be examined at the places specified and Committee Charters are designed, in Board. Moreover, the Board has access
in Item IV below. OCC has prepared general, to provide more clarity and to OCC’s management team, which
summaries, set forth in sections (A), (B), transparency around the oversight ensures that the Board has continued
and (C) below, of the most significant functions and responsibilities of the access to management’s perspectives on
aspects of these statements. Board and each of its Committees and the business and affairs of OCC.
provide for a more comprehensive and Furthermore, OCC notes that, prior to
(A) Clearing Agency’s Statement of the the addition of a second Management
Purpose of, and Statutory Basis for, the robust oversight framework for the
financial reporting, audit and Director seat in 2013, OCC has
Proposed Rule Change historically had only one Management
compliance, compensation and
1. Purpose performance, governance and Director serving on its Board.6
nomination, risk, and technology Accordingly, OCC believes that the
The purpose of this proposed rule
change is to implement a number of functions at OCC.
of the By-Laws may not be amended by action of
modifications and enhancements to The proposed amendments to OCC’s the Board without the approval of the holders of all
OCC’s governance arrangements. Certificate of Incorporation, By-Laws, of the outstanding Common Stock of the
Specifically, as a result of the Board’s Rules, Board and Committee Charters, Corporation entitled to vote thereon. Accordingly,
and Amended and Restated any proposed change in the number of Management
continual evaluation of OCC’s Directors required to serve on OCC’s Board would
governance arrangements, OCC is Stockholders Agreement are described continue to be subject to stockholder approval.
proposing to change the composition in detail below. 5 In 2014, the Commission approved a proposed
requirements of its Board to require that Proposed Amendments to OCC’s rule change providing that OCC’s President would
one Management Director serves on not be considered a Management Director and,
Certificate of Incorporation therefore, only one Management Director (the
OCC’s Board (as opposed to two) and to Executive Chairman) currently serves on the Board.
eliminate the role of Management Vice OCC is proposing to amend its See Securities Exchange Act Release No. 73785
Chairman to provide more clarity and Certificate of Incorporation to state that (December 8, 2014), 79 FR 73915 (December 12,
asabaliauskas on DSK3SPTVN1PROD with NOTICES
transparency regarding the status of the number of Management Directors 2014) (SR–OCC–2014–18).
these roles at OCC. In addition, OCC is serving on OCC’s Board shall be such 6 In 2013, the Commission approved a proposed
number as shall be fixed by or pursuant rule change by OCC to provide for the separation
proposing to amend its By-Laws to, of the powers and duties combined in the office of
among other things: (i) Provide that the to OCC’s By-Laws.4 The purpose of this OCC’s Chairman of the Board of Directors into two
CPC and the AC each will be chaired by offices, Chairman and President, and to create an
4 The number of Management Directors required additional directorship to be occupied by the
a Public Director to underscore and to serve on OCC’s Board would be stipulated by President. See Securities Exchange Act Release No.
reinforce the independence of those Article III, Section 1 of OCC’s By-Laws. Article XI, 34–[sic]70076 (July 30, 2013), 78 FR 47449 (August
committees and align with governance Section 1 of OCC’s By-Laws states that Article III 5, 2013) (SR–OCC–2013–09).
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![Federal Register / Vol. 81, No. 149 / Wednesday, August 3, 2016 / Notices 51225
OCC and evaluating OCC management’s and standards. Additionally, OCC descriptions of the categories of
performance in executing its proposes amendments to provisions directors represented on the Board and
responsibilities; (ii) selecting, related to the oversight of succession the process by which they are
overseeing and, where appropriate, planning and executive compensation to nominated for Board service as these
replacing the Executive Chairman of the state more specifically that the Board is descriptions are already maintained in
Board and the President, providing responsible for evaluating and fixing the Article III of OCC’s By-Laws and the
counsel and advice to the Executive compensation of the Executive relevant Committee Charters.
Chairman and the President as well as Chairman and President; overseeing Eliminating these redundant
oversight of the performance of each succession planning, human resource descriptions in the Fitness Standards
such officer and of OCC in order to programs, and talent management would promote efficiency and clarity by
evaluate whether the business is being processes; and overseeing the eliminating the need to ensure
appropriately managed; (iii) setting development and design of employee consistency of the same information
expectations about the tone and ethical compensation, incentive and benefit across multiple documents. The
culture of OCC, and reviewing programs.21 The proposed amendments proposed amendments would also
management’s efforts to instill an would also remove a statement that underscore that the Fitness Standards
appropriate tone and culture throughout OCC’s Board is responsible for are intended to facilitate the
OCC; (iv) providing oversight of risk overseeing OCC’s processes and performance of OCC’s role as a
assessment and risk management framework for assessing, managing and systemically important financial market
monitoring processes, including with monitoring strategic, financial and utility.
respect to systemic risk and reviewing operational risk as this function is Common Amendments to Each
risk tolerances submitted to the Board performed by the RC (as reflected in its Committee Charter
for approval by its Risk Committee; (v) Charter) with oversight from the Board.
performing an annual self-evaluation of OCC is also proposing non- OCC is proposing to make conforming
its performance, the performance of its substantive organizational changes in amendments to the Committee Charters
Committees, the performance of Section IV of the Board Charter. as a result of the Commission approving
individual directors and Committee Specifically, OCC proposes amendments certain changes to the GNC Charter.23
members; and evaluating the Corporate that would combine provisions related Specifically, OCC proposes to amend
Governance Principles and Fitness to the Board’s responsibilities for each Committee Charter to confirm that
Standards; (vi) reviewing the amount of approving and overseeing OCC’s each Board Committee has access to all
books, records, facilities and personnel
compensation for the Board’s Public business strategies and monitoring
of OCC in carrying out the respective
Directors (i.e., directors who are not OCC’s performance of clearance and
Board Committee’s purpose and
affiliated with any national securities settlement services.
responsibilities. This amendment to the
exchange or national securities
Other Conforming, Administrative and Committee Charters would make
association or with any broker or dealer)
Non-Substantive Changes explicit a longstanding principle under
as well as reviewing the annual study
In addition to the changes described which each Committee has operated.
and evaluation of OCC’s system of
above, certain of the proposed Additionally, references to the
internal accounting controls; (vii)
amendments to the Board Charter are ‘‘Governance Committee’’ in each
providing oversight of internal and
meant to address non-substantive, Committee Charter would be changed to
external audit processes and financial the ‘‘Governance and Nominating
reporting, including approving major administrative issues. For example,
Committee’’ to reflect the formation of
changes in auditing and accounting certain amendments are being proposed
the GNC.
principles and practices; and (viii) to Section III of the Board Charter to Furthermore, OCC proposes to delete
oversight of OCC’s information reflect the adoption of the TC 22 the a provision from each Committee
technology strategy, infrastructure, GNC, and renaming of the Performance Charter which granted the Chair of each
resources and risks. Committee to the CPC, as described Board Committee the authority to act on
In addition, OCC proposes to modify herein. In addition OCC is proposing to behalf of the respective Board
certain existing Board Charter amend Section I of the Board Charter to Committee in situations in which
provisions related to the responsibilities more accurately state that the Board is immediate action was required and
of the Board. Specifically, OCC propose responsible for providing direction to convening a Board Committee meeting
[sic] amendments that would specify and overseeing the conduct of the affairs was impractical. Although this
that, in addition to overseeing major of OCC (as opposed to just managing the provision also required each Chair to
capital expenditures and approving the business and affairs) and to remove an report such actions to the respective
annual budget and corporate plan, the unnecessarily specific list of OCC Board Committee for ratification as soon
Board is responsible for reviewing and stakeholders. OCC also proposes as practicable, OCC believes that
approving OCC’s financial objectives amendments that would require an removing this provision is appropriate
and strategies, capital plan and capital annual (as opposed to the less specific from a governance perspective because
structure, OCC’s fee structure, and major ‘‘periodic’’) review of the Board Charter, it supports deliberation and action by a
corporate plans and actions, as well as including the Corporate Governance Board Committee as a whole rather than
periodically reviewing the types and Principles and Fitness Standards. action by a Chair. In addition,
amounts of insurance coverage available
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Fitness Standards for Directors, Clearing historically, each Board Committee has
in light of OCC’s clearing operations. Members and Others been able to convene when necessary.
OCC also proposes amendments to In addition, OCC is proposing a
specify that the Board’s responsibility OCC also proposes to amend the number of common changes across its
for fostering OCC’s compliance with Fitness Standards to remove Committee Charters to strengthen OCC’s
applicable laws and regulations 21 OCC notes that a deleted reference to the
Board Committee governance
includes compliance with banking, evaluation of senior management is now covered by framework and practices surrounding
securities and corporation laws and point (i) described in the paragraph above.
other applicable regulatory guidance 22 See supra note 9. 23 See supra note 16.
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meetings in executive sessions by Amendments to the Audit Committee the AC Charter to state that the AC will
providing added structure regarding the Charter meet regularly, and no less than once
convening and attendance of executive OCC proposes amendments to the AC annually (as opposed to ‘‘at least
sessions and promoting the enhanced Charter intended to, among other things: annually’’), with management, OCC’s
recordation of important meeting events (i) Reinforce the independence of the Chief Financial Officer, Chief Audit
and discussions. Specifically, each AC; (ii) more accurately memorialize Executive (‘‘CAE’’) and Chief
Committee Charter would be amended and expand upon the activities of the Compliance Officer (‘‘CCO’’) in
to: (i) Require that each Committee meet AC with respect to the oversight of executive sessions to discuss certain
in executive session at each regular OCC’s financial reporting processes and private matters. The purpose of this
meeting of the Committee; (ii) allow the enhance the independence and change is to signify that these meetings
Committee to determine who will objectivity in connection therewith; and and interactions occur more than once
participate in such sessions; and (iii) per year. Section II of the AC Charter
(iii) in general, provide more explicit
provide for the exclusion of would also be amended to explicitly
descriptions of the AC’s functions and
management, invited guests, and provide the authority for the CAE and
responsibilities. The proposed changes
individual directors from executive CCO to communicate directly with the
are described in more detail below.
sessions where discussions may involve Chair of the AC, with respect to any of
certain sensitive matters or conflicts of Purpose, Membership and Authority the responsibilities of the AC, outside of
interest. The proposed amendments OCC proposes changes to Sections I, regular meetings to further underscore
would also require that each II and III of the AC Charter related to the their independence. Further, OCC
Committee’s meeting minutes reflect, at purpose, membership and organization, proposes an amendment to Section II of
least in summary fashion, the general and authority of the AC. In Section I of the AC Charter under which attendance
matters discussed in an executive the AC Charter, OCC proposes to make at an AC meeting by telephone is
session. In particular, the Chair (or organizational changes to certain discouraged. Attendance by telephone
Acting Chair) would determine whether statements regarding the AC’s would be generally discouraged because
separate minutes of the executive responsibility to serve as an OCC believes the Committee may be less
sessions are to be recorded as well as independent and objective party to likely to have the kind of interaction
determine the level of detail to be that leads to fully informed discussions
oversee OCC’s system of internal
included in such minutes, provided that and decisions than if Committee
control, compliance environment and
Committee meeting minutes must, at a members were to meet in person.
processes. These changes are non-
minimum, reflect that an executive OCC also proposes to amend the AC
substantive in nature. OCC is also
session was convened and broadly Charter to provide that the AC shall
proposing to make various non-
describe the topic(s) discussed. make such reports to the Board as
Additionally, the Committee Charters substantive clarifying and textual
changes in Section I, including, for deemed necessary or advisable. This
would be amended to permit any Board proposed change would promote
Committee to engage specialists or example, replacing the term
‘‘independent accountants’’ with effective communication between the
advisors to assist it in carrying out its AC and the Board is in line with
delegated responsibilities without prior ‘‘external auditors’’ and replacing
‘‘Corporation’’ with ‘‘OCC,’’ which requirements in other Committee
Board approval. Generally speaking, Charters.
Committees must obtain pre-approval would extend throughout the entire AC
Charter. The proposed amendments to OCC proposes to amend Section III of
from the Board to hire advisors. While
change ‘‘independent accountants’’ to the AC Charter to confirm that the AC’s
not universal, OCC’s understanding is
‘‘external auditors’’ are not intended to authority to hire advisors includes the
that public company board committees
signify a change in roles or authority to approve the related fee and
frequently are authorized to engage
responsibilities but to more accurately retention terms.26 In addition to more
advisors without board pre-approval at
state that the activities described in the accurately reflecting current Committee
the company’s expense to preserve
AC Charter as being performed by practice, it would conform the AC
autonomy and independence and to
‘‘independent accountants’’ are actually charter to OCC’s other Committee
assist them in the execution of their
performed by a party acting in its Charters (i.e., the CPC, GNC, RC and TC
responsibilities as deemed necessary.
capacity as OCC’s ‘‘external auditor.’’ Charters) with respect their authority to
Under the proposed amendments, each
Committee’s engagement of an advisor, OCC also proposes amendments to hire advisors and approve related fees
including fees and expenses, would be Section II of the AC Charter that are and retention terms. As noted above,
referenced in its annual report to the intended to reinforce the independence each of OCC’s Committee Charters
Board. These proposed amendments are of the AC. Specifically, the amendments would be amended to permit any Board
intended to foster Committee provide that all members of the AC be Committee to engage specialists or
independence as well as timely independent from OCC’s management, advisors to assist it in carrying out its
Committee access to expertise relevant as determined by the Board from time delegated responsibilities without prior
to the discharge of its delegated to time, and that the Chair of the AC be Board approval in order to foster
responsibilities while preserving Board a Public Director.24 Additionally OCC Committee independence as well as
oversight via the application of existing proposes an amendment that would timely access to relevant expertise from
reporting mechanisms. clarify that the Management Director, as outside specialists or advisors. The
OCC is also proposing amendments to described in Section 7 of Article III of proposed amendments would clarify
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its Committee Charters to specify that OCC’s By-Laws, is ineligible to serve on that this authority also extends to the
that [sic] each Committee should the AC.25 OCC also proposes to revise approval of related fee and retention
evaluate its and its individual member’s terms.
performance on an annual basis (as 24 The change concerning the AC Chair would
opposed to regularly) to provide more conform the AC Charter to proposed Article III, 26 OCC is also proposing to remove a statement
Section 4(a) of OCC’s By-Laws, as described above. concerning the AC’s authority to obtain advice from
clarity and specificity regarding the 25 In the event OCC has a Non-Executive independent counsel, accountants or others as such
timing of each Committee’s self- Chairman, such individual would not be considered statement would be replaced by a broader
assessment process. a Management Director. expression of the AC’s authority to hire advisors.
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insurance programs. The proposed requires the CPC Chair to meet in accommodate CPC review of annual
amendments would also provide for private session with the GNC Chair to Corporate Plans and Budgets and
CPC oversight of OCC’s Capital Plan in discuss performance of key officers as performance thereunder (as currently
recognition of the importance of well as a provision stating that the contemplated by the CPC Charter) as
providing for Board-level oversight to Chairs of the AC and RC would be well as consideration of longer-term
ensure OCC’s capital and Capital Plan invited to attend the annual meeting to horizons and implications in the
meet or exceed minimum regulatory discuss compensation of key officers, strategic planning process.
standards. The proposed changes are including the Chief Risk Officer
Oversight of OCC’s Capital Plan
described in more detail below. (‘‘CRO’’) and CAE.29 The CPC Charter
would also be amended to require that OCC proposes amendments to Section
Purpose, Membership, and Authority IV of the CPC Charter to explicitly
minutes of Committee meetings be
OCC is proposing to rename the circulated to the Board in conformance provide for the CPC’s responsibilities in
Performance Committee to the CPC in with general requirements applicable to connection with overseeing OCC’s
order to more accurately reflect its role. all Board Committees.30 capital structure, financial planning,
OCC is also proposing to amend Section OCC also proposes an amendment to and corporate goals and objectives.
I of the CPC Charter to more clearly the CPC Charter under which Specifically, the proposed amendments
articulate that the CPC is tasked with attendance at a CPC meeting by would state that the CPC’s
assisting the Board in the oversight of telephone is discouraged. Attendance by responsibilities include oversight of
OCC’s overall performance in promptly telephone would be generally management’s processes for
and accurately delivering clearance, discouraged because OCC believes the determining, monitoring and evaluating
settlement and other designated Committee may be less likely to have OCC’s Capital Plan,31 including
industry services and in the the kind of interaction that leads to fully maintenance of required regulatory
accomplishment of other periodically- informed discussions and decisions capital, and recommending approval of
established corporate goals and than if Committee members were to such plan to the Board. These
objectives in light of OCC’s systemically meet in person. In addition, other amendments would also specify that the
important status. The CPC Charter clarifying and textual changes would be CPC is responsible for the annual review
would further delineate that the CPC is made including, for the reasons stated of OCC’s Fee, Refund and Dividend
also tasked with (i) recommending the above, removal of references to the Policies and making recommendations
compensation of OCC’s Executive Management Vice Chairman. to the Board for changes to such policies
Chairman and President and approving Additionally, OCC proposes non- and payments, if any, under the Refund
the compensation of certain other substantive organizational changes in and Dividend Policies. In addition, OCC
officers, as appropriate; (ii) overseeing Section III regarding the delegation of proposes amendments to provide that
OCC’s Capital Plan and financial authority to the Administrative the CPC’s responsibilities include the
performance; (iii) overseeing OCC’s Committee that do not change the review and approval of fee changes
Human Resources program; (iv) meaning of the rule text. pursuant to the Capital Plan, review and
overseeing the structure and design of recommendation to the Board of
the employee compensation, incentive Functions and Responsibilities changes to OCC’s fee structure, and
and benefit programs; and (v) assisting OCC is proposing amendments to oversight of OCC’s corporate financial
the Board in reviewing OCC’s Section IV of the CPC Charter to provide planning process (including reviewing
leadership development and succession explicit descriptions of the Committee’s the corporate budget). Moreover, the
planning. responsibilities with respect to OCC’s proposed amendments provide for the
Additionally, OCC proposes capital structure, financial planning and CPC’s responsibility to review OCC’s
amendments to Section II of the CPC corporate goals and objectives; human annual corporate goals and objectives
Charter related to the membership and resources and compensation programs; and recommend approval thereof to the
organization of the CPC. Specifically, and employee benefits programs in Board and routinely receive reports
OCC proposes amendments to conform order to provide a more robust regarding progress in achieving such
the CPC Charter to proposed Article III, framework for the CPC’s oversight goals and objectives. The amendments
Section 4(b) of OCC’s By-Laws to state functions. The proposed changes are also provide that the CPC is responsible
that the Chair of the CPC shall be a described in more detail below. for the periodic review of OCC’s
Public Director. In addition, OCC Additionally, OCC proposes to insurance program.
proposes changes to Section II of the remove explicit requirements in Section
Oversight of Human Resources and
CPC Charter to elaborate on the CPC’s IV that the CPC review the Corporate
Compensation Programs
responsibility to discuss and review the Plan and Budget and OCC’s
performance and compensation levels performance under the Corporate Plan OCC proposes amendments to Section
(including benefits and perquisites such at each regularly scheduled meeting in IV of the CPC Charter to explicitly state
as sign-on bonuses, retention favor of more general descriptions that the CPC’s responsibilities include
arrangements, relocation arrangements regarding the CPC’s responsibilities for review of OCC’s Human Resources
and other financial commitments of the oversight of the corporate financial programs and policies, including OCC’s
OCC) of members of the Management planning process, including the talent acquisition, performance
Committee and certain other key corporate budget, and corporate goals management, training, benefits and
officers, as appropriate. succession planning processes and
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and objectives. The proposed
OCC also proposes administrative amendments are intended to review and approval of the structure,
amendments to Section II to clarify that design, and funding as applicable, of
the CPC would meet at least four times 29 These changes are being made to reflect a employee compensation, incentive and
per year, which reflects the minimum consultative process as between the Executive
number of regular meetings in a year in Chairman and, as applicable, the RC and Board to 31 See Securities Exchange Act Release No. 74387
discuss the performance of key officers including (February 26, 2015), 80 FR 12232 [sic] (March 6,
a manner consistent with the charters of the CRO and CAE. 2015) (SR–OCC–2014–813). See also Securities
other Board Committees, and to delete 30 This requirement is already included in the AC, Exchange Act Release No. 74452 (March 6, 2015),
a provision of the CPC Charter that GNC, RC, and TC Charters. 80 FR 13058 (March 12, 2015) (SR–OCC–2015–02).
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of any audits (internal and external), designated officer of management shall Incorporation, By-Laws, the Board
regulatory examinations and serve to assist the Committee and act as Charter, and the Committee Charters
supervisory examination reports as to a liaison between staff and the promote the effectiveness of OCC’s
significant risk items or any other matter Committee because OCC believes that Board and Board Committees’ oversight
relating to the areas that the RC experience has shown that designating a on OCC’s business, risk management,
oversees, as well as management’s formal role for a liaison was and operational processes. OCC believes
responses pertaining to matters that are unnecessary. Deleting this requirement that the proposed changes to its
subject to the oversight of the RC. would also maintain uniformity across governance arrangements would
all Committee Charters, as no other enhance the effectiveness of the Board
Conforming, Administrative and Non-
Committee has a formally designated and Board Committees’ oversight on
Substantive Changes
liaison. such matters and are designed to
In order to conform the RC Charter to OCC also proposes amendments to the provide more clarity and transparency
the GNC Charter and AC Charter, OCC GNC Charter to specify that the Chair (or with respect to OCC’s governance
proposes amendments to the RC Charter the Chair’s designee) shall consult with arrangements, thereby promoting the
that would eliminate provisions under the Corporate Secretary, in addition to prompt and accurate clearance and
which the RC Chair attends the year-end management, to prepare an agenda in settlement of securities transactions,
CPC meeting to discuss the performance advance of each GNC meeting as the and in general, protecting investors and
and compensation levels of the CRO. Corporate Secretary is responsible for the public interest in accordance with
Rather, under the proposed amended RC coordinating the preparation and Section 17A(b)(3)(F) of the Act 44 and
Charter, the RC, in consultation with the distribution of Board and Board ensuring that OCC has clear and
Executive Chairman, would review the Committee meeting agendas. In transparent governance arrangements
performance of the Enterprise Risk addition, OCC is proposing non- consistent with Rule 17Ad–22(d)(8) 45
Management and Model Validation substantive drafting changes regarding: thereunder. The proposed rule change is
programs as well as the CRO and (i) The numbering of certain provisions not inconsistent with the existing rules
determine whether to accept or modify in Section I of the GNC Charter and (ii) of OCC, including any other rules
the Executive Chairman’s the requirements for GNC Committee proposed to be amended. The statutory
recommendations with respect to the reports to the Board in Section II of the basis for the proposed amendments is
performance assessment and annual Charter. discussed in more detail below.
compensation for the CRO.42 This
change reflects the reporting of the CRO Amendments to the Technology Amendments to OCC’s Certificate of
to the Executive Chairman for Committee Charter Incorporation, By-Laws, and Rules
administrative purposes, while OCC is proposing amendments to its OCC is proposing to amend its
preserving functional reporting to the TC Charter to require that the Certificate of Incorporation and By-Laws
Committee. Committee meet regularly, and no less to modify the composition requirements
Further, the proposed amendments than once annually, with OCC’s Chief for OCC’s Board to require that only one
confirm that the RC has the Security Officer (‘‘CSO’’) and to provide Management Director shall serve on
responsibility for ratifying, modifying, that the CSO is authorized to OCC’s board. Currently, there is a
or reversing action taken by OCC communicate with directly with [sic] vacancy for one Management Director
officers that have been delegated the Chair of the TC in between meetings position on the Board (OCC also notes
authority to consider requests by of the Committee in order to strengthen that, prior to the addition of a second
Clearing Members to expand clearing the autonomy and independence of the Management Director seat in 2013, OCC
activities to include additional account CSO role at OCC. OCC also proposes to has historically had only one
types and/or products. Moreover, OCC amend the TC Charter to provide that Management Director serving on its
proposes amendments to the RC Charter the TC shall make such reports to the Board). OCC’s Board continually
to clarify that the RC has the authority Board as deemed necessary or advisable. evaluates the leadership structure at
to authorize the filing of a regulatory This proposed change would promote OCC, including the appropriate number
submission pursuant to authority effective communication between the of Management Directors for OCC’s
delegated to it by the Board. TC and the Board is in line with Board, and in light of recent experience
Amendments to the Governance and requirements in other Committee with the current Management Director
Nominating Committee Charter Charters. OCC also proposes non- vacancy, the Board believes that
substantive amendments to Section III amending the Board composition to
OCC proposes amendments to the of the TC Charter to eliminate a require one Management Director would
GNC Charter to reflect the elimination of provision that referenced approval of continue to provide an appropriate level
term limits for Public Directors as non-audit services which appeared to be of management representation in the
discussed above and to state that an inadvertent carry-over from the Board-level oversight of OCC. The
attendance of GNC meetings by Audit Committee Charter and to Section Executive Chairman, as Management
telephone is discouraged. Attendance by IV of the Charter to change the term ‘‘the Director, would continue to represent
telephone would be generally Company’’ to ‘‘OCC’’ and ‘‘Board of management’s viewpoint on OCC’s
discouraged because OCC believes the Directors’’ to ‘‘Board.’’ Board. Moreover, the Board has access
Committee may be less likely to have to OCC’s management team, which
the kind of interaction that leads to fully 2. Statutory Basis
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ensures that the Board has continued
informed discussions and decisions OCC believes that the proposed rule access to management’s perspectives on
than if Committee members were to change is consistent with Section 17A of the business and affairs of OCC.
meet in person. OCC also proposes to the Act 43 and the rules thereunder Accordingly, OCC believes that the
delete a provision stating that a applicable to OCC. OCC’s governance proposed amendments to OCC’s
42 This change is consistent with comparable
arrangements, which include, but are governance arrangements are designed,
changes to the AC Charter with respect to the
not limited to, OCC’s Certificate of
44 15 U.S.C. 78q–1(b)(3)(F).
annual compensation of the CAE and CCO,
respectively. 43 15 U.S.C. 78q–1. 45 17 CFR 240.17Ad–22(d)(8).
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including performing annual self- interest requirements in Section 17A of requiring that each Committee’s meeting
evaluations on a group and individual the Act 66 applicable to clearing agencies minutes reflect, at a minimum, that an
level; and (v) the oversight of risk in accordance with Rule 17Ad– executive session was convened and
assessment and risk tolerances. OCC 22(d)(8) 67 thereunder. broadly describe the topic(s) discussed.
believes the proposed changes would OCC believes that meetings in executive
provide for prudent governance Common Amendments to the session are an important tool for Board
arrangements with respect to the Committee Charters Committees to discuss matters of a
Board’s oversight role over OCC as a OCC is proposing to make a number sensitive nature or for which certain
systemically important financial market of common amendments to the persons may have conflicts of interest;
utility and are therefore reasonably Committee Charters as a result of the however, OCC also believes that it is
designed to ensure that OCC has Commission approving certain changes important that these sessions be
governance arrangements that, in to the GNC Charter.68 Specifically, OCC documented, at least in summary
general, protect investors and the public proposes to amend each Committee fashion, in the interest of transparency.
interest consistent with Section Charter to confirm that each Committee OCC therefore believes the proposed
17A(b)(3)(F) of the Act 60 and are clear has access to all books, records, amendments providing for added
and transparent to fulfill the public facilities and personnel of OCC in structure regarding the convening,
interest requirements in Section 17A of carrying out the respective Board attendance, and recordation of executive
the Act 61 applicable to clearing agencies Committee’s purpose and sessions are designed, in general, to
and to support the objectives of owners responsibilities and to delete a protect investors and the public interest
and participants in accordance with provision from each Committee Charter in accordance with Section 17A(b)(3)(F)
Rule 17Ad–22(d)(8) thereunder.62 which granted the Chair of each Board of the Act 72 and are reasonably
In addition, OCC proposes to amend Committee the authority to act on behalf designed to be clear and transparent to
the Board Charter to state that the Board of the respective Board Committee in fulfill the public interest requirements
is comprised of one Management situations in which immediate action in Section 17A of the Act 73 applicable
Director, rather than two Management was required and convening a Board to clearing agencies in accordance with
Directors, in conformance with the Committee meeting was impractical. Rule 17Ad–22(d)(8) 74 thereunder.
proposed amendments to the Certificate The proposed amendments would Additionally, the Committee Charters
of Incorporation and By-Laws described ensure that each Committee has access would be amended to permit any Board
above. OCC also proposes amendments to all books, records, facilities and Committee to engage specialists or
to the Fitness Standards to remove personnel of OCC in carrying out its advisors to assist it in carrying out its
redundant descriptions of Board respective responsibilities and would delegated responsibilities without
composition and the nomination support deliberation and action by a requiring pre-approval from the Board.
process and to underscore that the Board Committee as a whole, rather Under the proposed amendments, each
Fitness Standards are intended to than action by solely its Chair, and as Committee’s engagement of an advisor,
facilitate the performance of OCC’s role a result, would help to ensure that each including fees and expenses, would be
as a systemically important financial Committee is able to make fully referenced in its annual report to the
market utility. OCC believes that the informed, collective decisions regarding Board. These proposed amendments are
proposed changes provide additional the governance of OCC. OCC therefore intended to foster Committee
clarity and transparency regarding its believes the proposed amendments are independence as well as timely
governance arrangements and are designed in general, to protect investors Committee access to expertise relevant
therefore designed to ensure that OCC’s and the public interest in accordance to the discharge of its delegated
governance arrangements are clear and with Section 17A(b)(3)(F) of the Act 69 responsibilities while preserving Board
transparent to fulfill the public interest and are reasonably designed to be clear oversight via the application of existing
requirements in Section 17A of the and transparent to fulfill the public reporting mechanisms. Accordingly,
Act 63 applicable to clearing agencies in interest requirements in Section 17A of OCC believes that the proposed
accordance with Rule 17Ad–22(d)(8).64 the Act 70 applicable to clearing agencies amendments are designed, in general, to
Additionally, OCC proposes in accordance with Rule 17Ad– protect investors and the public interest
amendments that would allow for 22(d)(8) 71 thereunder. in accordance with Section 17A(b)(3)(F)
additional meetings of the Board to be In addition, OCC is proposing a of the Act 75 and are reasonably
called as the Board deems appropriate number of common changes across its designed to be clear and transparent to
(such meetings being be called by the Committee Charters to strengthen OCC’s fulfill the public interest requirements
Executive Chairman or his designee), Board Committee governance in Section 17A of the Act 76 applicable
which will provide the Board with framework and practices surrounding to clearing agencies in accordance with
increased flexibility in performing its meetings in executive sessions by Rule 17Ad–22(d)(8) 77 thereunder.
oversight functions. Accordingly, OCC providing added structure regarding the OCC is also proposing amendments to
believes the proposed amendments to convening and attendance of executive its Committee Charters to specify that
its governance arrangements are sessions (and specifically requiring that that [sic] each Committee should
designed, in general, to protect investors each Committee meet in executive evaluate its and its individual member’s
and the public interest in accordance session at each regular meeting of the performance on an annual basis (as
with Section 17A(b)(3)(F) of the Act 65 Committee) and by promoting the opposed to regularly) to provide more
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and are reasonably designed to be clear enhanced recordation of important clarity and specificity regarding the
and transparent to fulfill the public meeting events and discussions by timing of each Committee’s self-
60 15 U.S.C. 78q–1(b)(3)(F). 66 15 U.S.C. 78q–1. 72 15 U.S.C. 78q–1(b)(3)(F).
61 15 U.S.C. 78q–1. 67 17 CFR 240.17Ad–22(d)(8). 73 15 U.S.C. 78q–1.
62 17 CFR 240.17Ad–22(d)(8). 68 See supra note 16. 74 17 CFR 240.17Ad–22(d)(8).
63 15 U.S.C. 78q–1. 69 15 U.S.C. 78q–1(b)(3)(F). 75 15 U.S.C. 78q–1(b)(3)(F).
64 17 CFR 240.17Ad–22(d)(8). 70 15 U.S.C. 78q–1. 76 15 U.S.C. 78q–1.
65 15 U.S.C. 78q–1(b)(3)(F). 71 17 CFR 240.17Ad–22(d)(8). 77 17 CFR 240.17Ad–22(d)(8).
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assessment process. OCC believes the between certain officers, the AC, and the Amendments to the Risk Committee
proposed amendments are therefore Board, and providing further clarity Charter
reasonably designed to be clear and around the AC’s functions and OCC proposes amendments to its RC
transparent to fulfill the public interest responsibilities, the proposed changes Charter primarily intended to better
requirements in Section 17A of the are reasonably designed to ensure that align the RC Charter with the OCC By-
Act 78 applicable to clearing agencies in OCC’s governance arrangements with Laws (including, for example, changes
accordance with Rule 17Ad–22(d)(8) 79 respect to the role of the AC are in the composition requirements of the
thereunder. designed to protect investors and the RC and to reflect the adoption of the
Amendments to the Audit Committee public interest in accordance with TC), to restate and elaborate on the
Charter Section 17A(b)(3)(F) of the Act 80 and responsibilities of the RC, and to replace
are clear and transparent to fulfill the more granular descriptions with general
The proposed amendments to the AC public interest requirements in Section
Charter are designed to: (i) Underscore statements regarding the RC’s functions
17A of the Act 81 applicable to clearing and responsibilities, as described in
the independence of the AC; (ii) agencies and to support the objectives of
underscore and expand upon the detail above. In particular, the
owners and participants consistent with amendments would restate and expand
activities of the AC with respect to the
Rule 17Ad–22(d)(8).82 on the RC’s functions and
oversight of OCC’s financial reporting
processes and enhance the Amendments to the Compensation and responsibilities with respect to the
independence and objectivity in Performance Committee Charter oversight of membership requirements,
connection therewith; (iii) promote margin requirements, the Enterprise
effective communication between the OCC proposes amendments to the Risk Management Program, and OCC’s
CAE, CCO, CFO and the AC and CPC Charter intended to more clearly risk appetite and risk tolerances. The
between the AC and the Board; and (iv) articulate that the CPC is tasked with proposed amendments also elaborate on
in general, provide more explicit assisting the Board in the oversight of the RC’s role in overseeing the adequacy
descriptions of the AC’s functions and OCC’s overall performance in promptly and effectiveness of OCC’s processes for
responsibilities. Specifically, the and accurately delivering clearance, setting, monitoring and acting on risk
proposed changes would underscore the settlement and other designated exposures to OCC presented by banks,
independence of the AC by providing industry services and in the depositories, and financial market
that all members of the AC be accomplishment of other periodically- utility counterparties and the processes
independent from OCC’s management, established corporate goals and established by OCC for setting,
as determined by the Board from time objectives in light of OCC’s systemically monitoring and managing liquidity
to time; that the Chair of the AC be a important status. The proposed needs necessary for OCC to perform its
Public Director; and clarify that the amendments would provide a more obligations as a systemically important
Management Director is ineligible to robust framework for the CPC’s financial market utility. Additionally, in
serve on the AC. The proposed changes oversight functions by clearly stating the recognition of OCC’s role as a
would also require the AC to meet CPC’s role in: (i) Recommending the systemically important financial market
regularly, and no less than once compensation of OCC’s Executive utility, the RC Charter would provide
annually, (as opposed to at least Chairman and President and approving that the RC and management would
annually) with management, the CAE, the compensation of certain other discuss on a regular basis the impact on
CCO, and CFO in executive sessions to officers, as appropriate; (ii) overseeing systemic stability that may arise as a
discuss certain private matters and OCC’s Capital Plan, capital structure, result of OCC’s actions in responding to
provide the authority for the CAE and financial planning and corporate goals an extraordinary market event,
CCO to communicate directly with the and objectives; (iii) overseeing OCC’s including the impending or actual
Chair of the AC with respect to any of Human Resources program; (iv) failure of a clearing member, and the
the responsibilities of the AC outside of overseeing the structure and design of development of strategies to mitigate
regular meetings to further underscore the employee compensation, incentive these effects. OCC believes that the
the independence these roles at OCC. In and benefit programs; and (v) assisting proposed amendments to the RC Charter
addition, the proposed changes the Board in reviewing OCC’s provide for comprehensive and robust
underscore and expand upon the AC’s leadership development and succession governance arrangements with respect
oversight role in connection with OCC’s planning. Accordingly, OCC believes to the RC’s oversight role at OCC and are
financial reporting processes, enhance that the proposed changes to the CPC therefore designed to promote the
the independence and objectivity in Charter are reasonably deigned [sic] to prompt and accurate clearance and
connection therewith, and more ensure that OCC’s governance settlement of securities transactions, to
explicitly describe the AC’s functions arrangements with respect to the CPC assure the safeguarding of securities and
and responsibilities with respect to its are designed to protect investors and the funds, and in general, to protect
oversight of external auditors as well as public interest in accordance with investors and the public interest in
OCC’s internal audit and compliance Section 17A(b)(3)(F) of the Act 83 and accordance with Section 17A(b)(3)(F) of
functions (as described in detail above). are clear and transparent to fulfill the the Act 85 and are reasonably designed
The proposed amendments would also public interest requirements in the Act to ensure that OCC’s governance
provide that the AC shall make such applicable to clearing agencies and to arrangements are clear and transparent
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reports to the Board as deemed support the objectives of owners and to fulfill the public interest
necessary or advisable. participants consistent with Rule 17Ad– requirements of Section 17A of the
OCC believes that by underscoring 22(d)(8).84 Act 86 applicable to clearing agencies, to
and reinforcing the independence of the support the objectives of owners and
AC in OCC’s governance framework, 80 15 U.S.C. 78q–1(b)(3)(F). participants, and to promote the
promoting effective communication 81 15 U.S.C. 78q–1. effectiveness of the clearing agency’s
82 17 CFR 240.17Ad–22(d)(8).
78 15 U.S.C. 78q–1. 83 15 U.S.C. 78q–1(b)(3)(F). 85 15 U.S.C. 78q–1(b)(3)(F).
79 17 CFR 240.17Ad–22(d)(8). 84 17 CFR 240.17Ad–22(d)(8). 86 15 U.S.C. 78q–1.
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risk management procedures as required risk management procedures as required Charters and would continue to provide
under Rule 17Ad–22(d)(8).87 under Rule 17Ad–22(d)(8).89 for appropriate governance
Additionally, OCC proposes to delete Finally, OCC proposes to remove from arrangements with respect to the GNC’s
an existing RC Charter provision the RC Charter certain mandatory oversight role. OCC therefore believes
specifically requiring the RC to recusal requirements designed to apply the proposed changes are reasonably
periodically review and modify the to Member Directors of the RC. OCC designed to ensure that OCC’s
inputs to OCC’s margin formula and believes that the identification and governance arrangements are clear and
would amend the RC Charter to state handling of conflicts of interest are transparent to fulfill the public interest
that the RC is generally responsible for already appropriately addressed in its requirements of Section 17A of the
overseeing the processes established for Code of Conduct for OCC Directors, Act 93 applicable to clearing agencies as
establishing, monitoring and adjusting which is a publicly available document required under Rule 17Ad–22(d)(8).94
margin consistent with the protection of that governs the conduct of all directors
equally regardless of category or Amendments to the Technology
OCC, Clearing Members, or the general Committee Charter
public, including reviewing and committee assignment. Furthermore, as
modifying OCC’s margin formula. OCC discussed above, OCC’s Directors have a OCC is proposing amendments to its
believes that the proposed amendments fiduciary duty under Delaware law to TC Charter to require that the
continue to provide an adequate and protect the interests of the corporation Committee meet regularly, and no less
appropriate oversight framework for the and to act in the best interests of its than once annually, with OCC’s CSO
monitoring and development of OCC’s shareholders and are bound by a duty of and to provide that the CSO is
margin formula and would provide the loyalty to OCC, which demands that authorized to communicate with
RC with the continued authority to there be no conflict between duty and directly with [sic] the Chair of the TC in
modify margin formula inputs if it self-interest and that the best interest of between meetings of the Committee.
deems such modification to be the corporation and its shareholders OCC also proposes to amend the TC
appropriate. OCC also proposes to takes precedence over any interest Charter to provide that the TC shall
delete a provision stating that the RC is possessed by a director. OCC believes make such reports to the Board as
responsible for making determinations that this specific recusal requirement deemed necessary or advisable. The
regarding the approval of non-U.S. contained in the RC charter is proposed amendments are designed to
institutions to issue letters of credit as unnecessary in light of the existing strengthen the autonomy and
a form of margin asset because this requirements under Delaware law and independence of the CSO role at OCC
provision does not accurately reflect the OCC’s Code of Conduct for OCC and to promote effective communication
RC’s responsibilities. Accordingly, OCC Directors. Accordingly, OCC believes between the CSO and the TC and
believes that the proposed changes are that its governance arrangements with between TC and the Board and are in
reasonably designed to be clear and respect to conflicts of interest for RC line with requirements in other
transparent to promote the effectiveness members continue to be designed, in Committee Charters. OCC therefore
of the clearing agency’s risk general, to protect investors and the believes the proposed amendments are
management procedures as required public interest in accordance with designed to protect investors and the
under Rule 17Ad–22(d)(8).88 Section 17A(b)(3)(F) of the Act 90 and public interest in accordance with
are reasonably designed to ensure that Section 17A(b)(3)(F) of the Act 95 and
In addition, OCC proposes
amendments to state that the RC shall OCC’s governance arrangements are are clear and transparent to fulfill the
meet regularly, and no less than once clear and transparent to fulfill the public interest requirements in the Act
annually, (rather than ‘‘at least public interest requirements of Section applicable to clearing agencies and to
annually’’) with the CRO and members 17A of the Act 91 applicable to clearing support the objectives of owners and
of management (as opposed to other agencies, to support the objectives of participants consistent with Rule 17Ad–
appropriate corporate officers) in owners and participants, and to promote 22(d)(8).96
separate executive sessions to discuss the effectiveness of the clearing agency’s
Amendment No. 1 to Amended and
certain private matters to provide more risk management procedures as required
Restated Stockholders Agreement
specificity regarding the frequency of under Rule 17Ad–22(d)(8).92
OCC also proposes to adopt
these meetings (i.e., that these meetings Amendments to the Governance and Amendment No. 1 to Amended and
occur more frequently than once per Nominating Committee Charter Restated Stockholders Agreement in
year). The proposed changes would also OCC proposes amendments to the order to provide for Board action in the
more specifically require that the RC GNC Charter to reflect the elimination of nomination process for Member
meet in executive session regularly with term limits for Public Directors as Directors, Public Directors, the
members of management. The RC would discussed above, to state that attendance Executive Chairman and Member Vice
continue to have the discretion to invite of GNC meetings by telephone is Chairman in conformance with the
any other officers it deems appropriate discouraged, and to delete a provision process set forth in the GNC Charter.
to meetings in executive session stating that a designated officer of The proposed change would ensure an
pursuant to the proposed common management shall serve to assist the appropriate level of Board oversight and
charter amendments described above. Committee and act as a liaison between participation in the nomination process
OCC believes that the proposed staff and the Committee. The proposed and provide consistency between the
amendments provide more clarity and
asabaliauskas on DSK3SPTVN1PROD with NOTICES
amendments are primarily intended to processes described in the GNC Charter
transparency with respect to RC conform the GNC Charter with proposed and Amended and Restated
meetings in executive session and are changes to the By-Laws and existing Stockholders Agreement thereby
therefore reasonably designed to be practices contained in other Committee ensuring that OCC’s governance
clear and transparent to promote the
effectiveness of the clearing agency’s 89 Id. 93 15 U.S.C. 78q–1.
90 15 U.S.C. 78q–1(b)(3)(F). 94 17 CFR 240.17Ad–22(d)(8).
87 17 CFR 240.17Ad–22(d)(8). 91 15 U.S.C. 78q–1. 95 15 U.S.C. 78q–1(b)(3)(F).
88 Id. 92 17 CFR 240.17Ad–22(d)(8). 96 17 CFR 240.17Ad–22(d)(8).
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![Federal Register / Vol. 81, No. 149 / Wednesday, August 3, 2016 / Notices 51237
arrangements are clear and transparent III. Date of Effectiveness of the inspection and copying at the principal
to fulfill the public interest Proposed Rule Change and Timing for office of OCC and on OCC’s Web site at
requirements of Section 17A of the Commission Action http://www.theocc.com/components/
Act 97 applicable to clearing agencies as Within 45 days of the date of docs/legal/rules_and_bylaws/sr_occ_16_
required under Rule 17Ad–22(d)(8).98 publication of this notice in the Federal 002.pdf. All comments received will be
Register or within such longer period posted without change; the Commission
(B) Clearing Agency’s Statement on does not edit personal identifying
Burden on Competition up to 90 days (i) as the Commission may
designate if it finds such longer period information from submissions. You
to be appropriate and publishes its should submit only information that
OCC does not believe that the
reasons for so finding or (ii) as to which you wish to make available publicly. All
proposed rule change would have any
the self-regulatory organization submissions should refer to File
impact or impose any burden on
consents, the Commission will: Number SR–OCC–2016–002 and should
competition.99 The proposed changes to be submitted on or before August 24,
OCC’s By-Laws, the Board Charter, and (A) by order approve or disapprove the
proposed rule change, or 2016.
the Committee Charters would promote
the effectiveness of OCC’s Board and (B) institute proceedings to determine For the Commission, by the Division of
whether the proposed rule change Trading and Markets, pursuant to delegated
Board Committees’ oversight on OCC’s authority.100
business, risk management, and should be disapproved.
Robert W. Errett,
operational processes and provide more IV. Solicitation of Comments
Deputy Secretary.
clarity and transparency with respect to
Interested persons are invited to [FR Doc. 2016–18320 Filed 8–2–16; 8:45 am]
OCC’s governance arrangements. The submit written data, views and BILLING CODE 8011–01–P
proposed rule change would also arguments concerning the foregoing,
enhance the descriptions of the duties including whether the proposed rule
and functions of the Board and its change is consistent with the Act. SECURITIES AND EXCHANGE
members as well as the AC, the CPC, Comments may be submitted by any of COMMISSION
and the RC. The proposed rule change the following methods:
also promotes more effective governance [Investment Company Act Release No.
arrangements for OCC, for example, by Electronic Comments 32196; 812–14650]
removing term limits for Public • Use the Commission’s Internet CSat Investment Advisory, L.P., et al.;
Directors and requiring the Chair of the comment form (http://www.sec.gov/ Notice of Application
AC and the CPC to be Public Directors. rules/sro.shtml); or
As a result, OCC does not believe that • Send an email to rule-comments@ July 28, 2016.
the proposed changes would have any sec.gov. Please include File Number SR– AGENCY: Securities and Exchange
impact between or among clearing OCC–2016–002 on the subject line. Commission (‘‘Commission’’).
agencies, Clearing Members, or other Paper Comments ACTION: Notice of an application for an
market participants. The proposed order under section 6(c) of the
modifications to OCC’s governance • Send paper comments in triplicate Investment Company Act of 1940 (the
arrangements would not unfairly inhibit to Brent J. Fields, Secretary, Securities ‘‘Act’’) for an exemption from sections
access to OCC’s services or disadvantage and Exchange Commission, 100 F Street 2(a)(32), 5(a)(1), 22(d), and 22(e) of the
or favor any particular user in NE., Washington, DC 20549–1090. Act and rule 22c–1 under the Act, under
relationship to another user because All submissions should refer to File sections 6(c) and 17(b) of the Act for an
they relate to the governance structure Number SR–OCC–2016–002. This file exemption from sections 17(a)(1) and
of OCC, which affects all users, and do number should be included on the 17(a)(2) of the Act, and under section
not relate directly to any particular subject line if email is used. To help the 12(d)(1)(J) for an exemption from
service or particular use of OCC’s Commission process and review your sections 12(d)(1)(A) and 12(d)(1)(B) of
facilities. comments more efficiently, please use the Act. The requested order would
only one method. The Commission will permit (a) index-based series of certain
For the foregoing reasons, OCC
post all comments on the Commission’s open-end management investment
believes that the proposed rule change Internet Web site (http://www.sec.gov/ companies (‘‘Funds’’) to issue shares
is in the public interest, would be rules/sro.shtml). Copies of the redeemable in large aggregations only
consistent with the requirements of the submission, all subsequent (‘‘Creation Units’’); (b) secondary market
Act applicable to clearing agencies, and amendments, all written statements transactions in Fund shares to occur at
would not have any impact or impose with respect to the proposed rule negotiated market prices rather than at
a burden on competition. change that are filed with the net asset value (‘‘NAV’’); (c) certain
(C) Clearing Agency’s Statement on Commission, and all written Funds to pay redemption proceeds,
Comments on the Proposed Rule communications relating to the under certain circumstances, more than
Change Received from Members, proposed rule change between the seven days after the tender of shares for
Participants, or Others Commission and any person, other than redemption; (d) certain affiliated
those that may be withheld from the persons of a Fund to deposit securities
Written comments on the proposed public in accordance with the into, and receive securities from, the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
rule change were not and are not provisions of 5 U.S.C. 552, will be Fund in connection with the purchase
intended to be solicited with respect to available for Web site viewing and and redemption of Creation Units; and
the proposed rule change and none have printing in the Commission’s Public (e) certain registered management
been received. Reference Room, 100 F Street NE., investment companies and unit
Washington, DC 20549 on official investment trusts outside of the same
97 15 U.S.C. 78q–1. business days between the hours of group of investment companies as the
98 17 CFR 240.17Ad–22(d)(8). 10:00 a.m. and 3:00 p.m. Copies of the
99 15 U.S.C. 78q–1(b)(3)(I). filing also will be available for 100 17 CFR 200.30–3(a)(12).
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Document Created: 2016-08-02 23:44:04
Document Modified: 2016-08-02 23:44:04
| 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 51220 |
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