82 FR 17311 - Options Clearing Corporation Self-Regulatory Organizations; the Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Requirement for Clearing Members To Participate in Default Management Testing
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 67 (April 10, 2017)
Federal Register Volume 82, Issue 67 (April 10, 2017)
| Page Range | 17311-17314 | |
| FR Document | 2017-07047 |
[Federal Register Volume 82, Number 67 (Monday, April 10, 2017)] [Notices] [Pages 17311-17314] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-07047] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80372; File No. SR-OCC-2017-003] Options Clearing Corporation Self-Regulatory Organizations; the Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Requirement for Clearing Members To Participate in Default Management Testing April 4, 2017. 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 March 29, 2017, 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; Items I and II have been prepared by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 19b- 4(f)(6) \4\ thereunder so that the proposal was effective upon filing with the Commission. 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. \3\ 15 U.S.C. 78s(b)(3)(A)(iii). \4\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change by OCC codifies the requirement for Clearing Members to participate in default management testing. 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. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.\5\ --------------------------------------------------------------------------- \5\ OCC's By-Laws and Rules can be found on OCC's public Web site: http://optionsclearing.com/about/publications/bylaws.jsp. --------------------------------------------------------------------------- [[Page 17312]] (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background On September 28, 2016 the Commission adopted amendments to Rule 17Ad-22 \6\ and added new Rule 17Ad-22(e)(13) \7\ pursuant to Section 17A of the Securities Exchange Act of 1934 \8\ and the Payment, Clearing, and Settlement Supervision Act of 2010 (``Payment, Clearing and Settlement Supervision Act'') \9\ to require that a ``covered clearing agency,'' as defined by Rule 17Ad-22(a)(5),\10\ has the authority and operational capacity, among other things, to require that participants, and other stakeholders when practicable, participate in the review and testing of the covered clearing agency's default procedures (collectively, the new and amended rules are herein referred to as ``CCA'' rules). Specifically, Rule 17Ad-22(e)(13) requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to: --------------------------------------------------------------------------- \6\ 17 CFR 240.17Ad-22. \7\ 17 CFR 240.17Ad-22(e)(13). \8\ 15 U.S.C. 78q-1. \9\ 12 U.S.C. 5461 et. seq. \10\ 17 CFR 240.17Ad-22(a)(5). Ensure the covered clearing agency has the authority and operational capacity to take timely action to contain losses and liquidity demands and continue to meet its obligations by, at a minimum, requiring the covered clearing agency's participants and, when practicable, other stakeholders to participate in the testing and review of its default procedures, including any close-out procedure, at least annually and following material changes thereto.\11\ --------------------------------------------------------------------------- \11\ 17 CFR 240.17Ad-22(e)(13). OCC meets the definition of a covered clearing agency and is therefore subject to the requirements of the CCA rules, including Rule 17Ad-22(e)(13).\12\ --------------------------------------------------------------------------- \12\ Id. --------------------------------------------------------------------------- Current Practice As a matter of current practice, OCC already involves certain of its Clearing Members in testing of OCC's default management procedures. Article V of OCC's By-Laws sets forth OCC's initial membership requirements. Pursuant to Interpretation and Policy .02(b) of Article V, Section 1 of OCC's By-Laws, an applicant must demonstrate that it is operationally capable of, among other things, participating in applicable default management activities as required by OCC and in accordance with applicable laws and regulations.\13\ --------------------------------------------------------------------------- \13\ See OCC By-Laws Article V, Section 1, Interpretation and Policy .02(b). --------------------------------------------------------------------------- Once an applicant becomes a Clearing Member, Chapter II of OCC's Rules also sets forth operational requirements that address default management procedure testing. In particular, OCC Rule 214(d) requires Clearing Members to maintain certain operational capabilities as a continuing obligation of participating in OCC as a Clearing Member. This includes ``the ability to participate in default management activities, including auctions, as may be required by the Corporation and in accordance with applicable laws and regulations.'' \14\ --------------------------------------------------------------------------- \14\ See OCC Rule 214(d). --------------------------------------------------------------------------- As contemplated by Interpretation and Policy .02(b) of Article V, Section 1 and Rule 214(d), OCC already conducts periodic default management testing, which includes the participation of certain Clearing Members. Proposed Rules 218(c) and (d) To comply with certain requirements in Rule 17Ad-22(e)(13) that the Commission recently adopted as part of the CCA rules, OCC is proposing to implement Rules 218(c) and (d) to establish a requirement that Clearing Members participate periodically in testing of OCC's default procedures, including any close-out procedures. Proposed Rules 218(c) and (d) would make clear, consistent with the CCA rules, OCC's right to designate Clearing Members that are required to participate in default procedure testing and require designated Clearing Members to comply with the default procedure testing within specified timeframes. OCC maintains a Default Management Policy (``Policy'') that also addresses its default procedure testing requirements. Specifically, the Policy notes, among other things, that OCC's default management testing will occur on at least an annual basis, or more frequently if a material change is made to OCC's default management procedures or as may be deemed necessary by OCC's internal ``Default Management Working Group.'' \15\ In addition, the Policy provides that certain Clearing Members would be required to participate in OCC's default management testing, consistent with proposed Rules 218(c) and (d). --------------------------------------------------------------------------- \15\ The ``Default Management Working Group'' is a staff-level working group chaired by the Vice President of Default Management and composed of staff from other OCC departments involved in default management testing. --------------------------------------------------------------------------- Proposed Rules 218(c) and (d) would establish flexible and transparent key factors that OCC would use to determine which Clearing Members are required to participate in default management testing. Proposed Rules 218(c) and (d) would require OCC to use the key factors to select Clearing Members that, taken as a whole, OCC determines are the minimum necessary for the maintenance of fair and orderly markets, the promotion of robust risk management, the support of stability of the broader financial system and the protection investors and the public interest. OCC's key factors in determining which Clearing Members will be selected for testing in any given testing event would include but not be limited to: (i) Suitability of business activities and anticipated impact on resources; \16\ (ii) historical open interest and volume in asset classes, where appropriate; \17\ and (iii) participation in previous tests. In adopting the CCA rules, the Commission provided guidance that clarifies that ``[a] covered clearing agency may designate in its policies and procedures that certain participants, or certain categories of participants, be designated for participation in certain tests.'' \18\ OCC's key factors to determine which Clearing Members are selected for participation in a given test of a default procedure are designed to provide flexibility to OCC while also ensuring that the appropriate Clearing Members participate in tests relevant to their business activities as relevant to OCC. Any Clearing Members designated to participate in a test of OCC's default procedures would be notified in advance and provided details concerning the nature of such testing as the particular test plans are determined. --------------------------------------------------------------------------- \16\ OCC's Clearing Members vary in their size, capacity, and participation in OCC's services from large, active members to smaller members that may not participate in certain services or may have less resources, personnel, or capacity to engage in default procedure testing at a given time. Consequently, OCC needs to preserve reasonable flexibility in considering the suitability of business activities and anticipated impact on resources of a Clearing Member considered for participation in a particular default management testing exercise. OCC notes, however, that this in no way abrogates a Clearing Member's obligations to maintain the minimal operational capabilities, including the ability to participate in default management activities, as required by OCC's rules. See e.g., OCC Rule 214(d). \17\ See, e.g., OCC Rule 1104.02(d), noting that in a default scenario OCC will pre-qualify certain potential bidders in an auction based on, among other things, demonstrated activity in the products being auctioned and qualification to clear transactions in the asset class in which the Clearing Member proposes to submit bids before inviting a bidder to participate in the auction. \18\ Securities Exchange Act Release No. 78961 (September 28, 2016), 81 FR 70786, 70830 (October 13, 2016). --------------------------------------------------------------------------- As stated above, OCC already conducts periodic default management [[Page 17313]] testing and includes certain Clearing Members in such testing under Rule 214(d). Accordingly, OCC believes the proposed rule would have comparatively little impact on its Clearing Members relative to OCC's existing practice. As previously noted, the proposed rule is intended to establish clear authority in accordance with Rule 17Ad-22(e)(13) \19\ for OCC to require Clearing Member participation in default procedure testing. --------------------------------------------------------------------------- \19\ 17 CFR 240.17Ad-22(e)(13). --------------------------------------------------------------------------- 2. Statutory Basis OCC believes that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act \20\ because the proposed change would foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions by expressly establishing in OCC's Rules that Clearing Members must participate in default procedure testing, which, in turn, would help to ensure that if OCC's default procedures are activated, they would function as intended. OCC believes that the proposed rule change is also consistent with Rule 17Ad-22(e)(13) \21\ because it would require Clearing Members to participate in the testing of OCC's default procedures, including any close-out procedures, which testing would occur at least annually and following any material changes to OCC's default management procedures. --------------------------------------------------------------------------- \20\ 15 U.S.C. 78q-1(b)(3)(F). \21\ 17 CFR 240.17Ad-22(e)(13). --------------------------------------------------------------------------- OCC also believes that Clearing Members will benefit by having proposed Rules 218(c) and (d) clearly state their obligation to participate in default procedure testing if designated, as required under the CCA rules. Moreover, OCC believes that this legal framework would promote consistency with Rule 17Ad-22(e)(1) \22\ by ensuring that OCC has a well-founded, clear, transparent and enforceable legal basis regarding default management procedure testing. --------------------------------------------------------------------------- \22\ 17 CFR 240.17Ad-22(e)(1). --------------------------------------------------------------------------- The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act.\23\ Proposed Rules 218(c) and (d) would expressly establish OCC's authority to require Clearing Members to participate in particular default management procedure testing exercises. However, OCC does not believe that such a requirement--which is minimally necessary for compliance with Rule 17Ad-22(e)(13) \24\--imposes any burden on competition among Clearing Members, let alone any burden greater than necessary or appropriate in furtherance of the purposes of the Act. To begin, proposed Rules 218(c) and (d) would not impose disparate operational requirements on Clearing Members because all Clearing Members are required to have sufficient minimum capabilities to participate in OCC's default management procedure testing process. Further, the process for selecting Clearing Member participants would be designed to ensure that Clearing Members would participate in tests that are relevant to their business activities, consistent with OCC's current practice. Finally, OCC believes that the limited, periodic use of Clearing Member resources in default management testing exercises would not affect the ability of a selected Clearing Member to continue to operate its business as it otherwise would. Accordingly, OCC believes the responsibilities associated with testing participation would be equitably distributed such that no Clearing Member(s) would face any burden on competition more than is necessary or appropriate in furtherance of the purposes of the Act and that the proposed rule change is therefore consistent with the requirements of the Act applicable to clearing agencies. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78q-1(b)(3)(I). \24\ 17 CFR 240.17Ad-22(e)(13). --------------------------------------------------------------------------- (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments 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 Pursuant to Section 19(b)(3)(A) of the Act,\25\ and Rule 19b- 4(f)(6) \26\ thereunder, the proposed rule change is filed for immediate effectiveness because it does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) by its terms would not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate. Additionally, OCC provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(3)(A). \26\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- OCC stated that the proposed rule change would not significantly affect the protection of investors or the public interest because, as described above, OCC already conducts periodic default management testing and includes certain Clearing Members in such testing, in accordance with Interpretation and Policy .02(b) of Article V, Section 1 of OCC's By-Laws and Rule 214(d). OCC stated further that proposed Rules 218(c) and (d) would only modify OCC's rules to clearly articulate the requirement that Clearing Members must participate periodically in testing of OCC's default management procedures. OCC believes that the proposed rule change would not impose any significant burden on competition because, as described above, OCC believes the responsibilities associated with testing participation would be nominal and infrequent and would be equitably distributed among Clearing Members by OCC using certain key factors, including but not limited to participation in previous tests. A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. OCC has requested that the Commission waive the 30-day operative delay contained in Rule 19b-4(f)(6)(iii) so that the proposal may become operative immediately upon filing. According to OCC, the proposed rule change does not present any novel or controversial issues. OCC stated that this proposed rule change would require Clearing Members to participate in the testing of OCC's default procedures consistent with 17Ad-22(e)(13). In its proposal, OCC stated that the proposed rule change is not intended to substantively alter OCC's default management testing procedures, but is instead intended to amend OCC's rules to clearly articulate the requirement that Clearing Members must participate in the testing of OCC's default management procedures. Therefore, the Commission designates [[Page 17314]] the proposed rule change to be operative upon filing.\27\ --------------------------------------------------------------------------- \27\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.\28\ --------------------------------------------------------------------------- \28\ Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Regulation Sec. 40.6. --------------------------------------------------------------------------- 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-2017-003 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-OCC-2017-003. 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 such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_003.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-2017-003 and should be submitted on or before May 1, 2017. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\29\ --------------------------------------------------------------------------- \29\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-07047 Filed 4-7-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 67 / Monday, April 10, 2017 / Notices 17311
removes impediments to and perfects arguments concerning the foregoing, SECURITIES AND EXCHANGE
the mechanism of a free and open including whether the proposed rule COMMISSION
market by ensuring that persons subject change is consistent with the Act.
to the Exchange’s jurisdiction, Comments may be submitted by any of [Release No. 34–80372; File No. SR–OCC–
regulators, and the investing public can the following methods: 2017–003]
more easily navigate and understand the
Electronic Comments
Exchange’s rulebook. The Exchange Options Clearing Corporation Self-
believes that eliminating obsolete and • Use the Commission’s Internet Regulatory Organizations; the Notice
outdated references would be consistent comment form (http://www.sec.gov/ of Filing and Immediate Effectiveness
with the public interest and the rules/sro.shtml); or of Proposed Rule Change Concerning
protection of investors because investors • Send an email to rule-comments@ the Requirement for Clearing Members
will not be harmed and in fact would sec.gov. Please include File Number SR– To Participate in Default Management
benefit from increased transparency, NYSE–2017–07 on the subject line. Testing
thereby reducing potential confusion.
Removing such obsolete and outdated Paper Comments April 4, 2017.
references will also further the goal of • Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
transparency and add clarity to the to Brent J. Fields, Secretary, Securities Securities Exchange Act of 1934
Exchange’s rules. and Exchange Commission, 100 F Street (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
B. Self-Regulatory Organization’s NE., Washington, DC 20549–1090. notice is hereby given that on March 29,
Statement on Burden on Competition All submissions should refer to File 2017, The Options Clearing Corporation
Number SR–NYSE–2017–07. This file (‘‘OCC’’) filed with the Securities and
The Exchange does not believe that
number should be included on the Exchange Commission (‘‘Commission’’)
the proposed rule change will impose
subject line if email is used. To help the the proposed rule change as described
any burden on competition that is not
Commission process and review your in Items I, II and III below; Items I and
necessary or appropriate in furtherance
comments more efficiently, please use II have been prepared by OCC. OCC
of the purposes of the Act. The
only one method. The Commission will filed the proposed rule change pursuant
Exchange does not believe that the
post all comments on the Commission’s to Section 19(b)(3)(A)(iii) 3 of the Act
proposed rule change will impose any
Internet Web site (http://www.sec.gov/ and Rule 19b–4(f)(6) 4 thereunder so that
burden on competition because the
rules/sro.shtml). Copies of the the proposal was effective upon filing
proposed change relates to how Floor
submission, all subsequent with the Commission. The Commission
brokers are permitted to communicate
amendments, all written statements is publishing this notice to solicit
on the Floor and proposes no change for
with respect to the proposed rule comments on the proposed rule change
other market participants. In addition,
change that are filed with the from interested persons.
the Exchange does not believe that the
proposed changes will impose any Commission, and all written I. Clearing Agency’s Statement of the
competitive burden because Floor communications relating to the Terms of Substance of the Proposed
brokers will operate in the same manner proposed rule change between the Rule Change
but with telephone equipment that is Commission and any person, other than
not Exchange-issued. those that may be withheld from the This proposed rule change by OCC
public in accordance with the codifies the requirement for Clearing
C. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be Members to participate in default
Statement on Comments on the available for Web site viewing and management testing.
Proposed Rule Change Received From printing in the Commission’s Public
Members, Participants, or Others Reference Room, 100 F Street NE., II. Clearing Agency’s Statement of the
Washington, DC 20549 on official Purpose of, and Statutory Basis for, the
No written comments were solicited
business days between the hours of Proposed Rule Change
or received with respect to the proposed
rule change. 10:00 a.m. and 3:00 p.m. Copies of the In its filing with the Commission,
filing also will be available for OCC included statements concerning
III. Date of Effectiveness of the inspection and copying at the principal
Proposed Rule Change and Timing for the purpose of and basis for the
office of the Exchange. All comments proposed rule change and discussed any
Commission Action received will be posted without change; comments it received on the proposed
Within 45 days of the date of the Commission does not edit personal rule change. The text of these statements
publication of this notice in the Federal identifying information from may be examined at the places specified
Register or up to 90 days (i) as the submissions. You should submit only in Item IV below. OCC has prepared
Commission may designate if it finds information that you wish to make summaries, set forth in sections (A), (B),
such longer period to be appropriate available publicly. All submissions and (C) below, of the most significant
and publishes its reasons for so finding should refer to File Number SR– aspects of these statements. All terms
or (ii) as to which the self-regulatory NYSEMKT–2017–07, and should be with initial capitalization that are not
organization consents, the Commission submitted on or before May 1, 2017. otherwise defined herein have the same
will: For the Commission, by the Division of meaning as set forth in the OCC By-
asabaliauskas on DSK3SPTVN1PROD with NOTICES
(A) By order approve or disapprove Trading and Markets, pursuant to delegated Laws and Rules.5
the proposed rule change, or authority.26
(B) institute proceedings to determine Eduardo A. Aleman, 1 15 U.S.C. 78s(b)(1).
whether the proposed rule change
Assistant Secretary. 2 17 CFR 240.19b–4.
should be disapproved. 3 15 U.S.C. 78s(b)(3)(A)(iii).
[FR Doc. 2017–07048 Filed 4–7–17; 8:45 am]
4 17 CFR 240.19b–4(f)(6).
IV. Solicitation of Comments BILLING CODE 8011–01–P
5 OCC’s By-Laws and Rules can be found on
Interested persons are invited to OCC’s public Web site: http://optionsclearing.com/
submit written data, views, and 26 17 CFR 200.30–3(a)(12). about/publications/bylaws.jsp.
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(A) Clearing Agency’s Statement of the required by OCC and in accordance factors that OCC would use to determine
Purpose of, and Statutory Basis for, the with applicable laws and regulations.13 which Clearing Members are required to
Proposed Rule Change Once an applicant becomes a Clearing participate in default management
Member, Chapter II of OCC’s Rules also testing. Proposed Rules 218(c) and (d)
1. Purpose sets forth operational requirements that would require OCC to use the key
Background address default management procedure factors to select Clearing Members that,
testing. In particular, OCC Rule 214(d) taken as a whole, OCC determines are
On September 28, 2016 the requires Clearing Members to maintain the minimum necessary for the
Commission adopted amendments to certain operational capabilities as a maintenance of fair and orderly markets,
Rule 17Ad–22 6 and added new Rule continuing obligation of participating in the promotion of robust risk
17Ad–22(e)(13) 7 pursuant to Section OCC as a Clearing Member. This management, the support of stability of
17A of the Securities Exchange Act of includes ‘‘the ability to participate in the broader financial system and the
1934 8 and the Payment, Clearing, and default management activities, protection investors and the public
Settlement Supervision Act of 2010 including auctions, as may be required interest. OCC’s key factors in
(‘‘Payment, Clearing and Settlement by the Corporation and in accordance determining which Clearing Members
Supervision Act’’) 9 to require that a with applicable laws and will be selected for testing in any given
‘‘covered clearing agency,’’ as defined regulations.’’ 14 testing event would include but not be
by Rule 17Ad–22(a)(5),10 has the As contemplated by Interpretation limited to: (i) Suitability of business
authority and operational capacity, and Policy .02(b) of Article V, Section activities and anticipated impact on
among other things, to require that 1 and Rule 214(d), OCC already resources; 16 (ii) historical open interest
participants, and other stakeholders conducts periodic default management and volume in asset classes, where
when practicable, participate in the testing, which includes the participation appropriate; 17 and (iii) participation in
review and testing of the covered of certain Clearing Members. previous tests. In adopting the CCA
clearing agency’s default procedures rules, the Commission provided
Proposed Rules 218(c) and (d)
(collectively, the new and amended guidance that clarifies that ‘‘[a] covered
rules are herein referred to as ‘‘CCA’’ To comply with certain requirements clearing agency may designate in its
rules). Specifically, Rule 17Ad–22(e)(13) in Rule 17Ad–22(e)(13) that the policies and procedures that certain
requires that a covered clearing agency Commission recently adopted as part of participants, or certain categories of
establish, implement, maintain and the CCA rules, OCC is proposing to participants, be designated for
enforce written policies and procedures implement Rules 218(c) and (d) to participation in certain tests.’’ 18 OCC’s
reasonably designed to: establish a requirement that Clearing key factors to determine which Clearing
Members participate periodically in Members are selected for participation
Ensure the covered clearing agency has the
testing of OCC’s default procedures, in a given test of a default procedure are
authority and operational capacity to take
timely action to contain losses and liquidity
including any close-out procedures. designed to provide flexibility to OCC
demands and continue to meet its obligations Proposed Rules 218(c) and (d) would while also ensuring that the appropriate
by, at a minimum, requiring the covered make clear, consistent with the CCA Clearing Members participate in tests
clearing agency’s participants and, when rules, OCC’s right to designate Clearing relevant to their business activities as
practicable, other stakeholders to participate Members that are required to participate relevant to OCC. Any Clearing Members
in the testing and review of its default in default procedure testing and require designated to participate in a test of
procedures, including any close-out designated Clearing Members to comply OCC’s default procedures would be
procedure, at least annually and following with the default procedure testing notified in advance and provided details
material changes thereto.11 within specified timeframes. concerning the nature of such testing as
OCC maintains a Default Management the particular test plans are determined.
OCC meets the definition of a covered Policy (‘‘Policy’’) that also addresses its As stated above, OCC already
clearing agency and is therefore subject default procedure testing requirements. conducts periodic default management
to the requirements of the CCA rules, Specifically, the Policy notes, among
including Rule 17Ad–22(e)(13).12 other things, that OCC’s default 16 OCC’s Clearing Members vary in their size,
management testing will occur on at capacity, and participation in OCC’s services from
Current Practice large, active members to smaller members that may
least an annual basis, or more frequently not participate in certain services or may have less
As a matter of current practice, OCC if a material change is made to OCC’s resources, personnel, or capacity to engage in
already involves certain of its Clearing default management procedures or as default procedure testing at a given time.
may be deemed necessary by OCC’s Consequently, OCC needs to preserve reasonable
Members in testing of OCC’s default flexibility in considering the suitability of business
management procedures. Article V of internal ‘‘Default Management Working activities and anticipated impact on resources of a
OCC’s By-Laws sets forth OCC’s initial Group.’’ 15 In addition, the Policy Clearing Member considered for participation in a
membership requirements. Pursuant to provides that certain Clearing Members particular default management testing exercise.
would be required to participate in OCC notes, however, that this in no way abrogates
Interpretation and Policy .02(b) of a Clearing Member’s obligations to maintain the
Article V, Section 1 of OCC’s By-Laws, OCC’s default management testing, minimal operational capabilities, including the
an applicant must demonstrate that it is consistent with proposed Rules 218(c) ability to participate in default management
operationally capable of, among other and (d). activities, as required by OCC’s rules. See e.g., OCC
Proposed Rules 218(c) and (d) would Rule 214(d).
things, participating in applicable 17 See, e.g., OCC Rule 1104.02(d), noting that in
asabaliauskas on DSK3SPTVN1PROD with NOTICES
default management activities as establish flexible and transparent key a default scenario OCC will pre-qualify certain
potential bidders in an auction based on, among
13 See OCC By-Laws Article V, Section 1,
6 17 CFR 240.17Ad–22. other things, demonstrated activity in the products
7 17 CFR 240.17Ad–22(e)(13).
Interpretation and Policy .02(b). being auctioned and qualification to clear
14 See OCC Rule 214(d). transactions in the asset class in which the Clearing
8 15 U.S.C. 78q–1.
15 The ‘‘Default Management Working Group’’ is Member proposes to submit bids before inviting a
9 12 U.S.C. 5461 et. seq.
a staff-level working group chaired by the Vice bidder to participate in the auction.
10 17 CFR 240.17Ad–22(a)(5).
President of Default Management and composed of 18 Securities Exchange Act Release No. 78961
11 17 CFR 240.17Ad–22(e)(13).
staff from other OCC departments involved in (September 28, 2016), 81 FR 70786, 70830 (October
12 Id. default management testing. 13, 2016).
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![17314 Federal Register / Vol. 82, No. 67 / Monday, April 10, 2017 / Notices
the proposed rule change to be operative 10:00 a.m. and 3:00 p.m. Copies of such collectively referred to herein as the
upon filing.27 filing also will be available for ‘‘Shares.’’
At any time within 60 days of the inspection and copying at the principal The text of the proposed rule change
filing of the proposed rule change, the office of OCC and on OCC’s Web site at is available on the Exchange’s Web site
Commission summarily may http://www.theocc.com/components/ at http://nasdaq.cchwallstreet.com, at
temporarily suspend such rule change if docs/legal/rules_and_bylaws/sr_occ_17_ the principal office of the Exchange, and
it appears to the Commission that such 003.pdf at the Commission’s Public Reference
action is necessary or appropriate in the All comments received will be posted Room.
public interest, for the protection of without change; the Commission does II. Self-Regulatory Organization’s
investors, or otherwise in furtherance of not edit personal identifying Statement of the Purpose of, and
the purposes of the Act.28 information from submissions. You Statutory Basis for, the Proposed Rule
should submit only information that Change
IV. Solicitation of Comments
you wish to make available publicly.
Interested persons are invited to All submissions should refer to File In its filing with the Commission, the
submit written data, views, and Number SR–OCC–2017–003 and should Exchange included statements
arguments concerning the foregoing, be submitted on or before May 1, 2017. concerning the purpose of and basis for
including whether the proposed rule the proposed rule change and discussed
For the Commission by the Division of
change is consistent with the Act. any comments it received on the
Trading and Markets, pursuant to delegated
Comments may be submitted by any of authority.29 proposed rule change. The text of these
the following methods: statements may be examined at the
Eduardo A. Aleman,
places specified in Item IV below. The
Electronic Comments Assistant Secretary. Exchange has prepared summaries, set
[FR Doc. 2017–07047 Filed 4–7–17; 8:45 am]
• Use the Commission’s Internet forth in sections A, B, and C below, of
comment form (http://www.sec.gov/ BILLING CODE 8011–01–P the most significant aspects of such
rules/sro.shtml); or statements.
• Send an email to rule-comments@ A. Self-Regulatory Organization’s
SECURITIES AND EXCHANGE
sec.gov. Please include File Number SR– Statement of the Purpose of, and
COMMISSION
OCC–2017–003 on the subject line. Statutory Basis for, the Proposed Rule
[Release No. 34–80369; File No. SR– Change
Paper Comments NASDAQ–2017–033]
• Send paper comments in triplicate 1. Purpose
to Secretary, Securities and Exchange Self-Regulatory Organizations; The
The Exchange proposes to list and
Commission, 100 F Street NE., NASDAQ Stock Market LLC; Notice of
trade the Shares of the Fund under
Washington, DC 20549–1090. Filing of Proposed Rule Change To
Nasdaq Rule 5735, which governs the
All submissions should refer to File List and Trade the Shares of the First
listing and trading of Managed Fund
Number SR–OCC–2017–003. This file Trust California Municipal High Income
Shares 4 on the Exchange. The Fund will
number should be included on the ETF
subject line if email is used. To help the April 4, 2017. 13, 2008), 73 FR 35175 (June 20, 2008) (SR–
Commission process and review your NASDAQ–2008–039). The Exchange notes that the
Pursuant to Section 19(b)(1) of the Commission has previously issued orders with
comments more efficiently, please use Securities Exchange Act of 1934 respect to the First Trust Municipal High Income
only one method. The Commission will (‘‘Act’’),1 and Rule 19b–4 thereunder,2 ETF, Securities Exchange Act Release No. 78913
post all comments on the Commission’s notice is hereby given that on March 24, (September 23, 2016), 81 FR 69109 (October 5,
Internet Web site (http://www.sec.gov/ 2016) (SR–NASDAQ–2016–002); and First Trust
2017, The NASDAQ Stock Market LLC Managed Municipal ETF, Securities Exchange Act
rules/sro.shtml). Copies of the (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Release No. 71913 (April 9, 2014), 79 FR 21333
submission, all subsequent Securities and Exchange Commission (April 15, 2014) (SR–NASDAQ–2014–019). The
amendments, all written statements (‘‘SEC’’ or ‘‘Commission’’) the proposed Exchange believes the proposed rule change raises
with respect to the proposed rule no significant issues not previously addressed in
rule change as described in Items I and those prior Commission orders. In addition, the
change that are filed with the II below, which Items have been Exchange notes that the Commission has approved
Commission, and all written prepared by the Exchange. The listing and trading of certain index-based ETFs that
communications relating to the Commission is publishing this notice to invest in municipal securities. See, e.g., Securities
proposed rule change between the Exchange Act Release Nos. 75376 (July 7, 2015), 80
solicit comments on the proposed rule FR 40113 (July 13, 2015) (SR–NYSEArca–2015–18)
Commission and any person, other than change from interested persons. (order approving listing and trading of Vanguard
those that may be withheld from the Tax-Exempt Bond Index Fund); 71232 (January 3,
public in accordance with the I. Self-Regulatory Organization’s 2014), 79 FR 1662 (January 9, 2014) (SR–
provisions of 5 U.S.C. 552, will be Statement of the Terms of Substance of NYSEArca–2013–118) (order approving listing and
the Proposed Rule Change trading of Market Vectors Short High-Yield
available for Web site viewing and Municipal Index ETF); and 63881 (February 9,
printing in the Commission’s Public The Exchange proposes to list and 2011), 76 FR 9065 (February 16, 2011) (SR–
Reference Room, 100 F Street NE., trade the shares of the First Trust NYSEArca–2010–120) (order approving listing and
Washington, DC 20549, on official California Municipal High Income ETF trading of SPDR Nuveen S&P High Yield Municipal
Bond ETF).
business days between the hours of (the ‘‘Fund’’) of First Trust Exchange-
asabaliauskas on DSK3SPTVN1PROD with NOTICES
4 A Managed Fund Share is a security that
Traded Fund III (the ‘‘Trust’’) under represents an interest in an investment company
27 For purposes only of waiving the 30-day
Nasdaq Rule 5735 (‘‘Managed Fund registered under the Investment Company Act of
operative delay, the Commission has also Shares’’).3 The shares of the Fund are 1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
considered the proposed rule’s impact on as an open-end investment company or similar
efficiency, competition, and capital formation. See entity that invests in a portfolio of securities
29 17 CFR 200.30–3(a)(12).
15 U.S.C. 78c(f). selected by its investment adviser consistent with
28 Notwithstanding its immediate effectiveness, 1 15 U.S.C. 78s(b)(1). its investment objectives and policies. In contrast,
2 17 CFR 240.19b–4.
implementation of this rule change will be delayed an open-end investment company that issues Index
until this change is deemed certified under CFTC 3 The Commission approved Nasdaq Rule 5735 in Fund Shares, listed and traded on the Exchange
Regulation § 40.6. Securities Exchange Act Release No. 57962 (June under Nasdaq Rule 5705, seeks to provide
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Document Created: 2017-04-08 03:30:57
Document Modified: 2017-04-08 03:30:57
| 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 | 82 FR 17311 |
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