82 FR 50703 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning Liquidity for Same Day Settlement
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 210 (November 1, 2017)
Federal Register Volume 82, Issue 210 (November 1, 2017)
| Page Range | 50703-50705 | |
| FR Document | 2017-23736 |
[Federal Register Volume 82, Number 210 (Wednesday, November 1, 2017)] [Notices] [Pages 50703-50705] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-23736] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81956; File No. SR-OCC-2017-017] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning Liquidity for Same Day Settlement October 26, 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 October 13, 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, 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 OCC would revise OCC's By-Laws to expand upon existing authority to borrow against the Clearing Fund. 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 the proposed change is to modify the tools available to OCC in order to provide a mechanism for addressing the risks of liquidity shortfalls, specifically, in the extraordinary situation where OCC faces a liquidity need to meet its same-day settlement obligations as a result of a bank or securities or commodities clearing organization failing to achieve daily settlement. Proposed Changes Current Practice Presently, Article VIII, Section 5(e) of OCC's By-Laws provides OCC with the authority to borrow against the Clearing Fund in two circumstances. First, Article VIII, Section 5(e) of OCC's By-Laws provides OCC the authority to borrow where OCC ``deems it necessary or advisable to borrow or otherwise obtain funds from third parties in order to meet obligations arising out of the default or suspension of a Clearing Member or any action taken by the Corporation in connection therewith pursuant to Chapter XI of the Rules or otherwise.'' Second, Article VIII, Section 5(e) of OCC's By-Laws provides OCC the authority to borrow against the Clearing Fund where OCC ``sustains a loss reimbursable out of the Clearing Fund pursuant to [Article VIII, Section 5(b) of OCC's By-Laws] but [OCC] elects to borrow or otherwise obtain funds from third parties in lieu of immediately charging such loss to the Clearing Fund.'' In order for a loss to be reimbursable out of the Clearing Fund under Article VIII, Section 5(b) of OCC's By-Laws, it must arise from a situation in which any bank or securities or commodities clearing organization has failed ``to perform any obligation to [OCC] when due because of its bankruptcy, insolvency, receivership, suspension of operations, or because of any similar event.'' \3\ --------------------------------------------------------------------------- \3\ To the extent that a loss resulting from any of the events referred to in Article VIII, Section 5(b) is recoverable out of the Clearing Fund pursuant to Article VIII, Section 5(a), the provisions of Article VIII, Section 5(a) control and render the provisions of Article VIII, Section 5(b) inapplicable. --------------------------------------------------------------------------- Under either of the two aforementioned circumstances, OCC is authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, if any part of the borrowing remains outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter) such amount must be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Proposed Change While Article VIII, Section 5(e) of OCC's By-Laws currently provides for borrowing authority in the more extreme scenarios involving a bank's or securities or commodities clearing [[Page 50704]] organization's bankruptcy, insolvency, receivership, suspension of operations or similar event, such authority does not extend to the similar, but less extreme scenarios in which a bank or securities or commodities clearing organization might be temporarily unable to timely make daily settlement with OCC for reasons other than its bankruptcy, insolvency, receivership or suspension of operations or similar events. An example of such a related scenario would be a disruption of the ordinary operations of a settlement bank that temporarily prohibits the bank from timely effecting settlement payments in accordance with OCC's daily settlement cycle. The proposed rule change would expand upon the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws. As expanded, OCC would be authorized to borrow (or otherwise obtain funds through any means determined to be reasonable by the Executive Chairman, COO or CAO) against the Clearing Fund in the extraordinary event that OCC faces a liquidity need in order to complete same-day settlement. As specified in the proposed rule text, the funds obtained from any such transaction can be used only for their stated purpose, namely, to satisfy a need for liquidity for same-day settlement. Consistent with the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws, OCC would be authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the funds obtained would not be deemed to be charges against the Clearing Fund, irrespective of how such funds are applied, and the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, in the unlikely event that any part of the borrowing were to remain outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter), such amount would be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Like the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws, OCC envisions that the proposed expanded authority only would be relevant in extraordinary circumstances and, even then, only would be used where OCC, exercising its discretion, believes the employment of this particular authority would be appropriate to address OCC's immediate liquidity need. OCC proposes to amend Sections 1(a), 5(b) and 5(e) of Article VIII of its By-Laws in order to give effect to the expanded borrowing authority discussed herein. Section 5(e) of Article VIII of OCC's By- Laws would be amended to permit OCC to borrow against the Clearing Fund if it reasonably believes such borrowing is necessary to meet its liquidity needs for same-day settlement as a result of the failure of any bank or securities or commodities clearing organization to achieve daily settlement. Section 1(a) of Article VIII of OCC's By-Laws would be amended to include conforming changes that would reflect that the purpose of the Clearing Fund includes borrowing against the Clearing Fund as permitted under Section 5(e) of Article VIII of the By-Laws. Section 5(b) of Article VIII of the By-Laws would be amended to include conforming changes that would declare that any borrowing remaining outstanding for less than 30 days may be considered, in OCC's discretion, an actual loss and the amount of any such loss then shall be charged proportionately against all Clearing Members' computed contributions to the Clearing Fund as fixed at the time, and any borrowing remaining outstanding on the 30th day shall be considered an actual loss to the Clearing Fund and the amount of any such loss shall be charged proportionately against all Clearing Members' computed contributions to the Clearing Fund as fixed at the time. The OCC proposes to include discretionary authority to declare any borrowing outstanding for less than 30 days as an actual loss chargeable against the Clearing Fund because the proposed borrowing authority is intended only to address same-day liquidity needs, and intended to be promptly repaid upon the bank's or securities or commodities clearing organization's resolution of the temporary disruption. In the unlikely circumstance that a disruption of a bank or securities or commodities clearing organization is not timely resolved, OCC may need to exercise its discretion to declare an actual loss, depending on the size of the borrowing, to ensure that OCC replenishes its ``Cover 1'' financial resources.\4\ The requirement to recognize any borrowing outstanding after 30 days as an actual loss chargeable against the Clearing Fund would be consistent with the requirements of the borrowing authority currently permitted by Section 5(e) of Article VIII of the By-Laws. --------------------------------------------------------------------------- \4\ ``Cover 1'' financial resources refers to the requirement that a CCA maintains financial resources sufficient to enable it to cover the ``default of the participant family that would potentially cause the largest aggregate credit exposure for the [CCA] in extreme but plausible market conditions.'' 17 CFR 240.17Ad-22(e)(7)(viii). --------------------------------------------------------------------------- 2. Statutory Basis Section 17A(b)(3)(F) of the Act \5\ requires, among other things, that the rules of a clearing agency be designed to perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions. The proposed rule change is designed to ensure that OCC can continue to promptly settle the securities and derivatives transactions it clears by enhancing the existing tools OCC has to address liquidity shortfalls. Specifically, the proposed rule change would expand the existing borrowing authority in OCC's By-Laws to also authorize borrowing in the extraordinary event that OCC faces a liquidity need in order to complete same day settlement, independent of whether OCC has suffered a loss resulting from the bankruptcy or similar event of a bank or securities or commodities clearing organization. --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- It is conceivable, though extremely unlikely, that parties may fail to make timely settlement with OCC as the result of an event that does not result in a loss to OCC from the bankruptcy, insolvency, resolution, suspension of operations or similar event of a bank or securities or commodities clearing organization. A hypothetical example of one such event might be a temporary disruption to the ordinary operation of a settlement bank resulting from a technology issue. The issue presents no concern about the bank's creditworthiness (or the creditworthiness of any Clearing Member that has selected such institution as its settlement bank) but the bank's technology issue nonetheless temporarily interferes with the ability of the bank to timely move funds in accordance with OCC's daily settlement cycle. In this hypothetical, the most likely alternative for OCC is to exercise its ability under Rule 505 to extend the settlement window to the close of Fedwire. The proposed rule change would provide OCC with an alternative tool with which to address the type of extraordinary circumstance highlighted by OCC's hypothetical. The proposed rule change would improve OCC's ability to address the situation in the hypothetical example because use of the proposed expanded borrowing authority would enable OCC to borrow against the Clearing Fund in order to avoid [[Page 50705]] disrupting its ordinary settlement cycle (and thusly, to avoid imposing the same disruption on Clearing Members), thereby avoiding the need to extend the settlement window and allowing OCC to settle transactions in a more timely fashion. In this regard, OCC believes the proposed rule change is designed to promote the prompt and accurate clearance and settlement of securities transactions, in accordance with the requirements of Section 17A(b)(3)(F) of the Act.\6\ --------------------------------------------------------------------------- \6\ Id. --------------------------------------------------------------------------- Additionally, Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency (``CCA'') address foreseeable liquidity shortfalls that would not be covered by the CCA's liquid resources and seek to avoid unwinding, revoking, or delaying the same-day settlement of payment obligations.\7\ As stated above, OCC believes that it could be foreseeable, though extremely unlikely, that a bank or securities or commodities clearing organization may fail to make timely settlement with OCC as the result of an event that does not result in a loss to OCC from the bankruptcy, insolvency, resolution, suspension of operations or similar event of such bank or securities or commodities clearing organization. The proposed rule change would improve OCC's ability to address such situations by expanding OCC's borrowing authority to enable OCC to borrow against the Clearing Fund in order to avoid disrupting its ordinary settlement cycle (and thusly, to avoid imposing the same disruption on Clearing Members). --------------------------------------------------------------------------- \7\ 17 CFR 240.17Ad-22(e)(7)(viii). --------------------------------------------------------------------------- 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 Section 17A(b)(3)(I) of the Act \8\ requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. OCC does not believe the proposed rule change would have any impact or impose any burden on competition. The primary purpose of the proposed rule change is to enhance the existing tools OCC has to address liquidity shortfalls by expanding the existing borrowing authority in OCC's By- Laws to also authorize borrowing in the extraordinary event that OCC faces a liquidity need in order to complete same day settlement. The proposed rule change would apply equally to all Clearing Members and would not affect Clearing Members' access to OCC's services or disadvantage or favor any particular user in relationship to another user. As such, OCC believes that the proposed changes would not have any impact or impose any burden on competition. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78q-1(b)(3)(I). --------------------------------------------------------------------------- (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments 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 Commissions Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-OCC-2017-017 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-2017-017. 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_017.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2017-017 and should be submitted on or before November 22, 2017. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\9\ --------------------------------------------------------------------------- \9\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-23736 Filed 10-31-17; 8:45 am] BILLING CODE 8011-01-P
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different from or less advantageous than SECURITIES AND EXCHANGE Proposed Changes
that of other participants. COMMISSION Current Practice
2. Rule 17d–3 under the Act provides [Release No. 34–81956; File No. SR–OCC– Presently, Article VIII, Section 5(e) of
an exemption from section 17(d) and 2017–017] OCC’s By-Laws provides OCC with the
rule 17d–1 to permit open-end authority to borrow against the Clearing
investment companies to enter into Self-Regulatory Organizations; The Fund in two circumstances. First,
distribution arrangements pursuant to Options Clearing Corporation; Notice Article VIII, Section 5(e) of OCC’s By-
rule 12b–1 under the Act. Applicants of Filing of Proposed Rule Change Laws provides OCC the authority to
request an order under section 17(d) and Concerning Liquidity for Same Day borrow where OCC ‘‘deems it necessary
rule 17d–1 under the Act to the extent Settlement or advisable to borrow or otherwise
necessary to permit the Fund to impose obtain funds from third parties in order
asset-based distribution and/or service October 26, 2017.
to meet obligations arising out of the
fees. Applicants have agreed to comply Pursuant to Section 19(b)(1) of the
default or suspension of a Clearing
with rules 12b–1 and 17d–3 as if those Securities Exchange Act of 1934
Member or any action taken by the
rules applied to closed-end investment (‘‘Act’’) 1 and Rule 19b–4 thereunder 2
Corporation in connection therewith
companies, which they believe will notice is hereby given that on October
pursuant to Chapter XI of the Rules or
resolve any concerns that might arise in 13, 2017, The Options Clearing
otherwise.’’ Second, Article VIII,
connection with a Fund financing the Corporation (‘‘OCC’’) filed with the Section 5(e) of OCC’s By-Laws provides
distribution of its shares through asset- Securities and Exchange Commission OCC the authority to borrow against the
based distribution fees. (‘‘Commission’’) the proposed rule Clearing Fund where OCC ‘‘sustains a
change as described in Items I, II and III loss reimbursable out of the Clearing
3. For the reasons stated above,
below, which Items have been prepared Fund pursuant to [Article VIII, Section
applicants submit that the exemptions
by OCC. The Commission is publishing 5(b) of OCC’s By-Laws] but [OCC] elects
requested under section 6(c) are
this notice to solicit comments on the to borrow or otherwise obtain funds
necessary and appropriate in the public
proposed rule change from interested from third parties in lieu of immediately
interest and are consistent with the
persons. charging such loss to the Clearing
protection of investors and the purposes
fairly intended by the policy and I. Clearing Agency’s Statement of the Fund.’’ In order for a loss to be
provisions of the Act. Applicants further Terms of Substance of the Proposed reimbursable out of the Clearing Fund
submit that the relief requested Rule Change under Article VIII, Section 5(b) of OCC’s
pursuant to section 23(c)(3) will be By-Laws, it must arise from a situation
This proposed rule change by the
consistent with the protection of in which any bank or securities or
OCC would revise OCC’s By-Laws to
investors and will insure that applicants commodities clearing organization has
expand upon existing authority to
do not unfairly discriminate against any failed ‘‘to perform any obligation to
borrow against the Clearing Fund.
holders of the class of securities to be [OCC] when due because of its
purchased. Finally, applicants state that II. Clearing Agency’s Statement of the bankruptcy, insolvency, receivership,
the Funds’ imposition of asset-based Purpose of, and Statutory Basis for, the suspension of operations, or because of
distribution and/or service fees is Proposed Rule Change any similar event.’’ 3
consistent with the provisions, policies In its filing with the Commission, Under either of the two
and purposes of the Act and does not OCC included statements concerning aforementioned circumstances, OCC is
involve participation on a basis different the purpose of and basis for the authorized to borrow against the
from or less advantageous than that of proposed rule change and discussed any Clearing Fund for a period not to exceed
other participants. comments it received on the proposed 30 days, and during such period, the
rule change. The text of these statements borrowing shall not affect the amount or
Applicants’ Condition timing of any charges otherwise
may be examined at the places specified
in Item IV below. OCC has prepared required to be made against the Clearing
Applicants agree that any order
summaries, set forth in sections (A), (B), Fund pursuant to Article VIII, Section 5.
granting the requested relief will be
and (C) below, of the most significant However, if any part of the borrowing
subject to the following condition:
aspects of these statements. remains outstanding after 30 days, then
Each Fund relying on the order will at the close of business on the 30th day
comply with the provisions of rules 6c– (A) Clearing Agency’s Statement of the (or the first Business Day thereafter)
10, 12b–1, 17d–3, 18f–3, 22d–1, and, Purpose of, and Statutory Basis for, the such amount must be considered an
where applicable, 11a–3 under the Act, Proposed Rule Change actual loss to the Clearing Fund, and
as amended from time to time, as if OCC must immediately allocate such
those rules applied to closed-end 1. Purpose
loss in accordance with Article VIII,
management investment companies, The purpose of the proposed change Section 5.
and will comply with the NASD Sales is to modify the tools available to OCC
Charge Rule, as amended from time to in order to provide a mechanism for Proposed Change
time, as if that rule applied to all closed- addressing the risks of liquidity While Article VIII, Section 5(e) of
end management investment shortfalls, specifically, in the OCC’s By-Laws currently provides for
companies. extraordinary situation where OCC faces borrowing authority in the more
sradovich on DSK3GMQ082PROD with NOTICES
For the Commission, by the Division of a liquidity need to meet its same-day extreme scenarios involving a bank’s or
Investment Management, under delegated settlement obligations as a result of a securities or commodities clearing
authority. bank or securities or commodities
clearing organization failing to achieve 3 To the extent that a loss resulting from any of
Eduardo A. Aleman, the events referred to in Article VIII, Section 5(b)
daily settlement.
Assistant Secretary. is recoverable out of the Clearing Fund pursuant to
Article VIII, Section 5(a), the provisions of Article
[FR Doc. 2017–23695 Filed 10–31–17; 8:45 am] 1 15 U.S.C. 78s(b)(1). VIII, Section 5(a) control and render the provisions
BILLING CODE 8011–01–P 2 17 CFR 240.19b–4. of Article VIII, Section 5(b) inapplicable.
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organization’s bankruptcy, insolvency, OCC proposes to amend Sections 1(a), chargeable against the Clearing Fund
receivership, suspension of operations 5(b) and 5(e) of Article VIII of its By- would be consistent with the
or similar event, such authority does not Laws in order to give effect to the requirements of the borrowing authority
extend to the similar, but less extreme expanded borrowing authority currently permitted by Section 5(e) of
scenarios in which a bank or securities discussed herein. Section 5(e) of Article Article VIII of the By-Laws.
or commodities clearing organization VIII of OCC’s By-Laws would be
2. Statutory Basis
might be temporarily unable to timely amended to permit OCC to borrow
make daily settlement with OCC for against the Clearing Fund if it Section 17A(b)(3)(F) of the Act 5
reasons other than its bankruptcy, reasonably believes such borrowing is requires, among other things, that the
insolvency, receivership or suspension necessary to meet its liquidity needs for rules of a clearing agency be designed to
of operations or similar events. An same-day settlement as a result of the perfect the mechanism of a national
example of such a related scenario failure of any bank or securities or system for the prompt and accurate
would be a disruption of the ordinary commodities clearing organization to clearance and settlement of securities
operations of a settlement bank that achieve daily settlement. transactions. The proposed rule change
temporarily prohibits the bank from Section 1(a) of Article VIII of OCC’s is designed to ensure that OCC can
timely effecting settlement payments in By-Laws would be amended to include continue to promptly settle the
accordance with OCC’s daily settlement conforming changes that would reflect securities and derivatives transactions it
cycle. that the purpose of the Clearing Fund clears by enhancing the existing tools
The proposed rule change would includes borrowing against the Clearing OCC has to address liquidity shortfalls.
Fund as permitted under Section 5(e) of Specifically, the proposed rule change
expand upon the existing borrowing
Article VIII of the By-Laws. would expand the existing borrowing
authority in Article VIII, Section 5(e) of
Section 5(b) of Article VIII of the By- authority in OCC’s By-Laws to also
OCC’s By-Laws. As expanded, OCC
Laws would be amended to include authorize borrowing in the
would be authorized to borrow (or
conforming changes that would declare extraordinary event that OCC faces a
otherwise obtain funds through any
that any borrowing remaining liquidity need in order to complete
means determined to be reasonable by
outstanding for less than 30 days may be same day settlement, independent of
the Executive Chairman, COO or CAO)
considered, in OCC’s discretion, an whether OCC has suffered a loss
against the Clearing Fund in the
actual loss and the amount of any such resulting from the bankruptcy or similar
extraordinary event that OCC faces a
loss then shall be charged event of a bank or securities or
liquidity need in order to complete commodities clearing organization.
proportionately against all Clearing
same-day settlement. As specified in the It is conceivable, though extremely
Members’ computed contributions to
proposed rule text, the funds obtained unlikely, that parties may fail to make
the Clearing Fund as fixed at the time,
from any such transaction can be used timely settlement with OCC as the result
and any borrowing remaining
only for their stated purpose, namely, to of an event that does not result in a loss
outstanding on the 30th day shall be
satisfy a need for liquidity for same-day to OCC from the bankruptcy,
considered an actual loss to the Clearing
settlement. Consistent with the existing insolvency, resolution, suspension of
Fund and the amount of any such loss
borrowing authority in Article VIII, operations or similar event of a bank or
shall be charged proportionately against
Section 5(e) of OCC’s By-Laws, OCC securities or commodities clearing
all Clearing Members’ computed
would be authorized to borrow against organization. A hypothetical example of
contributions to the Clearing Fund as
the Clearing Fund for a period not to one such event might be a temporary
fixed at the time. The OCC proposes to
exceed 30 days, and during such period, disruption to the ordinary operation of
include discretionary authority to
the funds obtained would not be a settlement bank resulting from a
declare any borrowing outstanding for
deemed to be charges against the technology issue. The issue presents no
less than 30 days as an actual loss
Clearing Fund, irrespective of how such concern about the bank’s
chargeable against the Clearing Fund
funds are applied, and the borrowing creditworthiness (or the
because the proposed borrowing
shall not affect the amount or timing of creditworthiness of any Clearing
authority is intended only to address
any charges otherwise required to be Member that has selected such
same-day liquidity needs, and intended
made against the Clearing Fund institution as its settlement bank) but
to be promptly repaid upon the bank’s
pursuant to Article VIII, Section 5. the bank’s technology issue nonetheless
or securities or commodities clearing
However, in the unlikely event that any temporarily interferes with the ability of
organization’s resolution of the
part of the borrowing were to remain the bank to timely move funds in
temporary disruption. In the unlikely
outstanding after 30 days, then at the accordance with OCC’s daily settlement
circumstance that a disruption of a bank
close of business on the 30th day (or the cycle. In this hypothetical, the most
or securities or commodities clearing
first Business Day thereafter), such likely alternative for OCC is to exercise
organization is not timely resolved, OCC
amount would be considered an actual its ability under Rule 505 to extend the
may need to exercise its discretion to
loss to the Clearing Fund, and OCC settlement window to the close of
declare an actual loss, depending on the
must immediately allocate such loss in Fedwire. The proposed rule change
size of the borrowing, to ensure that
accordance with Article VIII, Section 5. would provide OCC with an alternative
OCC replenishes its ‘‘Cover 1’’ financial
Like the existing borrowing authority resources.4 The requirement to tool with which to address the type of
in Article VIII, Section 5(e) of OCC’s By- extraordinary circumstance highlighted
recognize any borrowing outstanding
Laws, OCC envisions that the proposed by OCC’s hypothetical. The proposed
after 30 days as an actual loss
expanded authority only would be
sradovich on DSK3GMQ082PROD with NOTICES
rule change would improve OCC’s
relevant in extraordinary circumstances 4 ‘‘Cover 1’’ financial resources refers to the ability to address the situation in the
and, even then, only would be used requirement that a CCA maintains financial hypothetical example because use of the
where OCC, exercising its discretion, resources sufficient to enable it to cover the proposed expanded borrowing authority
believes the employment of this ‘‘default of the participant family that would would enable OCC to borrow against the
potentially cause the largest aggregate credit
particular authority would be exposure for the [CCA] in extreme but plausible Clearing Fund in order to avoid
appropriate to address OCC’s immediate market conditions.’’ 17 CFR 240.17Ad–
liquidity need. 22(e)(7)(viii). 5 15 U.S.C. 78q–1(b)(3)(F).
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disrupting its ordinary settlement cycle Clearing Members and would not affect amendments, all written statements
(and thusly, to avoid imposing the same Clearing Members’ access to OCC’s with respect to the proposed rule
disruption on Clearing Members), services or disadvantage or favor any change that are filed with the
thereby avoiding the need to extend the particular user in relationship to Commission, and all written
settlement window and allowing OCC to another user. As such, OCC believes that communications relating to the
settle transactions in a more timely the proposed changes would not have proposed rule change between the
fashion. In this regard, OCC believes the any impact or impose any burden on Commission and any person, other than
proposed rule change is designed to competition. those that may be withheld from the
promote the prompt and accurate public in accordance with the
clearance and settlement of securities (C) Clearing Agency’s Statement on provisions of 5 U.S.C. 552, will be
transactions, in accordance with the Comments on the Proposed Rule available for Web site viewing and
requirements of Section 17A(b)(3)(F) of Change Received From Members, printing in the Commission’s Public
the Act.6 Participants or Others Reference Room, 100 F Street NE.,
Additionally, Rule 17Ad–22(e)(7)(viii) Written comments were not and are Washington, DC 20549, on official
requires that a covered clearing agency not intended to be solicited with respect business days between the hours of
(‘‘CCA’’) address foreseeable liquidity to the proposed rule change, and none 10:00 a.m. and 3:00 p.m. Copies of such
shortfalls that would not be covered by have been received. filing also will be available for
the CCA’s liquid resources and seek to inspection and copying at the principal
avoid unwinding, revoking, or delaying III. Date of Effectiveness of the
office of OCC and on OCC’s Web site at
the same-day settlement of payment Proposed Rule Change and Timing for
http://www.theocc.com/components/
obligations.7 As stated above, OCC Commission Action
docs/legal/rules_and_bylaws/sr_occ_17_
believes that it could be foreseeable, Within 45 days of the date of 017.pdf.
though extremely unlikely, that a bank publication of this notice in the Federal All comments received will be posted
or securities or commodities clearing Register or within such longer period without change. Persons submitting
organization may fail to make timely up to 90 days (i) as the Commission may comments are cautioned that we do not
settlement with OCC as the result of an designate if it finds such longer period redact or edit personal identifying
event that does not result in a loss to to be appropriate and publishes its information from comment submissions.
OCC from the bankruptcy, insolvency, reasons for so finding or (ii) as to which You should submit only information
resolution, suspension of operations or the self-regulatory organization that you wish to make available
similar event of such bank or securities consents, the Commission will: publicly.
or commodities clearing organization. (A) By order approve or disapprove All submissions should refer to File
The proposed rule change would the proposed rule change, or Number SR–OCC–2017–017 and should
improve OCC’s ability to address such (B) institute proceedings to determine be submitted on or before November 22,
situations by expanding OCC’s whether the proposed rule change 2017.
borrowing authority to enable OCC to should be disapproved. For the Commission by the Division of
borrow against the Clearing Fund in IV. Solicitation of Comments Trading and Markets, pursuant to delegated
order to avoid disrupting its ordinary authority.9
settlement cycle (and thusly, to avoid Interested persons are invited to Eduardo A. Aleman,
imposing the same disruption on submit written data, views, and Assistant Secretary.
Clearing Members). arguments concerning the foregoing,
[FR Doc. 2017–23736 Filed 10–31–17; 8:45 am]
The proposed rule change is not including whether the proposed rule
BILLING CODE 8011–01–P
inconsistent with the existing rules of change is consistent with the Act.
OCC, including any other rules Comments may be submitted by any of
proposed to be amended. the following methods: SECURITIES AND EXCHANGE
(B) Clearing Agency’s Statement on Electronic Comments COMMISSION
Burden on Competition • Use the Commissions Internet [Release No. 34–81950; File No. SR–
Section 17A(b)(3)(I) of the Act 8 comment form (http://www.sec.gov/ BatsBZX–2017–71]
requires that the rules of a clearing rules/sro.shtml); or
• Send an email to rule-comments@ Self-Regulatory Organizations; Cboe
agency not impose any burden on BZX Exchange, Inc.; Notice of Filing
competition not necessary or sec.gov. Please include File Number SR–
OCC–2017–017 on the subject line. and Immediate Effectiveness of a
appropriate in furtherance of the Proposed Rule Change To Update Rule
purposes of the Act. OCC does not Paper Comments 21.1 To Adopt a New Time in Force
believe the proposed rule change would
have any impact or impose any burden • Send paper comments in triplicate Applicable to the Exchange’s Equity
to Secretary, Securities and Exchange Options Platform
on competition. The primary purpose of
the proposed rule change is to enhance Commission, 100 F Street NE., October 26, 2017.
the existing tools OCC has to address Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the
liquidity shortfalls by expanding the All submissions should refer to File Securities Exchange Act of 1934
existing borrowing authority in OCC’s Number SR–OCC–2017–017. This file (‘‘Act’’),1 and Rule 19b–4 thereunder,2
By-Laws to also authorize borrowing in number should be included on the notice is hereby given that on October
subject line if email is used. To help the
sradovich on DSK3GMQ082PROD with NOTICES
the extraordinary event that OCC faces 20, 2017, Cboe BZX Exchange, Inc. (the
a liquidity need in order to complete Commission process and review your ‘‘Exchange’’) (formerly known as Bats
same day settlement. The proposed rule comments more efficiently, please use BZX Exchange, Inc.) filed with the
change would apply equally to all only one method. The Commission will Securities and Exchange Commission
post all comments on the Commission’s
6 Id. Internet Web site (http://www.sec.gov/ 9 17 CFR 200.30–3(a)(12).
7 17 CFR 240.17Ad–22(e)(7)(viii). rules/sro.shtml). Copies of the 1 15 U.S.C. 78s(b)(1).
8 15 U.S.C. 78q–1(b)(3)(I). submission, all subsequent 2 17 CFR 240.19b–4.
VerDate Sep<11>2014 18:16 Oct 31, 2017 Jkt 244001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 E:\FR\FM\01NON1.SGM 01NON1](https://thefederalregister.org/doc/82_FR_50913/page/3.svg)
Document Created: 2017-11-01 02:02:58
Document Modified: 2017-11-01 02:02:58
| 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 50703 |
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