82 FR 50719 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation's Counterparty Credit Risk Management Policy
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 210 (November 1, 2017)
Federal Register Volume 82, Issue 210 (November 1, 2017)
| Page Range | 50719-50725 | |
| FR Document | 2017-23731 |
[Federal Register Volume 82, Number 210 (Wednesday, November 1, 2017)] [Notices] [Pages 50719-50725] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-23731] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81949; File No. SR-OCC-2017-009] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation's Counterparty Credit Risk Management Policy 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 12, 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 primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change by OCC would formalize OCC's Counterparty Credit Risk Management Policy (``CCRM Policy'' or ``Policy''), which promotes compliance with multiple requirements applicable to OCC under Rule 17Ad-22, including Rules 17Ad-22(e)(3) concerning frameworks for the comprehensive management of risks, (e)(4) concerning credit risk management, (e)(16) concerning the safeguarding of assets, (e)(18) concerning risk-based participation criteria, (e)(19) concerning risks form indirect participants, and (e)(20) concerning linkages.\3\ The CCRM Policy is included as confidential Exhibit 5.\4\ --------------------------------------------------------------------------- \3\ 17 CFR 240.17Ad-22(e)(3), (4), (16), (18), (19), and (20). \4\ The Commission notes that Exhibit 5 is included in the filing, not in this Notice. --------------------------------------------------------------------------- The proposed rule change does not require any changes to the text of OCC's By-Laws or Rules. 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. --------------------------------------------------------------------------- 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 Background As a central counterparty providing clearance, settlement, and risk management services, OCC is exposed to and must manage a range of risks, including credit risk. The purpose of the CCRM Policy is to outline OCC's overall approach to identify, measure, monitor, and manage its exposures to direct and indirect participants, Liquidity [[Page 50720]] Providers,\6\ asset custodians, settlement banks, letter of credit issuers, investment counterparties, other clearing agencies, and financial market utilities (``FMUs'') \7\ (each a ``Counterparty'') arising from its payment, clearing, and settlement processes. OCC notes that the CCRM Policy is part of a broader framework used by OCC to manage credit risk, including OCC's By-Laws, Rules, and other policies and procedures that are designed collectively to ensure that OCC appropriately manages counterparty credit risk and to promote compliance with Rule 17Ad-22.\8\ --------------------------------------------------------------------------- \6\ Under the CCRM Policy, ``Liquidity Provider'' is defined as a Commercial Bank or a non-banking institution--generally a pension fund--that provides a committed liquidity facility to OCC. \7\ Under the CCRM Policy, ``Financial Market Utility'' is defined as a derivatives clearing organization partnering with OCC to provide a cross-margin program; a clearing agency providing settlement services of securities arising from the exercise, assignment or maturity of options or futures; or the Depository providing book-entry securities transfers and asset custodian services. \8\ 17 CFR 240.17Ad-22. --------------------------------------------------------------------------- The CCRM Policy would be maintained by OCC to promote compliance with a number of rules adopted under Section 17A of the Securities Exchange Act of 1934, as amended (``Act''),\9\ and the Payment, Clearing, and Settlement Supervision Act of 2010 (``Clearing Supervision Act'').\10\ In particular, the Policy is designed to address certain aspects of Rules 17Ad-22(e)(3) concerning frameworks for the comprehensive management of risks, (e)(4) concerning credit risk management, (e)(16) concerning the safeguarding of assets, (e)(18) concerning risk-based participation criteria, (e)(19) concerning risks form indirect participants, and (e)(20) concerning linkages.\11\ --------------------------------------------------------------------------- \9\ 15 U.S.C. 78q-1. \10\ 12 U.S.C. 5461 et seq. \11\ 17 CFR 240.17Ad-22(e)(3), (4), (16), (18), (19), and (20). --------------------------------------------------------------------------- Counterparty Credit Risk Management Policy OCC's CCRM Policy outlines the key components of OCC's framework for identifying, measuring, monitoring, and managing OCC's exposures to its Counterparties. This framework includes: (1) The identification of credit risk, (2) Counterparty access and participation standards, (3) the measurement of its Counterparty exposures, (4) the monitoring and managing of Counterparty exposures, and (5) voluntary termination of Counterparty relationships. Each of these components is described in more detail below. Identification of Credit Risk The CCRM Policy identifies various ways in which credit risk originates from the failure of a Counterparty to perform. With respect to a Clearing Member, the CCRM Policy details a number of different ways in which OCC may be exposed to credit risk. This includes the potential failure of a Clearing Member to pay for purchased options, to meet expiration-related settlement obligations, or to make certain mark-to-market variation payments or initial margin deposits. It also includes the potential insufficiency of a defaulting Clearing Member's margin and Clearing Fund deposits in a liquidation scenario. Other sources of credit risk identified in the CCRM Policy include the inability of OCC to access collateral (e.g., cash or securities) from a custodian or investment counterparty that is needed to facilitate a liquidation, or a failure by an issuer of a letter of credit to honor its corresponding obligations. The CCRM Policy also identifies that certain relationships with other FMUs, such as cross-margining programs and cash market settlement services, represent critical linkages that may present certain degrees of credit exposure based on the terms and design of the linkage. The CCRM Policy also notes that OCC may face additional risks from Counterparties, such as the potential failure of a Liquidity Provider to honor a borrowing request. Counterparty Access and Participation Standards Under the CCRM Policy, OCC's management of Counterparty credit risks begins with an initial evaluation process intended to ascertain that Counterparties meet certain minimum financial and operational standards and are considered as having a low probability of defaulting on their obligations prior to engaging or effecting any new transactions or expansion of business with OCC. To accomplish this objective, OCC shall evaluate each Counterparty against established minimum standards of creditworthiness, overall financial condition, and operational capabilities. Pursuant to the Policy, the standards used to evaluate Counterparties shall be objective, risk-based, and publicly- disclosed in order to permit fair and open access. These standards shall be developed independently for Clearing Members, Commercial and Central Banks, investment counterparties, Liquidity Providers and FMUs, accounting for differences in their regulatory reporting and overall business operations. Clearing Membership Standards OCC's minimum participation standards for Clearing Member are found in Article V of OCC's By-Laws, Chapters II and III of OCC's Rules, and other publicly-disclosed supplemental documentation (together, ``Participation Standards Documentation''). Under the Policy, OCC's Credit Risk Management and Member Services departments shall evaluate each Clearing Member applicant against the minimum standards of creditworthiness and for its overall financial condition and operational capabilities as provided in the Participation Standards Documentation. Such evaluation shall also consider the Counterparty's aggregation of exposure on an individual and related-entities level, as applicable, as well as any material exposure that may arise from tiered participation arrangements. The Credit Risk Management and Member Services departments shall document the results of this evaluation in a memorandum, including the Clearing Member applicant's ability to meet relevant participation standards, and report those results to OCC's Executive Chairman, Chief Operating Officer or Chief Administrative Officer for review and approval, where appropriate, or for recommendation to the Risk Committee or Board of Directors.\12\ --------------------------------------------------------------------------- \12\ Pursuant to Article V, Section 2 of the By-Laws, the Executive Chairman, Chief Operating Officer and Chief Administrative Officer each have delegated authority to approve Clearing Member applicants provided that (1) there is no recommendation to impose additional membership criteria in accordance with Article V of the By-Laws and (2) the Risk Committee is given not less than five days to determine the application should be reviewed at a meeting of the Risk Committee. Pursuant to Interpretation and Policy .06 to Article V, Section 1 of the By-Laws, the Risk Committee has the authority to impose additional requirements on Clearing Member applicants, such as increased capital or margin requirements as well as restrictions on clearing activities. The Risk Committee also has the authority to approve waivers of certain clearing membership requirements under Article V, Section 1 of the By-Laws. Approvals of a Clearing Member business expansion by the Executive Chairman, Chief Operating Officer or Chief Administrative Officer are subsequently presented to the Risk Committee for ratification, except in limited circumstances detailed in Article V, Section 1.03(e) of the By-Laws. --------------------------------------------------------------------------- Commercial and Central Banks OCC's minimum standards for asset custodians, settlement banks, letter of credit issuers and investment counterparties are found in OCC Rule 604 and relevant OCC procedures. The Credit Risk Management department shall coordinate with various [[Page 50721]] departments (such as Collateral Services or Treasury) to evaluate each bank against the minimum standards of creditworthiness and for its overall financial condition and operational capabilities as provided in OCC Rule 604 and related OCC procedures. Such evaluation shall also consider the Counterparty's aggregation of exposure on an individual and related-entities level, as applicable, as well as whether OCC would be able to structure its custodial relationships in a manner that allows prompt access to its own and its Clearing Members' assets. The latter shall include holding assets at supervised and regulated institutions that adhere to generally accepted accounting practices, maintain safekeeping procedures, and have internal controls that fully protect these assets. Under the Policy, Credit Risk Management and either the Collateral Services or Treasury department, as applicable, shall document the results of its evaluation in a memorandum, including the bank's ability to meet relevant participation standards, and report those results to OCC's Executive Chairman, Chief Operating Officer or Chief Administrative Officer, each of which shall have the authority to approve new and expanded relationships with asset custodians, settlement banks, letter of credit issuers, investment counterparties, and Liquidity Providers. Liquidity Providers Under the Policy, OCC maintains internal procedures outlining the minimum standards for Commercial Banks \13\ and non-bank institutions acting as Liquidity Providers. OCC's Credit Risk Management and Treasury departments would be responsible for evaluating each Liquidity Provider against the minimum standards of creditworthiness and for its overall financial condition and operational capabilities as provided in the procedures. Because Liquidity Providers present both credit and liquidity risk to OCC, the due diligence around such institutions shall include a review of each lender's ability to perform their commitments as well as understand and manage their liquidity risks. Pursuant to the Policy, Credit Risk Management and Treasury shall document the results of its evaluation in a memorandum, including the Liquidity Provider's ability to meet relevant participation standards, and report those results to the Executive Chairman, Chief Operating Officer or Chief Administrative Officer, each of which shall have the authority to approve new and expanded relationships with Liquidity Providers. --------------------------------------------------------------------------- \13\ Under the Policy, ``Commercial Bank'' is defined as a banking or depository institution that is not an operating arm of a Central Bank. Commercial bank relationships shall be governed by this Policy and all supporting bank-related procedures. Commercial Banks act as Liquidity Providers, asset custodians, settlement banks, letter of credit issuers, and investment counterparties on behalf of OCC. --------------------------------------------------------------------------- FMUs Under the Policy, OCC maintains internal procedures outlining minimum standards for FMUs. OCC's Business Operations and Credit Risk Management departments shall evaluate each FMU for its overall financial condition and operational capabilities as provided in the procedure. Pursuant to the Policy, before entering into any link arrangement, the Legal department shall assist the aforementioned business units to identify legal risks relating to rights and interests, collateral arrangements, settlement finality and netting arrangements, and financial and custody risks. The Business Operations, Credit Risk Management and Legal departments shall document the results of its evaluation in a memorandum, including the FMU's ability to meet relevant standards. All new and expanded FMU relationships shall be reviewed and approved by the Risk Committee and subsequently recommended for approval to the Board of Directors. Measuring Counterparty Credit Risk The CCRM Policy describes various ways in which OCC measures the credit risk posed by different Counterparties. With respect to Clearing Members, the CCRM Policy provides that OCC measures its credit exposures to Clearing Members under normal market conditions through the calculation of margin requirements and its credit exposures to Clearing Members under extreme but plausible conditions through stress testing and the calculation of Clearing Fund requirements, in accordance with applicable OCC policies. Margin, Clearing Fund and stress test results may be used by OCC's Financial Risk Management department (``FRM'') to evaluate OCC's counterparty credit risk framework and inform Clearing Member surveillance processes. With respect to Commercial Banks, Central Banks,\14\ Liquidity Providers, and investment counterparties, OCC shall measure its credit exposures to these Counterparties by the balances generated from the various activities provided by these institutions in accordance with relevant internal procedures. --------------------------------------------------------------------------- \14\ Under the Policy, ``Central Bank'' is defined as a bank serving as a bank for both depository institutions and a government, a regulator for financial institutions, and/or a nation's money manager. Central Banks act as asset custodians on behalf of OCC, and OCC uses access to accounts and services at a Central Bank, when available and where determined to be practical by the Board of Directors, to enhance its management of liquidity risk. Due to the inherently low credit risk presented by Central Banks, only limited monitoring activities would be performed pursuant to relevant OCC procedures. --------------------------------------------------------------------------- FMUs provide a range of services to OCC, including the Depository Trust Company (``DTC'') as collateral custodian and provider of book order entry of securities transfers, Chicago Mercantile Exchange Inc. (``CME'') and ICE Clear U.S. as cross-margin clearing organizations, and the National Securities Clearing Corporation (``NSCC'') as a provider of securities settlement. Under the Policy, DTC credit exposures shall be measured by the collateral balances held and the value of securities lending/borrowing transactions facilitated. CME and ICE Clear U.S. credit exposures shall be measured by the projected margin impact in the event of suspension of a cross-margin program and, therefore, the absence of risk reducing positions cleared away from OCC. NSCC exposure shall be measured by the value of securities and cash to be settled in connection with the delivery obligations settled through NSCC. Monitoring and Managing Counterparty Credit Risk The CCRM Policy also describes the manner in which OCC monitors and manages credit risk from its Counterparties. Under the Policy, OCC's monitoring and management of such risks is comprised of ``Watch Level Reporting'' processes in conjunction with other tools including margin adjustments, internal credit ratings, risk examinations, and monitoring of tiered participation arrangements and dormant Counterparties. Watch Level Reporting Overview Under the Policy, Counterparties are monitored by OCC's FRM, Business Operations, and Treasury departments for ongoing compliance with the minimum participation standards described above to identify any trends that might signal the deterioration of a Counterparty's ability to timely meet its obligations. When these trends are identified, Credit Risk Management shall report on a Counterparty through OCC's Watch Level Reporting processes, which are described in further detail [[Page 50722]] below. As a Counterparty approaches or no longer meets minimum standards, FRM's monitoring heightens and, in the case of Commercial Banks and Clearing Members, increasingly rigorous protective measures may be imposed to limit or eliminate OCC's credit exposure. Pursuant to the Policy, the Watch Level Reporting process shall be administered by OCC's Management Committee, which maintains approval authority of Watch Level parameter changes. The Watch Level Reporting process provides each of the Executive Chairman, Chief Operating Officer and Chief Administrative Officer with authority to take action to protect OCC given the facts and circumstances of the exposure presented by a Clearing Member or Commercial Bank. Under the Policy, Credit Risk Management shall provide monthly internal reporting to FRM summarizing the circumstances relating to a violation, additional risks observed and any corrective measure taken by any Clearing Member, Commercial Bank, or FMU at or above Watch Level II (described below); and monthly reporting to OCC's Credit and Liquidity Risk Working Group, Management Committee and the Risk Committee of any Clearing Member or Commercial Bank at or above Watch Level III (described below). Clearing Member Watch Level Reporting and Bank Watch Level Reporting Pursuant to the CCRM Policy, the Clearing Member Watch Level Reporting process and Bank Watch Level Reporting process shall support initial and on-going participation standards by allowing OCC's Credit Risk Management department, with the support of other FRM business units, Business Operations and Treasury, to detect business-related concerns and/or financial or operational deterioration of a Counterparty in order to protect OCC and its Clearing Members against the potential default of a Clearing Member or Commercial Bank. Pursuant to the Policy, the Clearing Member Watch Level Reporting process and Bank Watch Level Reporting process shall be organized into four-tiered surveillance structures. 1. Watch Level I. Watch Level I is the lowest tier of severity and shall be used to categorize Clearing Members and Commercial Banks presenting minimal to very low credit risk. This level of violation shall be identified but not reported. 2. Watch Level II. This tier shall be used to categorize Clearing Members and Commercial Banks presenting low to lower moderate credit risk. This level of violation shall be identified and reported to internal personnel pursuant to FRM procedures. 3. Watch Level III. This tier shall be used to categorize Clearing Members and Commercial Banks potentially presenting upper moderate to substantial credit risk. Violations in this tier may indicate a Clearing Member or Commercial Bank that is below early warning participation thresholds and may soon become non-compliant with OCC's minimum participation standards, as specified in Article V of OCC's By- Laws, Chapters II and III of OCC's Rules, and internal OCC procedures. This level of violation shall be identified and reported to the Executive Chairman, Chief Operating Officer or Chief Administrative Officer, who shall have the authority to approve the imposition or waiver of protective measures. The Risk Committee shall be informed of these violations on a monthly basis. 4. Watch Level IV. Watch Level IV is the highest tier of severity and shall be used to categorize Clearing Members and Commercial Banks potentially presenting high to very high credit risk with a heightened probability of default. Violations in this tier may indicate a Clearing Member or Commercial Bank may imminently become or has already become non-compliant with OCC's minimum participation standards, as specified in Article V of OCC's By-Laws, Chapters II and III of OCC's Rules, and internal OCC procedures. This level of violation shall be identified and reported to OCC's Credit and Liquidity Risk Working Group, with subsequent reporting to the Executive Chairman, Chief Operating Officer or Chief Administrative Officer, who shall have the authority to approve the imposition or waiver of protective measures, including the option to restrict business of or suspend the Clearing Member or Commercial Bank. The Risk Committee shall be promptly informed of these violations and a meeting of the Risk Committee may occur to discuss the event. In addition, under the Policy, a Clearing Member reporting (1) aggregate uncollateralized stress test exposure under normal market conditions less (2) the sum of base expected shortfall and stress test charges as computed under OCC's margin methodology, exceeding 75% of the Clearing Member's excess net capital shall be identified and reported on Watch Level II. When this exposure exceeds 100% of net capital, a Clearing Member shall be identified and reported on Watch Level III and shall be subject to a margin call for the amount of exposure exceeding net capital. A margin call shall be the standard form of protective measures for position risk monitoring and shall not require officer approval or further prompt escalation. However, Clearing Members may be reported to the Executive Chairman, Chief Operating Officer or Chief Administrative officer for consideration of additional protective measures. FMU Watch Level Reporting The FMU Watch Level Reporting process allows Credit Risk Management, with the support of other FRM business units and Business Operations, to detect business-related concerns and/or financial or operational deterioration of a FMU. Pursuant to the CCRM Policy, the FMU Watch Level Reporting process is organized into a two-tiered surveillance structure. 1. Watch Level I. Watch Level I is the lowest tier of severity and shall be used to categorize FMUs presenting minimal to very low credit risk. This level of violation shall be identified but not reported. 2. Watch Level II. Watch Level II is the highest tier of severity and shall be used to categorize FMUs presenting low to lower moderate credit risk. This level of violation shall be identified and reported. Other Tools for Monitoring and Managing Credit Risk In addition to the Watch Level Reporting processes discussed above, the CCRM Policy discusses other tools and processes used by OCC to monitor and manage credit risks arising from its Counterparties. For example, in cases where ongoing monitoring of Clearing Members identifies circumstances impacting margin levels due to changing portfolio characteristics, market conditions, elevated Clearing Fund stress test results, upcoming holidays where trading is allowed but OCC is unable to call for additional margin deposits, and certain other situations, OCC shall have the authority to call for additional margin deposits or otherwise adjust margin requirements as further detailed in OCC's margin and Clearing Fund-related policies. Under the Policy, OCC's Credit Risk Management department also maintains Internal Credit Ratings (``ICRs'') which shall be incorporated into the Watch Level Reporting process and shall be designed to identify quarterly creditworthiness scores of Clearing Members and Commercial Banks. ICR reporting shall summarize the underlying cause of the ICR score, recent scoring trend and exposure introduced by a Clearing Member or Commercial Bank. [[Page 50723]] In addition, the Policy provides that Credit Risk Management shall perform examinations of the risk management frameworks, policies, procedures and practices of each Clearing Member no less than once in a three calendar year period focusing on the risks posed to OCC. For certain exams, Credit Risk Management may coordinate with external parties to realize operational efficiencies for both the Clearing Member and OCC. The CCRM Policy also provides that OCC's Counterparty monitoring includes managing the material risks that arise from indirect participants through tiered participation arrangements. In particular, Credit Risk Management, supported by other FRM business units and Business Operations, shall monitor the material risks that arise from indirect participants through tiered participation arrangements. Credit Risk Management (or other FRM business units, as appropriate) shall identify these tiered participation arrangements through standard monitoring processes when they present elevated risk to the Clearing Member or OCC. Furthermore, Clearing Member risk examinations shall seek to understand how direct participants identify, measure and manage the risks posed to OCC from indirect participants. In this regard, the CCRM Policy is designed to promote compliance with Rule 17Ad-22(e)(19) by addressing the material risks that may arise from indirect participants.\15\ --------------------------------------------------------------------------- \15\ 17 CFR 240.17Ad-22(e)(19). --------------------------------------------------------------------------- Additionally, under the CCRM Policy, OCC shall monitor Clearing Members, Commercial Banks and investment counterparties during prolonged periods of inactivity, and Clearing Members shall be allowed to voluntarily enter a dormant state in order to reduce credit risk originating from unexpected trading activity. A dormant Clearing Member shall continuously adhere to all operational and financial standards and may reactivate its membership after submitting to an operational and financial review. OCC shall maintain sole discretion to terminate inactive Commercial Banks and investment counterparties in order to reduce credit risk. Counterparty Credit Risk Termination Finally, the CCRM Policy addresses the voluntary off-boarding of Counterparties. Under the Policy, voluntary off-boarding shall be performed in a manner designed to wind down all credit exposures in an orderly fashion before a relationship is terminated.\16\ --------------------------------------------------------------------------- \16\ 17 CFR 240.17Ad-22(e)(19). --------------------------------------------------------------------------- (2) Statutory Basis Section 17A(b)(3)(F) of the Act \17\ requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible and, in general, to protect investors and the public interest. Through each of its respective sections, the CCRM Policy provides a framework that is designed to enable OCC to identify, evaluate, measure, monitor and manage potential credit risks posed by its Counterparties. In identifying these credit risks, the CCRM Policy details various ways in which OCC may be exposed to such risks. In evaluating counterparty credit risks, the CCRM Policy states that OCC evaluates each Counterparty against objective and risk- based minimum standards of creditworthiness, overall financial condition and operational capabilities. The Policy also provides detail on how OCC structures its custodial relationship to ensure it has prompt access to its own assets and Clearing Members' assets. In measuring counterparty credit risk, the CCRM Policy describes various ways in which OCC measures credit risk posed by different Counterparties, as well as the three main tools for managing credit risk posed by Clearing Members. In monitoring and managing counterparty credit risk, the CCRM Policy specifies the steps taken by OCC's internal units to monitor Counterparties, including by conducting examinations of Clearing Members' risk management frameworks and performing monthly Watch Level Reporting. The CCRM Policy's promotion of each aforementioned activity ultimately inures to the protection of investors and the public interest, as well as the safeguarding of securities and funds in OCC's custody or control \18\ in a manner consistent with Section 17A(b)(3)(F) of the Act.\19\ --------------------------------------------------------------------------- \17\ 15 U.S.C. 78q-1(b)(3)(F). \18\ These activities, in turn, help ensure that OCC remains capable of continuing its operations and services in a manner that promotes the prompt and accurate clearance and settlement of securities transactions. \19\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- OCC also believes that that the CCRM Policy is consistent with several requirements under Rule 17Ad-22. For example, Rules 17Ad- 22(e)(3) and (e)(4) \20\ require a covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to, among other things, maintain a sound risk management framework for addressing credit risk, to effectively identify, measure, monitor, and manage credit risks that arise in or are borne by the covered clearing agency, including its credit exposures to participants and those arising from its payment, clearing, and settlement processes. OCC believes that the CCRM Policy is consistent with Rules 17Ad-22(e)(3) and (4) \21\ because the CCRM Policy describes OCC's framework for comprehensively managing its credit risks. Specifically, the CCRM Policy describes the various processes by which OCC identifies, measures, monitors, and manages its credit exposures to participants and exposures arising from its payment, clearing, and settlement processes, including the Counterparty access and participation standards used by OCC to evaluate potential Counterparties, OCC's processes for measuring its Counterparty exposures, and OCC's processes for monitoring and managing Counterparty exposures (particularly through the use of its Watch Level Reporting processes). --------------------------------------------------------------------------- \20\ 17 CFR 240.17Ad-22(e)(3) and (4). \21\ Id. --------------------------------------------------------------------------- In addition, Rule 17Ad-22(e)(16) \22\ requires a covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to, among other things, safeguard the covered clearing agency's own and its participants' assets and minimize the risk of loss and delay in access to these assets. OCC believes that the access and participation requirements for Commercial and Central Banks outlined in the CCRM Policy enable it to appropriately evaluate each bank against relevant minimum standards of creditworthiness and for its overall financial condition and operational capabilities, and are therefore designed to minimize the risk of loss and delay in access to OCC's assets and its participants' assets in a manner consistent with Rule 17Ad-22(e)(16).\23\ --------------------------------------------------------------------------- \22\ 17 CFR 240.17Ad-22(e)(16). \23\ Id. --------------------------------------------------------------------------- Rule 17Ad-22(e)(18) \24\ further requires a covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to, among other things, establish objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access and require participants to have sufficient financial resources and robust operational capacity to meet obligations arising from participation in the clearing agency, and monitor [[Page 50724]] compliance with such participation requirements on an ongoing basis. OCC believes the CCRM Policy promotes compliance with Rule 17Ad- 22(e)(18) \25\ by ensuring that OCC has objective, risk-based and publicly disclosed criteria for participation and requiring Clearing Members to have sufficient financial resources to meet their obligations to OCC. Moreover, the Policy outlines the Watch Level Reporting process used by OCC to monitor compliance with such participation requirements on an ongoing basis. --------------------------------------------------------------------------- \24\ 17 CFR 240.17Ad-22(e)(18). \25\ Id. --------------------------------------------------------------------------- Rule 17Ad-22(e)(19) \26\ requires a covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to identify, monitor, and manage the material risks to the covered clearing agency arising from arrangements in which firms that are indirect participants in the covered clearing agency rely on the services provided by direct participants to access the covered clearing agency's payment, clearing, or settlement facilities. OCC believes the Policy is designed to comply with Rule 17Ad-22(e)(19) \27\ because it outlines the process by which OCC identifies and monitors the material risks arising from indirect participants through tiered participation arrangements, including through the use of risk examinations of its Clearing Members. --------------------------------------------------------------------------- \26\ 17 CFR 240.17Ad-22(e)(19). \27\ Id. --------------------------------------------------------------------------- Finally, Rule 17Ad-22(e)(20) \28\ requires a covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to, among other things, identify, monitor, and manage risks related to any link the covered clearing agency establishes with one or more other clearing agencies or FMUs. OCC believes that the Policy promotes compliance with Rule 17Ad- 22(e)(20) \29\ because it outlines the standards OCC uses to evaluate FMU Counterparties prior to entering into any link arrangement (including the evaluations OCC would perform relating to rights and interests, collateral arrangements, settlement finality and netting arrangements, and financial and custody risks that may arise due to such link arrangement) and the processes by which OCC measures and monitors the risks arising from such FMU Counterparties (including its FMU Watch Level Reporting process). --------------------------------------------------------------------------- \28\ 17 CFR 240.17Ad-22(e)(20). \29\ Id. --------------------------------------------------------------------------- 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 \30\ 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 that the proposed rule change would impact or impose any burden on competition. The proposed rule change addresses the framework by which OCC manages counterparty credit risk arising from its business, as set forth in the CCRM Policy. Because any individual Counterparty under the CCRM Policy is equally subject to the aspects of the counterparty credit risk framework that apply to it based on the type of Counterparty that it represents (i.e., direct and indirect participants, Liquidity Providers, asset custodians, settlement banks, letter of credit issuers, investment counterparties, clearing agencies and FMUs) and the related counterparty credit risks that are posed to OCC by that type of Counterparty, the proposed rule change would not provide any Counterparty with a competitive advantage over any other similar Counterparty. Further, the proposed rule change would not affect Clearing Members' or other Counterparties' existing access to OCC's services or impose any new or different direct burdens on Clearing Members or other Counterparties. --------------------------------------------------------------------------- \30\ 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 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-2017-009 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-2017-009. 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_009.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that the Commission does not redact or edit personal identifying information from [[Page 50725]] comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2017-009 and should be submitted on or before November 22, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated Authority.\31\ --------------------------------------------------------------------------- \31\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-23731 Filed 10-31-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices 50719
C. Self-Regulatory Organization’s amendments, all written statements solicit comments on the proposed rule
Statement on Comments on the with respect to the proposed rule change from interested persons.
Proposed Rule Change Received From change that are filed with the
I. Clearing Agency’s Statement of the
Members, Participants, or Others Commission, and all written
Terms of Substance of the Proposed
The Exchange neither solicited nor communications relating to the
Rule Change
received comments on the proposed proposed rule change between the
rule change. Commission and any person, other than This proposed rule change by OCC
those that may be withheld from the would formalize OCC’s Counterparty
III. Date of Effectiveness of the public in accordance with the Credit Risk Management Policy (‘‘CCRM
Proposed Rule Change and Timing for provisions of 5 U.S.C. 552, will be Policy’’ or ‘‘Policy’’), which promotes
Commission Action available for Web site viewing and compliance with multiple requirements
Pursuant to Section 19(b)(3)(A) of the printing in the Commission’s Public applicable to OCC under Rule 17Ad–22,
Act 8 and Rule 19b–4(f)(3) thereunder,9 Reference Room, 100 F Street NE., including Rules 17Ad–22(e)(3)
the Exchange has designated this Washington, DC 20549, on official concerning frameworks for the
proposal as one that is concerned solely business days between the hours of comprehensive management of risks,
with the administration of the self- 10:00 a.m. and 3:00 p.m. Copies of the (e)(4) concerning credit risk
regulatory organization, and therefore filing also will be available for management, (e)(16) concerning the
has become effective. inspection and copying at the principal safeguarding of assets, (e)(18)
At any time within 60 days of the office of the Exchange. All comments concerning risk-based participation
filing of the proposed rule change, the received will be posted without change. criteria, (e)(19) concerning risks form
Commission summarily may Persons submitting comments are indirect participants, and (e)(20)
temporarily suspend such rule change if cautioned that we do not redact or edit concerning linkages.3 The CCRM Policy
it appears to the Commission that such personal identifying information from is included as confidential Exhibit 5.4
action is necessary or appropriate in the comment submissions. You should The proposed rule change does not
public interest, for the protection of submit only information that you wish require any changes to the text of OCC’s
investors, or otherwise in furtherance of to make available publicly. All By-Laws or Rules. All terms with initial
the purposes of the Act. If the submissions should refer to File capitalization that are not otherwise
Commission takes such action, the Number SR–BatsEDGA–2017–28 and defined herein have the same meaning
Commission will institute proceedings should be submitted on or before as set forth in the OCC By-Laws and
to determine whether the proposed rule November 22, 2017. Rules.5
change should be approved or For the Commission, by the Division of
disapproved. II. Clearing Agency’s Statement of the
Trading and Markets, pursuant to delegated
authority.10
Purpose of, and Statutory Basis for, the
IV. Solicitation of Comments Proposed Rule Change
Eduardo A. Aleman,
Interested persons are invited to
Assistant Secretary. In its filing with the Commission,
submit written data, views, and
[FR Doc. 2017–23737 Filed 10–31–17; 8:45 am] OCC included statements concerning
arguments concerning the foregoing,
the purpose of and basis for the
including whether the proposed rule BILLING CODE 8011–01–P
proposed rule change and discussed any
change is consistent with the Act.
comments it received on the proposed
Comments may be submitted by any of
SECURITIES AND EXCHANGE rule change. The text of these statements
the following methods:
COMMISSION may be examined at the places specified
Electronic Comments in Item IV below. OCC has prepared
[Release No. 34–81949; File No. SR–OCC– summaries, set forth in sections (A), (B),
• Use the Commission’s Internet 2017–009]
comment form (http://www.sec.gov/ and (C) below, of the most significant
rules/sro.shtml); or aspects of these statements.
Self-Regulatory Organizations; The
• Send an email to rule-comments@ Options Clearing Corporation; Notice (A) Clearing Agency’s Statement of the
sec.gov. Please include File Number SR– of Filing of Proposed Rule Change Purpose of, and Statutory Basis for, the
BatsEDGA–2017–28 on the subject line. Related to The Options Clearing Proposed Rule Change
Paper Comments Corporation’s Counterparty Credit Risk
Management Policy (1) Purpose
• Send paper comments in triplicate Background
to Brent J. Fields, Secretary, Securities October 26, 2017.
and Exchange Commission, 100 F Street Pursuant to Section 19(b)(1) of the As a central counterparty providing
NE., Washington, DC 20549–1090. Securities Exchange Act of 1934 clearance, settlement, and risk
All submissions should refer to File (‘‘Act’’),1 and Rule 19b–4 thereunder,2 management services, OCC is exposed
Number SR–BatsEDGA–2017–28. This notice is hereby given that on October to and must manage a range of risks,
file number should be included on the 12, 2017, The Options Clearing including credit risk. The purpose of the
subject line if email is used. To help the Corporation (‘‘OCC’’) filed with the CCRM Policy is to outline OCC’s overall
Commission process and review your Securities and Exchange Commission approach to identify, measure, monitor,
comments more efficiently, please use (‘‘Commission’’) the proposed rule and manage its exposures to direct and
indirect participants, Liquidity
sradovich on DSK3GMQ082PROD with NOTICES
only one method. The Commission will change as described in Items I, II, and
post all comments on the Commission’s III below, which Items have been
Internet Web site (http://www.sec.gov/ prepared primarily by OCC. The 3 17 CFR 240.17Ad–22(e)(3), (4), (16), (18), (19),
Commission is publishing this notice to and (20).
rules/sro.shtml). Copies of the 4 The Commission notes that Exhibit 5 is
submission, all subsequent included in the filing, not in this Notice.
10 17 CFR 200.30–3(a)(12). 5 OCC’s By-Laws and Rules can be found on
8 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1). OCC’s public Web site: http://optionsclearing.com/
9 17 CFR 240.19b–4(f)(3). 2 17 CFR 240.19b–4. about/publications/bylaws.jsp.
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![Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices 50725
comment submissions. You should to amend the Certificate of Formation privileges of Exchange members or their
submit only information that you wish and Limited Liability Company associated persons is any way.
to make available publicly. Operating Agreement of CBOE V, LLC Accordingly, this filing is being
All submissions should refer to File (the ‘‘Operating Agreement’’), in submitted under Rule 19b–4(f)(3). In
Number SR–OCC–2017–009 and should connection with a related name change lieu of providing a copy of the marked
be submitted on or before November 22, for the Intermediate. The Exchange also name changes, the Exchange represents
2017. proposes to amend its Amended and that it will make the necessary non-
For the Commission, by the Division of Restated Certificate of Incorporation (the substantive revisions described below to
Trading and Markets, pursuant to delegated ‘‘Exchange Certificate’’), Sixth Amended the Exchange’s corporate governance
Authority.31 and Restated Bylaws of Bats BYX documents, rulebook, and fees
Eduardo A. Aleman, Exchange, Inc. (the ‘‘Exchange schedules, and post updated versions of
Assistant Secretary. Bylaws’’), rulebook and fee schedule
each on the Exchange’s Web site
[FR Doc. 2017–23731 Filed 10–31–17; 8:45 am] (collectively ‘‘operative documents’’) in
pursuant to Rule 19b–4(m)(2).
BILLING CODE 8011–01–P
connection with the name change of its
parent Company, Intermediate, and the The Company’s Name Change
Exchange.
SECURITIES AND EXCHANGE The text of the proposed rule change In connection with the corporate
COMMISSION is also available on the Exchange’s Web name change of its parent company, the
site (http://www.cboe.com/AboutCBOE/ Exchange is proposing to amend the
[Release No. 34–81952; File No. SR– CBOELegalRegulatoryHome.aspx), at Company’s Certificate and Bylaws.
BatsBYX–2017–27] the Exchange’s Office of the Secretary, Specifically, the Company is changing
Self-Regulatory Organizations; Bats and at the Commission’s Public its name from ‘‘CBOE Holdings, Inc.’’ to
BYX Exchange, Inc.; Notice of Filing Reference Room. ‘‘Cboe Global Markets, Inc.’’.
and Immediate Effectiveness of a II. Self-Regulatory Organization’s Company’s Certificate
Proposed Rule Change To Reflect in Statement of the Purpose of, and
the Exchange’s Governing Documents, Statutory Basis for, the Proposed Rule The Exchange proposes to (i) delete
Rulebook and Fee Schedule, a Non- Change the following language from Paragraph
Substantive Corporate Branding In its filing with the Commission, the (1) of the introductory paragraph: ‘‘The
Change, Including Changes to the name of the Corporation is CBOE
Exchange included statements
Company’s Name, the Intermediate’s Holdings, Inc.’’ and (ii) amend Article
concerning the purpose of and basis for
Name, and the Exchange’s Name First of the Company’s Certificate to
the proposed rule change and discussed
October 26, 2017. any comments it received on the reflect the new name, ‘‘Cboe Global
Pursuant to Section 19(b)(1) of the proposed rule change. The text of these Markets, Inc.’’ The Exchange also
Securities Exchange Act of 1934 (the statements may be examined at the proposes to add clarifying language and
‘‘Act’’),1 and Rule 19b–4 thereunder,2 places specified in Item IV below. The cite to the applicable provisions of the
notice is hereby given that on October Exchange has prepared summaries, set General Corporation Law of the State of
16, 2017, Bats BYX Exchange, Inc. (the forth in sections A, B, and C below, of Delaware in connection with the
‘‘Exchange’’ or ‘‘BYX’’) filed with the the most significant aspects of such proposed name change. The Exchange
Securities and Exchange Commission statements. notes that it is not amending the
(‘‘Commission’’) the proposed rule Company’s name in the title or signature
A. Self-Regulatory Organization’s
change as described in Items I and II Statement of the Purpose of, and line as the name changes will not be
below, which Items have been prepared Statutory Basis for, the Proposed Rule effective until the Company, as
by the Exchange. The Commission is Change currently named, files the proposed
publishing this notice to solicit changes in Delaware. Thereafter, the
comments on the proposed rule change 1. Purpose Exchange will amend the Certificate to
from interested persons. Background reflect the new name in the title and
I. Self-Regulatory Organization’s The purpose of this filing is to reflect signature line. The Exchange also notes
Statement of the Terms of Substance of in the Exchange’s governing documents that although the name of ‘‘Chicago
the Proposed Rule Change (and the governing documents of its Board Options Exchange, Incorporated’’
parent company, CBOE Holdings) and is changing to ‘‘Cboe Exchange Inc.’’, it
The Exchange proposes a proposed is not amending the name of Chicago
rule change with respect to amendments the Exchange’s rulebook and fees
schedules, a non-substantive corporate Board Options Exchange, Incorporated
of the Second Amended and Restated
branding change, including changes to (‘‘CBOE’’) referenced in Article
Certificate of Incorporation (the
the Company’s name, the Intermediate’s Fifth(a)(iii) at this time. Particularly, the
‘‘Company’s Certificate’’) and Third
Amended and Restated Bylaws (the name, and the Exchange’s name. Exchange notes that unlike the
‘‘Company’s Bylaws’’) of its parent Particularly, references to Company’s, exception applicable to proposed
corporation, CBOE Holdings, Inc. Intermediate’s and Exchange’s names changes to the Company’s name,3 a vote
(‘‘CBOE Holdings’’ or the ‘‘Company’’) will be deleted and revised to state the of stockholders is required to adopt an
to change the name of the Company to new names, as described more fully amendment to the reference of CBOE’s
below. No other substantive changes are name. As such, the Exchange will
sradovich on DSK3GMQ082PROD with NOTICES
Cboe Global Markets, Inc. With respect
to CBOE V, LLC, an intermediate being proposed in this filing. The submit a rule filing to amend the
Holding Company of the Exchange (the Exchange represents that these changes Certificate to reflect the new CBOE
‘‘Intermediate’’), the Exchange proposes are concerned solely with the name at such time it is ready to obtain
administration of the Exchange and do stockholder approval.
31 17 CFR 200.30–3(a)(12). not affect the meaning, administration,
1 15 U.S.C. 78s(b)(1). or enforcement of any rules of the 3 See Section 242(b) of the General Corporation
2 17 CFR 240.19b–4. Exchange or the rights, obligations, or Law of the State of Delaware.
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Document Created: 2017-11-01 02:02:44
Document Modified: 2017-11-01 02:02:44
| 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 50719 |
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