82_FR_50929 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

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)

Page Range50719-50725
FR Document2017-23731

Federal Register, Volume 82 Issue 210 (Wednesday, November 1, 2017)
[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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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\
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    \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.
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    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\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public Web 
site: http://optionsclearing.com/about/publications/bylaws.jsp.
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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\
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    \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.
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    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\
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    \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).
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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\
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    \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.
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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.
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    \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.
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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.
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    \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.
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    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\
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    \15\ 17 CFR 240.17Ad-22(e)(19).
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    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\
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    \16\ 17 CFR 240.17Ad-22(e)(19).
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(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\
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    \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).
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    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).
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    \20\ 17 CFR 240.17Ad-22(e)(3) and (4).
    \21\ Id.
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    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\
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    \22\ 17 CFR 240.17Ad-22(e)(16).
    \23\ Id.
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    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.
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    \24\ 17 CFR 240.17Ad-22(e)(18).
    \25\ Id.
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    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 Comments

     Use 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
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                                                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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                                                50720                     Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices

                                                Providers,6 asset custodians, settlement                Identification of Credit Risk                         regulatory reporting and overall
                                                banks, letter of credit issuers,                                                                              business operations.
                                                investment counterparties, other                           The CCRM Policy identifies various
                                                                                                        ways in which credit risk originates                  Clearing Membership Standards
                                                clearing agencies, and financial market
                                                utilities (‘‘FMUs’’) 7 (each a                          from the failure of a Counterparty to                   OCC’s minimum participation
                                                ‘‘Counterparty’’) arising from its                      perform. With respect to a Clearing                   standards for Clearing Member are
                                                payment, clearing, and settlement                       Member, the CCRM Policy details a                     found in Article V of OCC’s By-Laws,
                                                processes. OCC notes that the CCRM                      number of different ways in which OCC                 Chapters II and III of OCC’s Rules, and
                                                Policy is part of a broader framework                   may be exposed to credit risk. This                   other publicly-disclosed supplemental
                                                used by OCC to manage credit risk,                      includes the potential failure of a                   documentation (together, ‘‘Participation
                                                including OCC’s By-Laws, Rules, and                     Clearing Member to pay for purchased                  Standards Documentation’’). Under the
                                                other policies and procedures that are                  options, to meet expiration-related                   Policy, OCC’s Credit Risk Management
                                                designed collectively to ensure that OCC                settlement obligations, or to make                    and Member Services departments shall
                                                appropriately manages counterparty                      certain mark-to-market variation                      evaluate each Clearing Member
                                                credit risk and to promote compliance                   payments or initial margin deposits. It               applicant against the minimum
                                                with Rule 17Ad–22.8                                     also includes the potential insufficiency             standards of creditworthiness and for its
                                                   The CCRM Policy would be                             of a defaulting Clearing Member’s                     overall financial condition and
                                                maintained by OCC to promote                            margin and Clearing Fund deposits in a                operational capabilities as provided in
                                                compliance with a number of rules                       liquidation scenario. Other sources of                the Participation Standards
                                                adopted under Section 17A of the                        credit risk identified in the CCRM                    Documentation. Such evaluation shall
                                                Securities Exchange Act of 1934, as                     Policy include the inability of OCC to                also consider the Counterparty’s
                                                amended (‘‘Act’’),9 and the Payment,                    access collateral (e.g., cash or securities)          aggregation of exposure on an
                                                Clearing, and Settlement Supervision                    from a custodian or investment                        individual and related-entities level, as
                                                Act of 2010 (‘‘Clearing Supervision                     counterparty that is needed to facilitate             applicable, as well as any material
                                                Act’’).10 In particular, the Policy is                  a liquidation, or a failure by an issuer              exposure that may arise from tiered
                                                designed to address certain aspects of                  of a letter of credit to honor its                    participation arrangements. The Credit
                                                Rules 17Ad–22(e)(3) concerning                          corresponding obligations. The CCRM                   Risk Management and Member Services
                                                frameworks for the comprehensive                        Policy also identifies that certain                   departments shall document the results
                                                                                                        relationships with other FMUs, such as                of this evaluation in a memorandum,
                                                management of risks, (e)(4) concerning
                                                                                                        cross-margining programs and cash                     including the Clearing Member
                                                credit risk management, (e)(16)
                                                                                                        market settlement services, represent                 applicant’s ability to meet relevant
                                                concerning the safeguarding of assets,
                                                                                                        critical linkages that may present certain            participation standards, and report
                                                (e)(18) concerning risk-based
                                                                                                        degrees of credit exposure based on the               those results to OCC’s Executive
                                                participation criteria, (e)(19) concerning
                                                                                                        terms and design of the linkage. The                  Chairman, Chief Operating Officer or
                                                risks form indirect participants, and
                                                                                                        CCRM Policy also notes that OCC may                   Chief Administrative Officer for review
                                                (e)(20) concerning linkages.11
                                                                                                        face additional risks from                            and approval, where appropriate, or for
                                                Counterparty Credit Risk Management                     Counterparties, such as the potential                 recommendation to the Risk Committee
                                                Policy                                                  failure of a Liquidity Provider to honor              or Board of Directors.12
                                                   OCC’s CCRM Policy outlines the key                   a borrowing request.                                  Commercial and Central Banks
                                                components of OCC’s framework for                                                                               OCC’s minimum standards for asset
                                                identifying, measuring, monitoring, and                 Counterparty Access and Participation
                                                                                                        Standards                                             custodians, settlement banks, letter of
                                                managing OCC’s exposures to its                                                                               credit issuers and investment
                                                Counterparties. This framework                             Under the CCRM Policy, OCC’s                       counterparties are found in OCC Rule
                                                includes: (1) The identification of credit              management of Counterparty credit                     604 and relevant OCC procedures. The
                                                risk, (2) Counterparty access and                       risks begins with an initial evaluation               Credit Risk Management department
                                                participation standards, (3) the                        process intended to ascertain that                    shall coordinate with various
                                                measurement of its Counterparty                         Counterparties meet certain minimum
                                                exposures, (4) the monitoring and                       financial and operational standards and                  12 Pursuant to Article V, Section 2 of the By-Laws,
                                                managing of Counterparty exposures,                     are considered as having a low                        the Executive Chairman, Chief Operating Officer
                                                and (5) voluntary termination of                        probability of defaulting on their                    and Chief Administrative Officer each have
                                                Counterparty relationships. Each of                                                                           delegated authority to approve Clearing Member
                                                                                                        obligations prior to engaging or effecting            applicants provided that (1) there is no
                                                these components is described in more                   any new transactions or expansion of                  recommendation to impose additional membership
                                                detail below.                                           business with OCC. To accomplish this                 criteria in accordance with Article V of the By-Laws
                                                                                                                                                              and (2) the Risk Committee is given not less than
                                                                                                        objective, OCC shall evaluate each                    five days to determine the application should be
                                                  6 Under the CCRM Policy, ‘‘Liquidity Provider’’ is
                                                                                                        Counterparty against established                      reviewed at a meeting of the Risk Committee.
                                                defined as a Commercial Bank or a non-banking
                                                institution—generally a pension fund—that               minimum standards of                                  Pursuant to Interpretation and Policy .06 to Article
                                                provides a committed liquidity facility to OCC.         creditworthiness, overall financial                   V, Section 1 of the By-Laws, the Risk Committee
                                                                                                                                                              has the authority to impose additional requirements
                                                  7 Under the CCRM Policy, ‘‘Financial Market           condition, and operational capabilities.              on Clearing Member applicants, such as increased
                                                Utility’’ is defined as a derivatives clearing          Pursuant to the Policy, the standards                 capital or margin requirements as well as
                                                organization partnering with OCC to provide a
                                                cross-margin program; a clearing agency providing
                                                                                                        used to evaluate Counterparties shall be              restrictions on clearing activities. The Risk
                                                                                                        objective, risk-based, and publicly-                  Committee also has the authority to approve
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                                                settlement services of securities arising from the
                                                                                                                                                              waivers of certain clearing membership
                                                exercise, assignment or maturity of options or          disclosed in order to permit fair and                 requirements under Article V, Section 1 of the By-
                                                futures; or the Depository providing book-entry         open access. These standards shall be                 Laws. Approvals of a Clearing Member business
                                                securities transfers and asset custodian services.
                                                  8 17 CFR 240.17Ad–22.
                                                                                                        developed independently for Clearing                  expansion by the Executive Chairman, Chief
                                                                                                        Members, Commercial and Central                       Operating Officer or Chief Administrative Officer
                                                  9 15 U.S.C. 78q–1.
                                                                                                                                                              are subsequently presented to the Risk Committee
                                                  10 12 U.S.C. 5461 et seq.                             Banks, investment counterparties,                     for ratification, except in limited circumstances
                                                  11 17 CFR 240.17Ad–22(e)(3), (4), (16), (18), (19),   Liquidity Providers and FMUs,                         detailed in Article V, Section 1.03(e) of the By-
                                                and (20).                                               accounting for differences in their                   Laws.



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                                                                          Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices                                                       50721

                                                departments (such as Collateral Services                its evaluation in a memorandum,                          and investment counterparties, OCC
                                                or Treasury) to evaluate each bank                      including the Liquidity Provider’s                       shall measure its credit exposures to
                                                against the minimum standards of                        ability to meet relevant participation                   these Counterparties by the balances
                                                creditworthiness and for its overall                    standards, and report those results to                   generated from the various activities
                                                financial condition and operational                     the Executive Chairman, Chief                            provided by these institutions in
                                                capabilities as provided in OCC Rule                    Operating Officer or Chief                               accordance with relevant internal
                                                604 and related OCC procedures. Such                    Administrative Officer, each of which                    procedures.
                                                evaluation shall also consider the                      shall have the authority to approve new                     FMUs provide a range of services to
                                                Counterparty’s aggregation of exposure                  and expanded relationships with                          OCC, including the Depository Trust
                                                on an individual and related-entities                   Liquidity Providers.                                     Company (‘‘DTC’’) as collateral
                                                level, as applicable, as well as whether                                                                         custodian and provider of book order
                                                                                                        FMUs
                                                OCC would be able to structure its                                                                               entry of securities transfers, Chicago
                                                custodial relationships in a manner that                   Under the Policy, OCC maintains                       Mercantile Exchange Inc. (‘‘CME’’) and
                                                allows prompt access to its own and its                 internal procedures outlining minimum                    ICE Clear U.S. as cross-margin clearing
                                                Clearing Members’ assets. The latter                    standards for FMUs. OCC’s Business                       organizations, and the National
                                                shall include holding assets at                         Operations and Credit Risk Management                    Securities Clearing Corporation
                                                supervised and regulated institutions                   departments shall evaluate each FMU                      (‘‘NSCC’’) as a provider of securities
                                                that adhere to generally accepted                       for its overall financial condition and                  settlement. Under the Policy, DTC credit
                                                accounting practices, maintain                          operational capabilities as provided in                  exposures shall be measured by the
                                                safekeeping procedures, and have                        the procedure. Pursuant to the Policy,                   collateral balances held and the value of
                                                internal controls that fully protect these              before entering into any link                            securities lending/borrowing
                                                assets. Under the Policy, Credit Risk                   arrangement, the Legal department shall                  transactions facilitated. CME and ICE
                                                Management and either the Collateral                    assist the aforementioned business units                 Clear U.S. credit exposures shall be
                                                Services or Treasury department, as                     to identify legal risks relating to rights               measured by the projected margin
                                                applicable, shall document the results of               and interests, collateral arrangements,                  impact in the event of suspension of a
                                                its evaluation in a memorandum,                         settlement finality and netting                          cross-margin program and, therefore, the
                                                including the bank’s ability to meet                    arrangements, and financial and custody                  absence of risk reducing positions
                                                relevant participation standards, and                   risks. The Business Operations, Credit                   cleared away from OCC. NSCC exposure
                                                report those results to OCC’s Executive                 Risk Management and Legal                                shall be measured by the value of
                                                Chairman, Chief Operating Officer or                    departments shall document the results                   securities and cash to be settled in
                                                Chief Administrative Officer, each of                   of its evaluation in a memorandum,                       connection with the delivery obligations
                                                which shall have the authority to                       including the FMU’s ability to meet                      settled through NSCC.
                                                approve new and expanded                                relevant standards. All new and
                                                                                                        expanded FMU relationships shall be                      Monitoring and Managing Counterparty
                                                relationships with asset custodians,                                                                             Credit Risk
                                                settlement banks, letter of credit issuers,             reviewed and approved by the Risk
                                                investment counterparties, and                          Committee and subsequently                                  The CCRM Policy also describes the
                                                Liquidity Providers.                                    recommended for approval to the Board                    manner in which OCC monitors and
                                                                                                        of Directors.                                            manages credit risk from its
                                                Liquidity Providers                                                                                              Counterparties. Under the Policy, OCC’s
                                                                                                        Measuring Counterparty Credit Risk
                                                   Under the Policy, OCC maintains                                                                               monitoring and management of such
                                                                                                           The CCRM Policy describes various                     risks is comprised of ‘‘Watch Level
                                                internal procedures outlining the
                                                                                                        ways in which OCC measures the credit                    Reporting’’ processes in conjunction
                                                minimum standards for Commercial
                                                                                                        risk posed by different Counterparties.                  with other tools including margin
                                                Banks 13 and non-bank institutions
                                                                                                        With respect to Clearing Members, the                    adjustments, internal credit ratings, risk
                                                acting as Liquidity Providers. OCC’s
                                                                                                        CCRM Policy provides that OCC                            examinations, and monitoring of tiered
                                                Credit Risk Management and Treasury
                                                                                                        measures its credit exposures to                         participation arrangements and dormant
                                                departments would be responsible for
                                                                                                        Clearing Members under normal market                     Counterparties.
                                                evaluating each Liquidity Provider
                                                                                                        conditions through the calculation of
                                                against the minimum standards of                                                                                 Watch Level Reporting Overview
                                                                                                        margin requirements and its credit
                                                creditworthiness and for its overall
                                                                                                        exposures to Clearing Members under                        Under the Policy, Counterparties are
                                                financial condition and operational
                                                                                                        extreme but plausible conditions                         monitored by OCC’s FRM, Business
                                                capabilities as provided in the
                                                                                                        through stress testing and the                           Operations, and Treasury departments
                                                procedures. Because Liquidity Providers
                                                                                                        calculation of Clearing Fund                             for ongoing compliance with the
                                                present both credit and liquidity risk to
                                                                                                        requirements, in accordance with                         minimum participation standards
                                                OCC, the due diligence around such
                                                                                                        applicable OCC policies. Margin,                         described above to identify any trends
                                                institutions shall include a review of
                                                                                                        Clearing Fund and stress test results                    that might signal the deterioration of a
                                                each lender’s ability to perform their
                                                                                                        may be used by OCC’s Financial Risk                      Counterparty’s ability to timely meet its
                                                commitments as well as understand and
                                                                                                        Management department (‘‘FRM’’) to                       obligations. When these trends are
                                                manage their liquidity risks. Pursuant to
                                                                                                        evaluate OCC’s counterparty credit risk                  identified, Credit Risk Management
                                                the Policy, Credit Risk Management and
                                                                                                        framework and inform Clearing Member                     shall report on a Counterparty through
                                                Treasury shall document the results of
                                                                                                        surveillance processes.                                  OCC’s Watch Level Reporting processes,
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                                                   13 Under the Policy, ‘‘Commercial Bank’’ is
                                                                                                           With respect to Commercial Banks,                     which are described in further detail
                                                defined as a banking or depository institution that     Central Banks,14 Liquidity Providers,
                                                is not an operating arm of a Central Bank.                                                                       services at a Central Bank, when available and
                                                Commercial bank relationships shall be governed           14 Under  the Policy, ‘‘Central Bank’’ is defined as   where determined to be practical by the Board of
                                                by this Policy and all supporting bank-related          a bank serving as a bank for both depository             Directors, to enhance its management of liquidity
                                                procedures. Commercial Banks act as Liquidity           institutions and a government, a regulator for           risk. Due to the inherently low credit risk presented
                                                Providers, asset custodians, settlement banks, letter   financial institutions, and/or a nation’s money          by Central Banks, only limited monitoring activities
                                                of credit issuers, and investment counterparties on     manager. Central Banks act as asset custodians on        would be performed pursuant to relevant OCC
                                                behalf of OCC.                                          behalf of OCC, and OCC uses access to accounts and       procedures.



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                                                50722                    Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices

                                                below. As a Counterparty approaches or                  of violation shall be identified and                  margin call shall be the standard form
                                                no longer meets minimum standards,                      reported to internal personnel pursuant               of protective measures for position risk
                                                FRM’s monitoring heightens and, in the                  to FRM procedures.                                    monitoring and shall not require officer
                                                case of Commercial Banks and Clearing                      3. Watch Level III. This tier shall be             approval or further prompt escalation.
                                                Members, increasingly rigorous                          used to categorize Clearing Members                   However, Clearing Members may be
                                                protective measures may be imposed to                   and Commercial Banks potentially                      reported to the Executive Chairman,
                                                limit or eliminate OCC’s credit                         presenting upper moderate to                          Chief Operating Officer or Chief
                                                exposure.                                               substantial credit risk. Violations in this           Administrative officer for consideration
                                                  Pursuant to the Policy, the Watch                     tier may indicate a Clearing Member or                of additional protective measures.
                                                Level Reporting process shall be                        Commercial Bank that is below early
                                                administered by OCC’s Management                        warning participation thresholds and                  FMU Watch Level Reporting
                                                Committee, which maintains approval                     may soon become non-compliant with                       The FMU Watch Level Reporting
                                                authority of Watch Level parameter                      OCC’s minimum participation                           process allows Credit Risk Management,
                                                changes. The Watch Level Reporting                      standards, as specified in Article V of               with the support of other FRM business
                                                process provides each of the Executive                  OCC’s By-Laws, Chapters II and III of                 units and Business Operations, to detect
                                                Chairman, Chief Operating Officer and                   OCC’s Rules, and internal OCC                         business-related concerns and/or
                                                Chief Administrative Officer with                       procedures. This level of violation shall             financial or operational deterioration of
                                                authority to take action to protect OCC                 be identified and reported to the                     a FMU. Pursuant to the CCRM Policy,
                                                given the facts and circumstances of the                Executive Chairman, Chief Operating                   the FMU Watch Level Reporting process
                                                exposure presented by a Clearing                        Officer or Chief Administrative Officer,              is organized into a two-tiered
                                                Member or Commercial Bank. Under the                    who shall have the authority to approve               surveillance structure.
                                                Policy, Credit Risk Management shall                    the imposition or waiver of protective                   1. Watch Level I. Watch Level I is the
                                                provide monthly internal reporting to                   measures. The Risk Committee shall be                 lowest tier of severity and shall be used
                                                FRM summarizing the circumstances                       informed of these violations on a                     to categorize FMUs presenting minimal
                                                relating to a violation, additional risks               monthly basis.                                        to very low credit risk. This level of
                                                observed and any corrective measure                        4. Watch Level IV. Watch Level IV is               violation shall be identified but not
                                                taken by any Clearing Member,                           the highest tier of severity and shall be             reported.
                                                Commercial Bank, or FMU at or above                     used to categorize Clearing Members                      2. Watch Level II. Watch Level II is the
                                                Watch Level II (described below); and                   and Commercial Banks potentially                      highest tier of severity and shall be used
                                                monthly reporting to OCC’s Credit and                   presenting high to very high credit risk              to categorize FMUs presenting low to
                                                Liquidity Risk Working Group,                           with a heightened probability of default.             lower moderate credit risk. This level of
                                                Management Committee and the Risk                       Violations in this tier may indicate a                violation shall be identified and
                                                Committee of any Clearing Member or                     Clearing Member or Commercial Bank                    reported.
                                                Commercial Bank at or above Watch                       may imminently become or has already                  Other Tools for Monitoring and
                                                Level III (described below).                            become non-compliant with OCC’s                       Managing Credit Risk
                                                                                                        minimum participation standards, as
                                                Clearing Member Watch Level Reporting                   specified in Article V of OCC’s By-Laws,                 In addition to the Watch Level
                                                and Bank Watch Level Reporting                          Chapters II and III of OCC’s Rules, and               Reporting processes discussed above,
                                                   Pursuant to the CCRM Policy, the                     internal OCC procedures. This level of                the CCRM Policy discusses other tools
                                                Clearing Member Watch Level Reporting                   violation shall be identified and                     and processes used by OCC to monitor
                                                process and Bank Watch Level                            reported to OCC’s Credit and Liquidity                and manage credit risks arising from its
                                                Reporting process shall support initial                 Risk Working Group, with subsequent                   Counterparties. For example, in cases
                                                and on-going participation standards by                 reporting to the Executive Chairman,                  where ongoing monitoring of Clearing
                                                allowing OCC’s Credit Risk Management                   Chief Operating Officer or Chief                      Members identifies circumstances
                                                department, with the support of other                   Administrative Officer, who shall have                impacting margin levels due to changing
                                                FRM business units, Business                            the authority to approve the imposition               portfolio characteristics, market
                                                Operations and Treasury, to detect                      or waiver of protective measures,                     conditions, elevated Clearing Fund
                                                business-related concerns and/or                        including the option to restrict business             stress test results, upcoming holidays
                                                financial or operational deterioration of               of or suspend the Clearing Member or                  where trading is allowed but OCC is
                                                a Counterparty in order to protect OCC                  Commercial Bank. The Risk Committee                   unable to call for additional margin
                                                and its Clearing Members against the                    shall be promptly informed of these                   deposits, and certain other situations,
                                                potential default of a Clearing Member                  violations and a meeting of the Risk                  OCC shall have the authority to call for
                                                or Commercial Bank. Pursuant to the                     Committee may occur to discuss the                    additional margin deposits or otherwise
                                                Policy, the Clearing Member Watch                       event.                                                adjust margin requirements as further
                                                Level Reporting process and Bank                           In addition, under the Policy, a                   detailed in OCC’s margin and Clearing
                                                Watch Level Reporting process shall be                  Clearing Member reporting (1) aggregate               Fund-related policies.
                                                organized into four-tiered surveillance                 uncollateralized stress test exposure                    Under the Policy, OCC’s Credit Risk
                                                structures.                                             under normal market conditions less (2)               Management department also maintains
                                                   1. Watch Level I. Watch Level I is the               the sum of base expected shortfall and                Internal Credit Ratings (‘‘ICRs’’) which
                                                lowest tier of severity and shall be used               stress test charges as computed under                 shall be incorporated into the Watch
                                                to categorize Clearing Members and                      OCC’s margin methodology, exceeding                   Level Reporting process and shall be
                                                                                                        75% of the Clearing Member’s excess                   designed to identify quarterly
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                                                Commercial Banks presenting minimal
                                                to very low credit risk. This level of                  net capital shall be identified and                   creditworthiness scores of Clearing
                                                violation shall be identified but not                   reported on Watch Level II. When this                 Members and Commercial Banks. ICR
                                                reported.                                               exposure exceeds 100% of net capital, a               reporting shall summarize the
                                                   2. Watch Level II. This tier shall be                Clearing Member shall be identified and               underlying cause of the ICR score,
                                                used to categorize Clearing Members                     reported on Watch Level III and shall be              recent scoring trend and exposure
                                                and Commercial Banks presenting low                     subject to a margin call for the amount               introduced by a Clearing Member or
                                                to lower moderate credit risk. This level               of exposure exceeding net capital. A                  Commercial Bank.


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                                                                          Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices                                                50723

                                                   In addition, the Policy provides that                 orderly fashion before a relationship is                among other things, maintain a sound
                                                Credit Risk Management shall perform                     terminated.16                                           risk management framework for
                                                examinations of the risk management                                                                              addressing credit risk, to effectively
                                                                                                         (2) Statutory Basis
                                                frameworks, policies, procedures and                                                                             identify, measure, monitor, and manage
                                                practices of each Clearing Member no                        Section 17A(b)(3)(F) of the Act 17                   credit risks that arise in or are borne by
                                                less than once in a three calendar year                  requires, among other things, that the                  the covered clearing agency, including
                                                period focusing on the risks posed to                    rules of a clearing agency be designed to               its credit exposures to participants and
                                                OCC. For certain exams, Credit Risk                      assure the safeguarding of securities and               those arising from its payment, clearing,
                                                Management may coordinate with                           funds which are in its custody or                       and settlement processes. OCC believes
                                                external parties to realize operational                  control or for which it is responsible                  that the CCRM Policy is consistent with
                                                efficiencies for both the Clearing                       and, in general, to protect investors and               Rules 17Ad–22(e)(3) and (4) 21 because
                                                Member and OCC.                                          the public interest. Through each of its                the CCRM Policy describes OCC’s
                                                                                                         respective sections, the CCRM Policy                    framework for comprehensively
                                                   The CCRM Policy also provides that                    provides a framework that is designed to                managing its credit risks. Specifically,
                                                OCC’s Counterparty monitoring                            enable OCC to identify, evaluate,                       the CCRM Policy describes the various
                                                includes managing the material risks                     measure, monitor and manage potential                   processes by which OCC identifies,
                                                that arise from indirect participants                    credit risks posed by its Counterparties.               measures, monitors, and manages its
                                                through tiered participation                             In identifying these credit risks, the                  credit exposures to participants and
                                                arrangements. In particular, Credit Risk                 CCRM Policy details various ways in                     exposures arising from its payment,
                                                Management, supported by other FRM                       which OCC may be exposed to such                        clearing, and settlement processes,
                                                business units and Business Operations,                  risks. In evaluating counterparty credit                including the Counterparty access and
                                                shall monitor the material risks that                    risks, the CCRM Policy states that OCC                  participation standards used by OCC to
                                                arise from indirect participants through                 evaluates each Counterparty against                     evaluate potential Counterparties, OCC’s
                                                tiered participation arrangements.                       objective and risk-based minimum                        processes for measuring its
                                                Credit Risk Management (or other FRM                     standards of creditworthiness, overall                  Counterparty exposures, and OCC’s
                                                business units, as appropriate) shall                    financial condition and operational                     processes for monitoring and managing
                                                identify these tiered participation                      capabilities. The Policy also provides                  Counterparty exposures (particularly
                                                arrangements through standard                            detail on how OCC structures its                        through the use of its Watch Level
                                                monitoring processes when they present                   custodial relationship to ensure it has                 Reporting processes).
                                                elevated risk to the Clearing Member or                  prompt access to its own assets and                        In addition, Rule 17Ad–22(e)(16) 22
                                                OCC. Furthermore, Clearing Member                        Clearing Members’ assets. In measuring                  requires a covered clearing agency to
                                                risk examinations shall seek to                          counterparty credit risk, the CCRM                      establish, implement, maintain and
                                                understand how direct participants                       Policy describes various ways in which                  enforce written policies and procedures
                                                identify, measure and manage the risks                   OCC measures credit risk posed by                       reasonably designed to, among other
                                                posed to OCC from indirect participants.                 different Counterparties, as well as the                things, safeguard the covered clearing
                                                In this regard, the CCRM Policy is                       three main tools for managing credit risk               agency’s own and its participants’ assets
                                                designed to promote compliance with                      posed by Clearing Members. In                           and minimize the risk of loss and delay
                                                Rule 17Ad–22(e)(19) by addressing the                    monitoring and managing counterparty                    in access to these assets. OCC believes
                                                material risks that may arise from                       credit risk, the CCRM Policy specifies                  that the access and participation
                                                indirect participants.15                                 the steps taken by OCC’s internal units                 requirements for Commercial and
                                                   Additionally, under the CCRM Policy,                  to monitor Counterparties, including by                 Central Banks outlined in the CCRM
                                                OCC shall monitor Clearing Members,                      conducting examinations of Clearing                     Policy enable it to appropriately
                                                Commercial Banks and investment                          Members’ risk management frameworks                     evaluate each bank against relevant
                                                counterparties during prolonged periods                  and performing monthly Watch Level                      minimum standards of creditworthiness
                                                of inactivity, and Clearing Members                      Reporting. The CCRM Policy’s                            and for its overall financial condition
                                                shall be allowed to voluntarily enter a                  promotion of each aforementioned                        and operational capabilities, and are
                                                dormant state in order to reduce credit                  activity ultimately inures to the                       therefore designed to minimize the risk
                                                risk originating from unexpected trading                 protection of investors and the public                  of loss and delay in access to OCC’s
                                                activity. A dormant Clearing Member                      interest, as well as the safeguarding of                assets and its participants’ assets in a
                                                shall continuously adhere to all                         securities and funds in OCC’s custody                   manner consistent with Rule 17Ad–
                                                operational and financial standards and                  or control 18 in a manner consistent with               22(e)(16).23
                                                may reactivate its membership after                      Section 17A(b)(3)(F) of the Act.19                         Rule 17Ad–22(e)(18) 24 further
                                                submitting to an operational and                            OCC also believes that that the CCRM                 requires a covered clearing agency to
                                                financial review. OCC shall maintain                     Policy is consistent with several                       establish, implement, maintain and
                                                sole discretion to terminate inactive                    requirements under Rule 17Ad–22. For                    enforce written policies and procedures
                                                Commercial Banks and investment                          example, Rules 17Ad–22(e)(3) and                        reasonably designed to, among other
                                                counterparties in order to reduce credit                 (e)(4) 20 require a covered clearing                    things, establish objective, risk-based,
                                                risk.                                                    agency to establish, implement,                         and publicly disclosed criteria for
                                                                                                         maintain and enforce written policies                   participation, which permit fair and
                                                Counterparty Credit Risk Termination                     and procedures reasonably designed to,                  open access and require participants to
                                                                                                                                                                 have sufficient financial resources and
                                                  Finally, the CCRM Policy addresses
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                                                                                                           16 17  CFR 240.17Ad–22(e)(19).                        robust operational capacity to meet
                                                the voluntary off-boarding of                              17 15  U.S.C. 78q–1(b)(3)(F).                         obligations arising from participation in
                                                Counterparties. Under the Policy,                           18 These activities, in turn, help ensure that OCC
                                                                                                                                                                 the clearing agency, and monitor
                                                voluntary off-boarding shall be                          remains capable of continuing its operations and
                                                performed in a manner designed to                        services in a manner that promotes the prompt and
                                                                                                                                                                  21 Id.
                                                                                                         accurate clearance and settlement of securities
                                                wind down all credit exposures in an                     transactions.                                            22 17    CFR 240.17Ad–22(e)(16).
                                                                                                            19 15 U.S.C. 78q–1(b)(3)(F).                          23 Id.
                                                  15 17   CFR 240.17Ad–22(e)(19).                           20 17 CFR 240.17Ad–22(e)(3) and (4).                  24 17    CFR 240.17Ad–22(e)(18).



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                                                50724                      Federal Register / Vol. 82, No. 210 / Wednesday, November 1, 2017 / Notices

                                                compliance with such participation                        OCC, including any other rules                          reasons for so finding or (ii) as to which
                                                requirements on an ongoing basis. OCC                     proposed to be amended.                                 the self- regulatory organization
                                                believes the CCRM Policy promotes                                                                                 consents, the Commission will:
                                                                                                          (B) Clearing Agency’s Statement on                        (A) By order approve or disapprove
                                                compliance with Rule 17Ad–22(e)(18) 25
                                                                                                          Burden on Competition
                                                by ensuring that OCC has objective, risk-                                                                         the proposed rule change, or
                                                based and publicly disclosed criteria for                    Section 17A(b)(3)(I) of the Act 30                     (B) institute proceedings to determine
                                                participation and requiring Clearing                      requires that the rules of a clearing                   whether the proposed rule change
                                                Members to have sufficient financial                      agency not impose any burden on                         should be disapproved.
                                                resources to meet their obligations to                    competition not necessary or
                                                                                                          appropriate in furtherance of the                       IV. Solicitation of Comments
                                                OCC. Moreover, the Policy outlines the
                                                Watch Level Reporting process used by                     purposes of the Act. OCC does not                         Interested persons are invited to
                                                OCC to monitor compliance with such                       believe that the proposed rule change                   submit written data, views and
                                                participation requirements on an                          would impact or impose any burden on                    arguments concerning the foregoing,
                                                ongoing basis.                                            competition. The proposed rule change                   including whether the proposed rule
                                                   Rule 17Ad–22(e)(19) 26 requires a                      addresses the framework by which OCC                    change is consistent with the Act.
                                                covered clearing agency to establish,                     manages counterparty credit risk arising                Comments may be submitted by any of
                                                implement, maintain and enforce                           from its business, as set forth in the                  the following methods:
                                                written policies and procedures                           CCRM Policy. Because any individual                     Electronic Comments
                                                reasonably designed to identify,                          Counterparty under the CCRM Policy is
                                                monitor, and manage the material risks                    equally subject to the aspects of the                     • Use the Commission’s Internet
                                                to the covered clearing agency arising                    counterparty credit risk framework that                 comment form (http://www.sec.gov/
                                                from arrangements in which firms that                     apply to it based on the type of                        rules/sro.shtml); or
                                                                                                          Counterparty that it represents (i.e.,                    • Send an email to rule-comments@
                                                are indirect participants in the covered
                                                                                                          direct and indirect participants,                       sec.gov. Please include File Number SR–
                                                clearing agency rely on the services
                                                                                                          Liquidity Providers, asset custodians,                  OCC–2017–009 on the subject line.
                                                provided by direct participants to access
                                                the covered clearing agency’s payment,                    settlement banks, letter of credit issuers,             Paper Comments
                                                clearing, or settlement facilities. OCC                   investment counterparties, clearing                        • Send paper comments in triplicate
                                                believes the Policy is designed to                        agencies and FMUs) and the related                      to Secretary, Securities and Exchange
                                                comply with Rule 17Ad–22(e)(19) 27                        counterparty credit risks that are posed                Commission, 100 F Street NE.,
                                                because it outlines the process by which                  to OCC by that type of Counterparty, the                Washington, DC 20549–1090.
                                                OCC identifies and monitors the                           proposed rule change would not
                                                                                                                                                                  All submissions should refer to File
                                                material risks arising from indirect                      provide any Counterparty with a
                                                                                                                                                                  Number SR–OCC–2017–009. This file
                                                participants through tiered participation                 competitive advantage over any other
                                                                                                                                                                  number should be included on the
                                                arrangements, including through the use                   similar Counterparty. Further, the
                                                                                                                                                                  subject line if email is used. To help the
                                                of risk examinations of its Clearing                      proposed rule change would not affect
                                                                                                                                                                  Commission process and review your
                                                Members.                                                  Clearing Members’ or other
                                                                                                                                                                  comments more efficiently, please use
                                                   Finally, Rule 17Ad–22(e)(20) 28                        Counterparties’ existing access to OCC’s
                                                                                                                                                                  only one method. The Commission will
                                                requires a covered clearing agency to                     services or impose any new or different
                                                                                                                                                                  post all comments on the Commission’s
                                                establish, implement, maintain and                        direct burdens on Clearing Members or
                                                                                                                                                                  Internet Web site (http://www.sec.gov/
                                                enforce written policies and procedures                   other Counterparties.
                                                                                                             For the foregoing reasons, OCC                       rules/sro.shtml). Copies of the
                                                reasonably designed to, among other
                                                                                                          believes that the proposed rule change                  submission, all subsequent
                                                things, identify, monitor, and manage
                                                                                                          is in the public interest, would be                     amendments, all written statements
                                                risks related to any link the covered
                                                                                                          consistent with the requirements of the                 with respect to the proposed rule
                                                clearing agency establishes with one or
                                                                                                          Act applicable to clearing agencies, and                change that are filed with the
                                                more other clearing agencies or FMUs.
                                                                                                          would not impact or impose a burden                     Commission, and all written
                                                OCC believes that the Policy promotes
                                                                                                          on competition.                                         communications relating to the
                                                compliance with Rule 17Ad–22(e)(20) 29
                                                                                                                                                                  proposed rule change between the
                                                because it outlines the standards OCC                     (C) Clearing Agency’s Statement on                      Commission and any person, other than
                                                uses to evaluate FMU Counterparties                       Comments on the Proposed Rule                           those that may be withheld from the
                                                prior to entering into any link                           Change Received From Members,                           public in accordance with the
                                                arrangement (including the evaluations                    Participants or Others                                  provisions of 5 U.S.C. 552, will be
                                                OCC would perform relating to rights
                                                                                                            Written comments on the proposed                      available for Web site viewing and
                                                and interests, collateral arrangements,
                                                                                                          rule change were not and are not                        printing in the Commission’s Public
                                                settlement finality and netting
                                                                                                          intended to be solicited with respect to                Reference Room, 100 F Street NE.,
                                                arrangements, and financial and custody
                                                                                                          the proposed rule change and none have                  Washington, DC 20549, on official
                                                risks that may arise due to such link
                                                                                                          been received.                                          business days between the hours of
                                                arrangement) and the processes by
                                                                                                                                                                  10:00 a.m. and 3:00 p.m. Copies of such
                                                which OCC measures and monitors the                       III. Date of Effectiveness of the                       filing also will be available for
                                                risks arising from such FMU                               Proposed Rule Change and Timing for                     inspection and copying at the principal
                                                Counterparties (including its FMU                         Commission Action                                       office of OCC and on OCC’s Web site at
                                                Watch Level Reporting process).
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                                                   The proposed rule change is not                           Within 45 days of the date of                        http://www.theocc.com/components/
                                                inconsistent with the existing rules of                   publication of this notice in the Federal               docs/legal/rules_and_bylaws/sr_occ_17_
                                                                                                          Register or within such longer period                   009.pdf.
                                                  25 Id.                                                  up to 90 days (i) as the Commission may                    All comments received will be posted
                                                  26 17    CFR 240.17Ad–22(e)(19).                        designate if it finds such longer period                without change. Persons submitting
                                                  27 Id.                                                  to be appropriate and publishes its                     comments are cautioned that the
                                                  28 17    CFR 240.17Ad–22(e)(20).                                                                                Commission does not redact or edit
                                                  29 Id.                                                    30 15   U.S.C. 78q–1(b)(3)(I).                        personal identifying information from


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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
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 50719 

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