82 FR 54430 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Liquidity for Same-Day Settlement
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 221 (November 17, 2017)
Federal Register Volume 82, Issue 221 (November 17, 2017)
| Page Range | 54430-54434 | |
| FR Document | 2017-24920 |
[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)] [Notices] [Pages 54430-54434] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-24920] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82056; File No. SR-OCC-2017-806] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Liquidity for Same-Day Settlement November 13, 2017. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled Payment, Clearing and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) of the Securities Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on October 13, 2017, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') an advance notice as described in Items I, II and III below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the advance notice from interested persons. --------------------------------------------------------------------------- \1\ 12 U.S.C. 5465(e)(1). \2\ 17 CFR 240.19b-4(n)(1)(i). --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Advance Notice This advance notice is filed in connection with a proposed change to modify the tools available to OCC in order to provide a mechanism for addressing the risks of liquidity shortfalls, specifically, in the extraordinary situation where OCC faces a liquidity need to meet its same-day settlement obligations as a result of a bank or securities or commodities clearing organization failing to achieve daily settlement. The proposed changes to OCC's By-Laws were submitted as Exhibit 5 of the [[Page 54431]] filing.\3\ The proposed change is described in detail in Item 10 below. All terms with initial capitalization not defined herein have the same meaning as set forth in OCC's By-Laws and Rules.\4\ --------------------------------------------------------------------------- \3\ OCC has filed a proposed rule change with the Commission in connection with the proposed change. See SR-OCC-2017-017. \4\ OCC's By-Laws and Rules can be found on OCC's public Web site: http://optionsclearing.com/about/publications/bylaws.jsp. Other terms not defined herein or in the OCC By-Laws and Rules can be found in the Rules & Procedures of NSCC (``NSCC Rules''), available at http://www.dtcc.com/~/media/Files/Downloads/legal/ rules/nscc_rules.pdf, as the context implies. --------------------------------------------------------------------------- II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, OCC included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. 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 and B below, of the most significant aspects of these statements. (A) Clearing Agency's Statement on Comments on the Advance Notice Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed change and none have been received. OCC will notify the Commission of any written comments received by OCC. (B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, Clearing, and Settlement Supervision Act Description of the Proposed Change The purpose of the proposed change is to modify the tools available to OCC in order to provide a mechanism for addressing the risks of liquidity shortfalls, specifically, in the extraordinary situation where OCC faces a liquidity need to meet its same-day settlement obligations as a result of a bank or securities or commodities clearing organization failing to achieve daily settlement. Current Practice Presently, Article VIII, Section 5(e) of OCC's By-Laws provides OCC with the authority to borrow against the Clearing Fund in two circumstances. First, Article VIII, Section 5(e) of OCC's By-Laws provides OCC the authority to borrow where OCC ``deems it necessary or advisable to borrow or otherwise obtain funds from third parties in order to meet obligations arising out of the default or suspension of a Clearing Member or any action taken by the Corporation in connection therewith pursuant to Chapter XI of the Rules or otherwise.'' Second, Article VIII, Section 5(e) of OCC's By-Laws provides OCC the authority to borrow against the Clearing Fund where OCC ``sustains a loss reimbursable out of the Clearing Fund pursuant to [Article VIII, Section 5(b) of OCC's By-Laws] but [OCC] elects to borrow or otherwise obtain funds from third parties in lieu of immediately charging such loss to the Clearing Fund.'' In order for a loss to be reimbursable out of the Clearing Fund under Article VIII, Section 5(b) of OCC's By-Laws, it must arise from a situation in which any bank or securities or commodities clearing organization has failed ``to perform any obligation to [OCC] when due because of its bankruptcy, insolvency, receivership, suspension of operations, or because of any similar event.'' \5\ --------------------------------------------------------------------------- \5\ To the extent that a loss resulting from any of the events referred to in Article VIII, Section 5(b) is recoverable out of the Clearing Fund pursuant to Article VIII, Section 5(a), the provisions of Article VIII, Section 5(a) control and render the provisions of Article VIII, Section 5(b) inapplicable. --------------------------------------------------------------------------- Under either of the two aforementioned circumstances, OCC is authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, if any part of the borrowing remains outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter) such amount must be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Proposed Change While Article VIII, Section 5(e) of OCC's By-Laws currently provides for borrowing authority in the more extreme scenarios involving a bank's or securities or commodities clearing organization's bankruptcy, insolvency, receivership, suspension of operations or similar event, such authority does not extend to the similar, but less extreme scenarios in which a bank or securities or commodities clearing organization might be temporarily unable to timely make daily settlement with OCC for reasons other than its bankruptcy, insolvency, receivership or suspension of operations or similar events. An example of such a related scenario would be a disruption of the ordinary operations of a settlement bank that temporarily prohibits the bank from timely effecting settlement payments in accordance with OCC's daily settlement cycle. The proposed change would expand upon the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws. As expanded, OCC would be authorized to borrow (or otherwise obtain funds through any means determined to be reasonable by the Executive Chairman, COO or CAO) against the Clearing Fund in the extraordinary event that OCC faces a liquidity need in order to complete same-day settlement. As specified in the proposed rule text, the funds obtained from any such transaction can be used only for their stated purpose, namely, to satisfy a need for liquidity for same-day settlement. Consistent with the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws, OCC would be authorized to borrow against the Clearing Fund for a period not to exceed 30 days, and during such period, the funds obtained would not be deemed to be charges against the Clearing Fund, irrespective of how such funds are applied, and the borrowing shall not affect the amount or timing of any charges otherwise required to be made against the Clearing Fund pursuant to Article VIII, Section 5. However, in the unlikely event that any part of the borrowing were to remain outstanding after 30 days, then at the close of business on the 30th day (or the first Business Day thereafter), such amount would be considered an actual loss to the Clearing Fund, and OCC must immediately allocate such loss in accordance with Article VIII, Section 5. Like the existing borrowing authority in Article VIII, Section 5(e) of OCC's By-Laws, OCC envisions that the proposed expanded authority only would be relevant in extraordinary circumstances and, even then, only would be used where OCC, exercising its discretion, believes the employment of this particular authority would be appropriate to address OCC's immediate liquidity need. OCC proposes to amend Sections 1(a), 5(b) and 5(e) of Article VIII of its By-Laws in order to give effect to the expanded borrowing authority discussed herein. Section 5(e) of Article VIII of OCC's By- Laws would be amended to permit OCC to borrow against the Clearing Fund if it reasonably believes such borrowing is necessary to meet its liquidity needs for same-day settlement as a result of the failure of any bank or securities or commodities clearing organization to achieve daily settlement. [[Page 54432]] Section 1(a) of Article VIII of OCC's By-Laws would be amended to include conforming changes that would reflect that the purpose of the Clearing Fund includes borrowing against the Clearing Fund as permitted under Section 5(e) of Article VIII of the By-Laws. Section 5(b) of Article VIII of the By-Laws would be amended to include conforming changes that would declare that any borrowing remaining outstanding for less than 30 days may be considered, in OCC's discretion, an actual loss and the amount of any such loss then shall be charged proportionately against all Clearing Members' computed contributions to the Clearing Fund as fixed at the time, and any borrowing remaining outstanding on the 30th day shall be considered an actual loss to the Clearing Fund and the amount of any such loss shall be charged proportionately against all Clearing Members' computed contributions to the Clearing Fund as fixed at the time. OCC proposes to include discretionary authority to declare any borrowing outstanding for less than 30 days as an actual loss chargeable against the Clearing Fund because the proposed borrowing authority is intended only to address same-day liquidity needs, and intended to be promptly repaid upon the bank's or securities or commodities clearing organization's resolution of the temporary disruption. In the unlikely circumstance that a disruption of a bank or securities or commodities clearing organization is not timely resolved, OCC may need to exercise its discretion to declare an actual loss, depending on the size of the borrowing, to ensure that OCC replenishes its ``Cover 1'' financial resources.\6\ The requirement to recognize any borrowing outstanding after 30 days as an actual loss chargeable against the Clearing Fund would be consistent with the requirements of the borrowing authority currently permitted by Section 5(e) of Article VIII of the By-Laws. --------------------------------------------------------------------------- \6\ ``Cover 1'' financial resources refers to the requirement that a CCA maintains financial resources sufficient to enable it to cover the ``default of the participant family that would potentially cause the largest aggregate credit exposure for the [CCA] in extreme but plausible market conditions.'' 17 CFR 240.17Ad-22(e)(7)(viii). --------------------------------------------------------------------------- Expected Effect on and Management of Risk OCC believes the proposed change would enable it to better manage the risks associated with the failure of a settlement bank or securities or commodities clearing organization's to achieve timely settlement. As noted above, OCC's By-Laws currently provide for borrowing authority in the more extreme scenarios involving a bank's or securities or commodities clearing organization's bankruptcy, insolvency, receivership, suspension of operations or similar event, such authority does not extend to the similar, but less extreme scenarios in which a bank or securities or commodities clearing organization might be temporarily unable to timely make daily settlement with OCC for reasons other than its bankruptcy, insolvency, receivership or suspension of operations or similar events. The proposed change would expand upon this existing borrowing authority to allow OCC to borrow (or otherwise obtain funds through any means determined to be reasonable by the Executive Chairman, COO or CAO) against the Clearing Fund in the extraordinary event that OCC faces a liquidity need in order to complete same-day settlement. As a result, the proposed change would enhance OCC's ability to manage its liquidity risks and ensure that it is able to continue making timely settlements in the event of such a disruption. As stated above, it is conceivable, though extremely unlikely, that a bank or securities or commodities clearing organization may fail to make timely settlement with OCC as a result of a temporary disruption to its ordinary operations. The proposed change would not alter this risk, but would provide OCC with a mechanism for addressing it, should such risk ever be realized. The proposed mechanism for addressing this risk--discretionary authority to borrow from the Clearing Fund--would require OCC's senior and executive management to exercise discretion and judiciousness and could, if ever deployed, present an arguably new, though very limited, risk to Clearing Members. Modifying OCC's existing authority to borrow against the Clearing Fund introduces a new, and potentially competing, demand on OCC's Clearing Fund resources in that any amount of Clearing Fund resources borrowed to address the failure of a bank or securities or commodities clearing organization to make timely settlement would subtract from the available resources to address other losses that could be charged against the Clearing Fund (most common among those, losses related to Clearing Member defaults). To manage the potential for competing demands on Clearing Fund resources, OCC would exercise discretion and judiciousness in selecting when this new borrowing authority could be prudently deployed, in light of then-existing facts and circumstances. In the alternative, OCC's could elect to deploy an alternative tool, such as OCC's ability to extend the settlement window under Rule 505, if such tool would be more appropriate given anticipated demands on Clearing Fund resources in light of then-existing facts and circumstances. Because of the low probability that a bank or securities or commodities clearing organization would suffer a temporary disruption to its ordinary operations that could threaten its ability to make timely settlement, and the extremely low probability that such a disruption would result in the bank or securities or commodities clearing organization actually failing to make timely settlement, OCC believes that the potential for competing demands on Clearing Fund resources can be managed sufficiently through the tools available in its default management rules, policies and procedures.\7\ --------------------------------------------------------------------------- \7\ In addition, the bank or securities or commodities clearing organization would need to be in deficit for the settlement cycle in question in order for OCC to face an immediate liquidity need. Further, OCC must reasonably anticipate an imminent or near imminent failure by one or more Clearing Members for there to be a potential competing demand on Clearing Fund resources. OCC believes that the alignment of all of these occurrences represents an extraordinarily low probability occurrence. --------------------------------------------------------------------------- The proposed change could arguably present a new, though very limited, risk to Clearing Members in that OCC's authority to borrow against the Clearing Fund would be expanded, albeit slightly, to permit borrowing in a new scenario where a bank or securities or commodities clearing organization fails to make timely settlement (but otherwise is not in bankruptcy, insolvency, receivership, suspension of operations or a similar state). In order for Clearing Members to be impacted by this risk, a borrowing under the proposed authority would need to be declared an actual loss by OCC prior to 30 days lapsing or remain outstanding for 30 days, at which point, such amount would be considered an actual loss to the Clearing Fund, and OCC would be required to immediately allocate such loss in accordance with Article VIII, Section 5. However, given that the proposed borrowing authority is intended to be deployed to address immediate liquidity needs arising from temporary disruptions of the ordinary operation of a bank or securities or commodities clearing organization, OCC believes that it is extremely unlikely that any amount of any such borrowing ultimately would need to be declared as an actual loss in advance of 30 days or remain outstanding for a period of 30 [[Page 54433]] days. If, however, any amount of any such borrowing in fact did remain outstanding for longer than expected, OCC believes there would be a high probability that the bank or securities or commodities clearing organization in question has actually failed, and therefore entered bankruptcy, insolvency, receivership, suspension of operations or a similar state--which events would have independently triggered the already-existing borrowing authority in Article VIII, Section 5(e). Consistency With the Clearing Supervision Act The stated purpose of the Clearing Supervision Act is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.\8\ Section 805(a)(2) of the Clearing Supervision Act \9\ also authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like OCC, for which the Commission is the supervisory agency. Section 805(b) of the Clearing Supervision Act \10\ states that the objectives and principles for risk management standards prescribed under Section 805(a) shall be to: --------------------------------------------------------------------------- \8\ 12 U.S.C. 5461(b). \9\ 12 U.S.C. 5464(a)(2). \10\ 12 U.S.C. 5464(b). ---------------------------------------------------------------------------Promote robust risk management; promote safety and soundness; reduce systemic risks; and support the stability of the broader financial system. The Commission has adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act and the Act in furtherance of these objectives and principles, including those standards adopted pursuant to the Commission rules cited below.\11\ For the reasons set forth below, OCC believes that the proposed change is consistent with the risk management standards promulgated under Section 805(a) of the Clearing Supervision Act.\12\ --------------------------------------------------------------------------- \11\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7- 08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered Clearing Agencies''). The Standards for Covered Clearing Agencies became effective on December 12, 2016. OCC is a ``covered clearing agency'' as defined in Rule 17Ad-22(a)(5) and therefore is subject to section (e) of Rule 17Ad-22. \12\ 12 U.S.C. 5464(b)(1) and (4). --------------------------------------------------------------------------- Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency (``CCA'') address foreseeable liquidity shortfalls that would not be covered by the CCA's liquid resources and seek to avoid unwinding, revoking, or delaying the same-day settlement of payment obligations.\13\ As stated above, OCC believes that it could be foreseeable, though extremely unlikely, that a bank or securities or commodities clearing organization may fail to make timely settlement with OCC as the result of an event that does not result in a loss to OCC from the bankruptcy, insolvency, resolution, suspension of operations or similar event of such bank or securities or commodities clearing organization. The proposed change would improve OCC's ability to address such situations by expanding OCC's borrowing authority to enable OCC to borrow against the Clearing Fund in order to avoid disrupting its ordinary settlement cycle (and thusly, to avoid imposing the same disruption on Clearing Members). --------------------------------------------------------------------------- \13\ 17 CFR 240.17Ad-22(e)(7)(viii). --------------------------------------------------------------------------- III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date the proposed change was filed with the Commission or (ii) the date any additional information requested by the Commission is received. OCC shall not implement the proposed change if the Commission has any objection to the proposed change. The Commission may extend the period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. OCC shall post notice on its Web site of proposed changes that are implemented. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the advance notice is consistent with the Clearing Supervision 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-2017-806 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. All submissions should refer to File Number SR-OCC-2017-806. 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 advance notice that are filed with the Commission, and all written communications relating to the advance notice between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_806.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2017-806 and should be submitted on or before December 8, 2017. [[Page 54434]] By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-24920 Filed 11-16-17; 8:45 am] BILLING CODE 8011-01-P
![54430 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
it is designed to effectuate IEX’s it appears to the Commission that such submit only information that you wish
operation as a listing market thereby action is necessary or appropriate in the to make available publicly. All
enhancing competition with the other public interest, for the protection of submissions should refer to File
listing markets. investors, or otherwise in furtherance of Number SR–IEX–2017–39 and should
the purposes of the Act. If the be submitted on or before December 8,
C. Self-Regulatory Organization’s
Commission takes such action, the 2017.
Statement on Comments on the
Commission shall institute proceedings For the Commission, by the Division of
Proposed Rule Change Received From
under Section 19(b)(2)(B) 41 of the Act to Trading and Markets, pursuant to delegated
Members, Participants, or Others
determine whether the proposed rule authority.42
Written comments were neither change should be approved or Eduardo A. Aleman,
solicited nor received. disapproved. Assistant Secretary.
III. Date of Effectiveness of the IV. Solicitation of Comments [FR Doc. 2017–24930 Filed 11–16–17; 8:45 am]
Proposed Rule Change and Timing for
Interested persons are invited to BILLING CODE 8011–01–P
Commission Action
submit written data, views and
Because the foregoing proposed rule arguments concerning the foregoing,
change does not: (i) Significantly affect including whether the proposed rule SECURITIES AND EXCHANGE
the protection of investors or the public change is consistent with the Act. COMMISSION
interest; (ii) impose any significant Comments may be submitted by any of
burden on competition; and (iii) become the following methods: [Release No. 34–82056; File No. SR–OCC–
operative for 30 days from the date on 2017–806]
which it was filed, or such shorter time Electronic Comments
as the Commission may designate, it has • Use the Commission’s Internet Self-Regulatory Organizations; The
become effective pursuant to Section comment form (http://www.sec.gov/ Options Clearing Corporation; Notice
19(b)(3)(A) of the Act 36 and Rule 19b– rules/sro.shtml); or of Filing of Advance Notice
4(f)(6) thereunder.37 • Send an email to rule-comments@ Concerning Liquidity for Same-Day
A proposed rule change filed under sec.gov. Please include File Number SR– Settlement
Rule 19(b)–4(f)(6) normally does not IEX–2017–39 on the subject line.
November 13, 2017.
become operative prior to 30 days after
Paper Comments Pursuant to Section 806(e)(1) of Title
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii), the Commission • Send paper comments in triplicate VIII of the Dodd-Frank Wall Street
may designate a shorter time if such to Brent J. Fields, Secretary, Securities Reform and Consumer Protection Act,
action is consistent with the protection and Exchange Commission, 100 F Street entitled Payment, Clearing and
of investors and the public interest.38 NE., Washington, DC 20549–1090. Settlement Supervision Act of 2010
The Exchange has asked the All submissions should refer to File (‘‘Clearing Supervision Act’’) 1 and Rule
Commission to waive the 30-day Number SR–IEX–2017–39. This file 19b–4(n)(1)(i) of the Securities Exchange
operative delay so that the proposal may number should be included in the Act of 1934 (‘‘Act’’),2 notice is hereby
become operative immediately upon subject line if email is used. To help the given that on October 13, 2017, The
filing. The Commission believes that Commission process and review your Options Clearing Corporation (‘‘OCC’’)
waiving the 30-day operative delay is comments more efficiently, please use filed with the Securities and Exchange
consistent with the protection of only one method. The Commission will Commission (‘‘Commission’’) an
investors and the public interest post all comments on the Commission’s advance notice as described in Items I,
because the proposed rule change is Internet Web site (http://www.sec.gov/ II and III below, which Items have been
substantially identical to the rules of rules/sro.shtml). Copies of the prepared by OCC. The Commission is
other self-regulatory organizations and submission, all subsequent publishing this notice to solicit
thus raises no novel issues.39 amendments, all written statements comments on the advance notice from
Accordingly, the Commission hereby with respect to the proposed rule interested persons.
waives the 30-day operative delay and change that are filed with the I. Clearing Agency’s Statement of the
designates the proposed rule change as Commission, and all written Terms of Substance of the Advance
operative upon filing.40 communications relating to the
At any time within 60 days of the Notice
proposed rule change between the
filing of the proposed rule change, the Commission and any person, other than This advance notice is filed in
Commission summarily may those that may be withheld from the connection with a proposed change to
temporarily suspend such rule change if public in accordance with the modify the tools available to OCC in
provisions of 5 U.S.C. 552, will be order to provide a mechanism for
36 15 U.S.C. 78s(b)(3)(A). available for Web site viewing and addressing the risks of liquidity
37 17 CFR 240.19b–4(f)(6).
printing in the Commission’s Public shortfalls, specifically, in the
38 Rule 19b–4(f)(6) requires an SRO to give the
Commission written notice of its intent to file the Reference Section, 100 F Street NE., extraordinary situation where OCC faces
proposed rule change at least five business days Washington, DC 20549–1090. Copies of a liquidity need to meet its same-day
prior to the –date of filing the proposed rule change, the filing will also be available for settlement obligations as a result of a
or such shorter time as designated by the inspection and copying at the principal bank or securities or commodities
Commission. See 17 CFR 240.19b–4(f)(6). The
clearing organization failing to achieve
sradovich on DSK3GMQ082PROD with NOTICES
Exchange has satisfied this requirement. office of the Exchange. All comments
39 See supra notes 12–13 and accompanying text received will be posted without change. daily settlement.
and supra note 20 and accompanying text. See also Persons submitting comments are The proposed changes to OCC’s By-
Bats Rule 11.19. cautioned that we do not redact or edit Laws were submitted as Exhibit 5 of the
40 For purposes only of waiving the operative
personal identifying information from
delay for this proposal, the Commission has
considered the proposed rule’s impact on comment submissions. You should 42 17 CFR 200.30–3(a)(12).
1 12 U.S.C. 5465(e)(1).
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f). 41 15 U.S.C. 78s(b)(2)(B). 2 17 CFR 240.19b–4(n)(1)(i).
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![Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices 54431
filing.3 The proposed change is default or suspension of a Clearing operations of a settlement bank that
described in detail in Item 10 below. All Member or any action taken by the temporarily prohibits the bank from
terms with initial capitalization not Corporation in connection therewith timely effecting settlement payments in
defined herein have the same meaning pursuant to Chapter XI of the Rules or accordance with OCC’s daily settlement
as set forth in OCC’s By-Laws and otherwise.’’ Second, Article VIII, cycle.
Rules.4 Section 5(e) of OCC’s By-Laws provides The proposed change would expand
OCC the authority to borrow against the upon the existing borrowing authority
II. Clearing Agency’s Statement of the in Article VIII, Section 5(e) of OCC’s By-
Clearing Fund where OCC ‘‘sustains a
Purpose of, and Statutory Basis for, the Laws. As expanded, OCC would be
loss reimbursable out of the Clearing
Advance Notice authorized to borrow (or otherwise
Fund pursuant to [Article VIII, Section
In its filing with the Commission, 5(b) of OCC’s By-Laws] but [OCC] elects obtain funds through any means
OCC included statements concerning to borrow or otherwise obtain funds determined to be reasonable by the
the purpose of and basis for the advance from third parties in lieu of immediately Executive Chairman, COO or CAO)
notice and discussed any comments it charging such loss to the Clearing against the Clearing Fund in the
received on the advance notice. The text Fund.’’ In order for a loss to be extraordinary event that OCC faces a
of these statements may be examined at reimbursable out of the Clearing Fund liquidity need in order to complete
the places specified in Item IV below. under Article VIII, Section 5(b) of OCC’s same-day settlement. As specified in the
OCC has prepared summaries, set forth By-Laws, it must arise from a situation proposed rule text, the funds obtained
in sections A and B below, of the most in which any bank or securities or from any such transaction can be used
significant aspects of these statements. commodities clearing organization has only for their stated purpose, namely, to
(A) Clearing Agency’s Statement on failed ‘‘to perform any obligation to satisfy a need for liquidity for same-day
Comments on the Advance Notice [OCC] when due because of its settlement. Consistent with the existing
Received From Members, Participants or bankruptcy, insolvency, receivership, borrowing authority in Article VIII,
Others suspension of operations, or because of Section 5(e) of OCC’s By-Laws, OCC
any similar event.’’ 5 would be authorized to borrow against
Written comments were not and are Under either of the two the Clearing Fund for a period not to
not intended to be solicited with respect aforementioned circumstances, OCC is exceed 30 days, and during such period,
to the proposed change and none have authorized to borrow against the the funds obtained would not be
been received. OCC will notify the Clearing Fund for a period not to exceed deemed to be charges against the
Commission of any written comments 30 days, and during such period, the Clearing Fund, irrespective of how such
received by OCC. borrowing shall not affect the amount or funds are applied, and the borrowing
(B) Advance Notices Filed Pursuant to timing of any charges otherwise shall not affect the amount or timing of
Section 806(e) of the Payment, Clearing, required to be made against the Clearing any charges otherwise required to be
and Settlement Supervision Act Fund pursuant to Article VIII, Section 5. made against the Clearing Fund
However, if any part of the borrowing pursuant to Article VIII, Section 5.
Description of the Proposed Change remains outstanding after 30 days, then However, in the unlikely event that any
The purpose of the proposed change at the close of business on the 30th day part of the borrowing were to remain
is to modify the tools available to OCC (or the first Business Day thereafter) outstanding after 30 days, then at the
in order to provide a mechanism for such amount must be considered an close of business on the 30th day (or the
addressing the risks of liquidity actual loss to the Clearing Fund, and first Business Day thereafter), such
shortfalls, specifically, in the OCC must immediately allocate such amount would be considered an actual
extraordinary situation where OCC faces loss in accordance with Article VIII, loss to the Clearing Fund, and OCC
a liquidity need to meet its same-day Section 5. must immediately allocate such loss in
settlement obligations as a result of a accordance with Article VIII, Section 5.
Proposed Change Like the existing borrowing authority
bank or securities or commodities
clearing organization failing to achieve While Article VIII, Section 5(e) of in Article VIII, Section 5(e) of OCC’s By-
daily settlement. OCC’s By-Laws currently provides for Laws, OCC envisions that the proposed
borrowing authority in the more expanded authority only would be
Current Practice extreme scenarios involving a bank’s or relevant in extraordinary circumstances
Presently, Article VIII, Section 5(e) of securities or commodities clearing and, even then, only would be used
OCC’s By-Laws provides OCC with the organization’s bankruptcy, insolvency, where OCC, exercising its discretion,
authority to borrow against the Clearing receivership, suspension of operations believes the employment of this
Fund in two circumstances. First, or similar event, such authority does not particular authority would be
Article VIII, Section 5(e) of OCC’s By- extend to the similar, but less extreme appropriate to address OCC’s immediate
Laws provides OCC the authority to scenarios in which a bank or securities liquidity need.
borrow where OCC ‘‘deems it necessary or commodities clearing organization OCC proposes to amend Sections 1(a),
or advisable to borrow or otherwise might be temporarily unable to timely 5(b) and 5(e) of Article VIII of its By-
obtain funds from third parties in order make daily settlement with OCC for Laws in order to give effect to the
to meet obligations arising out of the reasons other than its bankruptcy, expanded borrowing authority
insolvency, receivership or suspension discussed herein. Section 5(e) of Article
3 OCC has filed a proposed rule change with the
of operations or similar events. An VIII of OCC’s By-Laws would be
Commission in connection with the proposed amended to permit OCC to borrow
sradovich on DSK3GMQ082PROD with NOTICES
example of such a related scenario
change. See SR–OCC–2017–017.
4 OCC’s By-Laws and Rules can be found on would be a disruption of the ordinary against the Clearing Fund if it
OCC’s public Web site: http://optionsclearing.com/ reasonably believes such borrowing is
about/publications/bylaws.jsp. Other terms not 5 To the extent that a loss resulting from any of necessary to meet its liquidity needs for
defined herein or in the OCC By-Laws and Rules the events referred to in Article VIII, Section 5(b) same-day settlement as a result of the
can be found in the Rules & Procedures of NSCC is recoverable out of the Clearing Fund pursuant to
(‘‘NSCC Rules’’), available at http://www.dtcc.com/ Article VIII, Section 5(a), the provisions of Article
failure of any bank or securities or
∼/media/Files/Downloads/legal/rules/nscc_ VIII, Section 5(a) control and render the provisions commodities clearing organization to
rules.pdf, as the context implies. of Article VIII, Section 5(b) inapplicable. achieve daily settlement.
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![54432 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
Section 1(a) of Article VIII of OCC’s above, OCC’s By-Laws currently provide in light of then-existing facts and
By-Laws would be amended to include for borrowing authority in the more circumstances. In the alternative, OCC’s
conforming changes that would reflect extreme scenarios involving a bank’s or could elect to deploy an alternative tool,
that the purpose of the Clearing Fund securities or commodities clearing such as OCC’s ability to extend the
includes borrowing against the Clearing organization’s bankruptcy, insolvency, settlement window under Rule 505, if
Fund as permitted under Section 5(e) of receivership, suspension of operations such tool would be more appropriate
Article VIII of the By-Laws. or similar event, such authority does not given anticipated demands on Clearing
Section 5(b) of Article VIII of the By- extend to the similar, but less extreme Fund resources in light of then-existing
Laws would be amended to include scenarios in which a bank or securities facts and circumstances. Because of the
conforming changes that would declare or commodities clearing organization low probability that a bank or securities
that any borrowing remaining might be temporarily unable to timely or commodities clearing organization
outstanding for less than 30 days may be make daily settlement with OCC for would suffer a temporary disruption to
considered, in OCC’s discretion, an reasons other than its bankruptcy, its ordinary operations that could
actual loss and the amount of any such insolvency, receivership or suspension threaten its ability to make timely
loss then shall be charged of operations or similar events. The settlement, and the extremely low
proportionately against all Clearing proposed change would expand upon probability that such a disruption would
Members’ computed contributions to this existing borrowing authority to result in the bank or securities or
the Clearing Fund as fixed at the time, allow OCC to borrow (or otherwise commodities clearing organization
and any borrowing remaining obtain funds through any means actually failing to make timely
outstanding on the 30th day shall be determined to be reasonable by the settlement, OCC believes that the
considered an actual loss to the Clearing Executive Chairman, COO or CAO) potential for competing demands on
Fund and the amount of any such loss against the Clearing Fund in the Clearing Fund resources can be
shall be charged proportionately against extraordinary event that OCC faces a managed sufficiently through the tools
all Clearing Members’ computed liquidity need in order to complete available in its default management
contributions to the Clearing Fund as same-day settlement. As a result, the rules, policies and procedures.7
fixed at the time. OCC proposes to proposed change would enhance OCC’s The proposed change could arguably
include discretionary authority to ability to manage its liquidity risks and present a new, though very limited, risk
declare any borrowing outstanding for ensure that it is able to continue making to Clearing Members in that OCC’s
less than 30 days as an actual loss timely settlements in the event of such authority to borrow against the Clearing
chargeable against the Clearing Fund a disruption. Fund would be expanded, albeit
because the proposed borrowing As stated above, it is conceivable, slightly, to permit borrowing in a new
authority is intended only to address though extremely unlikely, that a bank scenario where a bank or securities or
same-day liquidity needs, and intended or securities or commodities clearing commodities clearing organization fails
to be promptly repaid upon the bank’s organization may fail to make timely to make timely settlement (but
or securities or commodities clearing settlement with OCC as a result of a otherwise is not in bankruptcy,
organization’s resolution of the temporary disruption to its ordinary insolvency, receivership, suspension of
temporary disruption. In the unlikely operations. The proposed change would operations or a similar state). In order
circumstance that a disruption of a bank not alter this risk, but would provide for Clearing Members to be impacted by
or securities or commodities clearing OCC with a mechanism for addressing this risk, a borrowing under the
organization is not timely resolved, OCC it, should such risk ever be realized. The proposed authority would need to be
may need to exercise its discretion to proposed mechanism for addressing this declared an actual loss by OCC prior to
declare an actual loss, depending on the risk—discretionary authority to borrow 30 days lapsing or remain outstanding
size of the borrowing, to ensure that from the Clearing Fund—would require for 30 days, at which point, such
OCC replenishes its ‘‘Cover 1’’ financial OCC’s senior and executive amount would be considered an actual
resources.6 The requirement to management to exercise discretion and loss to the Clearing Fund, and OCC
recognize any borrowing outstanding judiciousness and could, if ever would be required to immediately
after 30 days as an actual loss deployed, present an arguably new, allocate such loss in accordance with
chargeable against the Clearing Fund though very limited, risk to Clearing Article VIII, Section 5. However, given
would be consistent with the Members. that the proposed borrowing authority is
Modifying OCC’s existing authority to intended to be deployed to address
requirements of the borrowing authority
borrow against the Clearing Fund immediate liquidity needs arising from
currently permitted by Section 5(e) of
introduces a new, and potentially temporary disruptions of the ordinary
Article VIII of the By-Laws.
competing, demand on OCC’s Clearing operation of a bank or securities or
Expected Effect on and Management of Fund resources in that any amount of commodities clearing organization, OCC
Risk Clearing Fund resources borrowed to believes that it is extremely unlikely
OCC believes the proposed change address the failure of a bank or that any amount of any such borrowing
would enable it to better manage the securities or commodities clearing ultimately would need to be declared as
risks associated with the failure of a organization to make timely settlement an actual loss in advance of 30 days or
settlement bank or securities or would subtract from the available remain outstanding for a period of 30
commodities clearing organization’s to resources to address other losses that
achieve timely settlement. As noted could be charged against the Clearing 7 In addition, the bank or securities or
sradovich on DSK3GMQ082PROD with NOTICES
Fund (most common among those, commodities clearing organization would need to
be in deficit for the settlement cycle in question in
6 ‘‘Cover 1’’ financial resources refers to the losses related to Clearing Member order for OCC to face an immediate liquidity need.
requirement that a CCA maintains financial defaults). To manage the potential for Further, OCC must reasonably anticipate an
resources sufficient to enable it to cover the competing demands on Clearing Fund imminent or near imminent failure by one or more
‘‘default of the participant family that would resources, OCC would exercise Clearing Members for there to be a potential
potentially cause the largest aggregate credit competing demand on Clearing Fund resources.
exposure for the [CCA] in extreme but plausible
discretion and judiciousness in OCC believes that the alignment of all of these
market conditions.’’ 17 CFR 240.17Ad– selecting when this new borrowing occurrences represents an extraordinarily low
22(e)(7)(viii). authority could be prudently deployed, probability occurrence.
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![54434 Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
By the Commission. entirety the proposed rule change as governs the listing and trading of
Eduardo A. Aleman, modified by Amendment No. 1. On Managed Trust Securities on the
Assistant Secretary. November 9, 2017, the Exchange filed Exchange. Additionally, the Exchange
[FR Doc. 2017–24920 Filed 11–16–17; 8:45 am] Amendment No. 3 to the proposed rule proposes to list and trade the Shares
BILLING CODE 8011–01–P change.6 The Commission has received under the proposed rule.
no comments on the proposed rule
change. The Commission is publishing A. Proposed Amendments to NYSE Arca
SECURITIES AND EXCHANGE this notice to solicit comments on Rule 8.700–E
COMMISSION Amendment No. 3 from interested The Exchange proposes to amend
persons, and is approving the proposed NYSE Arca Rule 8.700–E (c)(1) to add
[Release No. 34–82066; File No. SR–
rule change, as modified by Amendment
NYSEArca–2017–85] the VSTOXX as a reference asset to the
No. 3 on an accelerated basis.
futures contracts and swaps that may be
Self-Regulatory Organizations; II. Summary of the Proposed Rule held by trusts that issue Managed Trust
NYSEArca, Inc.; Notice of Filing of Change, as Modified by Amendment Securities.
Amendment No. 3, and Order Granting No. 3 7
Accelerated Approval of a Proposed The VSTOXX is a non-investable
Rule Change, as Modified by The Exchange proposes to amend index that seeks to measure the
Amendment No. 3, To Amend NYSE NYSE Arca Rule 8.700–E to add the volatility of the Index over a future time
Arca Rule 8.700–E and To List and VSTOXX as a reference asset to the horizon as implied by the price of
Trade Shares of the ProShares futures contracts and swaps that may be option contracts on the Index.9 It is
European Volatility Futures ETF held by trusts that issue Managed Trust based on real-time prices of options on
Securities.8 NYSE Arca Rule 8.700–E the Index listed on the Eurex Exchange
November 13, 2017. (‘‘Eurex’’),10 and is designed to reflect
I. Introduction
6 In Amendment No. 3, the Exchange: (1)
the market expectations of near-term up
Represented that the EURO STOXX 50 Volatility to long-term volatility by measuring the
On July 28, 2017, NYSE Arca, Inc. Index (‘‘VSTOXX’’) levels will be widely
disseminated by major market data vendors on a square root of the implied variances
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed real-time basis throughout each trading day; (2) across all options of a given time to
with the Securities and Exchange expanded its representation regarding when the expiration. The Index includes 50 stocks
Commission (‘‘Commission’’), pursuant sponsor would erect a ‘‘fire wall’’ to include the
that are among the largest free-float
to Section 19(b)(1) of the Securities circumstance where the sponsor becomes a broker-
dealer and represented that the sponsor will market capitalization stocks from 11
Exchange Act of 1934 (‘‘Act’’) 1 and Rule maintain the ‘‘fire wall’’ it implemented regarding Eurozone countries.11 STOXX Limited
19b–4 thereunder,2 a proposed rule access to information concerning the composition (‘‘STOXX’’) computes the Index on a
change to: (1) Amend NYSE Arca Rule and/or changes to the Fund’s portfolio; (3)
real-time basis throughout each trading
8.700–E to expand the list of financial narrowed the list of the Fund’s permitted
investments to exclude forwards; (4) described the day, from 3:50 a.m. until 12:30 p.m.
instruments that may be held by a trust Fund’s policies concerning swap counterparties; (5) Eastern Time. The Index value is widely
that issues Managed Trust Securities; analyzed the impacts on arbitrage of the 9 a.m. disseminated by major market data
and (2) to list and trade shares Eastern Time creation and redemption order
vendors on a real-time basis throughout
(‘‘Shares’’) of the ProShares European deadline and 11:30 a.m. Eastern Time net asset
value (‘‘NAV’’) calculation time; (6) represented each trading day.
Volatility Futures ETF (‘‘Fund’’) under that, to the extent that the sponsor permits an
proposed amended NYSE Arca Rule exchange of a futures contract for a related position
Futures Contracts are cash settled and
8.700–E. The proposed rule change was or block trade with the Fund, such transactions will trade exclusively on Eurex between the
published for comment in the Federal be effected on that day in the same manner for all hours of 2:30 a.m. and 5:30 p.m. Eastern
authorized participants; (7) supplemented its
Register on August 16, 2017.3 On description of the Fund’s NAV calculation
September 21, 2017, the Exchange filed methodology and the availability of price as defined in the Commodity Exchange Act (7
U.S.C. 1), and that is managed by a commodity pool
Amendment No. 1 to the proposed rule information for the Fund’s permitted investments;
operator registered with the Commodity Futures
change, which amended and replaced (8) modified its description of the Indicative
Optimized Portfolio Value (‘‘IOPV’’) methodology; Trading Commission, and (b) holds long and/or
the original filing in its entirety. On (9) provided information regarding the short positions in exchange-traded futures contracts
September 26, 2017, pursuant to Section dissemination of the NAV and the availability of and/or certain currency forward contracts and/or
19(b)(2) of the Act,4 the Commission pricing for the EURO STOXX 50 Index (‘‘Index’’), swaps selected by the trust’s advisor consistent
VSTOXX, and the Fund’s benchmark; (10) with the trust’s investment objectives, which will
designated a longer period within which represented that its surveillance procedures are only include, exchange-traded futures contracts
to either approve the proposed rule adequate to continue to properly monitor the involving commodities, commodity indices,
change, disapprove the proposed rule trading of the Managed Trust Securities that hold currencies, currency indices, stock indices, fixed
change, or institute proceedings to futures on VSTOXX (‘‘Futures Contracts’’) and/or income indices, interest rates and sovereign, private
swaps on VSTOXX in all trading sessions and to and mortgage or asset backed debt instruments,
determine whether to disapprove the deter and detect violations of Exchange rules; (11) and/or forward contracts on specified currencies,
proposed rule change.5 On November 2, clarified where Futures Contracts are listed; (12) and/or swaps on stock indices, fixed income
2017, the Exchange filed Amendment clarified the Fund’s primary investment objective; indices, commodity indices, commodities,
No. 2 to the proposed rule change, and (13) made certain technical changes. currencies, currency indices, or interest rates, each
Amendment No. 3 is available on the Commission’s as disclosed in the trust’s prospectus as such may
which amended and replaced in its be amended from time to time, and cash and cash
Web site at: https://www.sec.gov/comments/sr-
nysearca-2017-85/nysearca201785-2678502- equivalents; and (2) is issued and redeemed
1 15 U.S.C. 78s(b)(1). continuously in specified aggregate amounts at the
161479.pdf.
2 17 CFR 240.19b–4. 7 Additional information regarding the Shares and next applicable NAV. See NYSE Arca Rule 8.700–
3 See Securities Exchange Act Release No. 81373
the Trust, including investment strategies, risks, E (c)(1).
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(August 10, 2017), 82 FR 38973. 9 The VSTOXX does not measure the actual
NAV calculation, creation and redemption
4 15 U.S.C. 78s(b)(2). procedures, fees, Trust (as defined herein) holdings, volatility of the Index.
5 See Securities Exchange Act Release No. 81721, and taxes, among other information, is included in 10 Eurex is a member of the Intermarket
82 FR 45922 (October 2, 2017) (designating Amendment No. 3, supra note 7, and the Surveillance Group (‘‘ISG’’) and, as such, the
November 11, 2017 as the date by which the Registration Statement, infra note 12. Exchange may obtain information regarding trading
Commission will approve the proposed rule change, 8 Managed Trust Security is a security that is in the futures contracts on VSTOXX listed by Eurex.
disapprove the proposed rule change, or institute registered under the Securities Act of 1933 (15 11 The countries are: Austria, Belgium, Finland,
proceedings to determine whether to disapprove the U.S.C. 77a), as amended (the ‘‘Securities Act’’), and France, Germany, Ireland, Italy, Luxembourg, the
proposed rule change). (1) is issued by a trust that (a) is a commodity pool Netherlands, Portugal and Spain.
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Document Created: 2017-11-17 05:15:17
Document Modified: 2017-11-17 05:15:17
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 54430 |
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