82 FR 58659 - PNC Capital Advisors, LLC; Notice of Application
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 238 (December 13, 2017)
Federal Register Volume 82, Issue 238 (December 13, 2017)
| Page Range | 58659-58662 | |
| FR Document | 2017-26885 |
[Federal Register Volume 82, Number 238 (Wednesday, December 13, 2017)] [Notices] [Pages 58659-58662] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-26885] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Advisers Act Release No. 4825/803-00241] PNC Capital Advisors, LLC; Notice of Application December 8, 2017. AGENCY: Securities and Exchange Commission (``Commission''). ACTION: Notice of application for an exemptive order under Section 206A of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule 206(4)-5(e). ----------------------------------------------------------------------- Applicant: PNC Capital Advisors, LLC (``Applicant'' or ``Adviser''). Relevant Advisers Act Sections: Exemption requested under Section 206A of the Advisers Act and Rule 206(4)-5(e) from Rule 206(4)-5(a)(1) under the Advisers Act. Summary of Application: Applicant requests that the Commission issue an order under Section 206A of the Advisers Act and Rule 206(4)-5(e) exempting it from Rule 206(4)-5(a)(1) under the Advisers Act to permit Applicant to receive compensation from certain government entities for investment advisory services provided to the government entities within the two-year period following a contribution by a covered associate of the Applicant to an official of the government entities. Filing Dates: The application was filed on April 18, 2017, and an amended and restated application was filed on October 10, 2017. Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving Applicant with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on January 2, 2018, and should be accompanied by proof of service on Applicant, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to Rule 0-5 under the Advisers Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Commission's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. Applicant: PNC Capital Advisors, LLC, One East Pratt Street, Baltimore, MD 21202. FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Senior Counsel, at (202) 551-6857 or Holly L. Hunter-Ceci, Assistant Chief Counsel, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission's website at http://www.sec.gov/rules/iareleases.shtml or by calling (202) 551-8090. Applicant's Representations 1. Applicant is a financial services firm registered with the Commission as an investment adviser pursuant to the Advisers Act. Applicant provides discretionary investment advisory services to a wide variety of investors. Applicant is a wholly-owned subsidiary of PNC Bank, National Association (the ``Bank''), and the Bank is a wholly- owned subsidiary of PNC Financial Services Group, Inc. (``PNC''). 2. Certain Ohio government entities have established separately managed accounts to which the Adviser provides investment advisory services (each such government entity, a ``Client'' and collectively, the ``Clients''). Each Client is a ``government entity'' within the meaning of Rule 206(4)-5(f)(5). 3. The individual who made the campaign contribution (the ``Contributor'') that triggered the two-year compensation ban (the ``Contribution'') is a dual-hatted employee of the Bank and the Adviser. In his role as a business development officer of both the Adviser and the Bank, he solicited and continues to solicit business for the Adviser and the Bank from private corporations and non-profit entities in Pennsylvania, West Virginia, California and Texas. The Contributor [[Page 58660]] has never solicited business in Ohio, whether for the Adviser or for the Bank. The Adviser listed the Contributor as a covered associate in its records maintained under Rule 204-2 under the Advisers Act, and subjected him to its policies for a covered associates. 4. In June 2016, the Bank began to contemplate promoting the Contributor to Market Director, a position that has oversight over all sales operations in parts of Pennsylvania for investment advisory services business. In anticipation of this promotion, in December 2016 the Contributor solicited a government entity for investment advisory services for the first time (a local government entity in Pennsylvania). However, after the PNC Corporate Ethics Department's discovery of the Contribution, a hold was placed on the Contributor's promotion. The hold remains in effect. 5. The Contributor was at the time of the Contribution a ``covered associate'' within the meaning of Rule 206(4)-5(f)(2), and the Contribution triggers the compensation ban under the two-year lookback provision in Rule 206(4)-5(b)(2). At no time has the Contributor been involved in soliciting the Clients, and has never communicated with the Clients. The Contributor has never solicited any other state or local Ohio government entity. The Contributor has never made presentations for, or met with, any representatives of any Client or with any other Ohio government entities, or supervised any person who met with any Client or other Ohio government entity. If promoted to Market Director, the Contributor will neither meet with any Ohio government entities personally, nor supervise any person who solicits investment advisory services business from Ohio government entities. 6. The recipient of the Contribution was John Kasich (the ``Official''), Governor of Ohio, in his campaign for President of the United States. The Clients are overseen by boards of trustees or directors to which the Governor appoints certain members and which have influence over selecting an investment adviser. Due to the power of appointment, the Governor is, and at the time of the Contribution was, an ``official'' of each Client within the meaning of Rule 206(4)- 5(f)(6). 7. The Contributor, a long-time Republican, attended an April 2016 fundraiser for Governor Kasich's presidential campaign in Pittsburgh, Pennsylvania. Governor Kasich spoke at the fundraiser, and the Contributor made a $1,000 donation to the Kasich campaign. The Contribution was reported by the campaign as received on April 22, 2016, according to a report filed with, and made available online by, the Federal Election Commission. Other than being an attendee at the event, the Contributor has had no interactions with the Official, his staff, or any other Ohio official regarding the Contribution or any other matter. 8. The Contributor made the Contribution without pre-clearance from PNC's Corporate Ethics Department, and without disclosing the Contribution in his quarterly certification (as clearly required by PNC's policies, procedures and annual training). The Contributor did not appreciate that both Rule 206(4)-5 (the ``Rule'') and the Adviser's policy required him to pre-clear and disclose the Contribution because the Contributor was focused on the Official in his capacity as a candidate for President of the United States. At no time did any employee of PNC or the Adviser or the Bank (other than the Contributor) have any knowledge that the Contribution had been made prior to its discovery on February 17, 2017. Applicant represents that the Contribution was not motivated by a desire to influence the award of investment advisory business. 9. The Contribution was discovered by PNC's Corporate Ethics Department on February 17, 2017 through the controls built into its compliance procedures. As part of PNC's required background check for his promotion to Market Director, the Contributor disclosed the Contribution in the political contribution lookback form, in which any individual who is about to take a covered associate position must disclose any contribution he or she made during the prior two years. Upon discovery of the Contribution, PNC immediately notified the Contributor that the Contribution was against PNC policy and a violation of the Rule, and a refund was requested from the campaign on March 8, 2017. The Contributor received the refund on May 3, 2017. All compensation earned that is attributable to the Clients' investments since the Contribution Date has been placed in escrow. Absent exemptive relief from the Commission, Applicant undertakes to refund the escrowed compensation consistent with applicable laws and the Rule. 10. The initial selection process pursuant to which the various Clients decided to establish a separate account with the Adviser, or enter into a separate account that is sub-advised by the Adviser, was completed between 1996 and 2010. One Client opened two accounts with the Adviser after the Contribution Date pursuant to the Client's pre- existing relationship with the Adviser where the Client would, as it had done in prior years, open an account when it issues debt in order to manage the proceeds of such issuance. While some Clients have added funds to their accounts post-Contribution, Clients on the whole have withdrawn more funds than they have added, resulting in a net decrease in assets under management across all Clients combined. 11. PNC's pay-to-play policies and procedures (the ``Policy'') apply to PNC's subsidiaries (including the Adviser) and were adopted and implemented on March 14, 2011, well before the Contribution was made. The Policy requires that all contributions to any person (including any election committee for such person) who was, at the time of the contribution, an incumbent, candidate or successful candidate for elective office of a government entity, including a state or local official running for federal office, must be pre-cleared. There is no de minimis exemption from this pre-clearance requirement. The Adviser's employees must complete PNC's annual ethics training, which includes a segment on ethics requirements for personal political contributions. Employees who are subject to the Policy are sent multiple compliance alerts reminding them of the Policy and the need to pre-clear political contributions. Employees subject to the Policy must submit a quarterly certification confirming that they have disclosed all political contributions made in the prior quarter. The Contributor submitted a certification for the quarter covering April 2016 confirming that he had done so, but in fact he had not pre-cleared or disclosed the Contribution. 12. PNC has amended the quarterly certification for covered associates to specifically explain that the requirement to report ``all'' contributions includes contributions to federal candidates who are state or local officials at the time of the contribution. This amended quarterly certification has been rolled out to covered associates for the quarter ending September 30, 2017. Applicant's Legal Analysis 1. Rule 206(4)-5 under the Advisers Act prohibits a registered investment adviser from providing ``investment advisory services for compensation to a government entity within two years after a contribution to an official of the government entity is made by the investment adviser or any covered associate of the investment adviser.'' Each Client is a ``government entity'' within the meaning of Rule 206(4)-5(f)(5), the Contributor was at the time [[Page 58661]] of the Contribution a ``covered associate'' within the meaning of Rule 206(4)-5(f)(2), and the Official was at the time of the Contribution an ``official'' within the meaning of Rule 206(4)-5(f)(6). The Contribution therefore triggered the Rule's ban under the two-year lookback provision in Rule 206(4)-5(b)(2). 2. Section 206A of the Advisers Act authorizes the Commission to ``conditionally or unconditionally exempt any person or transaction . . . from any provision or provisions of [the Act] or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of [the Act].'' 3. Rule 206(4)-5(e) provides that the Commission may exempt an investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon consideration of the factors listed below, among others: (1) Whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Advisers Act; (2) Whether the investment adviser: (i) Before the contribution resulting in the prohibition was made, adopted and implemented policies and procedures reasonably designed to prevent violations of the Rule; and (ii) prior to or at the time the contribution which resulted in such prohibition was made, had no actual knowledge of the contribution; and (iii) after learning of the contribution: (A) Has taken all available steps to cause the contributor involved in making the contribution which resulted in such prohibition to obtain a return of the contribution; and (B) has taken such other remedial or preventive measures as may be appropriate under the circumstances; (3) Whether, at the time of the contribution, the contributor was a covered associate or otherwise an employee of the investment adviser, or was seeking such employment; (4) The timing and amount of the contribution which resulted in the prohibition; (5) The nature of the election (e.g., federal, state or local); and (6) The contributor's apparent intent or motive in making the contribution which resulted in the prohibition, as evidenced by the facts and circumstances surrounding such contribution. 4. Applicant requests an order pursuant to Section 206A and Rule 206(4)-5(e), exempting it from the two-year prohibition on compensation imposed by Rule 206(4)-5(a)(1) with respect to investment advisory services provided to the Clients within the two-year period following the Contribution. 5. Applicant contends that given the nature of the Contribution, and the lack of any evidence that the Adviser or the Contributor intended to, or actually did, interfere with the Clients' merit-based process for the selection or retention of advisory services, the Clients' interests are best served by allowing the Adviser and its Clients to continue their relationships uninterrupted. Applicant states that causing the Adviser to serve without compensation for a two- year period could result in a financial loss of approximately $700,000, or 700 times the amount of the Contribution. Applicant contends that the policy underlying the Rule is served by ensuring that no improper influence is exercised over investment decisions by governmental entities as a result of campaign contributions, and not by withholding compensation as a result of unintentional violations. 6. Applicant submits that the exemption is necessary and appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Advisers Act. As summarized below and detailed in the Application, Applicant further submits that the other factors set forth in Rule 206(4)-5(e) similarly weigh in favor of granting an exemption to the Applicant to avoid consequences disproportionate to the violation. 7. Applicant states that the Adviser adopted and implemented the Policy, which is fully compliant with and more rigorous than the Rule's requirements, on March 14, 2011, well before the Contribution Date. 8. Applicant states that aside from the Contributor, no executives, employees or covered associates of the Adviser knew of the Contribution until it was self-reported by the Contributor as a result of the multiple controls PNC uses in connection with promotions and transfers. 9. Applicant states that after learning of the Contribution, the Adviser, through its outside counsel, immediately requested a full refund of the Contribution, which was subsequently received. Applicant further states that the Adviser then established escrow accounts and moved all monies impacted by the two-year compensation ban into those escrow accounts. 10. Applicant states that in response to the Contribution, the Adviser reviewed and assessed the continued effectiveness of its Policy and determined that while the Policy was strong and robust, it undertook to enhance the employees' understanding of the Policy through additional education, training, and clarification to the wording of the covered associates' quarterly certification form. 11. Applicant states that the Contributor did not solicit a government entity until December 2016 (in Pennsylvania, not Ohio), that his geographic area for soliciting clients or supervising others does not include Ohio, and that he has never solicited or otherwise communicated with the Clients. 12. Applicant states that the Clients' initial investments with the Adviser substantially pre-date the Contribution and were made on at arm's length basis, and neither the Contributor nor the Adviser took any action to have the Official influence those investments, directly or indirectly. Applicant further states that the Contributor did not solicit or supervise anyone who solicited the Clients with respect to these investments, and any new investments were made in the ordinary course of business and had nothing to do with the Contribution. 13. Applicant states that the Contributor's intent in making the Contribution was not to influence the selection or retention of the Adviser, and that the Contributor is a long-time Republican who was spontaneously motivated to make the Contribution solely because of his personal political beliefs. Applicant's Conditions The Applicant agrees that any order of the Commission granting the requested relief will be subject to the following conditions: 1. The Contributor will be prohibited from soliciting investment from any ``government entity'' client or prospective client for which the Official is an ``official'' as defined in Rule 206(4)-5(f) until April 22, 2018. 2. The Contributor will receive a written notification of this condition and will provide a quarterly certification of compliance until April 22, 2018. Copies of the certifications will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Adviser, and be available for inspection by the staff of the Commission. 3. The Adviser will conduct testing reasonably designed to prevent violations of the conditions of the Order and maintain records regarding such [[Page 58662]] testing, which will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Adviser, and be available for inspection by the staff of the Commission. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-26885 Filed 12-12-17; 8:45 am] BILLING CODE 8011-01-P
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the person identified in the FOR FURTHER Service of Filing a Functionally personally or by mail. Hearing requests
INFORMATION CONTACT section by Equivalent Global Expedited Package should be received by the Commission
telephone for advice on filing Services 7 Negotiated Service by 5:30 p.m. on January 2, 2018, and
alternatives. Agreement and Application for Non- should be accompanied by proof of
FOR FURTHER INFORMATION CONTACT: Public Treatment of Materials Filed service on Applicant, in the form of an
David A. Trissell, General Counsel, at Under Seal; Filing Acceptance Date: affidavit or, for lawyers, a certificate of
202–789–6820. December 7, 2017; Filing Authority: 39 service. Pursuant to Rule 0–5 under the
SUPPLEMENTARY INFORMATION:
CFR 3015.5; Public Representative: Advisers Act, hearing requests should
Timothy J. Schwuchow; Comments Due: state the nature of the writer’s interest,
Table of Contents December 15, 2017. any facts bearing upon the desirability
I. Introduction This notice will be published in the of a hearing on the matter, the reason for
II. Docketed Proceeding(s) Federal Register. the request, and the issues contested.
Stacy L. Ruble,
Persons may request notification of a
I. Introduction hearing by writing to the Commission’s
The Commission gives notice that the Secretary.
Secretary.
Postal Service filed request(s) for the [FR Doc. 2017–26883 Filed 12–12–17; 8:45 am]
ADDRESSES: Secretary, Securities and
Commission to consider matters related BILLING CODE 7710–FW–P
Exchange Commission, 100 F Street NE,
to negotiated service agreement(s). The Washington, DC 20549–1090.
request(s) may propose the addition or Applicant: PNC Capital Advisors, LLC,
removal of a negotiated service SECURITIES AND EXCHANGE One East Pratt Street, Baltimore, MD
agreement from the market dominant or COMMISSION 21202.
the competitive product list, or the [Investment Advisers Act Release No. 4825/ FOR FURTHER INFORMATION CONTACT: Kyle
modification of an existing product 803–00241]
currently appearing on the market R. Ahlgren, Senior Counsel, at (202)
dominant or the competitive product 551–6857 or Holly L. Hunter-Ceci,
PNC Capital Advisors, LLC; Notice of
list. Assistant Chief Counsel, at (202) 551–
Application
Section II identifies the docket 6825 (Division of Investment
number(s) associated with each Postal December 8, 2017. Management, Chief Counsel’s Office).
Service request, the title of each Postal AGENCY: Securities and Exchange SUPPLEMENTARY INFORMATION: The
Service request, the request’s acceptance Commission (‘‘Commission’’). following is a summary of the
date, and the authority cited by the ACTION: Notice of application for an application. The complete application
Postal Service for each request. For each exemptive order under Section 206A of may be obtained via the Commission’s
request, the Commission appoints an the Investment Advisers Act of 1940 website at http://www.sec.gov/rules/
officer of the Commission to represent (the ‘‘Advisers Act’’) and Rule 206(4)– iareleases.shtml or by calling (202) 551–
the interests of the general public in the 5(e). 8090.
proceeding, pursuant to 39 U.S.C. 505 Applicant’s Representations
(Public Representative). Section II also APPLICANT: PNC Capital Advisors, LLC
establishes comment deadline(s) (‘‘Applicant’’ or ‘‘Adviser’’). 1. Applicant is a financial services
pertaining to each request. RELEVANT ADVISERS ACT SECTIONS:
firm registered with the Commission as
The public portions of the Postal Exemption requested under Section an investment adviser pursuant to the
Service’s request(s) can be accessed via 206A of the Advisers Act and Rule Advisers Act. Applicant provides
the Commission’s website (http:// 206(4)–5(e) from Rule 206(4)–5(a)(1) discretionary investment advisory
www.prc.gov). Non-public portions of under the Advisers Act. services to a wide variety of investors.
the Postal Service’s request(s), if any, Applicant is a wholly-owned subsidiary
SUMMARY OF APPLICATION: Applicant
can be accessed through compliance of PNC Bank, National Association (the
requests that the Commission issue an
with the requirements of 39 CFR ‘‘Bank’’), and the Bank is a wholly-
order under Section 206A of the
3007.40. owned subsidiary of PNC Financial
Advisers Act and Rule 206(4)–5(e)
The Commission invites comments on Services Group, Inc. (‘‘PNC’’).
exempting it from Rule 206(4)–5(a)(1) 2. Certain Ohio government entities
whether the Postal Service’s request(s)
under the Advisers Act to permit have established separately managed
in the captioned docket(s) are consistent
Applicant to receive compensation from accounts to which the Adviser provides
with the policies of title 39. For
certain government entities for investment advisory services (each such
request(s) that the Postal Service states
investment advisory services provided government entity, a ‘‘Client’’ and
concern market dominant product(s),
to the government entities within the collectively, the ‘‘Clients’’). Each Client
applicable statutory and regulatory
two-year period following a is a ‘‘government entity’’ within the
requirements include 39 U.S.C. 3622, 39
contribution by a covered associate of meaning of Rule 206(4)–5(f)(5).
U.S.C. 3642, 39 CFR part 3010, and 39
the Applicant to an official of the 3. The individual who made the
CFR part 3020, subpart B. For request(s)
government entities. campaign contribution (the
that the Postal Service states concern
competitive product(s), applicable FILING DATES: The application was filed ‘‘Contributor’’) that triggered the two-
statutory and regulatory requirements on April 18, 2017, and an amended and year compensation ban (the
include 39 U.S.C. 3632, 39 U.S.C. 3633, restated application was filed on ‘‘Contribution’’) is a dual-hatted
October 10, 2017. employee of the Bank and the Adviser.
sradovich on DSK3GMQ082PROD with NOTICES
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment HEARING OR NOTIFICATION OF HEARING: In his role as a business development
deadline(s) for each request appear in An order granting the application will officer of both the Adviser and the Bank,
section II. be issued unless the Commission orders he solicited and continues to solicit
a hearing. Interested persons may business for the Adviser and the Bank
II. Docketed Proceeding(s) request a hearing by writing to the from private corporations and non-profit
1. Docket No(s).: CP2018–79; Filing Commission’s Secretary and serving entities in Pennsylvania, West Virginia,
Title: Notice of United States Postal Applicant with a copy of the request, California and Texas. The Contributor
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of the Contribution a ‘‘covered 206(4)–5(e), exempting it from the two- reviewed and assessed the continued
associate’’ within the meaning of Rule year prohibition on compensation effectiveness of its Policy and
206(4)–5(f)(2), and the Official was at imposed by Rule 206(4)–5(a)(1) with determined that while the Policy was
the time of the Contribution an respect to investment advisory services strong and robust, it undertook to
‘‘official’’ within the meaning of Rule provided to the Clients within the two- enhance the employees’ understanding
206(4)–5(f)(6). The Contribution year period following the Contribution. of the Policy through additional
therefore triggered the Rule’s ban under 5. Applicant contends that given the education, training, and clarification to
the two-year lookback provision in Rule nature of the Contribution, and the lack the wording of the covered associates’
206(4)–5(b)(2). of any evidence that the Adviser or the quarterly certification form.
2. Section 206A of the Advisers Act Contributor intended to, or actually did, 11. Applicant states that the
authorizes the Commission to interfere with the Clients’ merit-based Contributor did not solicit a government
‘‘conditionally or unconditionally process for the selection or retention of entity until December 2016 (in
exempt any person or transaction . . . advisory services, the Clients’ interests Pennsylvania, not Ohio), that his
from any provision or provisions of [the are best served by allowing the Adviser geographic area for soliciting clients or
Act] or of any rule or regulation and its Clients to continue their supervising others does not include
thereunder, if and to the extent that relationships uninterrupted. Applicant Ohio, and that he has never solicited or
such exemption is necessary or states that causing the Adviser to serve otherwise communicated with the
appropriate in the public interest and without compensation for a two- year Clients.
consistent with the protection of period could result in a financial loss of 12. Applicant states that the Clients’
investors and the purposes fairly approximately $700,000, or 700 times initial investments with the Adviser
intended by the policy and provisions of the amount of the Contribution. substantially pre-date the Contribution
[the Act].’’ Applicant contends that the policy and were made on at arm’s length basis,
3. Rule 206(4)–5(e) provides that the underlying the Rule is served by and neither the Contributor nor the
Commission may exempt an investment ensuring that no improper influence is Adviser took any action to have the
adviser from the prohibition under Rule exercised over investment decisions by Official influence those investments,
206(4)–5(a)(1) upon consideration of the governmental entities as a result of directly or indirectly. Applicant further
factors listed below, among others: campaign contributions, and not by states that the Contributor did not solicit
(1) Whether the exemption is withholding compensation as a result of or supervise anyone who solicited the
necessary or appropriate in the public unintentional violations. Clients with respect to these
interest and consistent with the 6. Applicant submits that the investments, and any new investments
protection of investors and the purposes exemption is necessary and appropriate were made in the ordinary course of
fairly intended by the policy and in the public interest and consistent business and had nothing to do with the
provisions of the Advisers Act; with the protection of investors and the Contribution.
(2) Whether the investment adviser: purposes fairly intended by the policy 13. Applicant states that the
(i) Before the contribution resulting in and provisions of the Advisers Act. As Contributor’s intent in making the
the prohibition was made, adopted and summarized below and detailed in the Contribution was not to influence the
implemented policies and procedures Application, Applicant further submits selection or retention of the Adviser,
reasonably designed to prevent that the other factors set forth in Rule and that the Contributor is a long-time
violations of the Rule; and (ii) prior to 206(4)–5(e) similarly weigh in favor of Republican who was spontaneously
or at the time the contribution which granting an exemption to the Applicant motivated to make the Contribution
resulted in such prohibition was made, to avoid consequences disproportionate solely because of his personal political
had no actual knowledge of the to the violation. beliefs.
contribution; and (iii) after learning of 7. Applicant states that the Adviser
adopted and implemented the Policy, Applicant’s Conditions
the contribution: (A) Has taken all
available steps to cause the contributor which is fully compliant with and more The Applicant agrees that any order of
involved in making the contribution rigorous than the Rule’s requirements, the Commission granting the requested
which resulted in such prohibition to on March 14, 2011, well before the relief will be subject to the following
obtain a return of the contribution; and Contribution Date. conditions:
(B) has taken such other remedial or 8. Applicant states that aside from the 1. The Contributor will be prohibited
preventive measures as may be Contributor, no executives, employees from soliciting investment from any
appropriate under the circumstances; or covered associates of the Adviser ‘‘government entity’’ client or
(3) Whether, at the time of the knew of the Contribution until it was prospective client for which the Official
contribution, the contributor was a self-reported by the Contributor as a is an ‘‘official’’ as defined in Rule
covered associate or otherwise an result of the multiple controls PNC uses 206(4)–5(f) until April 22, 2018.
employee of the investment adviser, or in connection with promotions and 2. The Contributor will receive a
was seeking such employment; transfers. written notification of this condition
(4) The timing and amount of the 9. Applicant states that after learning and will provide a quarterly
contribution which resulted in the of the Contribution, the Adviser, certification of compliance until April
prohibition; through its outside counsel, 22, 2018. Copies of the certifications
(5) The nature of the election (e.g., immediately requested a full refund of will be maintained and preserved in an
federal, state or local); and the Contribution, which was easily accessible place for a period of
sradovich on DSK3GMQ082PROD with NOTICES
(6) The contributor’s apparent intent subsequently received. Applicant not less than five years, the first two
or motive in making the contribution further states that the Adviser then years in an appropriate office of the
which resulted in the prohibition, as established escrow accounts and moved Adviser, and be available for inspection
evidenced by the facts and all monies impacted by the two-year by the staff of the Commission.
circumstances surrounding such compensation ban into those escrow 3. The Adviser will conduct testing
contribution. accounts. reasonably designed to prevent
4. Applicant requests an order 10. Applicant states that in response violations of the conditions of the Order
pursuant to Section 206A and Rule to the Contribution, the Adviser and maintain records regarding such
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testing, which will be maintained and philosophy, describe OCC’s Risk obligation to promote financial stability,
preserved in an easily accessible place Appetite Framework and use of Risk reduce the potential for systemic
for a period of not less than five years, Tolerances,5 describe the governance contagion, and support the smooth
the first two years in an appropriate arrangements that implement risk functioning of the U.S. financial
office of the Adviser, and be available management, outline OCC’s markets. Furthermore, as a CCP, OCC
for inspection by the staff of the identification of Key Risks,6 and concentrates financial risks for the
Commission. describe OCC’s program for enterprise- markets it serves by acting as the CCP
For the Commission, by the Division of wide risk management, including the for all of the transactions that it clears.
Investment Management, under delegated ‘‘three lines of defense’’ structure As a result of this concentration, OCC’s
authority. (discussed below), and describe OCC’s primary objective is to ensure that it
Eduardo A. Aleman, approach to risk monitoring, properly manages the financial risks
Assistant Secretary. assessment, and reporting. As a single associated with functioning as a CCP,
[FR Doc. 2017–26885 Filed 12–12–17; 8:45 am] risk management framework addressing which primarily relate to potential
risks across all facets of OCC’s business, clearing member default scenarios.
BILLING CODE 8011–01–P
OCC believes that the RMF would foster As a CCP, OCC’s daily operations,
its compliance with the requirements of among other things, involve managing
SECURITIES AND EXCHANGE the CCA rules,7 and in particular the financial, operational, and business
COMMISSION requirement of Rule 17Ad–22(e)(3) 8 that risks. In managing these risks, OCC’s
it maintain a sound framework for daily operations—which are guided by
[Release No. 34–82232; File No. SR–OCC– policies, procedures, and controls—are
2017–005]
comprehensively managing risks.
designed to ensure that financial
A. Context of OCC’s Risk Management exposures and service disruptions are
Self-Regulatory Organizations; The Framework within acceptable limits set by OCC as
Options Clearing Corporation; Order
The RMF would begin by establishing part of its Risk Appetite Framework
Approving Proposed Rule Change
the context for OCC’s risk management (‘‘RAF’’) as described below.
Related to a Comprehensive Risk
Management Framework framework. More specifically, OCC is a C. Risk Appetite Framework
Systemically Important Financial
December 7, 2017. Market Utility (‘‘SIFMU’’) 9 that serves a The proposed RMF would describe
On October 10, 2017, The Options critical role in financial markets as the OCC’s RAF and use of Risk Tolerances.
Clearing Corporation (‘‘OCC’’) filed with sole central counterparty (‘‘CCP’’) that The purpose of the RAF is to establish
the Securities and Exchange provides clearance and settlement OCC’s overall approach to managing
Commission (‘‘Commission’’) the services for U.S. listed options and risks at the enterprise level in an
proposed rule change SR–OCC–2017– guarantees the obligations associated effective and integrated fashion. The
005 pursuant to Section 19(b)(1) of the with the contracts that it clears. OCC RAF establishes the level and types of
Securities Exchange Act of 1934 acknowledges its role as a SIFMU in Key Risks, described in further detail
(‘‘Act’’),1 and Rule 19b–4 thereunder.2 promoting financial stability for market below, that OCC is willing and able to
The proposed rule change was participants, investors, and the economy assume in accordance with OCC’s
published for comment in the Federal and that it must therefore maintain a mission as a SIFMU. Under the RAF,
Register on October 25, 2017.3 The sound risk management framework for Risk Appetite Statements 10 would be
Commission did not receive any comprehensively managing the risks used to express OCC’s judgment, for
comment letters on the proposed rule each of OCC’s Key Risks, regarding the
that it presents.
change. For the reasons discussed level of risk that OCC is willing to
below, this order approves the proposed B. OCC’s Risk Management Philosophy accept related to the provision of CCP
rule change. OCC states that the proposed RMF services. These statements would be
would describe its risk management qualitative indications of appetite that
I. Description of the Proposed Rule philosophy. As a SIFMU, OCC must be set the tone for OCC’s approach to risk
Change 4 mindful of the public interest and its taking, and are indicative of the level of
OCC proposes to adopt a new Risk resources or effort OCC puts forth to
Management Framework (‘‘RMF’’) 5 Under the proposed RMF, ‘‘Risk Tolerances’’ prevent or mitigate the impact of a Key
document. The purpose of the RMF is would be defined as the application of risk appetite Risk.
to describe OCC’s framework for to a specific sub-category or aspect of a Key Risk, Under the RMF, Risk Appetite
typically in quantitative form, used to set an Statements would be set annually by
comprehensive risk management, acceptable level of risk.
including OCC’s framework to identify, 6 OCC’s Key Risks are described below in the
each department associated with a Key
measure, monitor, and manage all risks discussion covering OCC’s identification of its Risk in cooperation with OCC’s
faced by OCC in the provision of material risks. Enterprise Risk Management
clearing, settlement, and risk
7 On September 28, 2016, the Commission department (‘‘ERM’’) according to
adopted amendments to Exchange Act Rule 17Ad– applicable procedures. OCC’s risk
management services. More specifically, 22 and added new Exchange Act Rule 17Ab2–2
the RMF would establish the context for pursuant to Section 17A of the Act and the
appetite levels would be classified into
OCC’s risk management framework, Payment, Clearing and Settlement Supervision Act four categories:
outline OCC’s risk management of 2010 (‘‘Clearing Supervision Act’’) to establish 1. No appetite: OCC is unwilling to
enhanced standards for the operation and deliberately accept any level of risk.
governance of those clearing agencies registered 2. Low appetite: OCC devotes
sradovich on DSK3GMQ082PROD with NOTICES
1 15 U.S.C. 78s(b)(1). with the Commission that meet the definition of a
2 17 CFR 240.19b–4. ‘‘covered clearing agency,’’ as defined by Exchange significant resources to managing risk
3 Securities Exchange Act Release No. 34–81909 Act Rule 17Ad–22(a)(5) (collectively, the new and but may choose to accept certain risks
(Oct. 19, 2017), 82 FR 49456 (Oct. 25, 2017) (File amended rules are herein referred to as the ‘‘CCA
No. SR–OCC–2017–005) (‘‘Notice’’). rules’’). 10 Under the proposed RMF, ‘‘Risk Appetite
4 The subsequent description of the proposed rule 8 17 CFR 240.17Ad–22(e)(3).
Statement’’ would be defined as a statement that
change is substantially excerpted from OCC’s 9 The Financial Stability Oversight Council expresses OCC’s judgment, for each of OCC’s Key
description in the Notice. See Notice, 82 FR at designated OCC a SIFMU on July 18, 2012 pursuant Risks, regarding the level of risk OCC is willing to
49456–49461. to the Clearing Supervision Act. See 12 U.S.C. 5463. accept related to the provision of CCP services.
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Document Created: 2017-12-13 01:24:03
Document Modified: 2017-12-13 01:24:03
| 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 | |
| Action | Notice of application for an exemptive order under Section 206A of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule 206(4)-5(e). | |
| Dates | The application was filed on April 18, 2017, and an amended and restated application was filed on October 10, 2017. | |
| Contact | Kyle R. Ahlgren, Senior Counsel, at (202) 551-6857 or Holly L. Hunter-Ceci, Assistant Chief Counsel, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office). | |
| FR Citation | 82 FR 58659 |
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