82 FR 60262 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Concerning Liquidity for Same Day Settlement

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 242 (December 19, 2017)

Page Range		60262-60264
FR Document		2017-27228
Federal Register, Volume 82 Issue 242 (Tuesday, December 19, 2017)
[Federal Register Volume 82, Number 242 (Tuesday, December 19, 2017)]
[Notices]
[Pages 60262-60264]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-27228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82309; File No. SR-OCC-2017-017]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Concerning Liquidity for Same Day 
Settlement

December 13, 2017.
    On October 13, 2017, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2017-007 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on November 1, 2017.\3\ The Commission did not 
receive any comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-81956 (Oct. 26, 
2017), 82 FR 50705 (Nov. 1, 2017) (SR-OCC-2017-017) (``Notice''). 
OCC also filed an Advance Notice with the Commission in connection 
with the proposed change. See Securities Exchange Act Release No. 
82056 (Nov. 13, 2017), 82 FR 54430 (Nov. 17, 2017) (SR-OCC-2017-
806).

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[[Page 60263]]

I. Description of the Proposed Rule Change

A. Background

    OCC filed the proposed rule change to modify the tools available to 
OCC 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 
resulting from the failure of a bank or securities or commodities 
clearing organization (``Settlement Entity'') to achieve daily 
settlement. As stated in the Notice, OCC's By-Laws currently grant OCC 
the authority to borrow against its Clearing Fund where a Settlement 
Entity fails to make timely settlement with OCC due to bankruptcy, 
insolvency, resolution, suspension of operations, or a similar event of 
such Settlement Entity.\4\ The proposed rule change seeks to expand 
this borrowing authority to circumstances that include a temporary 
failure of a Settlement Entity to achieve daily settlement.
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    \4\ OCC By-Laws, Article VIII, Section 5.
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    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, the By-Laws provide 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, the By-Laws provide 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, the loss must arise 
from a situation in which any Settlement Entity 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\
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    \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.
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    Under either of the circumstances above, OCC is authorized to 
borrow against the Clearing Fund for a period not to exceed 30 days, 
and during this time, the borrowing would not affect the amount or 
timing of any charges otherwise required to be made against the 
Clearing Fund pursuant to Article VIII, Section 5 of the By-Laws. 
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) the amount must be considered an actual loss 
to the Clearing Fund, and OCC must immediately allocate such loss among 
its Clearing Members in accordance with Article VIII, Section 5.

B. The Proposed Rule Change to OCC's By-Laws

    The proposed rule change seeks to expand OCC's authority to borrow 
against its Clearing Fund to instances where a Settlement Entity 
suffers an event relatively less extreme than bankruptcy, insolvency, 
or a similar event, but is still temporarily unable to timely make 
daily settlement with OCC. Such an event might include a scenario where 
the ordinary operations of a settlement bank are disrupted in a manner 
that temporarily prohibits the bank from timely effecting settlement 
payments in accordance with OCC's daily settlement cycle. OCC believes 
that such authority would only be used in extraordinary circumstances, 
and any funds obtained from any such transaction could only be used for 
the stated purpose of satisfying a need for liquidity for same-day 
settlement.
    Pursuant to the proposed change, any ability to borrow under this 
expanded authority would not exceed thirty (30) days. During this 
period, the funds obtained would not be deemed to be charges against 
the Clearing Fund and would not affect the amount or timing of any 
charges otherwise required to be made against the clearing fund under 
Article VIII of OCC's By-Laws.\6\ Should the borrowing unexpectedly 
remain outstanding after thirty (30) days, at the close of business on 
the 30th day (or the first Business Day thereafter), the amount 
outstanding would be considered an actual loss to the Clearing Fund. 
However, OCC would also have discretionary authority to declare a 
borrowing outstanding for less than thirty (30) days as an actual loss 
chargeable against the Clearing Fund to be collected from Clearing 
Members.\7\ If the amount outstanding becomes an actual loss to the 
Clearing Fund, OCC, in accordance with its By-Laws, would then charge 
all of its Clearing Members to make pro rata contributions to the 
Clearing Fund to cover the deficit arising from the loss.
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    \6\ Assets contained in the Clearing Fund, including those 
assets pledged by OCC pursuant to its authority under this proposed 
expansion of borrowing authority, would remain in OCC's possession.
    \7\ OCC states that such discretionary authority could be 
exercised in a circumstance where, depending on the size of the 
borrowing, OCC must ensure that it maintains financial resources 
necessary to meet a ``Cover 1'' liquidity resource standard. OCC 
must establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, effectively 
identify, measure, monitor, and manage its credit exposures to 
participants and those arising from its payment, clearing, and 
settlement processes, including by maintaining sufficient financial 
resources to cover its credit exposure to each participant fully 
with a high degree of confidence, and, to the extent not already 
maintained pursuant to the foregoing, maintaining additional 
financial resources at the minimum to enable it to cover a wide 
range of foreseeable stress scenarios that include, but are not 
limited to, the ``default of the participant family that would 
potentially cause the largest aggregate credit exposure for the 
covered clearing agency in extreme but plausible market 
conditions.'' 17 CFR 240.17Ad-22(e)(4)(iii).
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    To implement the proposed change, OCC proposed to amend Sections 
1(a), 5(b) and 5(e) of Article VIII of its By-Laws to give effect to 
the expanded borrowing authority. First, Article VIII, Section 5(e) of 
the 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 Settlement Entity to achieve daily settlement. Second, 
Article VIII, Section 1(a) of the By-Laws would be amended to include 
conforming changes stating that the purpose of the Clearing Fund 
includes borrowing against the Clearing Fund as permitted under Article 
VIII, Section 5(e).
    Next, Article VIII, Section 5(b) 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 to the Clearing Fund to be charged 
proportionately against all Clearing Members' computed contributions. 
Further, 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.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \8\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such

[[Page 60264]]

proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to such organization. 
The Commission finds that the proposal is consistent with Section 
17A(b)(3)(F) of the Act \9\ and Rule 17Ad-22(e)(7)(viii) \10\ 
thereunder, as described in detail below.
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(e)(7)(viii).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    The Commission finds that the proposed change is consistent with 
Section 17A(b)(3)(F) of the Act,\11\ which requires, among other 
things, that the rules of a clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions. The Commission understands that the proposed rule change 
constitutes a limited expansion of OCC's ability to address liquidity 
needs that arise from scenarios that, while relatively less extreme 
than a Settlement Entity suffering a bankruptcy, insolvency, 
resolution, suspension of operations, or similar event, nevertheless 
can prevent daily settlement from occurring. The Commission therefore 
believes that the proposed rule change is designed to enhance OCC's 
ability to access liquid resources under such circumstances, which, in 
turn, would allow OCC to continue to meet its settlement obligations to 
its Clearing Members in a timely fashion, thereby promoting prompt and 
accurate clearance and settlement of securities transactions.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Specifically, the Commission believes that the proposed rule change 
is designed to expand OCC's existing borrowing authority in a scenario 
where a Settlement Entity is temporarily unable to achieve daily 
settlement, but is not facing bankruptcy, insolvency, resolution, 
suspension of operations, or similar event. Therefore, the proposed 
rule change is designed to provide OCC with an alternative tool with 
which to address what OCC describes as an ``extraordinary 
circumstance'' that would enable OCC to borrow against the Clearing 
Fund in order to avoid disrupting its ordinary settlement cycle. The 
Commission believes that the authority to take such action is designed 
to avoid imposing a disruption on Clearing Members and reduce the need 
to extend the settlement window, which could allow OCC to settle 
transactions in a more timely fashion. Accordingly, the Commission 
finds that the proposed rule change is designed to promote the prompt 
and accurate clearance and settlement of securities transactions, and 
is therefore consistent with Section 17A(b)(3)(F) of the Act.\12\
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    \12\ Id.
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B. Consistency With Rule 17Ad-22(e)(7)(viii) Under the Act

    The Commission further believes that the proposed rule change is 
consistent with Rule 17Ad-22(e)(7)(viii), which requires that a covered 
clearing agency establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to, as applicable, 
effectively measure, monitor, and manage liquidity risk that arises in 
or is borne by the covered clearing agency, including measuring, 
monitoring, and managing its settlement and funding flows on an ongoing 
and timely basis, and its use of intraday liquidity by, at a minimum, 
addressing foreseeable liquidity shortfalls that would not be covered 
by its liquid resources and seek to avoid unwinding, revoking, or 
delaying the same-day settlement of payment obligations.\13\
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    \13\ 17 CFR 240.17Ad-22(e)(7)(viii).
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    The Commission believes that the proposed rule change is designed 
to improve OCC's ability to address a temporary liquidity need 
resulting from the failure of a Settlement Entity to achieve timely 
settlement. The Commission believes that the proposed rule change is 
designed to provide OCC with additional tools to address a foreseeable, 
temporary liquidity shortfall to prevent the unwinding, revoking, or 
delaying of same-day settlement should that scenario materialize, and 
is therefore consistent with Rule 17Ad-22(e)(7)(viii) under the Act.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed change is consistent with the requirements of the Act, and in 
particular, with the requirements of Section 17A of the Act \14\ and 
the rules and regulations thereunder.
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-OCC-2017-017) be, and it 
hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27228 Filed 12-18-17; 8:45 am]
 BILLING CODE 8011-01-P
60262 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices

standard, then it will not receive the III. Date of Effectiveness of the Reference Room, 100 F Street NE,
rebate. The Exchange believes it is Proposed Rule Change and Timing for Washington, DC 20549, on official
equitable and not unfairly Commission Action business days between the hours of
discriminatory to only offer the rebate to The foregoing rule change has become 10:00 a.m. and 3:00 p.m. Copies of the
LMMs because it benefits all market effective pursuant to Section 19(b)(3)(A) filing also will be available for
participants in ETH to encourage LMMs of the Act 8 and paragraph (f) of Rule inspection and copying at the principal
to satisfy the heightened quoting 19b–4 9 thereunder. At any time within office of the Exchange. All comments
standards, which may increase liquidity 60 days of the filing of the proposed rule received will be posted without change.
during those hours and provide more change, the Commission summarily may Persons submitting comments are
trading opportunities and tighter temporarily suspend such rule change if cautioned that we do not redact or edit
spreads. Also, the Exchange believes it appears to the Commission that such personal identifying information from
consolidating information related to the action is necessary or appropriate in the comment submissions. You should
LMM rebate program in the Fees public interest, for the protection of submit only information that you wish
Schedule will prevent potential investors, or otherwise in furtherance of to make available publicly. All
confusion that arises from having the the purposes of the Act. If the submissions should refer to File
rebate program described in multiple Commission takes such action, the Number SR–CBOE–2017–077, and
places, which, in general, helps protect Commission will institute proceedings
should be submitted on or before
customers and the public interest. to determine whether the proposed rule
January 9, 2018.
Finally, the Exchange believes clarifying change should be approved or
disapproved For the Commission, by the Division of
language in the Fees Schedule will also
Trading and Markets, pursuant to delegated
prevent potential confusion, which, in IV. Solicitation of Comments authority.10
general, helps protect customers and the Interested persons are invited to Eduardo A. Aleman,
public interest. submit written data, views, and
Assistant Secretary.
B. Self-Regulatory Organization’s arguments concerning the foregoing,
[FR Doc. 2017–27227 Filed 12–18–17; 8:45 am]
Statement on Burden on Competition including whether the proposed rule
change is consistent with the Act. BILLING CODE 8011–01–P

The Exchange does not believe that Comments may be submitted by any of
the proposed rule change will impose the following methods:
SECURITIES AND EXCHANGE
any burden on competition that is not Electronic Comments COMMISSION
necessary or appropriate in furtherance
of the purposes of the Act. The • Use the Commission’s internet
comment form (http://www.sec.gov/ [Release No. 34–82309; File No. SR–OCC–
Exchange does not believe that the
rules/sro.shtml); or 2017–017]
proposed rule change will impose any • Send an email to rule-comments@
burden on intramarket competition that sec.gov. Please include File Number SR– Self-Regulatory Organizations; The
is not necessary or appropriate in CBOE–2017–077 on the subject line. Options Clearing Corporation; Order
furtherance of the purposes of the Act,
Paper Comments Approving Proposed Rule Change
because the amended rebate for ETH is
Concerning Liquidity for Same Day
intended to encourage market • Send paper comments in triplicate
Settlement
participants to bring liquidity in SPX to Secretary, Securities and Exchange
during ETH (which benefits all market Commission, 100 F Street NE, December 13, 2017.
participants), while still covering Washington, DC 20549–1090.
On October 13, 2017, The Options
Exchange costs (including those All submissions should refer to File
associated with the upgrading and Number SR–CBOE–2017–077. This file Clearing Corporation (‘‘OCC’’) filed with
maintenance of Exchange systems). number should be included on the the Securities and Exchange
Furthermore, the Exchange does not subject line if email is used. To help the Commission (‘‘Commission’’) the
believe that the proposed rule changes Commission process and review your proposed rule change SR–OCC–2017–
will impose any burden on intermarket comments more efficiently, please use 007 pursuant to Section 19(b)(1) of the
competition that is not necessary or only one method. The Commission will Securities Exchange Act of 1934
appropriate in furtherance of the post all comments on the Commission’s (‘‘Act’’) 1 and Rule 19b–4 thereunder.2
purposes of the Act because SPX is a internet website (http://www.sec.gov/ The proposed rule change was
proprietary product that will only be rules/sro.shtml). Copies of the published for comment in the Federal
traded on Cboe Options. To the extent submission, all subsequent Register on November 1, 2017.3 The
that the proposed changes make Cboe amendments, all written statements Commission did not receive any
Options a more attractive marketplace with respect to the proposed rule comments on the proposed rule change.
for market participants at other change that are filed with the This order approves the proposed rule
exchanges, such market participants are Commission, and all written change.
welcome to become Cboe Options communications relating to the
market participants. proposed rule change between the 10 17 CFR 200.30–3(a)(12).
Commission and any person, other than 1 15 U.S.C. 78s(b)(1).
sradovich on DSK3GMQ082PROD with NOTICES

C. Self-Regulatory Organization’s those that may be withheld from the 2 17 CFR 240.19b–4.

Statement on Comments on the public in accordance with the 3 Securities Exchange Act Release No. 34–81956

Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be (Oct. 26, 2017), 82 FR 50705 (Nov. 1, 2017) (SR–
Members, Participants, or Others available for website viewing and OCC–2017–017) (‘‘Notice’’). OCC also filed an
Advance Notice with the Commission in
printing in the Commission’s Public connection with the proposed change. See
The Exchange neither solicited nor Securities Exchange Act Release No. 82056 (Nov.
received comments on the proposed 8 15 U.S.C. 78s(b)(3)(A). 13, 2017), 82 FR 54430 (Nov. 17, 2017) (SR–OCC–
rule change. 9 17 CFR 240.19b–4(f). 2017–806).

VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\19DEN1.SGM 19DEN1
Document Created: 2017-12-19 01:31:33
Document Modified: 2017-12-19 01:31:33
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 60262