83 FR 13176 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Concerning Updates to and Formalization of OCC's Recovery and Orderly Wind-Down Plan

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 59 (March 27, 2018)

[Federal Register Volume 83, Number 59 (Tuesday, March 27, 2018)]
[Notices]
[Pages 13176-13178]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-06106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82927; File No. SR-OCC-2017-021]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove the Proposed Rule Concerning Updates to and Formalization of 
OCC's Recovery and Orderly Wind-Down Plan

March 22, 2018.

I. Introduction

    On December 8, 2017, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2017-021 (``Proposed Rule Change''), 
pursuant to Section 19(b) of the Securities Exchange Act of 1934

[[Page 13177]]

(``Act''),\1\ and Rule 19b-4 thereunder.\2\ The Proposed Rule Change 
was published for comment in the Federal Register on December 26, 
2017.\3\ On January 25, 2018, the Comission designated a longer period 
within which to approve the Proposed Rule Change, disapprove the 
Proposed Rule Change, or institute proceedings to determine whether to 
approve or disapprove the Proposed Rule Change.\4\ The Commission is 
publishing this order pursuant to Section 19(b)(2)(B) of the Act \5\ to 
institute proceedings to determine whether to approve or disapprove 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. 82352 (Dec. 19, 2017), 
82 FR 61072 (Dec. 26, 2017) (SR-OCC-2017-021) (``Notice''). On 
December 8, 2017, OCC also filed a related advance notice (SR-OCC-
2017-810) with the Commission pursuant to Section 806(e)(1) of Title 
VIII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, entitled the Payment, Clearing, and Settlement Supervision Act 
of 2010 and Rule 19b-4(n)(1)(i) under the Act (``Advance Notice''). 
12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4(n)(1)(i), respectively. 
The Advance Notice was published in the Federal Register on January 
23, 2018. Securities Exchange Act Release No. 82513 (Jan. 17, 2018), 
83 FR 3224 (Jan. 23, 2018) (SR-OCC-2017-810).
    The Financial Stability Oversight Council designated OCC a 
systemically important financial market utility on July 18, 2012. 
See Financial Stability Oversight Council 2012 Annual Report, 
Appendix A, available at http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is required to 
comply with the Payment, Clearing and Settlement Supervision Act and 
file advance notices with the Commission. See 12 U.S.C. 5465(e).
    \4\ Securities Exchange Act Release No. 82586 (Jan. 25, 2018), 
83 FR 4527 (Jan. 31, 2018) (File No. SR-OCC-2017-021).
    \5\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission 
has reached any conclusions with respect to the Proposed Rule Change, 
nor does it mean that the Commission will ultimately disapprove the 
Proposed Rule Change. Rather, as discussed below, the Commission seeks 
additional input on the Proposed Rule Change and issues presented by 
the proposal.

II. Description of the Proposed Rule Change \6\
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    \6\ The description of the Proposed Rule Change is substantially 
excerpted from the Notice. See Notice, supra note 3, 82 FR at 61073-
80.
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    The Proposed Rule Change would formalize and update OCC's Recovery 
and Wind-Down (``RWD'') Plan. In its proposal,\7\ OCC stated that the 
purpose of the proposed RWD Plan is to (i) demonstrate that OCC has 
considered the scenarios which may potentially prevent it from being 
able to provide its ``Critical Services'' (defined below) as a going-
concern,\8\ (ii) provide appropriate plans for OCC's recovery or 
orderly wind-down based on the results of such consideration; \9\ and 
(iii) impart to relevant authorities the information reasonably 
anticipated to be necessary for purposes of recovery and orderly wind-
down planning.\10\
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    \7\ See id. at 61073.
    \8\ As defined by Rule 17Ad-22(e)(3)(ii), those scenarios are: 
``credit losses, liquidity shortfalls, losses from general business 
risks and other losses.'' 17 CFR 240.17Ad-22(e)(3)(ii).
    \9\ See Standards for Covered Clearing Agencies, 81 FR 70786, 
70810 (Oct. 13, 2016).
    \10\ Id.
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    The proposed RWD Plan consists of eight chapters.\11\ Chapter 1 of 
the RWD Plan would provide an executive summary and overview of the 
proposed Plan.\12\ Chapter 2 of the proposed RWD Plan is designed to 
impart information that OCC believes would be essential to relevant 
authorities for purposes of recovery and orderly wind-down planning, as 
well as to provide readers of the RWD Plan with necessary context for 
the subsequent discussion and analysis of OCC's ``Critical Services'' 
and ``Critical Support Functions'' in Chapter 4 (discussed below) and 
of OCC's resolution process in Chapter 6 (discussed below).\13\ In 
Chapter 3 of the proposed RWD Plan, OCC would identify each of its 
fourteen different internal support functions and provide a brief 
description of the activities performed by each such support 
function.\14\ The primary purpose of Chapter 4 of the proposed RWD Plan 
would be to identify OCC's ``Critical Services'' and ``Critical Support 
Functions.'' \15\
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    \11\ Notice, supra note 3, 82 FR at 61073.
    \12\ Id.
    \13\ Id. at 61074.
    \14\ Id.
    \15\ Id. The RWD Plan would define a ``Critical Service'' as a 
service provided by OCC that, if interrupted, would likely have a 
material negative impact on participants or significant third 
parties, give rise to contagion, or undermine the general confidence 
of markets the FMU serves. Id.
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    Chapter 5 of OCC's proposed RWD Plan would constitute OCC's 
Recovery Plan.\16\ the purpose of Chapter 5 would be to demonstrate 
that OCC has considered scenarios which may potentially prevent it from 
being able to provide its Critical Services as a going-concern and 
that, based on the scenarios considered, OCC has prepared appropriate 
plans for its recovery.\17\ Chapter 6 of OCC's proposed RWD Plan would 
constitute OCC's Wind-Down Plan (``WDP'').\18\ Chapter 6 would 
demonstrate that OCC has considered scenarios which may potentially 
prevent it from being able to provide its Critical Services as a going-
concern and that OCC has adequately evaluated plans for its orderly 
wind-down.\19\ Chapter 7 of OCC's proposed Plan would memorialize the 
prior governance for approval of the earlier drafts of OCC's recovery 
and orderly wind-down plan and would establish an internal governance 
process for the maintenance, review and approval of the proposed RWD 
Plan.\20\
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    \16\ Id. at 61075.
    \17\ Id. For the purposes of the RWD Plan, OCC would define 
``recovery'' consistent with the definition advanced by the 
Committee on Payments and Market Infrastructures and the 
International Organization of Securities Commissions, which is ``the 
actions of [a Financial Market Utility (``FMI'')], consistent with 
its rules, procedures, and other ex-ante contractual arrangements, 
to address any uncovered credit loss, liquidity shortfall, capital 
inadequacy, or business, operational or other structural weakness, 
including the replenishment of any depleted pre-funded financial 
resources and liquidity arrangements, as necessary to maintain the 
FMI's viability as a going concern.'' Id., note 30 (citation 
omitted).
    \18\ Id. at 61080.
    \19\ Id. For the purposes of the RWD Plan, OCC would frame its 
wind-down objective consistent with the objective advanced by the 
Financial Stability Board for CCP resolution: ``CCP resolution 
should have as its objective the pursuit of financial stability and 
ensure the continuity of critical CCP functions in all jurisdictions 
where those functions are critical and without exposing taxpayers to 
risk of loss. . . .The objectives of CCP resolution can be achieved 
either by: (i) Restoring the ability of the CCP to continue to 
perform its critical functions as a going concern; or (ii) ensuring 
continued performance of those functions by another entity or 
arrangement (including a bridge entity established by the resolution 
authority) coupled with the orderly wind-down of the residual CCP in 
resolution.'' Id., note 54 (citation omitted).
    \20\ Id. at 61080.
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III. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-OCC-2017-021 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the Proposed Rule Change 
should be approved or disapproved.\21\ Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the Proposed Rule Change. As noted above, institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to provide additional comment on the 
Proposed Rule Change and provide arguments to support the Commission's 
analysis as to whether to approve or disapprove the Proposed Rule 
Change.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\22\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is

[[Page 13178]]

instituting proceedings to allow for additional analysis, and input 
from, commenters with respect to the Proposed Rule Change's consistency 
with the Act and the rules thereunder, including the following:
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    \22\ Id.
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     Section 17A(b)(3)(F) of the Act,\23\ which requires, in 
part, that the rules of a clearing agency be designed to promote the 
prompt and accurate clearnance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of the clearing agency or for which it is 
responsible, and, in general, to protect investors and the public 
interest; and
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(3)(ii) of the Act,\24\ which requires a 
covered clearing agency to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to plan for the 
recovery and orderly wind-down of the covered clearing agency 
necessitated by credit losses, liquidity shortfalls, losses from 
general business risk, or any other losses.
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    \24\ 17 CFR 17Ad-22(e)(3)(ii).
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IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
Proposed Rule Change with respect to the issues identified above, as 
well as any other concerns they may have with the Proposed Rule Change. 
In particular, the Commission invites the written views of interested 
persons concerning whether the Proposed Rule Change is consistent with 
Section 17A(b)(3)(F) and Rule 17Ad-22(e)(3)(ii) under the Act, cited 
above, or any other provision of the Act, rules, and regulations 
thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\25\
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    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 (1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by April 17, 2018. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
May 1, 2018.
    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 No. SR-OCC-2017-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-OCC-2017-020. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the Proposed Rule Change that are filed with 
the Commission, and all written communications relating to the Proposed 
Rule Change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/about/publications/bylaws.jsp.
    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 No. SR-OCC-2017-021 and should 
be submitted on or before April 17, 2018. If comments are received, any 
rebuttal comments should be submitted on or before May 1, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06106 Filed 3-26-18; 8:45 am]
 BILLING CODE 8011-01-P