83 FR 2843 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of No Objection to Advance Notice, as Modified by Amendment No. 1, Concerning the Adoption of a New Minimum Cash Requirement for the Clearing Fund

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 13 (January 19, 2018)

Page Range		2843-2846
FR Document		2018-00857

Federal Register, Volume 83 Issue 13 (Friday, January 19, 2018)

[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2843-2846]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-00857]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82501; File No. SR-OCC-2017-808]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of No Objection to Advance Notice, as Modified by Amendment No.
1, Concerning the Adoption of a New Minimum Cash Requirement for the
Clearing Fund

January 12, 2018.
The Options Clearing Corporation (``OCC'') filed on November 14,
2017

[[Page 2844]]

with the Securities and Exchange Commission (``Commission'') advance
notice SR-OCC-2017-808 (``Advance Notice'') pursuant to Section
806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of
2010 (``Payment, Clearing and Settlement Supervision Act'') \1\ and
Rule 19b-4(n)(1)(i) under the Securities Exchange Act of 1934
(``Exchange Act'') \2\ to propose a new minimum cash contribution
requirement for its Clearing Fund \3\ (``Cash Clearing Fund
Requirement'') and also provide for the pass-through of interest income
earned on such deposits to its Clearing Members. The proposed changes
are intended to enhance OCC's liquidity risk management by increasing
the amount of qualifying liquid resources available, as well as to
provide for a more consistent level of cash available in its prefunded
financial resources. The Advance Notice was published for comment in
the Federal Register on December 14, 2017.\4\ The Commission did not
receive any comments on the Advance Notice. This publication serves as
notice of no objection to the Advance Notice.
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\1\ 12 U.S.C. 5465(e)(1). The Financial Stability Oversight
Council designated OCC a systemically important financial market
utility (``SIFMU'') on July 18, 2012. See Financial Stability
Oversight Council 2012 Annual Report, Appendix A, 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.
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ Unless specified otherwise, capitalized terms shall have the
meaning OCC ascribes in its By-Laws and Rules.
\4\ Exchange Act Release No. 34-82247 (Dec. 8, 2017), 82 FR
59031 (Dec. 14, 2017) (``Notice of Filing of Advance Notice'').
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I. Background

OCC maintains a Clearing Fund, composed of contributions required
to be made by all Clearing Members, to make good losses suffered by OCC
under a number of circumstances, including the default or failure of a
Clearing Member to make good on any obligation for which OCC may be
responsible in the exercise of its duties as a central counterparty.
Presently, Article VIII, Section 3(a) of OCC's By-Laws provides that
Clearing Fund contributions shall be in the form of cash and Government
securities, but neither OCC's By-Laws nor Rules provides a minimum cash
requirement for contributions to the Clearing Fund. Article VIII,
Section 4(a) of OCC's By-Laws allows for OCC to invest cash
contributions to the Clearing Fund, partially or wholly, in OCC's
account in Government securities, and to the extent that such
contributions are not so invested, they shall be deposited by OCC in a
separate account or accounts for Clearing Fund contributions in
approved custodians. Article VIII, Section 4(a) of OCC's By-Laws,
however, presently does not account for the treatment of interest
earned on cash deposits held in OCC's bank account at the Federal
Reserve.

II. Description of the Advance Notice

A. Proposed Change To Establish the Cash Clearing Fund Requirement

OCC proposes to establish a Cash Clearing Fund Requirement for its
Clearing Fund to increase the amount of qualifying liquid resources
available to OCC to account in the event there is an extreme scenario
in the financial markets and OCC has to address any resultant liquidity
demands. Further, the proposal seeks to ensure that OCC holds, and
maintains access to, a more consistent level of cash clearing fund
resources in its available prefunded financial resources. Specifically,
the proposed rule change would require that Clearing Members
collectively contribute $3 billion in cash to the Clearing Fund. Each
Clearing Member's proportionate share of the Cash Clearing Fund
Requirement shall be determined by the current Clearing Fund allocation
methodology in OCC Rule 1001.
OCC's current liquidity resources are sized to cover historically
observed liquidity demands and potential demands based on forecasts
with a 12 month time horizon. The sizing calculations, in turn, are
based on the potential exposure resulting from the default of a single
clearing member. Further, the current clearing fund is sized, at a
minimum, to ensure that OCC maintains sufficient collateral to access
its committed liquidity facilities. OCC represented that it maintains
committed liquidity facilities of $3 billion to cover its calculated
historical and forecasted demands.\5\
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\5\ See Exchange Act Release No. 81058 (June 30, 2017), 82 FR
31371 (July 6, 2017) (SR-OCC-2017-803); Exchange Act Release No.
76641 (December 14, 2015), 80 FR 79114 (December 18, 2015) (SR-OCC-
2015-805). Both facilities allow OCC to obtain cash in exchange for
government securities 60 minutes after notice is given and
collateral is posted.
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After analyzing its liquidity demands in extreme stress
scenarios,\6\ OCC determined that it would propose the $3 billion Cash
Clearing Fund Requirement to increase the amount and reliability of its
liquid resources. OCC represented that, based upon its analysis, the
peak stressed liquidity demands of the largest or two largest Clearing
Members, which normally occur in conjunction with certain monthly
expirations, could exceed the capacity of OCC's current committed
liquidity facilities. Although OCC believes that it would be able to
cover the resulting shortfall with cash already present in the Clearing
Fund, OCC stated that it could not rely on such cash always being
available because, under OCC's current By-Laws and Rules, there is no
ability for OCC to ensure that a minimum amount of cash is maintained
in the Clearing Fund at all times. As a result, OCC believes that the
proposed $3 billion Cash Clearing Fund Requirement, combined with OCC's
$3 billion of committed liquidity facilities, would provide liquid
resources sufficient to cover the peak stressed liquidity demands of
the largest one or two Clearing Members observed in the analysis.
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\6\ OCC represented that it performed an analysis of its stress
liquidity demands based on a 1-in-70 year hypothetical market event.
Specifically, OCC started its analysis by selecting the largest
historical peak monthly settlements that occurred over the
historical look-back period of data generated by the stress test
system. It then also selected certain large non-expiration days to
supplement the analysis. From this it estimated the mark-to-market
and cash settled exercise and assignment obligations for the members
driving the historical peak demand under the proposed stress tests
scenario to determine the stressed peak demand.
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B. Proposed Change To Allow Temporary Increase of Cash Clearing Fund
Requirement

The proposed change would also provide authority for OCC to
temporarily increase the amount of the Cash Clearing Fund Requirement.
OCC's Executive Chairman, Chief Administrative Officer (``CAO''), or
Chief Operating Officer (``COO''), would have the authority, upon
providing notice to the Risk Committee, to temporarily raise the Cash
Clearing Fund Requirement up to an amount that includes the size of the
Clearing Fund as determined in accordance with Rule 1001 for the month
in question. A Clearing Member will be required to satisfy any increase
in its required cash contribution pursuant to an increase in the Cash
Clearing Fund Requirement no later than one hour before the close of
the Fedwire on the business day following OCC's issuance of an
instruction to increase cash contributions.
In such circumstances, the Risk Committee, by rule, would be
obligated to review any such temporary increase as soon as practicable,
but in any event within 20 calendar days of the increase. In its
review, the Risk Committee shall determine whether (1) the increase in
the minimum Cash Clearing Fund Requirement is no longer required, or
(2) OCC's Clearing Fund contribution

[[Page 2845]]

requirements and other related rules should be modified to ensure that
OCC continues to maintain sufficient liquid resources to cover its
largest aggregate payment obligations in extreme but plausible market
conditions. In the event that the Risk Committee would determine to
permanently increase the Cash Clearing Fund Requirement, OCC would
initiate any regulatory approval process required to effect such a
change.\7\
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\7\ However, OCC represented that it would not decrease the Cash
Clearing Fund Requirement while the regulatory approvals for a
change in the Cash Clearing Fund Requirement are being obtained to
ensure that OCC continues to maintain sufficient liquid resources to
cover its liquidity demands during that time.
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OCC acknowledged that increasing the Cash Clearing Fund Requirement
could impose a liquidity constraint on its clearing members.
Accordingly, OCC has proposed to limit the circumstances in which it
could make such an increase. By rule, OCC would only be able to
exercise this authority to protect OCC, its clearing members, or the
general public. Further, any Cash Clearing Fund Requirement increase
would have to: (i) Be based upon then-existing facts and circumstances,
(ii) be in furtherance of the integrity of OCC and the stability of the
financial system, and (iii) take into consideration the legitimate
interests of Clearing Members and market participants.
These changes would be reflected in new paragraph (a)(i) of Section
3 of Article VIII of OCC's By-Laws, as well as in new Interpretation
and Policy .04 to Section 3 of Article VIII.

C. Proposed Changes to Pass-Through Interest on Clearing Fund Cash to
Clearing Members

Under the proposal, OCC stated that substantially all the cash
deposits in the Clearing Fund would be held in an account established
by OCC at a Federal Reserve Bank. OCC proposes that it would pass the
interest income earned in such account through to its Clearing Members.
Specifically, OCC proposes to revise Article VIII, Section 4(a) of
OCC's By-Laws to provide that any interest earned on cash deposits held
at an account at the Federal Reserve shall accrue to the benefit of
Clearing Members (calculated daily based on each Clearing Member's pro
rata share of Clearing Fund cash deposits), provided that such Clearing
Members have provided OCC with all tax documentation as OCC may from
time to time require in order to effectuate such payment.
To accommodate the pass through of interest income, OCC would also
amend its Fee Policy to add definitions for ``Pass-Through Interest
Revenue'' and ``Operating Expenses'' to exclude from the calculation of
the Business Risk Buffer projected interest revenue and expense,
respectively, related to the pass-through of earned interest from OCC
to Clearing Members.\8\ OCC also proposes to add a new example of the
Business Risk Buffer calculation reflecting this change and make
clarifying changes throughout the policy to incorporate the use of the
new defined terms. In addition, OCC proposes to amend the Fee Policy to
remove references to ``Proposed Rule 17Ad-22(e)(15)'' to reflect the
adoption of the Commission's Covered Clearing Agency Standards.
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\8\ While interest income earned by OCC from its bank account at
the Federal Reserve would be passed on to its Clearing Members, OCC
anticipates that it would charge a cash management fee to cover
associated costs (i.e., administrative and similar costs). OCC would
file a separate proposed rule change with the Commission, subject to
receiving all necessary regulatory approvals for the proposed
changes described herein, prior to implementing any cash management
fee
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D. Proposed Conforming Changes

In conjunction with the aforementioned changes, OCC is also
proposing to make four related conforming changes. First, OCC proposes
to revise Interpretation and Policy .01 of Rule 1001 to reflect that
the new minimum Clearing Fund size is $3 billion (instead of $1
billion) plus 110% of the size of OCC's committed liquidity facilities,
which conforms to the Cash Clearing Fund Requirement. Second, OCC
proposes to amend the definition of ``Approved Custodian'' in Article
I, Section 1 of the By-Laws to clarify that the Federal Reserve Bank
may also be an Approved Custodian, to the extent it is available to
OCC. Third, OCC is proposing to delete existing Article VIII, Section
4(b), regarding the establishment of a segregated funds account for
cash contributions to the Clearing Fund. The segregated funds account
allows a Clearing Member to contribute cash to a bank or trust company
account maintained in the name of OCC, subject to OCC's exclusive
control, but the account also includes the name of the Clearing Member
and any interest accrues to the Clearing Member rather than OCC. OCC
proposes to eliminate the account type because Clearing Members have
not expressed interest in using such an account, no such accounts are
in use today, and moving forward, substantially all cash Clearing Fund
contributions will held in OCC's account at the Federal Reserve Bank.
Fourth, OCC proposes to introduce new language to Article VIII, Section
4(a) to clarify that cash contributions to the Clearing Fund that are
deposited at approved custodians may be commingled with the Clearing
Fund contributions of different Clearing Members.

III. Discussion and Commission Findings

Although the Payment, Clearing and Settlement Supervision Act does
not specify a standard of review for an advance notice, the stated
purpose is instructive.\9\ The stated purpose of the Payment, Clearing
and Settlement 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 SIFMUs and
strengthening the liquidity of SIFMUs.\10\
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\9\ See 12 U.S.C. 5461(b).
\10\ Id.
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Section 805(a)(2) of the Payment, Clearing and Settlement
Supervision Act \11\ authorizes the Commission to prescribe regulations
containing risk-management standards for the payment, clearing, and
settlement activities of designated clearing entities engaged in
designated activities for which the Commission is the supervisory
agency. Section 805(b) of the Payment, Clearing and Settlement
Supervision Act \12\ provides the following objectives and principles
for the Commission's risk-management standards prescribed under Section
805(a):
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\11\ 12 U.S.C. 5464(a)(2).
\12\ 12 U.S.C. 5464(b).
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To promote robust risk management;
To promote safety and soundness;
To reduce systemic risks; and
To support the stability of the broader financial system.

Section 805(c) provides, in addition, that the Commission's risk-
management standards may address such areas as risk-management and
default policies and procedures, among others areas.\13\
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\13\ 12 U.S.C. 5464(c).
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The Commission has adopted risk-management standards under Section
805(a)(2) of the Payment, Clearing and Settlement Supervision Act and
the Exchange Act (the ``Clearing Agency Rules'').\14\ The Clearing
Agency Rules

[[Page 2846]]

require each covered clearing agency, among other things, to establish,
implement, maintain, and enforce written policies and procedures that
are reasonably designed to meet certain minimum requirements for
operations and risk-management practices on an ongoing basis. As such,
it is appropriate for the Commission to review advance notices for
consistency with the objectives and principles for risk-management
standards described in Section 805(b) of the Payment, Clearing and
Settlement Supervision Act and the Clearing Agency Rules.
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\14\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No.
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
See also Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing
Agency Standards''). The Commission established an effective date of
December 12, 2016, and a compliance date of April 11, 2017, for the
Covered Clearing Agency Standards. On March 4, 2017, the Commission
granted covered clearing agencies a temporary exemption from
compliance with Rule 17Ad-22(e)(3)(ii) and certain requirements in
Rules 17Ad-22(e)(15)(i) and (ii) until December 31, 2017, subject to
certain conditions. OCC is a ``covered clearing agency'' as defined
in Rule 17Ad-22(a)(5).
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A. Consistency With Section 805(b) of the Payment, Clearing and
Settlement Supervision Act

The Commission believes the Advance Notice is consistent with the
stated objectives and principles of Section 805(b) of the Payment,
Clearing and Settlement Supervision Act of promoting robust risk
management, promoting safety and soundness, reducing systemic risks,
and supporting the stability of the broader financial system.\15\
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\15\ 12 U.S.C. 5464(b).
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The Commission believes that the Cash Clearing Fund Requirement
would enhance OCC's ability to manage its liquidity risk exposure,
thereby promoting robust risk management. Similarly, the Commission
believes that increasing the amount of cash, and therefore the overall
amount of qualifying liquid resources, available to cover OCC's
liquidity demands arising in stressed scenarios is consistent with
promoting safety and soundness. Based on the analysis provided by OCC,
the Commission believes that OCC's conclusion is reasonable, i.e., that
under certain stressed conditions as set forth in the analysis, the
peak stressed liquidity demands of the largest clearing member could
exceed the size of OCC's committed liquidity facilities. Moreover, the
Commission understands that OCC is unable to rely on the fact that
there will always be deposits of cash in the Clearing Fund sufficient
to cover such demands because, under its current By-laws and Rules,
there is no ability for OCC to ensure that a minimum amount of cash is
maintained in the Clearing Fund at all times. Therefore, there is a
risk that OCC could face liquidity shortfalls in the event of a default
by a clearing member whose payment obligations exceed OCC's liquid
resources. OCC determined to address this risk by proposing to
establish the Cash Clearing Fund Requirement. Establishing the Cash
Clearing Fund Requirement would provide OCC with more qualifying liquid
resources, which, in turn, enhances OCC's ability to cover payment
obligations that could arise in stressed conditions. Further, the
proposal to give OCC the authority to temporarily increase the Cash
Clearing Fund Requirement gives OCC additional means to address
liquidity shortfalls in extreme scenarios.
The Commission also believes that the proposed changes are
consistent with reducing systemic risks and supporting the stability of
the broader financial system. OCC is the sole registered clearing
agency for the U.S. listed options markets and a SIFMU. As such, it is
important for OCC to implement measures that enhance its ability to
manage risks that could cause a financial loss or settlement disruption
and threaten the stability of the U.S. listed options markets and the
broader financial system. The Commission believes that the proposed
change is designed to enhance OCC's ability to continue to make timely
settlement of payment obligations and otherwise service the U.S.
options markets while in the midst of experiencing an extreme market
event in the form of the default of up to two of its largest clearing
members. As such, the Commission believes the proposed change is
consistent with reducing systemic risks and supporting the stability of
the broader financial system.

B. Consistency With Rules 17Ad-22(e)(7)(i), (iii), and (viii) Under the
Exchange Act

The Commission further believes that the proposed change is
consistent with the Covered Clearing Agency Standards, specifically
Rule 17Ad-22(e)(7), which requires that a covered clearing agency
establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage its liquidity risk. This includes measuring, monitoring, and
managing the covered clearing agency's settlement and funding flows on
an ongoing and timely basis, as well as its use of intraday
liquidity.\16\ The Division believes that the proposed change is
consistent with several particular sub-parts of Rule 17Ad-22(e)(7),
which require that OCC's liquidity risk management policies and
procedures be reasonably designed to achieve the following:
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\16\ 17 CFR 240.17Ad-22(e)(7).

Maintaining sufficient liquid resources at the minimum
in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of foreseeable
stress scenarios that includes, but is not limited to, the default
of the participant family that would generate the largest aggregate
payment obligation for the covered clearing agency in extreme but
plausible market conditions; \17\
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\17\ 17 CFR 240.17Ad-22(e)(7)(i).
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using the access to accounts and services at a Federal
Reserve Bank or other relevant central bank, when available and
where the board of directors of the covered clearing agency has
determined that it would be practical to enhance its management of
liquidity risk; \18\ and
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\18\ 17 CFR 240.17Ad-22(e)(7)(iii).
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addressing foreseeable liquidity shortfalls that would
not be covered by a covered clearing agency's liquid resources and
seeking to avoid unwinding, revoking, or delaying the same-day
settlement of payment obligations.\19\
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\19\ 17 CFR 240.17Ad-22(e)(7)(viii).

By proposing the Cash Clearing Fund Requirement, OCC has taken measures
consistent with the standard in Rule 17Ad-22(e)(7)(i). OCC also
represented that substantially all of OCC's Clearing Fund deposits
consisting of cash would be held in an account established by OCC at a
Federal Reserve Bank and further clarified that interest earned in such
an account would be paid to its members on a specified basis. By
proposing to use its access to accounts at a Federal Reserve Bank to
support the maintenance of the Cash Clearing Fund Requirement, OCC has
taken measures consistent with the standard in Rule 17Ad-22(e)(7)(iii)
which provides for using access to a central bank account, where
available and determined to be practical. Further, the proposed
authority to temporarily increase the Cash Clearing Fund Requirement is
intended to address a foreseeable liquidity shortfall and is therefore
consistent with the requirement in Rule 17Ad-22(e)(7)(viii).

IV. Conclusion

It is therefore noticed, pursuant to Section 806(e)(1)(G) of the
Payment, Clearing and Settlement Supervision Act,\20\ that the
Commission does not object to Advance Notice (SR-OCC-2017-808) and that
OCC is authorized to implement the proposed change.
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\20\ 12 U.S.C. 5465(e)(1)(G).

By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2018-00857 Filed 1-18-18; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 2843

with access to the internet or television. pressures on the Exchange in setting the All submissions should refer to File
Conversely, the value of such products terms for distributing TOPO Plus. The Number SR–Phlx–2018–08. This file
to Distributors and investors decreases if Commission found that the availability number should be included on the
order flow falls, because the products of those alternatives, as well as the subject line if email is used. To help the
contain less content. Exchange’s compelling need to attract Commission process and review your
Competition among trading platforms order flow, imposed ‘‘significant comments more efficiently, please use
can be expected to constrain the competitive pressure on Phlx to act only one method. The Commission will
aggregate return each platform earns equitably, fairly, and reasonably in post all comments on the Commission’s
from the sale of its joint products, but setting the terms of its proposal.’’ 29 The internet website (http://www.sec.gov/
different platforms may choose from a Exchange believes that the same rules/sro.shtml). Copies of the
range of possible, and equally analysis and conclusions apply here. submission, all subsequent
reasonable, pricing strategies as the In sum, the proposed fee structure is amendments, all written statements
means of recovering total costs. The designed to ensure a fair and reasonable with respect to the proposed rule
Exchange pays rebates to attract orders, use of Exchange resources by allowing change that are filed with the
charges relatively low prices for market the Exchange to recoup costs while Commission, and all written
information and charges relatively high continuing to offer its data products at communications relating to the
prices for accessing posted liquidity. competitive rates to firms proposed rule change between the
Other platforms may choose a strategy Commission and any person, other than
3. Self-Regulatory Organization’s
of paying lower liquidity rebates to those that may be withheld from the
Statement on Comments on the
attract orders, setting relatively low public in accordance with the
Proposed Rule Change Received From
prices for accessing posted liquidity, provisions of 5 U.S.C. 552, will be
Members, Participants, or Others
and setting relatively high prices for available for website viewing and
market information. Still others may No written comments were either
printing in the Commission’s Public
provide most data free of charge and solicited or received.
Reference Room, 100 F Street NE,
rely exclusively on transaction fees to III. Date of Effectiveness of the Washington, DC 20549 on official
recover their costs. Finally, some Proposed Rule Change and Timing for business days between the hours of
platforms may incentivize use by Commission Action 10:00 a.m. and 3:00 p.m. Copies of the
providing opportunities for equity filing also will be available for
ownership, which may allow them to The foregoing rule change has become
effective pursuant to Section inspection and copying at the principal
charge lower direct fees for executions office of the Exchange. All comments
and data. 19(b)(3)(A)(ii) of the Act.30
At any time within 60 days of the received will be posted without change.
In this environment, there is no Persons submitting comments are
economic basis for regulating maximum filing of the proposed rule change, the
Commission summarily may cautioned that we do not redact or edit
prices for one of the joint products in an
temporarily suspend such rule change if personal identifying information from
industry in which suppliers face
it appears to the Commission that such comment submissions. You should
competitive constraints with regard to
action is: (i) Necessary or appropriate in submit only information that you wish
the joint offering. Such regulation is
the public interest; (ii) for the protection to make available publicly. All
unnecessary because an ‘‘excessive’’
of investors; or (iii) otherwise in submissions should refer to File
price for one of the joint products will
furtherance of the purposes of the Act. Number SR–Phlx–2018–08, and should
ultimately have to be reflected in lower
If the Commission takes such action, the be submitted on or before February 9,
prices for other products sold by the
Commission shall institute proceedings 2018.
firm, or otherwise the firm will
experience a loss in the volume of its to determine whether the proposed rule For the Commission, by the Division of
sales that will be adverse to its overall should be approved or disapproved. Trading and Markets, pursuant to delegated
profitability. In other words, an increase authority.31
IV. Solicitation of Comments
in the price of data will ultimately have Eduardo A. Aleman,
Interested persons are invited to Assistant Secretary.
to be accompanied by a decrease in the
submit written data, views, and
cost of executions, or the volume of both [FR Doc. 2018–00852 Filed 1–18–18; 8:45 am]
arguments concerning the foregoing,
data and executions will fall. BILLING CODE 8011–01–P
Indeed, in approving the fees for including whether the proposed rule
TOPO Plus in 2010, the Commission change is consistent with the Act.
noted that the Exchange was subject to Comments may be submitted by any of
SECURITIES AND EXCHANGE
competitive pressures in setting its fees the following methods:
COMMISSION
for TOPO Plus. First, the Commission Electronic Comments
noted that the Exchange had a [Release No. 34–82501; File No. SR–OCC–
• Use the Commission’s internet 2017–808]
‘‘compelling need’’ to attract order flow, comment form (http://www.sec.gov/
which imposed ‘‘significant pressure’’ rules/sro.shtml); or Self-Regulatory Organizations; The
on the Exchange to act reasonably in • Send an email to rule-comments@ Options Clearing Corporation; Notice
setting its fees for PHLX market data, sec.gov. Please include File Number SR– of No Objection to Advance Notice, as
particularly given that ‘‘the market Phlx–2018–08 on the subject line. Modified by Amendment No. 1,
participants that will pay such fees Concerning the Adoption of a New
often will be the same market Paper Comments
Minimum Cash Requirement for the
daltland on DSKBBV9HB2PROD with NOTICES

participants from whom Phlx must • Send paper comments in triplicate Clearing Fund
attract order flow.’’ 28 The Commission to Secretary, Securities and Exchange
also found that there were a number of Commission, 100 F Street NE, January 12, 2018.
alternative sources of information that Washington, DC 20549–1090. The Options Clearing Corporation
imposed significant competitive (‘‘OCC’’) filed on November 14, 2017
29 Id.
28 See TOPO Plus approval order, 75 FR at 31833. 30 15 U.S.C. 78s(b)(3)(A)(ii). 31 17 CFR 200.30–3(a)(12).

VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 E:\FR\FM\19JAN1.SGM 19JAN1

2846 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices

require each covered clearing agency, resources. OCC determined to address • Maintaining sufficient liquid resources at
among other things, to establish, this risk by proposing to establish the the minimum in all relevant currencies to
implement, maintain, and enforce Cash Clearing Fund Requirement. effect same-day and, where appropriate,
written policies and procedures that are Establishing the Cash Clearing Fund intraday and multiday settlement of payment
obligations with a high degree of confidence
reasonably designed to meet certain Requirement would provide OCC with
under a wide range of foreseeable stress
minimum requirements for operations more qualifying liquid resources, which, scenarios that includes, but is not limited to,
and risk-management practices on an in turn, enhances OCC’s ability to cover the default of the participant family that
ongoing basis. As such, it is appropriate payment obligations that could arise in would generate the largest aggregate payment
for the Commission to review advance stressed conditions. Further, the obligation for the covered clearing agency in
notices for consistency with the proposal to give OCC the authority to extreme but plausible market conditions; 17
objectives and principles for risk- temporarily increase the Cash Clearing • using the access to accounts and services
management standards described in Fund Requirement gives OCC additional at a Federal Reserve Bank or other relevant
Section 805(b) of the Payment, Clearing means to address liquidity shortfalls in central bank, when available and where the
and Settlement Supervision Act and the extreme scenarios. board of directors of the covered clearing
Clearing Agency Rules. agency has determined that it would be
The Commission also believes that the practical to enhance its management of
A. Consistency With Section 805(b) of proposed changes are consistent with liquidity risk; 18 and
the Payment, Clearing and Settlement reducing systemic risks and supporting • addressing foreseeable liquidity
Supervision Act the stability of the broader financial shortfalls that would not be covered by a
system. OCC is the sole registered covered clearing agency’s liquid resources
The Commission believes the and seeking to avoid unwinding, revoking, or
clearing agency for the U.S. listed
Advance Notice is consistent with the delaying the same-day settlement of payment
options markets and a SIFMU. As such,
stated objectives and principles of obligations.19
it is important for OCC to implement
Section 805(b) of the Payment, Clearing
measures that enhance its ability to By proposing the Cash Clearing Fund
and Settlement Supervision Act of
manage risks that could cause a Requirement, OCC has taken measures
promoting robust risk management,
financial loss or settlement disruption consistent with the standard in Rule
promoting safety and soundness,
and threaten the stability of the U.S. 17Ad–22(e)(7)(i). OCC also represented
reducing systemic risks, and supporting
listed options markets and the broader that substantially all of OCC’s Clearing
the stability of the broader financial
financial system. The Commission Fund deposits consisting of cash would
system.15
The Commission believes that the believes that the proposed change is be held in an account established by
Cash Clearing Fund Requirement would designed to enhance OCC’s ability to OCC at a Federal Reserve Bank and
enhance OCC’s ability to manage its continue to make timely settlement of further clarified that interest earned in
liquidity risk exposure, thereby payment obligations and otherwise such an account would be paid to its
promoting robust risk management. service the U.S. options markets while members on a specified basis. By
Similarly, the Commission believes that in the midst of experiencing an extreme proposing to use its access to accounts
increasing the amount of cash, and market event in the form of the default at a Federal Reserve Bank to support the
therefore the overall amount of of up to two of its largest clearing maintenance of the Cash Clearing Fund
qualifying liquid resources, available to members. As such, the Commission Requirement, OCC has taken measures
cover OCC’s liquidity demands arising believes the proposed change is consistent with the standard in Rule
in stressed scenarios is consistent with consistent with reducing systemic risks 17Ad–22(e)(7)(iii) which provides for
promoting safety and soundness. Based and supporting the stability of the using access to a central bank account,
on the analysis provided by OCC, the broader financial system. where available and determined to be
Commission believes that OCC’s B. Consistency With Rules 17Ad– practical. Further, the proposed
conclusion is reasonable, i.e., that under 22(e)(7)(i), (iii), and (viii) Under the authority to temporarily increase the
certain stressed conditions as set forth Exchange Act Cash Clearing Fund Requirement is
in the analysis, the peak stressed intended to address a foreseeable
liquidity demands of the largest clearing The Commission further believes that liquidity shortfall and is therefore
member could exceed the size of OCC’s the proposed change is consistent with consistent with the requirement in Rule
committed liquidity facilities. Moreover, the Covered Clearing Agency Standards, 17Ad–22(e)(7)(viii).
the Commission understands that OCC specifically Rule 17Ad–22(e)(7), which
is unable to rely on the fact that there requires that a covered clearing agency IV. Conclusion
will always be deposits of cash in the establish, implement, maintain and
enforce written policies and procedures It is therefore noticed, pursuant to
Clearing Fund sufficient to cover such Section 806(e)(1)(G) of the Payment,
demands because, under its current By- reasonably designed to effectively
measure, monitor, and manage its Clearing and Settlement Supervision
laws and Rules, there is no ability for Act,20 that the Commission does not
OCC to ensure that a minimum amount liquidity risk. This includes measuring,
monitoring, and managing the covered object to Advance Notice (SR–OCC–
of cash is maintained in the Clearing 2017–808) and that OCC is authorized
Fund at all times. Therefore, there is a clearing agency’s settlement and
funding flows on an ongoing and timely to implement the proposed change.
risk that OCC could face liquidity
shortfalls in the event of a default by a basis, as well as its use of intraday By the Commission.
clearing member whose payment liquidity.16 The Division believes that Brent J. Fields,
obligations exceed OCC’s liquid the proposed change is consistent with Secretary.
daltland on DSKBBV9HB2PROD with NOTICES

several particular sub-parts of Rule [FR Doc. 2018–00857 Filed 1–18–18; 8:45 am]
Commission granted covered clearing agencies a 17Ad–22(e)(7), which require that BILLING CODE 8011–01–P
temporary exemption from compliance with Rule OCC’s liquidity risk management
17Ad–22(e)(3)(ii) and certain requirements in Rules policies and procedures be reasonably 17 17 CFR 240.17Ad–22(e)(7)(i).
17Ad–22(e)(15)(i) and (ii) until December 31, 2017,
subject to certain conditions. OCC is a ‘‘covered
designed to achieve the following: 18 17 CFR 240.17Ad–22(e)(7)(iii).
clearing agency’’ as defined in Rule 17Ad–22(a)(5). 19 17 CFR 240.17Ad–22(e)(7)(viii).
15 12 U.S.C. 5464(b). 16 17 CFR 240.17Ad–22(e)(7). 20 12 U.S.C. 5465(e)(1)(G).

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Document Created: 2018-01-19 02:42:46
Document Modified: 2018-01-19 02:42:46

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		83 FR 2843