83 FR 44091 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 2, Concerning Updates to and Formalization of OCC's Recovery and Orderly Wind-Down Plan
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 168 (August 29, 2018)
Federal Register Volume 83, Issue 168 (August 29, 2018)
| Page Range | 44091-44096 | |
| FR Document | 2018-18673 |
[Federal Register Volume 83, Number 168 (Wednesday, August 29, 2018)] [Notices] [Pages 44091-44096] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-18673] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83918; File No. SR-OCC-2017-021] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 2, Concerning Updates to and Formalization of OCC's Recovery and Orderly Wind-Down Plan August 23, 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 (``Exchange Act''),\1\ and Rule 19b-4 \2\ thereunder to propose to formalize and update its Recovery and Orderly Wind-Down Plan (``RWD Plan'').\3\ The Proposed Rule Change was published for comment in the Federal Register on December 26, 2017.\4\ On January 25, 2018, the Commission designated a longer period of time for Commission action on the Proposed Rule Change.\5\ On March 22, 2018, the Commission published an order to institute proceedings to determine whether to approve or disapprove the Proposed Rule Change.\6\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Notice infra note 4, 82 FR 61072. \4\ Securities Exchange Act Release No. 82352 (Dec. 19, 2017), 82 FR 61072 (Dec. 26, 2017) (File No. SR-OCC-2017-021) (``Notice''). On December 8, 2017, OCC also filed a related advance notice (SR- OCC-2017-810) (``Advance Notice'') 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 Exchange Act. 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. 82514 (Jan. 17, 2017), 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). \5\ Securities Exchange Act Release No. 82586 (Jan. 25, 2018), 83 FR 4527 (Jan. 31, 2018) (File No. SR-OCC-2017-021). \6\ Securities Exchange Act Release No. 82927 (Mar. 22, 2018), 83 FR 13176 (Mar. 27, 2018) (File No. SR-OCC-2017-021). --------------------------------------------------------------------------- On July 11, 2018, OCC filed Partial Amendment No. 1 to the Proposed Rule Change.\7\ On July 13, 2018, OCC filed Partial Amendment No. 2 to the Proposed Rule Change.\8\ Notice of Partial Amendments No. 1 and 2 to the Proposed Rule Change was published for public comment in the Federal Register on August 2, 2018,\9\ and the Commission has received no comments [[Page 44092]] in response. This order approves the Proposed Rule Change as modified by Partial Amendment No. 2 (``Amended Proposed Rule Change''). --------------------------------------------------------------------------- \7\ In Partial Amendment No. 1, OCC made three modifications to the Notice: (1) Removal of sections of the RWD Plan concerning OCC's proposed authority to require cash settlement of certain physically delivered options and single stock futures; (2) updating the list of OCC's Critical Support Functions; and (3) making three changes to the RWD Plan to conform to a change contemporaneously proposed in Partial Amendment No. 2 to OCC filing SR-OCC-2017-020 concerning enhanced and new tools for recovery scenarios. \8\ Partial Amendment No. 2 superseded and replaced Partial Amendment No. 1 in its entirety, due to technical defects in Partial Amendment No. 1. \9\ See Securities Exchange Act Release No. 83732 (Jul. 27, 2018), 83 FR 37864 (Aug. 2, 2018) (``Notice of Amendment''). --------------------------------------------------------------------------- II. Description of the Amended Proposed Rule Change [bds1][bds0] --------------------------------------------------------------------------- \10\ Capitalized terms used but not defined herein have the meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp. --------------------------------------------------------------------------- OCC's proposal would formalize and update its RWD Plan. The purpose of the RWD Plan is to: (i) Demonstrate that OCC has considered the scenarios which may potentially prevent it from being able to provide the services OCC determined to be critical as a going-concern; (ii) provide appropriate plans for OCC's recovery or orderly wind-down based on the results of such consideration; and (iii) impart to relevant authorities the information reasonably anticipated to be necessary for purposes of recovery and orderly wind-down planning. The RWD Plan would identify the services provided by OCC that OCC has determined to be critical, and it would set forth five qualitative events that could trigger a recovery scenario and six qualitative events that could trigger an orderly wind-down. It would also address six scenarios that describe OCC's possible responses to series of stresses. The RWD Plan would also include an overview designed to provide 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 Plan with necessary context for subsequent discussion and analysis. The overview would also include a detailed description of OCC's business, summarizing the role OCC has in the options market as well as the services and products it provides to its clearing members and market participants. The RWD Plan would identify fourteen internal support functions at OCC and provide a brief description of the activities performed by each support function. Similar to the information regarding OCC's business, this information is designed to inform the relevant authorities for orderly wind-down planning and as necessary context for understanding other elements of the RWD Plan. A. Designating Critical Services and Critical Support Functions The RWD Plan would define the terms ``Critical Services'' and ``Critical Support Functions.'' Specifically, a Critical Service would be 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 that OCC serves. A Critical Support Function would be a function within OCC that must continue in some capacity for OCC to be able to continue providing its Critical Services. The RWD Plan would describe the framework that OCC uses to determine whether a service is critical. This framework includes four criteria to determine if failure or discontinuation of a particular service would impact financial and operational capabilities of OCC's clearing members, other FMUs, or the broader financial system: (1) Market dominance, (2) substitutability, (3) interconnectedness, and (4) barriers to entry. The current set of services designated as Critical Services under the RWD Plan is based on the analysis of these measureable indicators and subsequent internal discussion at OCC. The Critical Services currently include, but are not limited to, clearance services for listed options and clearance services for futures. B. Recovery Plan The RWD Plan would include plans for recovery from scenarios that could prevent OCC from providing Critical Services.\11\ After discussing particular scenarios, the RWD Plan identifies the tools that OCC could use as warranted in such scenarios. These tools fall into two categories: (1) Enhanced Risk Management Tools, and (2) Recovery Tools. An Enhanced Risk Management Tool is a tool that is designed to supplement OCC's existing processes and other existing tools in scenarios where OCC faces heightened stresses, while a Recovery Tool is a tool that is generally limited to a scenario in which a specific trigger has occurred. In its RWD Plan, OCC would define a set of five such qualitative trigger events (``Recovery Trigger Events''). --------------------------------------------------------------------------- \11\ For the purposes of the RWD Plan, OCC defines ``recovery'' as ``the actions of [a financial market utility], 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 [financial market utility's] viability as a going concern.'' --------------------------------------------------------------------------- The sequence and timing of the deployment of each Recovery Tool is more structured and lacks the flexibility inherent in the sequence and timing for use of the Enhanced Risk Management Tools. For each tool, the RWD Plan provides an overview of the tool, and, as appropriate, a discussion of its implementation with an estimated time frame for use of the tool, key risks associated with use of the tool, and the expected impact and incentives of using the tool. 1. Enhanced Risk Management Tools OCC stated that the Enhanced Risk Management Tools would be used prophylactically in an effort to prevent the occurrence of a Recovery Trigger Event and would not be limited to recovery. OCC would not anticipate applying a rigid order or timing for the deployment of the Enhanced Risk Management Tools. The RWD Plan would include five Enhanced Risk Management Tools: (1) Use of Current/Retained Earnings; (2) Minimum Clearing Fund Cash Contribution; (3) Borrowing Against Clearing Fund; (4) Credit Facility; and (5) Non-Bank Facility. Use of Current/Retained Earnings. Under its By-Laws, OCC may use current and/or retained earnings to discharge a loss that would be chargeable against the Clearing Fund, but would require unanimous consent from the holders of OCC's Class A and Class B common stock. The RWD Plan acknowledges that the utility of this tool is limited by the requirement for shareholder consent and that OCC's retained earnings presently amount to a small fraction of OCC's existing prefunded Clearing Fund resources. OCC stated that, given this amount, the maximum utility of this tool may be realized in specific circumstances at either the beginning of OCC's loss waterfall or toward the end of OCC's loss waterfall, where it would be sufficient to fully extinguish liabilities without triggering the use of another tool. Minimum Clearing Fund Cash Contribution. Under its current rules, OCC Clearing Members collectively contribute $3 billion in cash to OCC's Clearing Fund.\12\ In addition, OCC may, in certain limited circumstances, increase the minimum cash requirement up to the then- minimum size of the Clearing Fund.\13\ The RWD Plan would acknowledge that increasing the minimum cash requirement would require preparation of OCC documentation that considers the [[Page 44093]] projected liquidity demands for successful management of a defaulted Clearing Member. --------------------------------------------------------------------------- \12\ See OCC By-Laws, Art. VIII, Section 3(a)(i). The Commission recently approved a proposal by OCC that, after implementation, would move this section of the OCC By-Laws to OCC Rule 1002(a)(i). See Securities Exchange Act Release No. 83735 (Jul. 27, 2018), 83 FR 37855, 37859 (Aug. 2, 2018) (SR-OCC-2018-008) (``Order Approving Proposed Rule Change, as Modified by Amendments No. 1 and 2, Related to OCC's Stress Testing and Clearing Fund Methodology''). \13\ See OCC By-Laws, Art. VIII, Section 3(a)(i). --------------------------------------------------------------------------- Borrowing Against Clearing Fund. OCC has the authority to borrow against the Clearing Fund in three circumstances: (1) To meet obligations arising out of the default or suspension of a Clearing Member or any action taken by OCC under Chapter XI of its rules pertaining to the suspension of a clearing member; (2) to borrow or otherwise obtain funds from third parties in lieu of immediately charging the Clearing Fund for a loss that is reimbursable out of the Clearing Fund; and (3) to meet liquidity needs for same-day settlement as a result of the failure of any bank or securities or commodities clearing organization to achieve daily settlement.\14\ The RWD Plan would acknowledge that any borrowing would require preparation of OCC documentation in accordance with OCC procedures. Further, the RWD Plan would recognize that the availability of this tool in advance of a heightened stress scenario would be unknown because OCC's primary liquidity facilities could already be fully or partially utilized. --------------------------------------------------------------------------- \14\ See OCC By-Laws, Art. VIII, Section 5(e). The Commission recently approved a proposal by OCC that, after implementation, would move this section of the OCC By-Laws to OCC Rule 1006(f). See Order Approving Proposed Rule Change Related to OCC Stress Testing and Clearing Fund Methodology, supra note 12, 83 FR at 37859. --------------------------------------------------------------------------- Credit Facility and Non-Bank Liquidity Facility. OCC maintains a $2 billion dollar senior secured 364-day revolving credit facility with a syndicate of lenders for the purpose of providing OCC with liquidity to meet settlement obligations as a central counterparty. The RWD Plan would recognize that an inherent risk of the credit facility is that a portion of the syndicate may not provide funds in timely response to OCC's request. OCC also maintains a $1 billion dollar secured non-bank liquidity facility for the purpose of providing OCC with a non-bank liquidity resource to meet settlement obligations as a central counterparty. Similar to the risk associated with the credit facility, the RWD Plan would recognize the risk that OCC's counterparty may not timely execute the transaction under the non-bank liquidity facility. 2. Recovery Tools Under the RWD Plan, Recovery Tools would be different from Enhanced Risk Management Tools because OCC's use of a Recovery Tool is generally limited to a scenario in which a Recovery Trigger has occurred. The RWD Plan would identify five Recovery Tools, the last four of which would generally be deployed in the order they are described here: (1) Replenishment Capital; (2) Assessment Powers; (3) Voluntary Payments; (4) Voluntary Tear-Up; and (5) Partial Tear-Up.\15\ As noted above, the sequence and timing of deployment of the Recovery Tools would be more structured than the sequence and timing of the use of Enhanced Risk Management Tools. --------------------------------------------------------------------------- \15\ For a more detailed description of the Recovery Tools numbered (2) through (5) here, please see Securities Exchange Act Release No. 83916 (Aug. 23, 2018) (SR-OCC-2017-020). --------------------------------------------------------------------------- Replenishment Capital. OCC holds capital contributed by its stockholder exchanges who have committed to replenish OCC's capital if it falls below a certain threshold.\16\ The RWD Plan would include the replenishment of capital by OCC's stockholder exchanges as a recovery tool. --------------------------------------------------------------------------- \16\ The requirement to replenish OCC's capital was adopted as part of OCC's plan to raise and maintain capital at a specified level (``Capital Plan''). See Securities Exchange Act Release No. 77112 (Feb. 11, 2016), 81 FR 8294 (Feb. 18, 2016) (SR-OCC-2015-02). The Capital Plan was later subject to judicial review by the U.S. Court of Appeals for the District of Columbia Circuit, which remanded for the Commission to further analyze whether the Capital Plan is consistent with the Exchange Act. Susquehanna Int'l Grp., LLP v . SEC, 866 F.3d 442 (D.C. Cir. 2017). The Commission's review of the Capital Plan on remand is ongoing, and the Capital Plan remains in effect during this ongoing review. --------------------------------------------------------------------------- Assessment Powers. Under OCC's rules, OCC has authority to assess a non-defaulting Clearing Member during any cooling-off period for an amount equal to 200 percent of the Clearing Member's then-required contribution to the Clearing Fund.\17\ Following the end of the cooling-off period, each remaining Clearing Member must replenish the Clearing Fund in the amount necessary to meet its then-required contribution.\18\ The RWD Plan would recognize the risk that the use of assessment powers may incentivize Clearing Members to withdraw from membership in OCC to avoid replenishment, and that such withdrawals would limit the resources available to OCC for future assessments. --------------------------------------------------------------------------- \17\ The cooling-off period is the period following a proportionate charge assessed by OCC against the Clearing Members' Clearing Fund contributions. It is a minimum of fifteen days, but could extend to as much as twenty days from the date of the proportionate charge based on intervening events. \18\ A Clearing Member may avoid liability for replenishment by terminating its membership in OCC prior to the end of the cooling- off period. --------------------------------------------------------------------------- Voluntary Payments. OCC's rules provide a framework by which OCC can receive voluntary payments in response to a Clearing Member default. Use of this tool is permissible only where OCC has determined that it may not have sufficient resources to satisfy its obligations and liabilities arising out of the default. The RWD Plan would describe the processes involved in calling for and receiving voluntary payments, including the issuance of a notice to Clearing Members. The RWD Plan would recognize the risk that Clearing Members would be unwilling or unable to make voluntary payments. As an incentive for Clearing Members to provide voluntary payments, a non-defaulting Clearing Member who made a voluntary payment would receive priority in reimbursement from amounts recovered by OCC from the estate of a defaulting Clearing Member. Voluntary Tear-up. OCC's rules provide a framework by which non- defaulting Clearing Members and customers could be permitted to voluntarily extinguish (i.e., voluntarily tear-up) open positions in response to a Clearing Member default. Voluntary Tear-up is permissible only where OCC has determined that it may not have sufficient resources to satisfy its obligations and liabilities arising out of the default. The RWD Plan would contemplate that OCC would initiate any tear-up process after the market close on the day that OCC determines it may have insufficient resources. The RWD Plan would further anticipate that OCC would publish notice of tear-up no later than the following morning (prior to the market open), and that positions would be extinguished following the market close. The RWD Plan would also recognize the risk that Clearing Members would be unwilling or unable to participate in the voluntary tear-up process. A non-defaulting Clearing Member that faced losses, costs, or expenses in reestablishing voluntarily torn-up positions could receive compensation from amounts recovered by OCC from the estate of a defaulting Clearing Member ahead of other Clearing Members that faced such losses, costs, or expenses after reestablishing torn up positions. Partial Tear-up. OCC's rules provide a framework by which OCC could extinguish the remaining open positions of a defaulted Clearing Member or its customers (i.e., Partial Tear-up) in response to a Clearing Member default. The RWD Plan would anticipate that the Partial Tear-up process would be intertwined with the Voluntary Tear-up process described above. The RWD Plan also would contemplate the compensation of Clearing Members facing losses, costs, or expenses after reestablishing torn up positions from Clearing Fund contributions. The RWD Plan also would provide a mapping of Enhanced Risk Management Tools and Recovery Tools to different types of risk exposures. Such risk [[Page 44094]] exposures include: (1) Uncovered credit losses; (2) liquidity shortfalls; (3) replenishment of financial resource; (4) losses related to business, operational, or other structural weaknesses; and (5) re- establishment of a matched book. The RWD Plan discusses how each tool would apply to these risk categories and would reference the stress scenarios contemplated by the RWD Plan. The RWD Plan would outline an escalation process for the occurrence of each Recovery Trigger.\19\ Under the RWD Plan, OCC's Enterprise Risk Management and Financial Risk Management groups would be responsible for recommending which, if any, of the tools described above should be used in a given situation. Further, OCC's Chief Executive Officer and Executive Chairman would be responsible for approval of such recommendations, and OCC's Chief Risk Officer and Management Committee would be responsible for overseeing deployment of such tools. Finally, OCC's Board and the Risk Committee of the Board would be responsible for generally overseeing OCC's recovery efforts. --------------------------------------------------------------------------- \19\ The RWD Plan also would discuss notification of regulators, including the Commission, the U.S. Commodity Futures Trading Commission, and the Federal Deposit Insurance Corporation, in response to the occurrence of a Recovery Trigger. --------------------------------------------------------------------------- C. Orderly Wind-Down Plan The RWD Plan would also include OCC's wind-down plan and include scenarios that could prevent OCC from being able to provide Critical Services as a going-concern. OCC would identify its wind-down objective as the pursuit of financial stability and ensuring the continuity of critical functions. The RWD Plan would provide OCC's assumptions concerning the wind-down process regarding: (1) Duration of wind-down; (2) cost of wind-down; (3) OCC's capitalization; and (4) the maintenance of Critical Services and Critical Support Functions. It also would identify six wind-down triggers (``WDP Trigger Events''), the occurrence of which could jeopardize the viability of OCC's recovery. Under the RWD Plan, the occurrence of a WDP Trigger Event would necessitate notification of regulators, including the Commission, the U.S. Commodity Futures Trading Commission, and the Federal Deposit Insurance Corporation, as well as internal notifications to OCC senior management. The RWD Plan would reference critical interconnections and key agreements for consideration in the context of wind-down. The RWD Plan also would discuss OCC's key actions in wind-down including the: (1) Decision by OCC's Board to initiate wind-down; (2) institution of heightened clearing member requirements; (3) imposition of heightened capital requirements for clearing members; (4) imposition of increased margin requirements; (5) cessation of investment by OCC; (6) institution of new operational practices; and (7) targeted reductions in force. The RWD Plan also would identify transactions that could be entered into to accomplish OCC's wind-down objectives: (1) Stock transactions; (2) merger transactions; and (3) asset transactions. The RWD Plan focuses discussion of wind-down transactions on issues including, but not limited to, governance and regulatory issues. The goal of any such transaction would be to transfer ownership of OCC in a manner that ensures the continuation of OCC's critical services; however, the RWD Plan also would contemplate the cessation of Critical Services through OCC's existing close-out netting rules.\20\ --------------------------------------------------------------------------- \20\ See also OCC By-Laws, Art. VI, Section 27. --------------------------------------------------------------------------- D. Governance The RWD Plan would also memorialize the governance processes for maintenance, review, and approval of the RWD Plan. Under the RWD Plan, all changes would originate in a recommendation from OCC's RWD Working Group. Changes would go through a series of consecutive rounds of review and approval by OCC's Management Committee, the Risk Committee of OCC's Board of Directors, and the full Board of Directors, which would have final approval authority. III. Discussion and Commission Findings Section 19(b)(2)(C) of the Exchange Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization.\21\ After carefully considering the Amended Proposed Rule Change, the Commission believes the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, the Commission finds that the Amended Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Exchange Act \22\ and Rules 17Ad-22(e)(2)(i), (iii), and (v), 17Ad-22(e)(3)(ii), and 17Ad-22(e)(15)(i) thereunder.\23\ --------------------------------------------------------------------------- \21\ 15 U.S.C. 78s(b)(2)(C). \22\ 15 U.S.C. 78q-1(b)(3)(F). \23\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v); (e)(3)(ii); (e)(15)(i). --------------------------------------------------------------------------- A. Consistency With Section 17A(b)(3)(F) of the Exchange Act Section 17A(b)(3)(F) of the Exchange Act requires that the rules of a clearing agency be designed to, among other things, promote the prompt and accurate clearance 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.\24\ --------------------------------------------------------------------------- \24\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- As described above, the RWD Plan would specify the Enhanced Risk Management Tools and Recovery Tools available to OCC in recovery and in an orderly wind-down, as well as the governance framework applicable to the use of such tools. The RWD Plan would analyze the use of the Enhanced Risk Management Tools and Recovery Tools, the incentives created by such tools, and the risks associated with using such tools. The Commission believes that by specifying the tools that OCC would take in either a recovery or a wind-down, the RWD Plan would enhance OCC's ability to address circumstances specific to an extreme stress event, thereby increasing the likelihood that OCC could execute a successful recovery or orderly wind-down in such an event. In increasing the likelihood that OCC could execute a successful recovery or orderly wind-down, the RWD Plan would enhance OCC's ability to maintain continuity of its critical services (including clearance and settlement services) during, through, and following periods of extreme stress giving rise to the need for recovery, thereby promoting the prompt and accurate clearance and settlement of securities transactions. The Commission also believes that the rules proposed in the RWD Plan are designed to assure the safeguarding of securities or funds in the custody or control of OCC by reducing the likelihood of a disorderly or unsuccessful recovery or wind-down, which could otherwise disrupt access to such securities or funds. Further, the Commission believes that the RWD Plan is designed, in general, to protect investors and the public interest by establishing a plan to effectuate an orderly wind-down. The RWD Plan's governance processes and regulatory notice provisions could facilitate either the orderly transfer of OCC's Critical Services to another entity or the orderly [[Page 44095]] close-out of positions. Providing additional information regarding the potential orderly transfer of services or close-out of positions would benefit Clearing Members and their customers by providing greater transparency and certainty regarding the potential disposition or treatment of their positions and assets at OCC, thereby benefiting market participants more broadly. Therefore, the Commission believes that the Amended Proposed Rule Change would promote the prompt and accurate clearance and settlement of securities transactions, assure the safeguarding of securities and funds in OCC's custody and control, and, in general, protect investors and the public interest, consistent with the Section 17A(b)(3)(F) of the Act.\25\ --------------------------------------------------------------------------- \25\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- B. Consistency With Rules 17Ad-22(e)(2)(i), (iii), and (v) Under the Exchange Act Rules 17Ad-22(e)(2)(i), (iii), and (v) require that OCC establish, implement, maintain and enforce written policies and procedures reasonably designed to provide for governance arrangements that are clear and transparent, that support the public interest requirements in Section 17A of the Exchange Act applicable to clearing agencies, and the objectives of owners and participants, and that specify clear and direct lines of responsibility.\26\ --------------------------------------------------------------------------- \26\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v). --------------------------------------------------------------------------- The RWD Plan would outline an escalation process for the occurrence of a Recovery Trigger Event, which would provide a governance framework for the use and functioning of the Enhanced Risk Management Tools and Recovery Tools in addition to those specified elsewhere in OCC's rules. It would also identify the internal notification requirements that would apply to WDP Trigger Events and establish the role of the Board in determining whether to enter into a wind-down or take other key actions, consistent with the governance specified elsewhere in OCC's rules. Moreover, the RWD Plan would identify the internal governance process for the approval of subsequent changes to OCC's RWD Plan. The RWD Plan would also specify the process OCC would take to receive input from various parties at OCC, including management and the Board. Taken together, the Commission believes that these lines of control could contribute to establishing, implementing, maintain and enforcing clear and transparent governance arrangements that support the public interest requirements in Section 17A of the Exchange Act applicable to clearing agencies, and the objectives of owners and participants. Therefore, the Commission believes that the proposed changes are consistent with Rules 17Ad-22(e)(2)(i), (iii), and (v).\27\ --------------------------------------------------------------------------- \27\ Id. --------------------------------------------------------------------------- C. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act Rule 17Ad-22(e)(3)(ii) requires that OCC establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by OCC, which includes plans for the recovery and orderly wind- down of OCC necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses.\28\ --------------------------------------------------------------------------- \28\ 17 CFR 240.17Ad-22(e)(3)(ii). --------------------------------------------------------------------------- The Commission believes that the information the RWD Plan would provide about the OCC's recovery tools would enhance OCC's ability to recover from credit losses, liquidity shortfalls, general business risk losses, or other losses, consistent with Rule 17Ad-22(e)(3)(ii).\29\ Specifically, the information from the RWD Plan would enable OCC to prepare in advance for the use of such tools, which would in turn enhance OCC's ability to use such tools effectively to carry out a successful recovery. In addition, by establishing a single source of information about, and steps needed to effectuate, a recovery of OCC, the RWD Plan would allow OCC personnel to effectuate a recovery in a consistent and coordinated fashion, and would thereby increase the likelihood of a successful recovery. Moreover, by identifying and assessing available Enhanced Risk Management Tools and Recovery Tools, the Commission believes that the RWD Plan would enhance OCC's ability to use such tools effectively to bring about a recovery by identifying in advance which tools may be most effective for different situations or needs, consistent with Rule 17Ad-22(e)(3)(ii).\30\ --------------------------------------------------------------------------- \29\ Id. \30\ Id. --------------------------------------------------------------------------- Similarly, in providing detailed information about the assumptions, actions, and objectives related to triggering and implementing the wind-down portion of the RWD Plan, discussed in more detail above, the Commission believes that the RWD Plan would enhance OCC's ability to effectuate an orderly wind-down, consistent with Rule 17Ad- 22(e)(3)(ii).\31\ Specifically, by setting out in advance the potential events that could cause OCC to trigger, and transactions by which OCC would effectuate, a wind-down, the RWD Plan would enable OCC to prepare in advance for a wind-down, which the Commission believes would enhance OCC's ability to use the RWD Plan effectively to carry-out an orderly wind-down. In addition, by establishing a single source of information about, and steps needed to effectuate, a wind-down of OCC, the Commission believes the RWD Plan would allow OCC personnel to effectuate a wind-down in a consistent and coordinated fashion, and would thereby increase the likelihood of an orderly wind-down. Finally, the RWD Plan would identify the legal basis for OCC's actions with respect to a potential wind-down, including relevant citations to provisions of the rule books of its various clearing services and contractual agreements, which the Commission believes would further facilitate an orderly wind-down process by providing OCC with a single source of information and steps needed for a wind-down, consistent with Rule 17Ad-22(e)(3)(ii).\32\ --------------------------------------------------------------------------- \31\ Id. \32\ Id. --------------------------------------------------------------------------- Therefore, the Commission believes that the proposed changes to adopt plans for the recovery and orderly wind-down of OCC are consistent with Rule 17Ad-22(e)(3)(ii).\33\ --------------------------------------------------------------------------- \33\ Id. --------------------------------------------------------------------------- D. Consistency With Rules 17Ad-22(e)(15)(i) Under the Exchange Act Rule 17Ad-22(e)(15)(i) requires OCC to establish, implement, maintain and enforce written policies and procedures reasonably designed to identify, monitor, and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that OCC can continue operations and services as a going concern if those losses materialize, including by determining the amount of liquid net assets funded by equity based upon its general business risk profile and the length of time required to achieve a recovery or orderly wind-down, as appropriate, of its critical operations and services if such action is taken.\34\ --------------------------------------------------------------------------- \34\ 17 CFR 240.17Ad-22(e)(15)(i). --------------------------------------------------------------------------- OCC's RWD Plan would estimate costs related to a wind-down based on a series of assumptions laid out in the RWD Plan. These assumptions include [[Page 44096]] duration of the wind-down process, OCC's capitalization through the wind-down process, the maintenance of Critical Services and Critical Support Functions, and the retention of personnel and contractual relationships. OCC also provided information regarding its assumption about the cost of the wind-down process. Further, the RWD Plan identifies potential transactions that could be effected to accomplish the objectives of wind-down with the ultimate goal of transferring ownership of OCC itself by the consummation or a consensual sale or similar transaction, in a manner that ensures the continuation of OCC's Critical Services. The Commission considered the assumptions that the RWD Plan makes regarding wind-down as well as the potential transactions in which OCC might engage in the event of a wind-down. The Commission also considered the estimated cost of wind-down noted in the RWD Plan in light of OCC's rules regarding the maintenance of certain capital levels and qualifying liquid resources. The Commission believes that the RWD Plan, which indicates the cost at which OCC could effectuate an orderly wind-down, i.e., at a lower cost than the amount of its liquid resources is consistent with Rule 17Ad-22(e)(15)(i).\35\ --------------------------------------------------------------------------- \35\ Id. --------------------------------------------------------------------------- Therefore, the Commission believes that the proposed changes that would determine costs associated with an orderly wind-down and that would further ensure that OCC holds liquid net assets greater than these costs, are consistent with Rule 17Ad-22(e)(15)(i).\36\ --------------------------------------------------------------------------- \36\ Id. --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the Amended Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, with the requirements of Section 17A of the Exchange Act \37\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \37\ 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). --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,\38\ that the Proposed Rule Change (SR-OCC-2017-021), as modified by Partial Amendment No. 2, be, and it hereby is, approved. --------------------------------------------------------------------------- \38\ 15 U.S.C. 78s(b)(2). \39\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\39\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-18673 Filed 8-28-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Notices 44091
Commission believes that the 200 as well as sufficient information to Act’’),1 and Rule 19b–4 2 thereunder to
percent cap in the proposed changes is enable participants to identify and propose to formalize and update its
consistent with Rule 17Ad–22(e)(4)(ix). evaluate the risks, fees and other Recovery and Orderly Wind-Down Plan
material costs they incur by (‘‘RWD Plan’’).3 The Proposed Rule
5. Authority To Take Timely Action To
participating in OCC.51 The Change was published for comment in
Contain Losses and Liquidity Demands
Commission believes that the proposed the Federal Register on December 26,
and Continue To Meet Obligations
changes address key aspects of OCC’s 2017.4 On January 25, 2018, the
Rule 17Ad–22(e)(13) requires, in default rules and procedures, thereby Commission designated a longer period
relevant part, that OCC establish, providing Clearing Members with a of time for Commission action on the
implement, maintain, and enforce better understanding of the potential Proposed Rule Change.5 On March 22,
written policies and procedures risks and costs they might face in an 2018, the Commission published an
reasonably designed to ensure that it has extreme event where OCC may use its order to institute proceedings to
the authority and operational capacity proposed recovery tools, including the determine whether to approve or
to take timely action to contain losses potential use of the Special Charge. disapprove the Proposed Rule Change.6
and liquidity demands and continue to Accordingly, the Commission believes On July 11, 2018, OCC filed Partial
meet its obligations.49 As described that OCC has disclosed these key Amendment No. 1 to the Proposed Rule
above, OCC’s proposal would provide aspects of its default rules and Change.7 On July 13, 2018, OCC filed
OCC with modified assessment powers procedures, consistent with Rule 17Ad– Partial Amendment No. 2 to the
and new tools of Voluntary Payments, 22(e)(23)(i) and (ii).52 Proposed Rule Change.8 Notice of
Voluntary Tear-Ups, and Partial Tear- Partial Amendments No. 1 and 2 to the
Ups. IV. Conclusion Proposed Rule Change was published
As discussed above, the Commission It is therefore noticed, pursuant to for public comment in the Federal
recognizes that a tear-up would result in Section 806(e)(1)(I) of the Clearing Register on August 2, 2018,9 and the
termination of positions of non- Supervision Act,53 that the Commission Commission has received no comments
defaulting Clearing Members. However, does not object to Advance Notice (SR–
because OCC would only be able to use OCC–2017–809), as modified by 1 15 U.S.C. 78s(b)(1).
its tear-up authority after it has Amendment No. 2, and that OCC is
2 17 CFR 240.19b–4.
conducted an auction pursuant to its authorized to implement the proposed
3 See Notice infra note 4, 82 FR 61072.
Rules and when OCC has determined change as of the date of this notice or
4 Securities Exchange Act Release No. 82352 (Dec.
that it may not have sufficient financial 19, 2017), 82 FR 61072 (Dec. 26, 2017) (File No. SR–
the date of an order by the Commission OCC–2017–021) (‘‘Notice’’). On December 8, 2017,
resources to meet its obligations, a tear- approving proposed rule change SR– OCC also filed a related advance notice (SR–OCC–
up would only arise in an extreme stress OCC–2017–020, as modified by 2017–810) (‘‘Advance Notice’’) with the
scenario. Further, use of tear-up in such Commission pursuant to Section 806(e)(1) of Title
Amendment No. 2, whichever is later. VIII of the Dodd-Frank Wall Street Reform and
circumstances could potentially return
By the Commission. Consumer Protection Act, entitled the Payment,
OCC to a matched book quickly, thereby Clearing, and Settlement Supervision Act of 2010
containing its losses. Eduardo A. Aleman, and Rule 19b–4(n)(1)(i) under the Exchange Act. 12
The Commission believes that these Assistant Secretary. U.S.C. 5465(e)(1) and 17 CFR 240.19b–4(n)(1)(i),
tools are designed to provide greater [FR Doc. 2018–18655 Filed 8–28–18; 8:45 am] respectively. The Advance Notice was published in
certainty to Clearing Members seeking the Federal Register on January 23, 2018. Securities
BILLING CODE 8011–01–P Exchange Act Release No. 82514 (Jan. 17, 2017), 83
to estimate the potential risks and losses FR 3224 (Jan. 23, 2018) (SR–OCC–2017–810).
arising from their use of OCC, while The Financial Stability Oversight Council
enabling OCC to promptly return to a SECURITIES AND EXCHANGE designated OCC a systemically important financial
matched book. The Commission COMMISSION market utility on July 18, 2012. See Financial
Stability Oversight Council 2012 Annual Report,
believes that returning to a matched Appendix A, available at http://www.treasury.gov/
book pursuant to these provisions in the [Release No. 34–83918; File No. SR–OCC– initiatives/fsoc/Documents/2012%20Annual
context of OCC’s default management 2017–021] %20Report.pdf. Therefore, OCC is required to
and recovery facilitates OCC’s comply with the Payment, Clearing and Settlement
operational capacity to timely contain Self-Regulatory Organizations; The Supervision Act and file advance notices with the
losses and liquidity demands while Options Clearing Corporation; Order Commission. See 12 U.S.C. 5465(e).
5 Securities Exchange Act Release No. 82586 (Jan.
continuing to meet its obligations. Thus, Approving Proposed Rule Change, as
25, 2018), 83 FR 4527 (Jan. 31, 2018) (File No. SR–
the Commission believes that the Modified by Partial Amendment No. 2, OCC–2017–021).
proposed changes are consistent with Concerning Updates to and 6 Securities Exchange Act Release No. 82927
Rule 17Ad–22(e)(13).50 Formalization of OCC’s Recovery and (Mar. 22, 2018), 83 FR 13176 (Mar. 27, 2018) (File
Orderly Wind-Down Plan No. SR–OCC–2017–021).
6. Public Disclosure of Key Aspects of 7 In Partial Amendment No. 1, OCC made three
Default Rules August 23, 2018. modifications to the Notice: (1) Removal of sections
of the RWD Plan concerning OCC’s proposed
Rules 17Ad–22(e)(23)(i) and (ii) I. Introduction authority to require cash settlement of certain
require, in relevant part, that OCC physically delivered options and single stock
On December 8, 2017, The Options futures; (2) updating the list of OCC’s Critical
establish, implement, maintain, and Clearing Corporation (‘‘OCC’’) filed with Support Functions; and (3) making three changes to
enforce written policies and procedures the Securities and Exchange the RWD Plan to conform to a change
reasonably designed to provide for the Commission (‘‘Commission’’) the contemporaneously proposed in Partial
public disclosure of all relevant rules Amendment No. 2 to OCC filing SR–OCC–2017–020
sradovich on DSK3GMQ082PROD with NOTICES
proposed rule change SR–OCC–2017– concerning enhanced and new tools for recovery
and material procedures, including key 021 (‘‘Proposed Rule Change’’) pursuant scenarios.
aspects of default rules and procedures, to Section 19(b) of the Securities 8 Partial Amendment No. 2 superseded and
Exchange Act of 1934 (‘‘Exchange replaced Partial Amendment No. 1 in its entirety,
proposed rule change including, among other due to technical defects in Partial Amendment No.
things, a 300 percent cap on non-defaulting 1.
participants’ liability during a cooling-off period). 51 17 CFR 240.17Ad–22(e)(23)(i) and (ii). 9 See Securities Exchange Act Release No. 83732
49 17 CFR 240.17Ad–22(e)(13). 52 17 CFR 240.17Ad–22(e)(23)(i) and (ii). (Jul. 27, 2018), 83 FR 37864 (Aug. 2, 2018) (‘‘Notice
50 Id. 53 12 U.S.C. 5465(e)(1)(I). of Amendment’’).
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![44092 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Notices
in response. This order approves the would likely have a material negative implementation with an estimated time
Proposed Rule Change as modified by impact on participants or significant frame for use of the tool, key risks
Partial Amendment No. 2 (‘‘Amended third parties, give rise to contagion, or associated with use of the tool, and the
Proposed Rule Change’’). undermine the general confidence of expected impact and incentives of using
markets that OCC serves. A Critical the tool.
II. Description of the Amended
Support Function would be a function
Proposed Rule Change 10 1. Enhanced Risk Management Tools
within OCC that must continue in some
OCC’s proposal would formalize and capacity for OCC to be able to continue OCC stated that the Enhanced Risk
update its RWD Plan. The purpose of providing its Critical Services. Management Tools would be used
the RWD Plan is to: (i) Demonstrate that The RWD Plan would describe the prophylactically in an effort to prevent
OCC has considered the scenarios framework that OCC uses to determine the occurrence of a Recovery Trigger
which may potentially prevent it from whether a service is critical. This Event and would not be limited to
being able to provide the services OCC framework includes four criteria to recovery. OCC would not anticipate
determined to be critical as a going- determine if failure or discontinuation applying a rigid order or timing for the
concern; (ii) provide appropriate plans of a particular service would impact deployment of the Enhanced Risk
for OCC’s recovery or orderly wind- financial and operational capabilities of Management Tools. The RWD Plan
down based on the results of such OCC’s clearing members, other FMUs, would include five Enhanced Risk
consideration; and (iii) impart to or the broader financial system: (1) Management Tools: (1) Use of Current/
relevant authorities the information Market dominance, (2) substitutability, Retained Earnings; (2) Minimum
reasonably anticipated to be necessary (3) interconnectedness, and (4) barriers Clearing Fund Cash Contribution; (3)
for purposes of recovery and orderly to entry. The current set of services Borrowing Against Clearing Fund; (4)
wind-down planning. designated as Critical Services under the Credit Facility; and (5) Non-Bank
The RWD Plan would identify the RWD Plan is based on the analysis of Facility.
services provided by OCC that OCC has these measureable indicators and Use of Current/Retained Earnings.
determined to be critical, and it would subsequent internal discussion at OCC. Under its By-Laws, OCC may use
set forth five qualitative events that The Critical Services currently include, current and/or retained earnings to
could trigger a recovery scenario and six but are not limited to, clearance services discharge a loss that would be
qualitative events that could trigger an for listed options and clearance services chargeable against the Clearing Fund,
orderly wind-down. It would also for futures. but would require unanimous consent
address six scenarios that describe from the holders of OCC’s Class A and
OCC’s possible responses to series of B. Recovery Plan Class B common stock. The RWD Plan
stresses. The RWD Plan would also The RWD Plan would include plans acknowledges that the utility of this tool
include an overview designed to for recovery from scenarios that could is limited by the requirement for
provide information that OCC believes prevent OCC from providing Critical shareholder consent and that OCC’s
would be essential to relevant Services.11 After discussing particular retained earnings presently amount to a
authorities for purposes of recovery and scenarios, the RWD Plan identifies the small fraction of OCC’s existing
orderly wind-down planning, as well as tools that OCC could use as warranted prefunded Clearing Fund resources.
to provide readers of the Plan with in such scenarios. These tools fall into OCC stated that, given this amount, the
necessary context for subsequent two categories: (1) Enhanced Risk maximum utility of this tool may be
discussion and analysis. The overview Management Tools, and (2) Recovery realized in specific circumstances at
would also include a detailed Tools. An Enhanced Risk Management either the beginning of OCC’s loss
description of OCC’s business, Tool is a tool that is designed to waterfall or toward the end of OCC’s
summarizing the role OCC has in the supplement OCC’s existing processes loss waterfall, where it would be
options market as well as the services and other existing tools in scenarios sufficient to fully extinguish liabilities
and products it provides to its clearing where OCC faces heightened stresses, without triggering the use of another
members and market participants. The while a Recovery Tool is a tool that is tool.
RWD Plan would identify fourteen generally limited to a scenario in which Minimum Clearing Fund Cash
internal support functions at OCC and a specific trigger has occurred. In its Contribution. Under its current rules,
provide a brief description of the RWD Plan, OCC would define a set of OCC Clearing Members collectively
activities performed by each support five such qualitative trigger events contribute $3 billion in cash to OCC’s
function. Similar to the information (‘‘Recovery Trigger Events’’). Clearing Fund.12 In addition, OCC may,
regarding OCC’s business, this The sequence and timing of the in certain limited circumstances,
information is designed to inform the deployment of each Recovery Tool is increase the minimum cash requirement
relevant authorities for orderly wind- more structured and lacks the flexibility up to the then-minimum size of the
down planning and as necessary context inherent in the sequence and timing for Clearing Fund.13 The RWD Plan would
for understanding other elements of the use of the Enhanced Risk Management acknowledge that increasing the
RWD Plan. Tools. For each tool, the RWD Plan minimum cash requirement would
provides an overview of the tool, and, require preparation of OCC
A. Designating Critical Services and
as appropriate, a discussion of its documentation that considers the
Critical Support Functions
The RWD Plan would define the 11 For the purposes of the RWD Plan, OCC defines 12 See OCC By-Laws, Art. VIII, Section 3(a)(i). The
terms ‘‘Critical Services’’ and ‘‘Critical ‘‘recovery’’ as ‘‘the actions of [a financial market Commission recently approved a proposal by OCC
sradovich on DSK3GMQ082PROD with NOTICES
Support Functions.’’ Specifically, a utility], consistent with its rules, procedures, and that, after implementation, would move this section
other ex-ante contractual arrangements, to address of the OCC By-Laws to OCC Rule 1002(a)(i). See
Critical Service would be a service any uncovered credit loss, liquidity shortfall, Securities Exchange Act Release No. 83735 (Jul. 27,
provided by OCC that, if interrupted, capital inadequacy, or business, operational or 2018), 83 FR 37855, 37859 (Aug. 2, 2018) (SR–OCC–
other structural weakness, including the 2018–008) (‘‘Order Approving Proposed Rule
10 Capitalized terms used but not defined herein replenishment of any depleted pre-funded financial Change, as Modified by Amendments No. 1 and 2,
have the meanings specified in OCC’s Rules and By- resources and liquidity arrangements, as necessary Related to OCC’s Stress Testing and Clearing Fund
Laws, available at https://www.theocc.com/about/ to maintain the [financial market utility’s] viability Methodology’’).
publications/bylaws.jsp. as a going concern.’’ 13 See OCC By-Laws, Art. VIII, Section 3(a)(i).
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![44096 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Notices
duration of the wind-down process, For the Commission, by the Division of office of the Exchange, and at the
OCC’s capitalization through the wind- Trading and Markets, pursuant to delegated Commission’s Public Reference Room.
down process, the maintenance of authority.39
Eduardo A. Aleman, II. Self-Regulatory Organization’s
Critical Services and Critical Support
Assistant Secretary. Statement of the Purpose of, and
Functions, and the retention of
Statutory Basis for, the Proposed Rule
personnel and contractual relationships. [FR Doc. 2018–18673 Filed 8–28–18; 8:45 am]
Change
OCC also provided information BILLING CODE 8011–01–P
regarding its assumption about the cost In its filing with the Commission, the
of the wind-down process. Further, the Exchange included statements
RWD Plan identifies potential SECURITIES AND EXCHANGE concerning the purpose of and basis for
transactions that could be effected to COMMISSION the proposed rule change and discussed
accomplish the objectives of wind-down [Release No. 34–83925; File No. SR– any comments it received on the
with the ultimate goal of transferring CboeBYX–2018–017] proposed rule change. The text of these
ownership of OCC itself by the statements may be examined at the
consummation or a consensual sale or Self-Regulatory Organizations; Cboe places specified in Item IV below. The
similar transaction, in a manner that BYX Exchange, Inc.; Notice of Filing Exchange has prepared summaries, set
ensures the continuation of OCC’s and Immediate Effectiveness of a forth in Sections A, B, and C below, of
Critical Services. The Commission Proposed Rule Change Related to Fees the most significant parts of such
considered the assumptions that the for Use on Cboe BYX Exchange, Inc. statements.
RWD Plan makes regarding wind-down August 23, 2018. (A) Self-Regulatory Organization’s
as well as the potential transactions in Pursuant to Section 19(b)(1) of the Statement of the Purpose of, and
which OCC might engage in the event of Securities Exchange Act of 1934 (the Statutory Basis for, the Proposed Rule
a wind-down. The Commission also ‘‘Act’’),1 and Rule 19b–4 thereunder,2 Change
considered the estimated cost of wind- notice is hereby given that on August 9,
down noted in the RWD Plan in light of 2018, Cboe BYX Exchange, Inc. (the 1. Purpose
OCC’s rules regarding the maintenance ‘‘Exchange’’ or ‘‘BYX’’) filed with the
of certain capital levels and qualifying The purpose of the proposed rule
Securities and Exchange Commission
change is to amend the Exchange’s fee
liquid resources. The Commission (‘‘Commission’’) the proposed rule
schedule applicable to its equities
believes that the RWD Plan, which change as described in Items I, II and III
trading platform (‘‘BYX Equities’’) to: (1)
indicates the cost at which OCC could below, which Items have been prepared
Increase the ADV 5 requirements to
effectuate an orderly wind-down, i.e., at by the Exchange. The Exchange has
qualify for Add/Remove Volume Tier 6
a lower cost than the amount of its designated the proposed rule change as
associated with fee codes W,6 BB,7 and
liquid resources is consistent with Rule one establishing or changing a member
N,8 and (2) increase the routing fee
17Ad–22(e)(15)(i).35 due, fee, or other charge imposed by the
charged to orders routed to Investors
Therefore, the Commission believes Exchange under Section 19(b)(3)(A)(ii)
Exchange LLC (‘‘IEX’’) using the
that the proposed changes that would of the Act 3 and Rule 19b–4(f)(2)
Destination Specific 9 routing strategy
determine costs associated with an thereunder,4 which renders the
under fee code IX,10 and eliminate an
orderly wind-down and that would proposed rule change effective upon
outdated reference to the TRIM and
further ensure that OCC holds liquid net filing with the Commission. The
Commission is publishing this notice to
assets greater than these costs, are 5 ‘‘ADAV’’ means average daily added volume
solicit comments on the proposed rule
consistent with Rule 17Ad– calculated as the number of shares added per day
change from interested persons. and ‘‘ADV’’ means average daily volume calculated
22(e)(15)(i).36
as the number of shares added or removed,
I. Self-Regulatory Organization’s combined, per day. See BYX Fee Schedule,
IV. Conclusion Statement of the Terms of Substance of Definitions. ADAV and ADV are calculated on a
On the basis of the foregoing, the the Proposed Rule Change monthly basis. The Exchange excludes from its
calculation of ADAV and ADV shares added or
Commission finds that the Amended The Exchange filed a proposal to removed on any day that the Exchange’s system
Proposed Rule Change is consistent amend the Exchange’s fee schedule experiences a disruption that lasts for more than 60
with the requirements of the Exchange applicable to its equities trading minutes during regular trading hours (‘‘Exchange
System Disruption’’), on any day with a scheduled
Act, and in particular, with the platform to: (1) Increase the ADV early market close and on the last Friday in June
requirements of Section 17A of the requirements to qualify for Add/Remove (the ‘‘Russell Reconstitution Day’’). Routed shares
Exchange Act 37 and the rules and Volume Tier 6 associated with fee codes are not included in ADAV or ADV calculation. With
W, BB, and N, and (2) increase the prior notice to the Exchange, a Member may
regulations thereunder. aggregate ADAV or ADV with other Members that
It is therefore ordered, pursuant to routing fee charged to orders routed to control, are controlled by, or are under common
Section 19(b)(2) of the Exchange Act,38 Investors Exchange LLC using the control with such Member (as evidenced on such
Destination Specific routing strategy Member’s Form BD).
that the Proposed Rule Change (SR– 6 W is associated with orders that remove
under fee code IX, and eliminate an
OCC–2017–021), as modified by Partial liquidity from BYX in Tape A securities.
outdated reference to the TRIM and
Amendment No. 2, be, and it hereby is, 7 BB is associated with orders that remove
TRIM2 routing strategies in this fee liquidity from BYX in Tape B securities.
approved.
code. 8 N is associated with orders that remove liquidity
sradovich on DSK3GMQ082PROD with NOTICES
The text of the proposed rule change from BYX in Tape C securities.
35 Id.
36 Id.
is available at the Exchange’s website at 9 Destination Specific is a routing option under
www.markets.cboe.com, at the principal which an order checks the System for available
37 In approving this Proposed Rule Change, the
shares and then is sent to an away trading center
Commission has considered the proposed rule’s or centers specified by the User. See Rule
1 15 U.S.C. 78s(b)(1).
impact on efficiency, competition, and capital 11.13(b)(3)(E).
formation. See 15 U.S.C. 78c(f). 2 17 CFR 240.19b–4. 10 IX is associated with orders routed to IEX using
38 15 U.S.C. 78s(b)(2). 3 15 U.S.C. 78s(b)(3)(A)(ii).
the Destination Specific, TRIM or TRIM2 routing
39 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(2). strategies.
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Document Created: 2018-08-29 00:12:45
Document Modified: 2018-08-29 00:12:45
| 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 44091 |
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