83 FR 55768 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Extend Term Limits for Member Directors Serving on The Options Clearing Corporation's Board of Directors
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 216 (November 7, 2018)
Federal Register Volume 83, Issue 216 (November 7, 2018)
| Page Range | 55768-55771 | |
| FR Document | 2018-24309 |
[Federal Register Volume 83, Number 216 (Wednesday, November 7, 2018)] [Notices] [Pages 55768-55771] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-24309] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84521; File No. SR-OCC-2018-013] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Extend Term Limits for Member Directors Serving on The Options Clearing Corporation's Board of Directors November 1, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on October 26, 2018, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change by OCC would extend the term limits for Member Directors serving on the Board of Directors from two consecutive three-year terms to three consecutive three-year terms. The proposed changes to OCC's By-Laws and Board of Directors Charter and Corporate Governance Principles are included as Exhibits 5A and 5B, respectively. Material proposed to be added is underlined and material proposed to be deleted is marked in strikethrough text. The proposed rule change, including Exhibits 5A and 5B, is available on OCC's website at https://www.theocc.com/about/publications/bylaws.jsp. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.\3\ --------------------------------------------------------------------------- \3\ OCC's By-Laws and Rules can be found on OCC's public website: http://optionsclearing.com/about/publications/bylaws.jsp. OCC's Board of Directors Charter and Corporate Governance Principles is also available on OCC's public website: https://www.theocc.com/about/corporate-information/board-charter.jsp. --------------------------------------------------------------------------- II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose Background OCC is proposing changes to Article III, Section 2 of its By-Laws and to its Board of Directors Charter and Corporate Governance Principles (``Board Charter'') that would extend the term limits for Member Directors from two consecutive three-year terms to three consecutive three-year terms. The purpose of the proposed rule change is to address issues associated with frequent Member Director turnover by providing the potential for longer consecutive service by Member Directors who, among other considerations, may have developed considerable knowledge about OCC's business and the interests of Clearing Members. Board Composition and Member Director Considerations OCC's Certificate of Incorporation and By-Laws establish the composition of its Board of Directors (``Board'') and the procedures for director selection. When at its full capacity, the Board consists of twenty directors: (i) Nine directors representing OCC Clearing Members (``Member Directors''); (ii) five directors designated by and representing each of OCC's five Equity Exchanges (``Exchange Directors''); (iii) five directors who are not affiliated with any national securities exchange, national securities association or with any broker or dealer in securities (``Public Directors''); and (iv) one management director, who serves as the Executive Chairman (``Management Director'').\4\ --------------------------------------------------------------------------- \4\ OCC By-Laws, Article III, Sections 1, 2, 6, 6A and 7 (addressing the number of directors and required qualifications of Member Directors, Exchange Directors, Public Directors and the Management Director); see also Board Charter at 4 (Size of Board; Composition). --------------------------------------------------------------------------- [[Page 55769]] In connection with OCC's status as a registered clearing agency, Section 17A(b)(3)(C) of the Act \5\ requires, among other things, that OCC's rules \6\ must assure a fair representation of its participants in the selection of its directors and administration of its affairs.\7\ The term ``participant'' when used with respect to a clearing agency under the Act means any person, such as a Clearing Member, who directly uses the clearing agency to clear or settle securities transactions.\8\ Accordingly, OCC's By-Laws set forth the qualifications for Member Directors, providing that a Member Director must be either a (i) Clearing Member or (ii) representative (e.g., a director, senior officer, principal or general partner) of a Clearing Member Organization or an affiliate of such organization.\9\ --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1(b)(3)(C). \6\ 15 U.S.C. 78c(a)(27) (defining the term ``rules of a clearing agency''). \7\ The Commission has noted that the Act ``does not define fair representation or set up particular standards of representation. Instead, it provides that the Commission must determine whether the rules of the clearing agency regarding the manner in which decisions are made give fair voice to participants as well as to shareholders in the selection of directors and the administration of its affairs. The Commission has stated that `at a minimum, fair representation requires that the entity responsible for nominating individuals for membership on the board of directors should be obligated by by-law or rule to make nominations with a view toward assuring fair representation of the interests of shareholders and a cross-section of the community of participants.''' Securities Exchange Act Release No. 72564 (July 8, 2014), 79 FR 40824, 40828 (July 14, 2014) (internal citations omitted). \8\ See 15 U.S.C. 78c(a)(24) (defining the term ``participant'' when used with respect to a clearing agency) and 15 U.S.C. 78c(a)(9) (defining the term ``person''). \9\ OCC By-Laws, Article I, Section 1.R.(6) and Article III, Section 2. --------------------------------------------------------------------------- At the annual meeting of stockholders, OCC's stockholders elect Member Directors from a list of nominees prepared by the Board's Governance and Nominating Committee (``GNC'') and approved by the Board.\10\ In furtherance of the Act's fair representation requirement described above, Article III, Section 5 of OCC's By-Laws requires the GNC in selecting Member Director nominees to ``endeavor to achieve balanced representation among Clearing Members on the Board of Directors to assure that (i) not all Member Directors are representatives of the largest Clearing Member Organizations based on the prior year's volume, and (ii) the mix of Member Directors includes representatives of Clearing Member Organizations that are primarily engaged in agency trading on behalf of retail customers or individual investors.'' \11\ All director nominees, including Member Director nominees, must also be considered under standards for directors in OCC's Fitness Standards for Directors, Clearing Members and Others (``Fitness Standards'') \12\ regarding their skills, experience, expertise, attributes and professional backgrounds.\13\ OCC's Fitness Standards also promote the fair representation considerations noted above under Section 17A(b)(3)(C) of the Act \14\ and Article III, Section 5 of the By-Laws in that they require that the GNC in nominating directors seek to achieve a balanced representation of directors among all Clearing Members and among the business activities of Clearing Members.\15\ --------------------------------------------------------------------------- \10\ OCC By-Laws, Article III, Section 5. In advance of the election, OCC shares the list of nominees with Clearing Members who are provided an opportunity to submit additional nominees. Id. \11\ OCC By-Laws, Article III, Section 5. \12\ The Fitness Standards are available on OCC's public website: https://www.theocc.com/about/corporate-information/board-charter.jsp. \13\ See OCC's Fitness Standards at 1-2; see also OCC Governance and Nominating Committee Charter (``GNC Charter'') at 3 (providing that the GNC shall identify, screen and review individuals qualified to be elected or appointed to serve as Member Directors consistent with the Fitness Standards), available on OCC's public website at https://www.theocc.com/about/corporate-information/board-committee-charters.jsp; OCC By-Laws Article III, Section 2, Interpretation and Policy .01 (providing that the GNC shall use the Fitness Standards for Directors, Clearing Members and Others in considering Member Director nominees). \14\ 15 U.S.C. 78q-1(b)(3)(C). \15\ Fitness Standards at 2. --------------------------------------------------------------------------- Member Director Term Limits Member Directors are the only OCC directors currently subject to term limits.\16\ Specifically, Member Directors are limited to serving two consecutive three-year terms for a total for a total of six consecutive years of Board service (excluding any time that may be served filling a vacancy).\17\ These term limits are one of several mechanisms that help ensure that the composition of Member Directors serving on OCC's Board is rotated on a periodic basis to promote fair representation of Clearing Members. Other mechanisms include the GNC's administration of the fair representation considerations that are set out in Article III, Section 5 of the By-Laws,\18\ a review by the GNC at least every three years of the composition of the Board as a whole for consistency with public interest and regulatory requirements \19\ and evaluation of the potential nominees under the Fitness Standards.\20\ --------------------------------------------------------------------------- \16\ Exchange Directors, Public Directors and the Management Director are not subject to any term limits. \17\ OCC By-Laws, Article III, Section 2(a). For example, a Member Director who is appointed in 2018 to fill a vacancy and then is elected to serve a three-year term beginning in 2020 would currently be eligible to serve out two consecutive three-year terms ending in 2026. \18\ See supra note 11 and accompanying text. \19\ See GNC Charter at 3-4. \20\ See Fitness Standards at 2 (requiring consideration of additional criteria for Member Directors such as balanced representation among all Clearing Members and the development of a mix of Member Directors). --------------------------------------------------------------------------- In a recent review by OCC of the tenure of its Member Directors from 1999 to 2018, OCC found that a majority of Member Directors during the period served for less than their full period of eligible service.\21\ This high level of Member Director turnover indicates that factors other than Member Director term limits are already providing opportunities for OCC to rotate Board representation among the body of OCC Clearing Members. It is also the case that a high rate of early departures by Member Directors can risk impairing the Board's effectiveness due to the related disruptions in its composition as a decision-making body and the loss of institutional knowledge held by the departing Member Directors. Early departures of Member Directors also raise administrative efficiency concerns for OCC because it must devote substantial time and resources to the identification of appropriate new Member Director candidates and to their orientation upon election. --------------------------------------------------------------------------- \21\ A Member Director may leave before the end of his or her term for a variety of reasons such as retirement, moving to a new firm, changing jobs within a firm, or because the GNC declines to nominate the individual for an additional term. --------------------------------------------------------------------------- Proposed Changes As an available tool to help address the concerns described above regarding Member Director turnover, OCC proposes to amend its By-Laws and its Board Charter to provide that a Member Director may serve for a limit of three consecutive three-year terms rather than two consecutive three-year terms.\22\ OCC believes that this change would enhance the tools at its disposal to promote administrative efficiency of the Board without compromising fair representation among Clearing Members. In OCC's experience, Member Directors who reach the current two-term limit often have developed considerable knowledge of OCC's business and provide valuable judgment about the intersection of OCC's interests and the interests of Clearing Members. If the continued service of such a Member Director would be appropriate [[Page 55770]] but for the current term limit as decided through the Board's approval of the nominee, OCC believes that it should not have to forgo the benefits of that Member Director's service for an additional consecutive three-year term for reasons unrelated to the quality of the Member Director's service. Currently, a high performing Member Director in this situation would be denied the ability to serve a third consecutive three-year term, to the detriment of OCC and its stakeholders. By contrast, a similarly situated Public Director or Exchange Director would not be limited in this way since they are not subject to term limits. --------------------------------------------------------------------------- \22\ Specifically, OCC would replace the reference to ``two'' consecutive term limits with ``three'' consecutive term limits in Article III, Section 2 of the By-Laws and in Item 8 of the Membership subsection under the Board Issues section of the Board Charter. --------------------------------------------------------------------------- In connection with the proposed rule change, Member Directors would still be required to be nominated by the Board and elected by OCC's stockholders to each three-year term. Therefore, the proposed rule change would not guarantee that any Member Director would serve for the proposed limit of three consecutive three-year terms. Rather, a Member Director would merely be eligible to serve a third consecutive term if such continued service was also appropriate under all other relevant considerations (e.g., the GNC's administration of the fair representation considerations in Article III, Section 5 of the By-Laws, a review by the GNC at least every three years of the composition of the Board as a whole for consistency with public interest and regulatory requirements, and the evaluation of the potential nominees under the Fitness Standards). In the case of any Member Director who has served two consecutive terms, the GNC would be free to determine that such Member Director would not be appropriate as a nominee for a third consecutive term, including in light of the fair representation considerations described above. However, where a high performing Member Director is not otherwise disqualified, OCC would not be forced to lose the benefits of his or her continued service for a third consecutive three-year term. (2) Statutory Basis Section 17A(b)(3)(F) of the Act \23\ requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions, and, in general, protect investors and the public interest. OCC believes that the proposed rule change is consistent with these requirements because OCC would be afforded flexibility to continue to benefit from the institutional knowledge and experience of a Member Director for a third consecutive three-year term where appropriate. The benefits that flow from informed and experienced Member Directors in turn help OCC carry out its clearing agency functions to promote the prompt and accurate clearance and settlement of securities transactions, consistent with the protection of investors and the public interest. Allowing for this flexibility would increase the tools available to OCC to mitigate the effects of high Member Director turnover on Board performance, which in turn promotes OCC's ability to carry out its clearing agency functions consistent with Section 17A(b)(3)(F) of the Act. \24\ --------------------------------------------------------------------------- \23\ 15 U.S.C. 78q-1(b)(3)(F). \24\ Id. --------------------------------------------------------------------------- As described above, Section 17A(b)(3)(C) of the Act \25\ requires, among other things, that the rules of a clearing agency assure a fair representation of its participants in the selection of its directors and administration of its affairs.\26\ OCC believes that the proposed rule change is consistent with the fair representation requirements of Section 17A(b)(3)(C) of the Act \27\ because it would provide OCC with greater flexibility to select Member Directors who optimize Board performance while keeping in place the mechanisms described above that would continue to promote fair representation among Clearing Members on the Board, including: the GNC's administration of the fair representation considerations in Article III, Section 5 of the By-Laws, a review by the GNC at least every three years of the composition of the Board as a whole for consistency with public interest and regulatory requirements, and evaluation of the potential nominees under the Fitness Standards.\28\ The proposed rule change would cause Member Directors to be eligible to serve a third consecutive three-year term but would not guarantee that any Member Director would be nominated or elected to a third consecutive term. Moreover, in certain circumstances the disqualification of Member Directors who have reached the current term limit could actually inhibit OCC's ability to assure fair representation where the disqualified Member Director is a superior candidate to others in terms of assuring fair representation among Clearing Members. In this regard, the greater flexibility OCC would enjoy under the proposed rule change offers greater opportunity to assure consistency with Section 17A(b)(3)(C) of the Act \29\ by not precluding Member Director nominees who could further fair representation objectives through continued service. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78q-1(b)(3)(C). \26\ See supra note 7. \27\ 15 U.S.C. 78q-1(b)(3)(C). \28\ See supra notes 18-20 and accompanying text. \29\ 15 U.S.C. 78q-1(b)(3)(C). --------------------------------------------------------------------------- Rules 17Ad-22(e)(2)(i)-(iv) under the Act \30\ require that a covered clearing agency, such as OCC, establish, implement, maintain and enforce written policies and procedures reasonably designed to ``provide for governance arrangements that, among other things: (i) Are clear and transparent; (ii) clearly prioritize the safety and efficiency of the covered clearing agency; (iii) support the public interest requirements in Section 17A of the Act (15 U.S.C. 78q-1) applicable to clearing agencies, and the objectives of owners and participants; and (iv) establish that the board of directors and senior management have appropriate experience and skills to discharge their duties and responsibilities[.]'' OCC believes that the proposed rule change would be consistent with these requirements for the reasons described below. --------------------------------------------------------------------------- \30\ 17 CFR 240.17Ad-22(e)(2)(i)--(iv). --------------------------------------------------------------------------- The revised term limits for Member Directors would be set forth explicitly in OCC's By-Laws and its Board Charter that are available on its website, consistent with clear and transparent governance arrangements.\31\ The proposed rule change would also promote a governance structure that prioritizes the safety and efficiency of OCC by providing it with greater flexibility, where appropriate, to retain the institutional knowledge and skills of high performing Member Directors for a third consecutive three-year term.\32\ For the same reasons described above regarding how the proposed rule change is consistent with the fair representation requirements under Section 17A(b)(3)(C) of the Act, the proposed rule change would also be consistent with the requirement in Rule 17Ad-22(e)(2)(iii) \33\ to support the public interest requirements in Section 17A of the Act (which includes the fair representation requirement) applicable to clearing agencies and the objectives of owners and participants. Finally, consistent with Rule 17Ad-22(e)(2)(iv) \34\ the proposed rule change would promote a Board structure in which OCC's directors have appropriate experience and skills to discharge their duties and responsibilities by making available an additional pool of qualified Member Director candidates who have [[Page 55771]] already served two consecutive three-year terms and therefore may possess institutional knowledge and judgment that is valuable to the Board and difficult to replace. --------------------------------------------------------------------------- \31\ 17 CFR 240.17Ad-22(e)(2)(i). \32\ 17 CFR 240.17Ad-22(e)(2)(ii). \33\ 17 CFR 240.17Ad-22(e)(2)(iii). \34\ 17 CFR 240.17Ad-22(e)(2)(iv). --------------------------------------------------------------------------- The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency's Statement on Burden on Competition Section 17A(b)(3)(I) of the Act \35\ requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. OCC does not believe that the proposed rule change would impact or impose any burden on competition. --------------------------------------------------------------------------- \35\ 15 U.S.C. 78q-1(b)(3)(I). --------------------------------------------------------------------------- Clearing Members would not be placed at a competitive disadvantage to other Clearing Members as a result of Member Directors becoming eligible to serve for a third consecutive three-year term. Member Directors would still be required to be nominated by the GNC and elected by OCC's stockholders, and in the case of any Member Director who has served two consecutive terms the GNC would remain free to determine that such Member Director is not appropriate as a nominee for a third consecutive term, including in light of fair representation considerations. In this way, the proposed rule change applies equally to all Clearing Members. The proposed term limit increase is intended to provide OCC with greater flexibility to select Member Directors who optimize Board performance while keeping in place existing requirements that promote fair representation among Clearing Members on the Board, such as the GNC's administration of the fair representation considerations in Article III, Section 5 of the By-Laws, a review by the GNC at least every three years of the composition of the Board as a whole for consistency with public interest and regulatory requirements, and evaluation of the potential nominees under the Fitness Standards.\36\ --------------------------------------------------------------------------- \36\ See supra notes 18-20 and accompanying text. --------------------------------------------------------------------------- For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not impact or impose a burden on competition. (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self- regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-OCC-2018-013 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-OCC-2018-013. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's website at https://www.theocc.com/about/publications/bylaws.jsp. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2018-013 and should be submitted on or before November 28, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\37\ --------------------------------------------------------------------------- \37\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-24309 Filed 11-6-18; 8:45 am] BILLING CODE 8011-01-P
![55768 Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices
IV. Solicitation of Comments For the Commission, by the Division of II. Clearing Agency’s Statement of the
Trading and Markets, pursuant to delegated Purpose of, and Statutory Basis for, the
Interested persons are invited to authority.18 Proposed Rule Change
submit written data, views, and Eduardo A. Aleman,
In its filing with the Commission,
arguments concerning the foregoing, Assistant Secretary.
OCC included statements concerning
including whether the proposed rule [FR Doc. 2018–24308 Filed 11–6–18; 8:45 am] the purpose of and basis for the
change is consistent with the Act. BILLING CODE 8011–01–P proposed rule change and discussed any
Comments may be submitted by any of comments it received on the proposed
the following methods: rule change. The text of these statements
SECURITIES AND EXCHANGE may be examined at the places specified
Electronic Comments COMMISSION in Item IV below. OCC has prepared
• Use the Commission’s internet [Release No. 34–84521; File No. SR–OCC– summaries, set forth in sections (A), (B),
comment form (http://www.sec.gov/ 2018–013] and (C) below, of the most significant
rules/sro.shtml); or aspects of these statements.
Self-Regulatory Organizations; The
• Send an email to rule-comments@ (A) Clearing Agency’s Statement of the
Options Clearing Corporation; Notice
sec.gov. Please include File Number SR– Purpose of, and Statutory Basis for, the
of Filing of Proposed Rule Change To
BX–2018–050 on the subject line. Proposed Rule Change
Extend Term Limits for Member
Paper Comments Directors Serving on The Options (1) Purpose
Clearing Corporation’s Board of
• Send paper comments in triplicate Background
Directors
to Secretary, Securities and Exchange OCC is proposing changes to Article
Commission, 100 F Street NE, November 1, 2018. III, Section 2 of its By-Laws and to its
Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the Board of Directors Charter and
Securities Exchange Act of 1934 Corporate Governance Principles
All submissions should refer to File (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule (‘‘Board Charter’’) that would extend the
Number SR–BX–2018–050. This file 19b–4 thereunder,2 notice is hereby term limits for Member Directors from
number should be included on the given that on October 26, 2018, The two consecutive three-year terms to
subject line if email is used. To help the Options Clearing Corporation (‘‘OCC’’) three consecutive three-year terms. The
Commission process and review your filed with the Securities and Exchange purpose of the proposed rule change is
comments more efficiently, please use Commission (‘‘SEC’’ or ‘‘Commission’’) to address issues associated with
only one method. The Commission will the proposed rule change as described frequent Member Director turnover by
post all comments on the Commission’s in Items I, II, and III below, which Items providing the potential for longer
internet website (http://www.sec.gov/ have been prepared primarily by OCC. consecutive service by Member
rules/sro.shtml). Copies of the The Commission is publishing this Directors who, among other
submission, all subsequent notice to solicit comments on the considerations, may have developed
amendments, all written statements proposed rule change from interested considerable knowledge about OCC’s
with respect to the proposed rule persons. business and the interests of Clearing
change that are filed with the I. Clearing Agency’s Statement of the Members.
Commission, and all written Terms of Substance of the Proposed Board Composition and Member
communications relating to the Rule Change Director Considerations
proposed rule change between the
The proposed rule change by OCC OCC’s Certificate of Incorporation and
Commission and any person, other than would extend the term limits for By-Laws establish the composition of its
those that may be withheld from the Member Directors serving on the Board Board of Directors (‘‘Board’’) and the
public in accordance with the of Directors from two consecutive three- procedures for director selection. When
provisions of 5 U.S.C. 552, will be year terms to three consecutive three- at its full capacity, the Board consists of
available for website viewing and year terms. The proposed changes to twenty directors: (i) Nine directors
printing in the Commission’s Public OCC’s By-Laws and Board of Directors representing OCC Clearing Members
Reference Room, 100 F Street NE, Charter and Corporate Governance (‘‘Member Directors’’); (ii) five directors
Washington, DC 20549 on official Principles are included as Exhibits 5A designated by and representing each of
business days between the hours of and 5B, respectively. Material proposed OCC’s five Equity Exchanges
10:00 a.m. and 3:00 p.m. Copies of the to be added is underlined and material (‘‘Exchange Directors’’); (iii) five
filing also will be available for proposed to be deleted is marked in directors who are not affiliated with any
inspection and copying at the principal strikethrough text. The proposed rule national securities exchange, national
office of the Exchange. All comments change, including Exhibits 5A and 5B, securities association or with any broker
received will be posted without change. is available on OCC’s website at https:// or dealer in securities (‘‘Public
Persons submitting comments are www.theocc.com/about/publications/ Directors’’); and (iv) one management
cautioned that we do not redact or edit bylaws.jsp. All terms with initial director, who serves as the Executive
personal identifying information from capitalization that are not otherwise Chairman (‘‘Management Director’’).4
comment submissions. You should defined herein have the same meaning
amozie on DSK3GDR082PROD with NOTICES1
submit only information that you wish as set forth in the OCC By-Laws and about/publications/bylaws.jsp. OCC’s Board of
Rules.3 Directors Charter and Corporate Governance
to make available publicly. All Principles is also available on OCC’s public
submissions should refer to File 18 17
website: https://www.theocc.com/about/corporate-
CFR 200.30–3(a)(12). information/board-charter.jsp.
Number SR–BX–2018–050, and should 1 15U.S.C. 78s(b)(1). 4 OCC By-Laws, Article III, Sections 1, 2, 6, 6A
be submitted on or before November 28, 2 17 CFR 240.19b–4.
and 7 (addressing the number of directors and
2018. 3 OCC’s By-Laws and Rules can be found on required qualifications of Member Directors,
OCC’s public website: http://optionsclearing.com/ Exchange Directors, Public Directors and the
VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 E:\FR\FM\07NON1.SGM 07NON1](https://thefederalregister.org/doc/83_FR_55984/page/1.svg)
![55770 Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices
but for the current term limit as decided experience of a Member Director for a Section 17A(b)(3)(C) of the Act 29 by not
through the Board’s approval of the third consecutive three-year term where precluding Member Director nominees
nominee, OCC believes that it should appropriate. The benefits that flow from who could further fair representation
not have to forgo the benefits of that informed and experienced Member objectives through continued service.
Member Director’s service for an Directors in turn help OCC carry out its Rules 17Ad–22(e)(2)(i)–(iv) under the
additional consecutive three-year term clearing agency functions to promote Act 30 require that a covered clearing
for reasons unrelated to the quality of the prompt and accurate clearance and agency, such as OCC, establish,
the Member Director’s service. settlement of securities transactions, implement, maintain and enforce
Currently, a high performing Member consistent with the protection of written policies and procedures
Director in this situation would be investors and the public interest. reasonably designed to ‘‘provide for
denied the ability to serve a third Allowing for this flexibility would governance arrangements that, among
consecutive three-year term, to the increase the tools available to OCC to other things: (i) Are clear and
detriment of OCC and its stakeholders. mitigate the effects of high Member transparent; (ii) clearly prioritize the
By contrast, a similarly situated Public Director turnover on Board safety and efficiency of the covered
Director or Exchange Director would not performance, which in turn promotes clearing agency; (iii) support the public
be limited in this way since they are not OCC’s ability to carry out its clearing interest requirements in Section 17A of
subject to term limits. agency functions consistent with the Act (15 U.S.C. 78q–1) applicable to
In connection with the proposed rule Section 17A(b)(3)(F) of the Act. 24 clearing agencies, and the objectives of
change, Member Directors would still be As described above, Section owners and participants; and (iv)
required to be nominated by the Board 17A(b)(3)(C) of the Act 25 requires, establish that the board of directors and
and elected by OCC’s stockholders to among other things, that the rules of a senior management have appropriate
each three-year term. Therefore, the clearing agency assure a fair experience and skills to discharge their
proposed rule change would not representation of its participants in the duties and responsibilities[.]’’ OCC
guarantee that any Member Director selection of its directors and believes that the proposed rule change
would serve for the proposed limit of administration of its affairs.26 OCC would be consistent with these
three consecutive three-year terms. believes that the proposed rule change requirements for the reasons described
Rather, a Member Director would is consistent with the fair representation below.
merely be eligible to serve a third requirements of Section 17A(b)(3)(C) of The revised term limits for Member
consecutive term if such continued the Act 27 because it would provide OCC Directors would be set forth explicitly in
service was also appropriate under all with greater flexibility to select Member OCC’s By-Laws and its Board Charter
other relevant considerations (e.g., the Directors who optimize Board that are available on its website,
GNC’s administration of the fair performance while keeping in place the consistent with clear and transparent
representation considerations in Article mechanisms described above that would governance arrangements.31 The
III, Section 5 of the By-Laws, a review continue to promote fair representation proposed rule change would also
by the GNC at least every three years of among Clearing Members on the Board, promote a governance structure that
the composition of the Board as a whole including: the GNC’s administration of prioritizes the safety and efficiency of
for consistency with public interest and the fair representation considerations in OCC by providing it with greater
regulatory requirements, and the Article III, Section 5 of the By-Laws, a flexibility, where appropriate, to retain
evaluation of the potential nominees review by the GNC at least every three the institutional knowledge and skills of
under the Fitness Standards). In the case years of the composition of the Board as high performing Member Directors for a
of any Member Director who has served a whole for consistency with public third consecutive three-year term.32 For
two consecutive terms, the GNC would interest and regulatory requirements, the same reasons described above
be free to determine that such Member and evaluation of the potential regarding how the proposed rule change
Director would not be appropriate as a nominees under the Fitness is consistent with the fair representation
nominee for a third consecutive term, Standards.28 The proposed rule change requirements under Section
including in light of the fair would cause Member Directors to be 17A(b)(3)(C) of the Act, the proposed
representation considerations described eligible to serve a third consecutive rule change would also be consistent
above. However, where a high three-year term but would not guarantee with the requirement in Rule 17Ad–
performing Member Director is not that any Member Director would be 22(e)(2)(iii) 33 to support the public
otherwise disqualified, OCC would not nominated or elected to a third interest requirements in Section 17A of
be forced to lose the benefits of his or consecutive term. Moreover, in certain the Act (which includes the fair
her continued service for a third circumstances the disqualification of representation requirement) applicable
consecutive three-year term. Member Directors who have reached the to clearing agencies and the objectives
(2) Statutory Basis current term limit could actually inhibit of owners and participants. Finally,
OCC’s ability to assure fair consistent with Rule 17Ad–
Section 17A(b)(3)(F) of the Act 23 representation where the disqualified 22(e)(2)(iv) 34 the proposed rule change
requires, among other things, that the Member Director is a superior candidate would promote a Board structure in
rules of a clearing agency be designed to to others in terms of assuring fair which OCC’s directors have appropriate
promote the prompt and accurate representation among Clearing experience and skills to discharge their
clearance and settlement of securities Members. In this regard, the greater duties and responsibilities by making
transactions, and, in general, protect flexibility OCC would enjoy under the available an additional pool of qualified
investors and the public interest. OCC
amozie on DSK3GDR082PROD with NOTICES1
proposed rule change offers greater Member Director candidates who have
believes that the proposed rule change opportunity to assure consistency with
is consistent with these requirements 29 15 U.S.C. 78q–1(b)(3)(C).
because OCC would be afforded 24 Id. 30 17 CFR 240.17Ad–22(e)(2)(i)—(iv).
flexibility to continue to benefit from 25 15 U.S.C. 78q–1(b)(3)(C). 31 17 CFR 240.17Ad–22(e)(2)(i).
the institutional knowledge and 26 See supra note 7. 32 17 CFR 240.17Ad–22(e)(2)(ii).
27 15 U.S.C. 78q–1(b)(3)(C). 33 17 CFR 240.17Ad–22(e)(2)(iii).
23 15 U.S.C. 78q–1(b)(3)(F). 28 See supra notes 18–20 and accompanying text. 34 17 CFR 240.17Ad–22(e)(2)(iv).
VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\07NON1.SGM 07NON1](https://thefederalregister.org/doc/83_FR_55984/page/3.svg)
![Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices 55771
already served two consecutive three- (C) Clearing Agency’s Statement on those that may be withheld from the
year terms and therefore may possess Comments on the Proposed Rule public in accordance with the
institutional knowledge and judgment Change Received from Members, provisions of 5 U.S.C. 552, will be
that is valuable to the Board and Participants or Others available for website viewing and
difficult to replace. Written comments on the proposed printing in the Commission’s Public
rule change were not and are not Reference Room, 100 F Street NE,
The proposed rule change is not
intended to be solicited with respect to Washington, DC 20549, on official
inconsistent with the existing rules of
the proposed rule change and none have business days between the hours of
OCC, including any other rules 10:00 a.m. and 3:00 p.m. Copies of such
proposed to be amended. been received.
filing also will be available for
(B) Clearing Agency’s Statement on III. Date of Effectiveness of the inspection and copying at the principal
Burden on Competition Proposed Rule Change and Timing for office of OCC and on OCC’s website at
Commission Action https://www.theocc.com/about/
Section 17A(b)(3)(I) of the Act 35 Within 45 days of the date of publications/bylaws.jsp.
requires that the rules of a clearing publication of this notice in the Federal All comments received will be posted
agency not impose any burden on Register or within such longer period without change. Persons submitting
competition not necessary or up to 90 days (i) as the Commission may comments are cautioned that we do not
appropriate in furtherance of the designate if it finds such longer period redact or edit personal identifying
purposes of the Act. OCC does not to be appropriate and publishes its information from comment submissions.
believe that the proposed rule change reasons for so finding or (ii) as to which You should submit only information
would impact or impose any burden on the self- regulatory organization that you wish to make available
competition. consents, the Commission will: publicly.
Clearing Members would not be (A) By order approve or disapprove All submissions should refer to File
placed at a competitive disadvantage to the proposed rule change, or Number SR–OCC–2018–013 and should
other Clearing Members as a result of (B) institute proceedings to determine be submitted on or before November 28,
whether the proposed rule change 2018.
Member Directors becoming eligible to
serve for a third consecutive three-year should be disapproved. For the Commission, by the Division of
term. Member Directors would still be IV. Solicitation of Comments Trading and Markets, pursuant to delegated
authority.37
required to be nominated by the GNC Interested persons are invited to Eduardo A. Aleman,
and elected by OCC’s stockholders, and submit written data, views and
in the case of any Member Director who Assistant Secretary.
arguments concerning the foregoing, [FR Doc. 2018–24309 Filed 11–6–18; 8:45 am]
has served two consecutive terms the including whether the proposed rule
GNC would remain free to determine BILLING CODE 8011–01–P
change is consistent with the Act.
that such Member Director is not Comments may be submitted by any of
appropriate as a nominee for a third the following methods: SECURITIES AND EXCHANGE
consecutive term, including in light of COMMISSION
fair representation considerations. In Electronic Comments
this way, the proposed rule change • Use the Commission’s internet
comment form (http://www.sec.gov/ [Release No. 34–84516; File No. SR–ISE–
applies equally to all Clearing Members.
2018–91]
The proposed term limit increase is rules/sro.shtml); or
intended to provide OCC with greater • Send an email to rule-comments@ Self-Regulatory Organizations; Nasdaq
flexibility to select Member Directors sec.gov. Please include File Number SR– ISE, LLC; Notice of Filing and
who optimize Board performance while OCC–2018–013 on the subject line. Immediate Effectiveness of Proposed
keeping in place existing requirements Paper Comments Rule Change To Delete ISE Section 22
that promote fair representation among of the Rulebook Entitled ‘‘Rate-
• Send paper comments in triplicate
Clearing Members on the Board, such as Modified Foreign Currency Options
to Secretary, Securities and Exchange
the GNC’s administration of the fair Rules’’
Commission, 100 F Street NE,
representation considerations in Article Washington, DC 20549–1090. November 1, 2018.
III, Section 5 of the By-Laws, a review
All submissions should refer to File Pursuant to Section 19(b)(1) of the
by the GNC at least every three years of
Number SR–OCC–2018–013. This file Securities Exchange Act of 1934
the composition of the Board as a whole
number should be included on the (‘‘Act’’),1 and Rule 19b–4 thereunder,2
for consistency with public interest and subject line if email is used. To help the notice is hereby given that on October
regulatory requirements, and evaluation Commission process and review your 25, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or
of the potential nominees under the comments more efficiently, please use ‘‘Exchange’’) filed with the Securities
Fitness Standards.36 only one method. The Commission will and Exchange Commission (‘‘SEC’’ or
For the foregoing reasons, OCC post all comments on the Commission’s ‘‘Commission’’) the proposed rule
believes that the proposed rule change internet website (http://www.sec.gov/ change as described in Items I, II, and
is in the public interest, would be rules/sro.shtml). Copies of the III, below, which Items have been
consistent with the requirements of the submission, all subsequent prepared by the Exchange. The
amozie on DSK3GDR082PROD with NOTICES1
Act applicable to clearing agencies, and amendments, all written statements Commission is publishing this notice to
would not impact or impose a burden with respect to the proposed rule solicit comments on the proposed rule
on competition. change that are filed with the change from interested persons.
Commission, and all written
communications relating to the 37 17 CFR 200.30–3(a)(12).
35 15 U.S.C. 78q–1(b)(3)(I). proposed rule change between the 1 15 U.S.C. 78s(b)(1).
36 See supra notes 18–20 and accompanying text. Commission and any person, other than 2 17 CFR 240.19b–4.
VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 E:\FR\FM\07NON1.SGM 07NON1](https://thefederalregister.org/doc/83_FR_55984/page/4.svg)
Document Created: 2018-11-07 00:04:59
Document Modified: 2018-11-07 00:04:59
| 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 55768 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR