83 FR 6646 - Self-Regulatory Organizations; the Options Clearing Corporation; Order Approving Proposed Rule Change Related to the Options Clearing Corporation's Margin Policy
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 31 (February 14, 2018)
Federal Register Volume 83, Issue 31 (February 14, 2018)
| Page Range | 6646-6650 | |
| FR Document | 2018-02973 |
[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)] [Notices] [Pages 6646-6650] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-02973] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82658; File No. SR-OCC-2017-007] Self-Regulatory Organizations; the Options Clearing Corporation; Order Approving Proposed Rule Change Related to the Options Clearing Corporation's Margin Policy February 7, 2018. I. Introduction On December 11, 2017, the Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR- OCC-2017-007. On December 18, 2017, OCC filed Amendment No. 1 to the proposed rule change.\3\ The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on December 26, 2017.\4\ The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ In Amendment No. 1, OCC modified a portion of its Margin Policy to: (i) State that OCC's Board of Directors (``Board'') is ultimately responsible for annual review and approval of the Policy, and (ii) correctly cite provisions in OCC's Rules governing its stock loan program. OCC did not propose any other changes in Amendment No. 1. \4\ Securities Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR 61060 (Dec. 26, 2017) (SR-OCC-2017-007) (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change A. Background As stated in the Notice, OCC filed the proposed rule change to formalize and update its Margin Policy, which describes OCC's approach for collecting margin and managing the credit exposure presented by its Clearing Members to ensure that the manner in which its margin methodologies are governed and implemented complies with Section 17A of the Act \5\ and Rule 17Ad-22(e)(6) thereunder.\6\ OCC stated that the Margin Policy is part of a broader framework used by OCC to promote compliance with Rule 17Ad-22(e)(6), including OCC's By-Laws, Rules, and other policies that are designed to support the resiliency of [[Page 6647]] OCC by ensuring that it appropriately sizes margin to market risks.\7\ --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1. \6\ See Notice at 61061 (citing 17 CFR 240.17Ad-22(e)(6)). \7\ See id. at 61061 (citing CCA Adopting Release, 81 FR 70786, 70812 (Oct. 13, 2016)), (explaining that the requirements of Rule 17Ad-22(e)(6) ``further support the resiliency of a covered clearing agency by requiring the covered clearing agency to have policies and procedures that are designed to appropriately size . . . margin to market risks''). --------------------------------------------------------------------------- The Margin Policy describes: (1) The treatment of the various types of positions held by Clearing Members in connection with margin calculations, (2) OCC's cross-margin programs with other clearing agencies, (3) the treatment of collateral included in margin calculations, (4) the model assumptions and market data OCC uses as inputs for its margin calculation methodologies, (5) OCC's margin calculation methodologies, (6) protocols surrounding OCC's exercise of margin calls and adjustments, and (7) daily backtesting and model validation that OCC conducts to measure performance of its margin methodologies. Each aspect of the Margin Policy is summarized below. B. The Proposed Change to OCC's Margin Policy 1. Treatment of Various Types of Positions The Margin Policy describes how OCC treats the various types of positions it accepts from different types of market participants. OCC utilizes multiple types of Clearing Member accounts in order to comply with the relevant customer protection and segregation requirements of the Commission and the Commodity Futures Trading Commission. For example, OCC segregates and excludes long securities options positions from its margin requirement calculation under the assumption that such positions are fully paid and pose no additional risk to OCC. According to OCC, accounting for different types of products in different types of accounts allows OCC to set margin requirements commensurate with the actual risks presented by these positions. 2. Cross-Margining OCC maintains cross-margin programs with other clearinghouses and treats positions in index options, options on centrally cleared fund shares, and futures and options on futures held as part of one of the programs as if they were held within a single account at OCC.\8\ According to OCC, its Margin Policy allows OCC to take these cross- margining agreements into consideration to establish a risk-based margin system that appropriately measures its credit exposure and portfolio effects across products. --------------------------------------------------------------------------- \8\ See id. --------------------------------------------------------------------------- 3. Collateral To mitigate its credit risk exposure, OCC generally requires Clearing Members to deposit collateral as margin with respect to each account type on the morning following the trade date. The Margin Policy provides a general description of how the use of deposits in lieu of margin and collateral in margins may affect margin calculations.\9\ For example, the Margin Policy states that OCC permits Clearing Members to make deposits in lieu of margin, which enables them to meet their margin requirements for securities options by posting escrow deposits of acceptable collateral or specific deposits of the underlying security.\10\ --------------------------------------------------------------------------- \9\ See id. at 61061-62. \10\ See Notice at 61061-62. --------------------------------------------------------------------------- OCC's Margin Policy also describes OCC's ``collateral in margins'' program.\11\ Under this program, OCC computes margin requirements based on a combination of a Clearing Member's open positions in cleared contracts and any deposits of eligible collateral, while also incorporating scenarios that could exacerbate or mitigate risk exposure based upon the collateral type deposited. OCC states that the Margin Policy's recognition of risk interactions between open positions and clearing member collateral takes into account portfolio effects across products for the measurement of credit risk.\12\ --------------------------------------------------------------------------- \11\ See id. at 61062. \12\ See id. --------------------------------------------------------------------------- 4. Model Assumptions, Sensitivity Analyses and Market Data The Margin Policy states that all of OCC's critical margin model assumptions should be consistent with OCC's default management assumptions. To ensure that OCC complies with this requirement, the Margin Policy provides for a monthly sensitivity analysis and review of its parameters and assumptions for business backtesting, the results of which are reported to OCC's Model Risk Working Group, and may be escalated to OCC's Management Committee. The Margin Policy also requires OCC to take measures to ensure the quality and completeness of its market data, including the use of redundant sources for market data and pricing system infrastructure. The Margin Policy requires OCC to prioritize the quality and reliability of data when selecting vendors, and to protect its ability to obtain data in a variety of market conditions. OCC states that it protects the integrity of the data it receives by monitoring for delays, errors, or interruptions in the receipt or availability of price data. Further, the Margin Policy prescribes procedures for using alternative data, including settlement prices provided by a primary exchange or other data sources where final settlement values are not available from the listing exchange. The Margin Policy also states that OCC utilizes sound valuation models, system edit checks, and automated and manual controls with any price data it obtains.\13\ Where OCC does not receive pricing information on a daily basis for a product, the Margin Policy states that OCC relies on modeled prices as a substitute for the daily price.\14\ --------------------------------------------------------------------------- \13\ See Notice at 61062. \14\ See id. at 61062-63. --------------------------------------------------------------------------- 5. Margin Methodology OCC's Margin Policy includes a description of OCC's System for Theoretical Analysis and Numerical Simulations (``STANS''), which is its margin methodology for all positions it margins on a net basis.\15\ STANS is a risk-based methodology that is designed to produce a margin requirement that exceeds OCC's minimum regulatory obligations through the use of an Expected Shortfall methodology (``ES''), which is effectively a weighted average of tail losses beyond the 99% Value-at- Risk (``VaR'') level. OCC states that STANS may produce significant variations in the ES in Clearing Member Accounts. Under its current approach, OCC relies upon the expert judgment of its staff to identify whether the variation demonstrates that STANS is not functioning as expected, but has no set variance level which would trigger further review. Under the proposed change, OCC would implement a new 5% tolerance for standard error in STANS, such that if the five percent threshold is reached, OCC must investigate further whether STANS is appropriately measuring the risk presented by a Clearing Member's account. --------------------------------------------------------------------------- \15\ See id. at 61063. --------------------------------------------------------------------------- The Margin Policy also explains how STANS calculates margin by utilizing Monte Carlo simulations of portfolio values at a two-day risk horizon based on the behavior of various risk factors affecting: (i) Values at a two-day risk horizon, and (ii) values of Clearing Member accounts, including implied volatility surfaces of options for all equity and index risk factors.\16\ OCC states that this two-day risk horizon is consistent with the STANS assumption [[Page 6648]] of a two-day liquidation period for all positions margined on a net basis and is based on a thorough analysis of market conditions and the risks associated with the products OCC clears.\17\ --------------------------------------------------------------------------- \16\ See Notice at 61063. \17\ See id. --------------------------------------------------------------------------- The Margin Policy also provides for the daily evaluation of the market data that supports STANS and a monthly recalibration to ensure that it accounts for market conditions over the past month. This includes the use of ``scale factors'' to account for daily changes in market volatility between monthly recalibrations. Further, the Margin Policy has the ability to use alternatives to STANS for certain product accounts, including the ability to apply add-on charges and surcharges for certain Clearing Members who present higher risk levels, as well as the use of Standard Portfolio Analysis of Risk margin methodology (``SPAN'') for certain segregated futures accounts. According to OCC, these procedures are designed to ensure that OCC complies with the requirement that its risk based margin system calculates margin on a portfolio level and sets initial margin requirements that meet ``an established single-tail confidence level of at least 99 percent'' with respect to each portfolio's distribution of future exposure. 6. Margin Calls and Adjustments The Margin Policy describes OCC's process for daily calculation and collection of margin requirements, as well as making intraday margin calls and adjustments. Pursuant to the Margin Policy, OCC issues margin calls during standard trading hours when unrealized losses exceeding 50% of an account's total risk charges are observed for that account based on start-of-day positions. The Margin Policy specifies the timing of such calls, price minimums, exceptions, and the necessary approvals that must be obtained. The Margin Policy also states that additional margin adjustments may be performed as the need arises following approval by an officer of OCC.\18\ --------------------------------------------------------------------------- \18\ See Notice at 61064. --------------------------------------------------------------------------- 7. Backtesting and Model Validation The Margin Policy requires OCC to conduct daily backtesting for each margin account and to analyze in detail all accounts exhibiting losses in excess of calculated margin requirements. OCC states that any exceedances under the Margin Policy are required to be reported at least monthly and evaluated through OCC's governance process for model risk management, as well as an annual evaluation by OCC's independent Model Validation Group (``MVG'') of the overall performance of STANS and its associated models. The results of this annual MVG evaluation and any recommendations would then be presented to the OCC Board's Risk Committee. III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act \19\ 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 Act and rules and regulations thereunder applicable to such organization. The Commission finds that the proposal is consistent with Section 17A(b)(3)(F) of the Act \20\ and Rule 17Ad- 22(e)(6) \21\ thereunder, as described in detail below. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78s(b)(2)(C). \20\ 15 U.S.C. 78q-1(b)(3)(F). \21\ 17 CFR 240.17Ad-22(e)(6). --------------------------------------------------------------------------- A. Consistency With Section 17A(b)(3)(F) of the Act Section 17A(b)(3)(F) of the Act \22\ requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible, and, in general, to protect investors and the public interest. As described above, the Margin Policy provides a framework for managing the credit exposure presented to OCC by its Clearing Members through the calculation and collection of margin. That framework includes: (1) The treatment of the various types of positions held by Clearing Members in connection with margin calculations, (2) OCC's cross-margin programs with other clearing agencies, (3) the treatment of collateral included in margin calculations, (4) the model assumptions and market data OCC uses as inputs for its margin calculation methodologies, (5) OCC's margin calculation methodologies, (6) protocols surrounding OCC's exercise of margin calls and adjustments, and (7) daily backtesting and model validation that OCC conducts to measure performance of its margin methodologies. These matters, in turn, directly relate to OCC's ability to accurately risk manage Clearing Member portfolios by calculating and collecting an appropriate amount of collateral. The Commission believes that the proposed Margin Policy is designed to help ensure that OCC's margin methodology calculates and collects margin sufficient to mitigate OCC's credit exposure to a Clearing Member default. The Commission also believes that accurate calculation of margin is necessary to help ensure that OCC is able to risk manage the default of a Clearing Member without recourse to the assets of non-defaulting Clearing Members, which supports the safeguarding of securities and funds in OCC's custody or control. The Commission further believes that calculating and collecting sufficient margin would permit OCC to continue to perform its duties as a clearing agency after a default without disruption to non-defaulting market participants, thereby protecting investors and the public interest. Accordingly, the Commission finds that the proposed Margin Policy is designed to promote the accurate clearance and settlement of securities transactions, and is therefore consistent with Section 17A(b)(3)(F) of the Act.\23\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78q-1(b)(3)(F). \23\ Id. --------------------------------------------------------------------------- B. Consistency With Rule 17Ad-22(e)(6) Rule 17Ad-22(e)(6) generally requires each covered clearing agency that provides central counterparty services to establish, implement, maintain, and enforce policies and procedures reasonably designed to, among other things, cover its credit exposures to its participants through the establishment of a risk-based margin system that meets certain standards.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 240.17Ad-22(e)(6). --------------------------------------------------------------------------- 1. Rule 17Ad-22(e)(6)(i) Rule 17Ad-22(e)(6)(i) generally requires a covered clearing agency to establish a risk-based margin system that considers and produces margin levels commensurate with the risks and particular attributes of each relevant product, portfolio, and market.\25\ The Commission believes that the Margin Policy describes and formalizes OCC's approach for collecting margin and managing the credit exposures of each of its Clearing Members to set margin requirements commensurate with the actual risks presented. The Margin Policy allows OCC to take into account the different types of products across different types of accounts, including the use of its existing STANS methodology to address the particular attributes and risk factors of the products being margined, using cross-margining agreements with other clearinghouses, excluding fully collateralized positions from its margin requirement, and permitting the use of deposits in lieu of margin and collateral in margins to incentivize Clearing Members to post collateral that reduces [[Page 6649]] OCC's exposures in cleared contracts. Therefore, the Commission believes that the Margin Policy is consistent with Rule 17Ad- 22(e)(6)(i). --------------------------------------------------------------------------- \25\ 17 CFR 240.17Ad-22(e)(6)(i). --------------------------------------------------------------------------- 2. Rule 17Ad-22(e)(6)(ii) Rule 17Ad-22(e)(6)(ii) generally requires a covered clearing agency to establish a risk-based margin system that collects margin at least daily and have the operational capacity to make intraday margin calls.\26\ The Margin Policy describes the process for calculating and collecting margin on a daily basis, and for making intraday margin calls and adjustments, as needed. The Margin Policy further specifies the timing of such calls, price minimums that must be collected, the process for allowing exceptions, and the necessary approvals that must be obtained. Therefore, the Commission believes that the Margin Policy establishes a process to collect margin daily and make intraday margin calls, and finds, therefore, that it is consistent with Rule 17Ad- 22(e)(6)(ii). --------------------------------------------------------------------------- \26\ 17 CFR 240.17Ad-22(e)(6)(ii). --------------------------------------------------------------------------- 3. Rule 17Ad-22(e)(6)(iii) Rule 17Ad-22(e)(6)(iii) generally requires a covered clearing agency to establish a risk-based margin system that calculates margin sufficient to cover its potential future exposure to participants,\27\ which the Commission defines as the maximum exposure estimated to occur at a future point in time with an established single-tailed confidence level of at least 99%.\28\ The Margin Policy states that OCC uses STANS to estimate ES, the weighted average of tail losses beyond the 99% VaR level, with a 5% tolerance to calculate margin with respect to each portfolio's distribution of future exposure. The Margin Policy further describes OCC's assumptions with respect to a two-day liquidation period that covers potential future exposure between the last margin collection and close-out of a position should there be Clearing Member default. Therefore, the Commission believes that the Margin Policy is intended to facilitate OCC's calculation of margin amounts sufficient to cover potential future exposure to participants, and, therefore, that the Margin Policy is consistent with Rule 17Ad-22(e)(6)(iii). --------------------------------------------------------------------------- \27\ 17 CFR 240.17Ad-22(e)(6)(iii). \28\ See Standards for Covered Clearing Agencies, 81 FR 70786, 70817 (Oct. 13, 2016) (citing 17 CFR 240.17Ad-22(a)(14)). --------------------------------------------------------------------------- 4. Rule 17Ad-22(e)(6)(iv) Rule 17Ad-22(e)(6)(iv) generally requires a covered clearing agency to establish a risk-based margin system that uses ``reliable sources of timely price data'' and use ``procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable.'' \29\ The Margin Policy describes the measures OCC is required to take to ensure the quality and completeness of market data it acquires, including the use of redundant sources of market data, prioritizing the quality and reliability of data, and to prioritize the ability of vendors to provide data during market stress. The Margin Policy also requires OCC to use sound valuation models, system checks, and automated and manual controls for data it obtains, and to use primary exchange prices and alternatives, including modeling, in instances when data is not available or reliable. The Commission finds that the Margin Policy requires OCC to use reliable sources of timely price data, and describes procedures to address circumstances where such data is not readily available or reliable. Therefore, the Commission finds that the Margin Policy is consistent with Rule 17Ad-22(e)(6)(iv). --------------------------------------------------------------------------- \29\ 17 CFR 240.17Ad-22(e)(6)(iv). --------------------------------------------------------------------------- 5. Rule 17Ad-22(e)(6)(v) Rule 17Ad-22(e)(6)(v) generally requires a covered clearing agency to establish a risk-based margin system that uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.\30\ The Commission believes that the Margin Policy takes into account the risks and particular attributes of different products in different accounts and portfolios to permit OCC to set margin commensurate with the actual risks that the product presents to OCC. The Commission also believes that the use of cross-margining agreements, as described in the Margin Policy, allows OCC to set margins based upon the particular credit exposure and portfolio effects across products. The Commission further believes that the Margin Policy's allowance for offsets and exclusions for deposits in lieu of margin and collateral in margins permits OCC to set margin based upon the actual credit exposure to its Clearing Members. Accordingly, the Commission finds that the Margin Policy allows OCC to measure credit exposure in a manner that accounts for product risk factors and portfolio effects across products, and finds, therefore, that it is consistent with Rule 17Ad-22(e)(6)(v). --------------------------------------------------------------------------- \30\ 17 CFR 240.17Ad-22(e)(6)(v). --------------------------------------------------------------------------- 6. Rule 17Ad-22(e)(6)(vi) Rule 17Ad-22(e)(6)(vi) generally requires a covered clearing agency to establish a risk-based margin system that is monitored by management on an ongoing basis and is regularly reviewed, tested, and verified.\31\ The Commission finds that the Margin Policy requires the MVG to perform an independent evaluation of the overall performance of OCC's margin model, and present its findings and recommendations to OCC's Board on at least an annual basis. The Margin Policy further requires OCC to conduct daily backtesting for each margin account and to analyze in detail all accounts that exhibit losses in excess of calculated margin. The Margin Policy also requires that any such exceedances be reported at least monthly and be evaluated through OCC's governance processes. The Commission believes that the Margin Policy establishes a process for ongoing monitoring, review, testing, and verification, and finds, therefore, that it is consistent with Rule 17Ad-22(e)(6)(vi). --------------------------------------------------------------------------- \31\ 17 CFR 240.17Ad-22(e)(6)(vi). --------------------------------------------------------------------------- 7. Rule 17Ad-22(e)(6)(vii) Rule 17Ad-22(e)(6)(vii) generally requires a covered clearing agency to establish policies and procedures designed to perform model validation for its credit risk models not less than annually or more frequently as may be contemplated by the covered clearing agency's risk management framework.\32\ The Commission finds that the Margin Policy requires an independent review of OCC's risk model be conducted at least annually by MVG, who then presents its findings and recommendations to the Risk Committee of OCC's Board. The Commission believes that the Margin Policy establishes policies and procedures to perform model validation not less than annually, and finds, therefore, that it is consistent with Rule 17Ad-22(e)(6)(vii). --------------------------------------------------------------------------- \32\ 17 CFR 240.17Ad-22(e)(6)(vii). --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the Margin Policy is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act \33\ and Rule 17Ad-22(e)(6) thereunder. --------------------------------------------------------------------------- \33\ 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 Act,\34\ that the [[Page 6650]] proposed rule change (SR-OCC-2017-007) be, and it hereby is, approved. --------------------------------------------------------------------------- \34\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated Authority.\35\ --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-02973 Filed 2-13-18; 8:45 am] BILLING CODE 8011-01-P
![6646 Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices
(B) Clearing Agency’s Statement on Comments may be submitted by any of SECURITIES AND EXCHANGE
Burden on Competition the following methods: COMMISSION
DTC does not believe that the Electronic Comments
proposed rule change would have any [Release No. 34–82658; File No. SR–OCC–
impact on competition. The proposed • Use the Commission’s internet 2017–007]
rule change would amend the By-Laws comment form (http://www.sec.gov/
to: (1) Accurately reflect DTC’s rules/sro.shtml); or Self-Regulatory Organizations; the
organizational structure and reflect • Send an email to rule-comments@ Options Clearing Corporation; Order
changes to titles or offices and the sec.gov. Please include File Number SR– Approving Proposed Rule Change
related powers and duties of the Board DTC–2018–001 on the subject line. Related to the Options Clearing
and various designated officers, (2) Corporation’s Margin Policy
Paper Comments
accurately reflect (a) the process that is February 7, 2018.
followed for setting compensation • Send paper comments in triplicate
pursuant to the Compensation to Secretary, Securities and Exchange I. Introduction
Committee Charter and (b) that the Non- Commission, 100 F Street NE,
Executive Chairman of the Board does On December 11, 2017, the Options
Washington, DC 20549.
not receive compensation, (3) permit the Clearing Corporation (‘‘OCC’’) filed with
All submissions should refer to File the Securities and Exchange
Board to continue to make necessary Number SR–DTC–2018–001. This file
decisions in a timely and efficient Commission (‘‘Commission’’), pursuant
number should be included on the to Section 19(b)(1) of the Securities
manner by reducing the minimum
subject line if email is used. To help the Exchange Act of 1934 (‘‘Act’’) 1 and Rule
number of required Board meetings,
Commission process and review your 19b–4 thereunder,2 proposed rule
authorizing the Board to act by
comments more efficiently, please use change SR–OCC–2017–007. On
unanimous written consent in lieu of
only one method. The Commission will December 18, 2017, OCC filed
meetings, and make other related
post all comments on the Commission’s Amendment No. 1 to the proposed rule
changes, and (4) enhance the clarity,
internet website (http://www.sec.gov/ change.3 The proposed rule change, as
transparency, and readability of the By-
rules/sro.shtml). Copies of the modified by Amendment No. 1, was
Laws by making technical changes and
submission, all subsequent published for comment in the Federal
corrections. DTC does not believe that
amendments, all written statements Register on December 26, 2017.4 The
this proposal would affect any of its
current practices regarding the rights or with respect to the proposed rule Commission did not receive any
obligations of its Participants. Therefore, change that are filed with the comments on the proposed rule change.
DTC believes that the proposal would Commission, and all written This order approves the proposed rule
not have any effect on its Participants communications relating to the change.
and thus, would not have any impact or proposed rule change between the
Commission and any person, other than II. Description of the Proposed Rule
burden on competition. Change
those that may be withheld from the
(C) Clearing Agency’s Statement on public in accordance with the A. Background
Comments on the Proposed Rule provisions of 5 U.S.C. 552, will be
Change Received From Members, available for website viewing and As stated in the Notice, OCC filed the
Participants, or Others printing in the Commission’s Public proposed rule change to formalize and
DTC has not received any written Reference Room, 100 F Street NE, update its Margin Policy, which
comments relating to this proposal. DTC Washington, DC 20549 on official describes OCC’s approach for collecting
will notify the Commission of any business days between the hours of margin and managing the credit
written comments received by it. 10:00 a.m. and 3:00 p.m. Copies of the exposure presented by its Clearing
filing also will be available for Members to ensure that the manner in
III. Date of Effectiveness of the inspection and copying at the principal which its margin methodologies are
Proposed Rule Change, and Timing for office of DTC and on DTCC’s website governed and implemented complies
Commission Action (http://dtcc.com/legal/sec-rule- with Section 17A of the Act 5 and Rule
Within 45 days of the date of filings.aspx). All comments received 17Ad–22(e)(6) thereunder.6 OCC stated
publication of this notice in the Federal will be posted without change. Persons that the Margin Policy is part of a
Register or within such longer period submitting comments are cautioned that broader framework used by OCC to
up to 90 days (i) as the Commission may we do not redact or edit personal promote compliance with Rule 17Ad–
designate if it finds such longer period identifying information from comment 22(e)(6), including OCC’s By-Laws,
to be appropriate and publishes its submissions. You should submit only Rules, and other policies that are
reasons for so finding or (ii) as to which information that you wish to make designed to support the resiliency of
the self-regulatory organization available publicly. All submissions
consents, the Commission will: should refer to File Number SR–DTC– 1 15 U.S.C. 78s(b)(1).
(A) By order approve or disapprove 2018–001 and should be submitted on 2 17 CFR 240.19b–4.
3 In Amendment No. 1, OCC modified a portion
such proposed rule change, or or before March 7, 2018.
(B) institute proceedings to determine of its Margin Policy to: (i) State that OCC’s Board
For the Commission, by the Division of of Directors (‘‘Board’’) is ultimately responsible for
whether the proposed rule change Trading and Markets, pursuant to delegated annual review and approval of the Policy, and (ii)
should be disapproved. correctly cite provisions in OCC’s Rules governing
daltland on DSKBBV9HB2PROD with NOTICES
authority.12
its stock loan program. OCC did not propose any
IV. Solicitation of Comments Eduardo A. Aleman, other changes in Amendment No. 1.
Interested persons are invited to Assistant Secretary. 4 Securities Exchange Act Release No. 82355 (Dec.
[FR Doc. 2018–02984 Filed 2–13–18; 8:45 am] 19, 2017), 82 FR 61060 (Dec. 26, 2017) (SR–OCC–
submit written data, views and 2017–007) (‘‘Notice’’).
arguments concerning the foregoing, BILLING CODE 8011–01–P 5 15 U.S.C. 78q–1.
including whether the proposed rule 6 See Notice at 61061 (citing 17 CFR 240.17Ad–
change is consistent with the Act. 12 17 CFR 200.30–3(a)(12). 22(e)(6)).
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![6650 Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices
proposed rule change (SR–OCC–2017– the most significant aspects of such from ORF not exceed more than 75% of
007) be, and it hereby is, approved. statements. total annual regulatory costs. These
For the Commission, by the Division of expectations are estimated, preliminary
A. Self-Regulatory Organization’s
Trading and Markets, pursuant to delegated and may change. These expectations are
Statement of the Purpose of, and the
Authority.35 estimated, preliminary and may change.
Statutory Basis for, the Proposed Rule
Eduardo A. Aleman, [sic] There can be no assurance that our
Change
Assistant Secretary. final costs for 2018 will not differ
1. Purpose materially from these expectations and
[FR Doc. 2018–02973 Filed 2–13–18; 8:45 am]
The Exchange proposes to decrease prior practice; however, the Exchange
BILLING CODE 8011–01–P
the Options Regulatory Fee (‘‘ORF’’) believes that revenue generated from the
from $.0015 per contract to $.0014 per ORF, when combined with all of the
SECURITIES AND EXCHANGE contract in order to help ensure that Exchange’s other regulatory fees and
revenue collected from the ORF, in fines, will cover a material portion, but
COMMISSION
combination with other regulatory fees not all, of the Exchange’s regulatory
[Release No. 34–82665; File No. SR–C2– and fines, meets the Exchange’s total costs.
2018–003] regulatory costs. The proposed fee The Exchange also notes that its
change will be operative on February 1, regulatory responsibilities with respect
Self-Regulatory Organizations; Cboe 2018. to TPH compliance with options sales
C2 Exchange, Inc.; Notice of Filing and The ORF is assessed by C2 Options to practice rules have largely been
Immediate Effectiveness of a Proposed each Trading Permit Holder (‘‘TPH’’) for allocated to FINRA under a 17d–2
Rule Change Relating to the Options options transactions cleared by the TPH agreement.4 The ORF is not designed to
Regulatory Fee that are cleared by the Options Clearing cover the cost of that options sales
Corporation (OCC) in the customer practice regulation.
February 8, 2018. The Exchange will continue to
range, regardless of the exchange on
Pursuant to Section 19(b)(1) of the monitor the amount of revenue
which the transaction occurs.3 In other
Securities Exchange Act of 1934 (the collected from the ORF to ensure that it,
words, the Exchange imposes the ORF
‘‘Act’’),1 and Rule 19b–4 thereunder,2 in combination with its other regulatory
on all customer-range transactions
notice is hereby given that on January fees and fines, does not exceed the
cleared by a TPH, even if the
31, 2018, Cboe C2 Exchange, Inc. (the Exchange’s total regulatory costs. The
transactions do not take place on the
‘‘Exchange’’ or ‘‘C2 Options’’) filed with Exchange monitors its regulatory costs
Exchange. The ORF is collected by OCC
the Securities and Exchange and revenues at a minimum on a semi-
on behalf of the Exchange from the
Commission (the ‘‘Commission’’) the Clearing Trading Permit Holder annual basis. If the Exchange
proposed rule change as described in (‘‘CTPH’’) or non-CTPH that ultimately determines regulatory revenues exceed
Items I, II, and III below, which Items clears the transaction. With respect to or are insufficient to cover a material
have been prepared by the Exchange. linkage transactions, C2 Options portion of its regulatory costs, the
The Commission is publishing this reimburses its routing broker providing Exchange will adjust the ORF by
notice to solicit comments on the Routing Services pursuant to C2 submitting a fee change filing to the
proposed rule change from interested Options Rule 6.36 for options regulatory Commission. The Exchange notifies
persons. fees it incurs in connection with the TPHs of adjustments to the ORF via
Routing Services it provides. regulatory circular. The Exchange
I. Self-Regulatory Organization’s
Revenue generated from ORF, when endeavors to provide TPHs with such
Statement of the Terms of Substance of
combined with all of the Exchange’s notice at least 30 calendar days prior to
the Proposed Rule Change the effective date of the change.
other regulatory fees and fines, is
The Exchange seeks to amend its Fees designed to recover a material portion of 2. Statutory Basis
Schedule. The text of the proposed rule the regulatory costs to the Exchange of
change is available on the Exchange’s The Exchange believes the proposed
the supervision and regulation of TPH
website (http://www.c2exchange.com/ rule change is consistent with the
customer options business. Regulatory
Legal/), at the Exchange’s Office of the Securities Exchange Act of 1934 (the
costs include direct regulatory expenses
Secretary, and at the Commission’s ‘‘Act’’) and the rules and regulations
and certain indirect expenses for work
Public Reference Room. thereunder applicable to the Exchange
allocated in support of the regulatory
and, in particular, the requirements of
II. Self-Regulatory Organization’s function. The direct expenses include
Section 6(b) of the Act.5 Specifically,
Statement of the Purpose of, and in-house and third party service
the Exchange believes the proposed rule
Statutory Basis for, the Proposed Rule provider costs to support the day to day
change is consistent with Section 6(b)(4)
Change regulatory work such as surveillances,
of the Act,6 which provides that
investigations and examinations. The
In its filing with the Commission, the Exchange rules may provide for the
indirect expenses include support from
Exchange included statements equitable allocation of reasonable dues,
such areas as human resources, legal,
concerning the purpose of and basis for fees, and other charges among its TPHs
information technology and accounting.
the proposed rule change and discussed and other persons using its facilities.
These indirect expenses are estimated to
any comments it received on the Additionally, the Exchange believes the
be approximately 6% of C2 Options’ proposed rule change is consistent with
proposed rule change. The text of these total regulatory costs for 2018. Thus,
statements may be examined at the the Section 6(b)(5) 7 requirement that
direct expenses are estimated to be
daltland on DSKBBV9HB2PROD with NOTICES
places specified in Item IV below. The the rules of an exchange not be designed
approximately 94% of total regulatory
Exchange has prepared summaries, set costs for 2018. In addition, it is C2 4 See Securities Exchange Act Release No. 76309
forth in sections A, B, and C below, of Options’ practice that revenue generated (October 29, 2015), 80 FR 68361 (November 4,
2015).
35 17 CFR 200.30–3(a)(12). 3 The ORF also applies to customer-range 5 15 U.S.C. 78f(b).
1 15 U.S.C. 78s(b)(1). 6 15 U.S.C. 78f(b)(4).
transactions executed during Extended Trading
2 17 CFR 240.19b–4. Hours. 7 15 U.S.C. 78f(b)(5).
VerDate Sep<11>2014 22:07 Feb 13, 2018 Jkt 244001 PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 E:\FR\FM\14FEN1.SGM 14FEN1](https://thefederalregister.org/doc/83_FR_6677/page/5.svg)
Document Created: 2018-02-14 03:59:12
Document Modified: 2018-02-14 03:59:12
| 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 6646 |
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