
[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9512-9515]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03574]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71549; File No. SR-OCC-2014-801]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice of and No Objection to an Amendment 
to The Options Clearing Corporation's Unsecured, Committed Credit 
Agreement

February 12, 2014.
    Notice is hereby given that, on January 14, 2014, The Options 
Clearing Corporation (``OCC'') filed an advance notice with the 
Securities and Exchange Commission (``Commission'') pursuant to Section 
806(e)(1)(A) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled the Payment, Clearing, and Settlement 
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule 
19b-4(n)(1)(i) of the Securities Exchange Act of 1934 (``Exchange 
Act'').\2\ The advance notice is described in Items I, II, and III 
below, which Items have been prepared by OCC. The Commission is 
publishing this notice to solicit comments from interested persons, to 
issue a non-objection to the changes set forth in the advance notice, 
and to authorize OCC to implement those changes earlier than 60 days 
after the filing of the advance notice.
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    \1\ 12 U.S.C. 5465(e)(1)(A). 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, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is 
required to comply with Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.
    \2\ 17 CFR 240.19b-4(n)(1)(i).

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[[Page 9513]]

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice concerns a proposed change to OCC's operations 
(the ``Change'') in the form of an amendment to its unsecured, 
committed credit agreement (the ``Existing Agreement'' or the 
``Existing Facility'').
    The Commission previously published a notice of no objection to 
OCC's advance notice filing through which OCC entered into the Existing 
Facility.\3\ The Existing Facility currently provides OCC with access 
to additional liquidity for working capital needs and general corporate 
purposes. The Existing Facility also helps OCC satisfy the liquidity 
requirement of the Commodity Futures Trading Commission's (``CFTC'') 
regulation Section 39.11(e)(2). The Existing Facility is scheduled to 
terminate on February 21, 2014. The Change would extend the termination 
date of the Existing Facility for 364 days after the renewal date, 
increase the commitment amount of the Existing Facility from $25 
million to $35 million, and make minor, non-material, changes to the 
terms of the Existing Facility requested by the lender (the ``Extended 
Agreement'' or the ``Extended Facility'').
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    \3\ Securities Exchange Act Release No. 34-68935 (February 13, 
2013), 78 FR 12121 (February 21, 2013), (SR-OCC-2012-801).
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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) and (B) 
below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

Description of Change
    The Change would provide OCC with continued access to an unsecured, 
committed credit facility in an aggregate principal amount of $35 
million until early 2015. The Extended Facility is designed to provide 
OCC with access to additional liquidity for working capital needs and 
general corporate purposes. The Extended Facility would also satisfy 
the liquidity requirement of CFTC regulation Section 39.11(e)(2).
    OCC's principal reason for entering into the Extended Facility is 
to provide OCC additional flexibility in managing its liquid assets 
while ensuring continued compliance with the liquidity requirements of 
the CFTC regulation cited above. Among other things, CFTC regulation 
Section 39.11(a)(2) requires a derivatives clearing organization 
(``DCO'') to hold an amount of financial resources that, at a minimum, 
exceeds the total amount that would enable the DCO to cover its 
operating costs for a period of at least one year, calculated on a 
rolling basis.\4\ In addition, CFTC regulation Section 39.11(e)(2) 
provides that these financial resources must include unencumbered, 
liquid financial assets (i.e., cash and/or highly liquid securities), 
equal to at least six months' operating costs and that if any portion 
of such financial resources is not sufficiently liquid, the DCO may 
rely on a committed line of credit or similar facility.\5\ Accordingly, 
OCC entered into the Existing Facility with BMO Harris Bank N.A. 
(``Lender'') having a maximum aggregate principal loan amount not to 
exceed $25 million. OCC now proposes to enter into an amendment to the 
Existing Facility to increase the maximum aggregate principal loan 
amount to $35 million, extend the termination date to February 20, 
2015, and make other non-material changes requested by the Lender. 
Attached to this filing as Exhibit 3B is a marked Summary of Terms and 
Conditions that are applicable to the Extended Facility.\6\ The marked 
Summary of Terms and Conditions show the changes from the Summary of 
Terms and Conditions applicable to the Existing Facility.\7\
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    \4\ 17 CFR 39.11(a)(2).
    \5\ 17 CFR 39.11(e)(2).
    \6\ As OCC has requested confidential treatment of Exhibit 3B 
pursuant to 17 CFR 240.24b-2, Exhibit 3B will not be attached to the 
published version of this notice.
    \7\ SR-OCC-2012-801, See Fn. 3 above. Other than as described in 
this Section II.A., the differences between the Existing Facility 
and the Extended Facility (that appear in the comparison attached to 
this filing as Exhibit 3) are non-material. As OCC has requested 
confidential treatment of Exhibit 3 pursuant to 17 CFR 240.24b-2, 
Exhibit 3 will not be attached to the published version of this 
notice.
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    In order to have continued access to the Existing Facility, OCC 
must execute an amendment to the Existing Agreement between OCC and the 
Lender. Ongoing conditions governing OCC's ability to access the 
Extended Facility would be the same as with the Existing Facility and 
would include that no default or event of default may exist before or 
during an extension of credit by the Lender to OCC through the Extended 
Facility and that certain representations of OCC must remain true and 
correct. Events of default would include, but not be limited to, 
failure to pay any interest, principal, fees or other amounts when due, 
default under any covenant or agreement in any loan document, 
repudiation or cessation of the effectiveness of any loan document, 
materially inaccurate or false representations or warranties, cross 
default with other material debt agreements, insolvency, bankruptcy and 
unsatisfied judgments.
    The Extended Facility would be available to OCC on a revolving 
basis for a 364-day term. Upon written or telephonic notice by OCC to 
the Lender of a request for funds, the Lender would disburse loaned 
funds to OCC in U.S. dollars. The date of any loan would be required to 
be a business day and the loans would be unsecured and made and 
evidenced by a promissory note provided by OCC. Under the Extended 
Facility, any loan proceeds would be required to be used by OCC to 
finance its working capital needs or for OCC's general corporate 
purposes.
    As with the Existing Facility, OCC would have the ability to 
terminate the Extended Facility at any time. Termination within the 
first six months of the Extended Facility would trigger a termination 
fee. After six months from the date of entering the Extended Agreement 
with the Lender to establish the terms of the Extended Facility, OCC 
would be permitted to cancel the Extended Facility with no termination 
fee. Upon five days written notice during the term of the Extended 
Facility, OCC would also be permitted to reduce the overall size of the 
Extended Facility at any time. Any such reductions would be required to 
be made in an initial amount of at least $2.5 million. Thereafter, 
reductions would be able to be made by OCC in multiples of $1 million. 
In no event, however, would OCC be permitted to reduce the size of the 
Extended Facility to an amount that is less than the greater of either 
its aggregate principal amount of indebtedness outstanding with respect 
to loans from the Extended Facility or $15 million.
    The outstanding principal balance of all loans made to OCC through 
the Extended Facility will accrue interest equal to a base rate 
(generally equal to a Prime Rate, a Federal Funds Rate, or a LIBOR 
rate), as in effect from time to time, plus a certain applicable 
margin. Regardless of which method applies to a particular portion of 
OCC's total outstanding loan balance, in an event of a default, the 
calculation of the amount of interest would be subject a 2.00%

[[Page 9514]]

increase above the otherwise applicable rate.
    The Extended Facility would involve a variety of customary fees 
payable by OCC to the Lender, including but not limited to: (1) A one-
time upfront fee payable at closing to the Lender calculated as a 
percentage of the total commitment amount of the Extended Facility; (2) 
commitment fees payable quarterly in arrears on the average daily 
unused amount of the Extended Facility; (3) reasonable out-of-pocket 
costs and expenses of the Lender in connection with the negotiation, 
preparation, execution and delivery of the Extended Facility and loan 
documentation, and costs and expenses in connection with any default, 
event of default or enforcement of the Extended Facility; and (4) 
termination fees if OCC elects to terminate the Extended Facility prior 
to six months from the date of the credit agreement underlying the 
Extended Facility.
Anticipated Effect on and Management of Risk
    Overall, the Extended Facility would reduce the risks to OCC, its 
clearing members and the options market in general because it would 
provide OCC with additional liquidity for working capital needs and 
general corporate purposes and thereby assist OCC in satisfying the 
CFTC's requirements with respect to liquidity under CFTC regulation 
Section 39.11.
    Like any lending arrangement, the Extended Facility would involve 
risks. One of the primary risks to OCC associated with the Extended 
Facility is the risk that the Lender would fail to fund when OCC 
requests a loan, because of the Lender's insolvency, operational 
deficiencies, or otherwise. Even if OCC were to draw on the Extended 
Facility for liquidity purposes, which it does not anticipate, OCC 
believes the potential funding risk associated with the Extended 
Facility is mitigated in several ways. First, the Lender would be a 
national banking association that is subject to oversight by prudential 
banking regulators with respect to its safety and soundness and its 
ability to meet its lending obligations. Furthermore, the $35 million 
maximum size of the Extended Facility would be relatively small when 
compared to the total resources available to OCC. Therefore, if the 
Extended Facility proved unavailable to OCC for any reason, OCC 
believes it readily would be able to access, or arrange for access, to 
other sources of liquidity if necessary.
    A second risk associated with the Extended Facility is the risk 
that OCC would default on its obligation to make timely payment of 
principal or interest. Because the Extended Facility would be an 
unsecured lending arrangement, OCC would not be at risk in an event of 
default of the Lender's potentially liquidating OCC assets that are 
used to secure loaned funds. Furthermore, OCC intends to mitigate the 
risk of default by never drawing on the Extended Facility.
Accelerated Commission Action Requested
    Pursuant to Section 806(e)(1)(I) of Title VIII of the Clearing 
Supervision Act, OCC requests that the Commission notify OCC that it 
has no objection to the Change no later than February 14, 2014, which 
is one week prior to the February 21, 2014 termination date of the 
Existing Facility. OCC requests Commission action one week in advance 
of the effective date to ensure that there is no period of time that 
OCC operates without access to additional liquidity for working capital 
needs and general corporate purposes, and to satisfy the liquidity 
requirements of CFTC regulation Section 39.11(e)(2).

(B) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants or Others

    Written comments on the advance notice were not and are not 
intended to be solicited with respect to the advance notice and none 
have been received.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The advance notice may be implemented if the Commission does not 
object to the advance notice within 60 days of the later of (i) the 
date that the advance notice was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. OCC shall not implement the advance notice if the Commission 
has any objection to the advance notice.
    The Commission may extend the period for review by an additional 60 
days if the advance notice raises novel or complex issues, subject to 
the Commission providing OCC with prompt written notice of the 
extension. An advance notice may be implemented in less than 60 days 
from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies OCC in writing that it does not object to the advance notice 
and authorizes OCC to implement the advance notice on an earlier date, 
subject to any conditions imposed by the Commission.
    The clearing agency shall post notice on its Web site of proposed 
changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2014-801 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2014-801. 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 of submission. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the advance notice that are 
filed with the Commission, and all written communications relating to 
the advance notice 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 Web site viewing and 
printing in the Commission's Public Reference Section, 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 Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_801.pdf.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-OCC-2014-801 
and should be submitted on or before March 12, 2014.

[[Page 9515]]

V. Commission's Findings and Notice of No Objection

    Section 806(e)(1)(G) of the Clearing Supervision Act provides that 
a designated financial market utility may implement a change if it has 
not received an objection from the Commission within 60 days of the 
later of (i) the date that the Commission receives notice of the 
proposed change or (ii) the date the Commission receives any further 
information it requests for consideration of the notice. A designated 
financial market utility may implement a proposed change in less than 
60 days from the date of receipt of the notice of the change by the 
Commission, or the date the Commission receives any further information 
it requested, if the Commission notifies the designated financial 
market utility in writing that it does not object to the proposed 
change and authorizes the designated financial market utility to 
implement the proposed change on an earlier date, subject to any 
conditions imposed by the Commission.\8\
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    \8\ 12 U.S.C. 5465(e)(1)(I).
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    In its filing with the Commission, OCC requested that the 
Commission notify OCC that it has no objection to the change no later 
than February 14, 2014, which is one week before the February 21, 2014 
termination date of the Existing Facility. OCC requested Commission 
action by this date, which is fewer than 60 days after OCC filed this 
advance notice, to ensure that there is no period of time during which 
OCC operates without access to additional liquidity for working capital 
needs and general corporate purposes, and to make certain that OCC 
remains in compliance with the liquidity requirements of CFTC 
regulation Section 39.11(e)(2) \9\ at all times.
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    \9\ 17 CFR 39.11(e)(2).
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    The Commission does not object to the changes described in the 
advance notice. The Commission agrees that the Extended Facility will 
afford OCC continued access to additional liquidity that should help 
OCC meet its CFTC requirement for working capital. Moreover, the 
Commission believes that access to the Extended Facility affords OCC 
needed flexibility in meeting its daily needs for operating capital. 
The Commission further believes that the Extended Facility represents 
an important safeguard against potential disruptions to OCC's ability 
to provide clearance and settlement services, and thereby enhances 
OCC's safety and soundness.\10\ Improving OCC's resilience furthers the 
objectives of the Clearing Supervision Act,\11\ and is consistent with 
the regulations adopted by the Commission thereunder.\12\
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    \10\ See 12 U.S.C. 5464(b) (noting that the objectives of the 
Clearing Supervision Act include a desire to ``promote the safety 
and soundness'' of clearing agencies).
    \11\ Id.
    \12\ 17 CFR 240.17Ad-22(d)(4) (requiring, pursuant to the 
Clearing Supervision Act, that clearing agencies (i) develop 
procedures to minimize ``sources of operational risk,'' (ii) 
implement systems that are ``reliable'' and ``resilient,'' and (iii) 
have ``business continuity plans that allow for . . . fulfillment of 
[the agency's] obligations,'' among other things).
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VI. Conclusion

    Pursuant to Section 806(e)(1)(I) of the Clearing Supervision 
Act,\13\ the Commission does not object to the proposed change, and 
hereby authorizes OCC to implement the Change (SR-OCC-2014-801) as of 
the date of this Order.
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    \13\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03574 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P


