
[Federal Register Volume 79, Number 43 (Wednesday, March 5, 2014)]
[Notices]
[Pages 12538-12540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04796]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71627; File No. SR-OCC-2014-01]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Concerning Amendments to the 
Charters for the Membership/Risk Committee, Audit Committee and 
Performance Committee of OCC's Board of Directors

February 27, 2014.

I. Introduction

    On January 2, 2014, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2014-01 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on January 22, 2014.\3\ The Commission received no 
comment letters. For the reasons discussed below, the Commission is 
granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 71311 (January 15, 
2014), 79 FR 3653 (January 22, 2014).

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[[Page 12539]]

II. Description

    Pursuant to the proposed rule change, as approved, OCC is amending 
its charters for the Membership/Risk Committee (``MRC Charter''), Audit 
Committee (``AC Charter'') and Performance Committee (``PC Charter'') 
(collectively, ``Committee Charters'') of OCC's Board of Directors 
(``Board'').

Changes Common to the MRC, AC, and PC

    OCC is amending the Committee Charters \4\ to more clearly set 
forth certain uniform administrative functions to provide that: (i) 
Each committee chair is responsible for ensuring that important issues 
discussed at committee meetings are reported timely to the Board; (ii) 
each committee chair shall determine if minutes of executive sessions 
are to be maintained, taking into consideration the sensitivity of the 
matters discussed and the possibility that candor might be limited if 
minutes are maintained; (iii) each committee confirm annually that all 
responsibilities outlined in its Committee Charter have been carried 
out; and (iv) each committee evaluate its performance, and the 
performance of its individual members, on a regular basis and provide 
results of such assessment to the Governance Committee (``GC'') for 
review. As described in more detail below, OCC is also amending the 
Committee Charters to reflect certain changes specific to the charters 
of MRC, AC, and PC, respectively.
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    \4\ The original versions of the Committee Charters were 
approved on December 6, 2013. See Securities Exchange Act Release 
No. 71022 (December 6, 2013), 78 FR 75659 (December 12, 2013) [File 
No. SR-OCC-2013-17].
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Changes Specific to the Committee

Membership/Risk Committee
    Section I of the MRC Charter states, in relevant part, that the 
Board established the MRC to assist the Board in overseeing OCC's 
policies and processes for identifying and addressing strategic, 
operational, and financial risks. OCC is amending the MRC Charter to 
more clearly provide for the MRC's oversight of the Chief Risk Officer 
(``CRO'') activities by requiring that the MRC: (i) Meet at least 
annually with the CRO and other corporate officers deemed appropriate 
in separate executive sessions; (ii) decide whether to approve 
management's recommendation to appoint or replace the CRO; (iii) assess 
the performance of the CRO and the Enterprise Risk Management (``ERM'') 
Department; (iv) oversee the structure, staffing and resources of the 
ERM Department; (v) decide whether to approve any CRO annual 
compensation or salary adjustments, but delegate to the MRC Chair the 
ability to modify the approved amount as a result of the MRC Chair's 
participation in the annual meeting of the PC; (vi) review and 
recommend OCC's ``Risk Appetite Statement'' \5\ for annual Board 
approval; and (vii) review and monitor OCC's risk profile for 
consistency with OCC's ``Risk Appetite Statement.''
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    \5\ The ``Risk Appetite Statement'' sets the standards on which 
all of OCC's risk identification, measurement, monitoring, and 
testing are based. OCC believes that the OCC's Risk Appetite 
Statement is a key component of its enterprise risk management 
program.
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Audit Committee
    Section I of the AC Charter states, in relevant part, that the 
Board established an AC to assist the Board in overseeing OCC's 
financial reporting process, OCC's system of internal control, and 
OCC's auditing, accounting, and compliance processes. OCC is amending 
the AC Charter to more clearly provide that the AC: (i) Monitor and 
evaluate the independent accountant's qualifications, performance, and 
independence and, based upon such evaluations, recommend the 
independent accountant's appointment or dismissal; \6\ (ii) resolve any 
disagreements between management and the independent accountant 
regarding financial reporting; and (iii) review reports obtained from 
and prepared by the independent accountant to evaluate the independent 
accountant's qualifications, performance, and independence.
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    \6\ OCC believes that this change will align with best practices 
and reflect the AC's oversight of the external auditor to better 
assure independence in connection with the performance of the 
external auditors' function and services.
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    OCC is also amending the AC Charter to clarify the committee's 
duties and responsibilities with respect to OCC's Internal Audit 
Department by requiring that the AC: (i) Review and approve the 
Internal Audit Department Charter to ensure that there are no 
unjustified scope restrictions or limitations placed on the Internal 
Audit Department; (ii) decide whether to approve management's 
recommendation to appoint or replace the Chief Audit Executive 
(``CAE''); (iii) review the Internal Audit Department process for 
establishing the risk-based annual internal audit plan and monitor 
progress against the plan; (iv) review reports and other communications 
prepared by the Internal Audit Department and inquire of management 
regarding steps taken to deal with items raised; (v) assess the 
performance of the CAE and Internal Audit Department; (vi) decide 
whether to approve the CAE's annual compensation, but delegate to the 
AC Chair the ability to modify the approved amount as a result of the 
MRC Chair's participation in the annual meeting of the PC; and (vii) 
oversee the structure, staffing and resources of the Internal Audit 
Department.
    In addition, OCC is amending the AC Charter to provide that the 
Internal Audit Department may utilize co-sourcing service providers.\7\ 
Specifically, the amended rule change, as approved, allows the AC to 
delegate authority to the CAE to: (i) Hire internal audit co-sourcing 
service providers, on an as needed basis, to review particular areas of 
OCC, augment resources available within the Internal Audit Department, 
or for any other practical purpose; (ii) review the performance of the 
internal audit co-sourcing service providers; (iii) exercise final 
approval on the appointment, retention, or discharge of the audit firm; 
and (iv) approve the scope of services to be performed by the internal 
audit-co sourcing service provider.
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    \7\ Co-sourcing service providers are consultants hired on a 
temporary basis to assist with a particular project when OCC's 
Internal Audit Department staff is otherwise fully engaged and 
requires additional resources or skill sets to complete a project on 
a timely basis.
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    Finally, OCC is amending the AC Charter to provide that the AC will 
meet at least annually with management, the Chief Compliance Officer, 
the CAE, and the independent accountants, in separate executive 
sessions, to discuss any matters that either side believes warrants 
private discussion.
Performance Committee
    OCC is amending the PC Charter to require, among other things, 
that: (i) The PC Chair meet at least annually in private session with 
the GC Chair to discuss the performance of key officers; (ii) the PC 
meet at least annually with the Chief Executive Officer and any other 
corporate officers deemed appropriate by the PC to discuss and review 
key officers' performance and compensation levels; (iii) the PC meet 
annually to determine compensation levels of key officers; \8\ (iv) the 
PC Chair recuse himself from discussion of his individual compensation, 
benefits, or perquisites, except as otherwise requested by the other 
members of the Committee; and (v) the functions and responsibilities of 
the PC be amended to also include review performance and compensation 
of key employees, to

[[Page 12540]]

appoint and remove members of the Administrative Committee and to 
oversee the Administrative Committee, confirm annually that all charter 
responsibilities have been carried out, and to evaluate the committee's 
and PC members' performance on a regular basis.
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    \8\ The AC and MRC Chairs shall be invited to attend such 
meeting to discuss the performance of the CAE and CRO, respectively, 
and to advise on the compensation levels approved for such officers 
as provided for in each Committee's Charter.
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III. Discussion

    Section 19(b)(2)(C) of the Act \9\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to such 
organization. Section 17A(b)(3)(F) of the Act \10\ requires that the 
rules of a clearing agency that is registered with the Commission be 
designed to, among other things, protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act \11\ because the amendments to the 
Committee Charters should clarify the role and responsibilities of each 
of the Committees within OCC's governance structure. Furthermore, 
consistent with Rule 17Ad-22(d)(8) \12\ under the Act, the amendments 
to the Committee Charters should help ensure that OCC has governance 
arrangements that are clear and transparent, support the objectives of 
OCC's owners and participants, and promote the effectiveness of OCC's 
risk management procedures.
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    \11\ Id.
    \12\ 17 CFR 240.17Ad-22(d)(8).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \13\ and the 
rules and regulations thereunder.
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    \13\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-OCC-2014-01) be and 
hereby is approved.\15\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2014-04796 Filed 3-4-14; 8:45 am]
BILLING CODE 8011-01-P


