
[Federal Register Volume 79, Number 222 (Tuesday, November 18, 2014)]
[Notices]
[Pages 68747-68749]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27211]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73579; File No. SR-OCC-2014-807]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of an Emergency Change to OCC's Procedures To Resize the 
Clearing Fund in Response to Market Conditions

November 12, 2014.
    Pursuant to Section 806(e)(2) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing, 
and Settlement Supervision Act of 2010 (``Payment, Clearing and 
Settlement Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the 
Securities Exchange Act of 1934 (``Act''),\2\ notice is hereby given 
that on October 16, 2014, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
emergency notice as described in Items I and II below, which Items have 
been prepared by OCC. The Commission is publishing this notice to 
solicit comments on the emergency notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(2).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Emergency Notice

    This notice is filed by OCC in connection an increase in the size 
of OCC's Clearing Fund that it has implemented on an emergency basis 
pursuant to Section 806(e)(2) of the Payment, Clearing, and Settlement 
Supervision Act.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Emergency 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 on Comments on the Emergency Notice 
Received From Members, Participants or Others

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

(B) Emergency Notices Filed Pursuant to Section 806(e)(2) of the 
Payment, Clearing and Settlement Supervision Act

Description of Change
Emergency Notice
    This notice is being filed in connection with an emergency waiver 
of the provision of OCC's Rules calling for monthly adjustments of its 
Clearing Fund that would otherwise have required an advance notice 
under Section 806(e)(1) of the Payment, Clearing and Settlement 
Supervision Act. Pursuant to Section 806(e)(2) of the Payment, 
Clearing, and Settlement Supervision Act, a designated financial market 
utility such as OCC may implement a change that would otherwise require 
an advance notice if it determines that an emergency exists and 
immediate implementation is necessary to continue to provide services 
in a safe and sound manner.\3\ For the reasons discussed below, OCC 
believes that the change was appropriate under this framework, and OCC 
is now filing this emergency notice in accordance with

[[Page 68748]]

the requirements under Sections 806(e)(2)(B) and (C) of the Payment, 
Clearing and Settlement Supervision Act.\4\
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    \3\ 12 U.S.C. 5465(e)(2).
    \4\ 12 U.S.C. 5465(e)(2)(B), 12 U.S.C. 5465(e)(2)(C).
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Sizing of the Clearing Fund
    Under Commission Rule 17Ad-22(b)(3), OCC is obligated to maintain 
sufficient financial resources to withstand, at a minimum, a default by 
the Clearing Member Group to which OCC has the largest exposure in 
extreme but plausible market conditions.\5\ As part of OCC's ongoing 
compliance with this obligation, it readjusts the size of its Clearing 
Fund monthly pursuant to OCC's Rule 1001(a). Under Rule 1001(a), the 
monthly readjustment is based upon daily calculations by OCC during the 
preceding month of the size of the Clearing Fund that would be 
necessary, within certain confidence levels, to protect OCC from loss 
under simulated default scenarios. Recent increased volatility in the 
financial markets has affected these calculations such that OCC's daily 
results indicate that the size of the Clearing Fund should be increased 
to address the potential risk that it could be underfunded in the event 
of a Clearing Member default. OCC recently proposed a rule change and 
advance notice that would permit the Clearing Fund to be resized intra-
month in the event that the five-day rolling average of projected draws 
against the Clearing Fund are 150% or more of its then current size.\6\ 
Although that proposal remains pending, OCC calculates that the recent 
increase in market volatility would have caused that proposed threshold 
to be exceeded as of October 15, 2014 and determined that an intra-
month increase was necessary to minimize the risk of an underfunding of 
the Clearing Fund.
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    \5\ 17 CFR 240.17Ad-22(b)(3).
    \6\ See, Securities Exchange Act Release No. 72752 (August 4, 
2014), 79 FR 46490 (August 8, 2014) (SR-OCC-2014-17). See also, 
Securities Exchange Act Release No. 72804 (August 11, 2014), 79 FR 
48276 (August 15, 2014) (SR-OCC-2014-804).
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Nature of the Emergency and Reasons the Clearing Fund Resizing was 
Necessary
    To provide OCC with the necessary flexibility to respond to these 
dynamic market conditions and increase the size of its Clearing Fund 
prior to the next resizing scheduled to take place on the first 
business day in November, OCC has exercised certain emergency powers in 
Article IX, Section 14 of its By-Laws. In emergency circumstances and 
subject to certain conditions, that authority permits OCC's Board of 
Directors, Executive Chairman or President to waive or suspend its By-
Laws, Rules, policies and procedures or any other rules issued by OCC 
or extend the time fixed thereby for the doing of any act or acts.\7\ 
Consistent with that authority, OCC's Executive Chairman on October 15, 
2014 determined to waive the provisions in the second sentence of Rule 
1001(a) under which the Clearing Fund is readjusted monthly based upon 
an average of the daily calculations performed by OCC during the 
preceding calendar month. To respond to the potential risk under 
prevailing market conditions that the Clearing Fund could be 
underfunded, which could affect OCC's ability to continue to facilitate 
prompt and accurate clearance and settlement and to operate in a safe 
and sound manner, OCC increased the size of the Clearing Fund for the 
remainder of October 2014 as is otherwise provided for in Rule 1001(a). 
Accordingly, the original Clearing Fund sizing calculation for October 
2014 of approximately $3.8 billion was suspended by OCC and the size of 
the Clearing Fund was reestablished in an amount of approximately $5.6 
billion. The Executive Chairman consulted with the Risk Committee of 
OCC's Board of Directors and senior staff of the Commission before 
making this decision. Senior staff of the U.S. Commodity Futures 
Trading Commission was also informed.
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    \7\ See Securities Exchange Act Release No. 71571 (February 19, 
2014), 79 FR 10581 (February 25, 2014) (SR-OCC-2013-23). As noted in 
the Commission's approval order for that rule change, the change 
generally aligned OCC's authority in this area with the authority of 
other registered clearing agencies that already had similar rules 
allowing them in comparable circumstances to waive or suspend their 
rules or extend the time fixed thereby for the performance of any 
act or acts.
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Anticipated Effect on and Management of Risk
    Overall, the increase in the size the Clearing Fund reduces the 
risks to OCC, its Clearing Members and the options market in general 
because it provides OCC with proper flexibility under current market 
conditions to establish a Clearing Fund size that OCC believes would be 
sufficient to protect against losses under current market conditions 
for a period of not more than 30 calendar days as specified in Article 
IX, Section 14(c). The change allowed OCC to increase the overall size 
of its Clearing Fund as a result of a projected increase in potential 
draws. Accordingly, the change makes it less likely that the Clearing 
Fund will be insufficient should OCC need to use it to manage a 
Clearing Member default. The change therefore reduces OCC's overall 
level of risk and facilitates its management of risk.
Consistency With the Payment, Clearing and Settlement Supervision Act
    OCC believes that the increase in the total size of the Clearing 
Fund was consistent with Sections 805(b)(1) \8\ and 806(e)(2) \9\ of 
the Payment, Clearing and Settlement Supervision Act. The change 
promotes robust risk management \10\ by providing OCC with an amount of 
financial resources it believes would be sufficient to protect OCC 
against loss in an event of default. The change was appropriate on an 
emergency basis because OCC determined through daily calculations 
regarding the sufficiency of the Clearing Fund that increased financial 
market volatility represented a potential risk that the Clearing Fund 
could be underfunded if an event of default occurred. The determination 
to readjust the size of the Clearing Fund as described above was 
therefore necessary and advisable for the protection of OCC and in the 
public interest to ensure that OCC's Clearing Fund is sufficient for 
OCC to be able to provide its services in a safe and sound manner.
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    \8\ 12 U.S.C. 5464(b)(1).
    \9\ 12 U.S.C. 5465(e)(2).
    \10\ 12 U.S.C. 5464(b)(1).
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III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    OCC implemented a proposed change that otherwise would be required 
to be filed as an advance notice because OCC determined that (i) an 
emergency existed and (ii) immediate implementation was necessary for 
OCC to continue to provide its services in a safe and sound manner. The 
Commission may require modification or rescission of the proposed 
change if it finds it is not consistent with the purposes of the 
Payment, Clearing and Settlement Supervision Act or any applicable 
rules, orders, or standards prescribed under Section 805(a) of the 
Payment, Clearing and Settlement Supervision Act.\11\
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    \11\ See 12 U.S.C. 5465(e)(2)(D), 12 U.S.C. 5464(a).
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    Pursuant to Rule 19b-4(n) under the Act,\12\ OCC shall post notice 
on its Web site of proposed changes that are implemented.
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    \12\ 17 CFR 240.19b-4(n).
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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:

[[Page 68749]]

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-2014-807 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-2014-807. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the emergency notice that are filed 
with the Commission, and all written communications relating to the 
emergency 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 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 the filing also will be available 
for inspection and copying at the principal office of OCC. 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-2014-807 and should be 
submitted on or before December 9, 2014.

    By the Commission.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2014-27211 Filed 11-17-14; 8:45 am]
BILLING CODE 8011-01-P


