
[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35402-35405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13039]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77938; File No. SR-OCC-2016-007]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Related to The Options 
Clearing Corporation's Membership Approval Process

May 27, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 16, 2016, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The purpose of this proposed rule change is to: (i) Vest the 
authority to approve or disapprove new membership applications with 
OCC's Risk Committee,\3\ and (ii) delegate authority to the Executive 
Chairman or President of OCC to approve new membership applications 
provided that: (a) It is not recommended that the Risk Committee impose 
additional membership criteria upon the applicant pursuant to Section 
1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (b) 
the Risk Committee is given not less than five business days to 
determine that the application should be reviewed at a meeting of the 
Risk Committee and the Risk Committee has not requested that the 
application be reviewed at a meeting of the Risk Committee within such 
five day period.
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    \3\ OCC's Risk Committee is a committee of OCC's Board of 
Directors. See OCC's By-Laws Article III, Section 9.
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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
    The purpose of this proposed rule change is to streamline OCC's 
membership approval process by: (i) Allowing OCC's Executive Chairman 
or President to approve pro forma applications for clearing membership, 
and (ii) to vest ultimate authority with OCC's Risk Committee, not its 
Board, to approve or disapprove applications for clearing membership 
that are not approved by either OCC's Executive Chairman or President. 
To this end, OCC is proposing to: (i) Vest the authority to approve or 
disapprove new membership applications with OCC's Risk Committee, and 
(ii) delegate authority to the Executive Chairman or President of OCC 
to approve new membership applications provided that: (a) It is not 
recommended by the Risk Committee's designated delegates or agents that 
the Risk Committee impose additional membership criteria upon the 
applicant pursuant to Section 1, Interpretation and Policy .06 of 
Article V of OCC's By-Laws, and (b) the Risk Committee is given not 
less than five business days to determine that the application should 
be reviewed at a meeting of the Risk Committee and the Risk Committee 
has not requested that the application be reviewed at a meeting of the 
Risk Committee within such five day period. The practical effect of the 
proposed rule change is that either OCC's Executive Chairman or 
President would be approving most applications for clearing membership 
at OCC since most applicants for clearing membership choose to have 
their application presented for approval only when such approval is pro 
forma in nature (i.e., the applicant meets all of the clearing 
membership requirements at OCC and there is no need to impose 
additional membership requirements). OCC believes that the proposed 
rule change would better allocate the time and resources of the Board 
and Risk Committee and ensure applications for clearing membership are 
considered in a timely manner.
Background
    OCC believes that its membership criteria are objective standards 
that are designed not to unfairly discriminate in

[[Page 35403]]

the admission of participants to OCC,\4\ as well as to provide for fair 
and open access to OCC.\5\ Currently, the authority to approve or 
disapprove new applications for clearing membership resides with the 
Board.\6\ Under Article V, Section 2 of OCC's By-Laws, OCC's Risk 
Committee, including its designated delegates or agents, is responsible 
for reviewing applications for clearing membership, and the Risk 
Committee is responsible for making a recommendation of approval or 
disapproval to the Board (in part, relying on OCC's Management's review 
and recommendation).\7\ OCC's management (``Management'') performs the 
substantive review of applications for clearing membership on behalf of 
the Risk Committee. Management reviews a given application against 
OCC's membership criteria, which are set forth in Article V of OCC's 
By-Laws as well as Chapters 2 and 3 of OCC's Rules. Based on its 
review, Management, as the subject matter expert on OCC's membership 
criteria, either recommends an application for approval without 
conditions, recommends an application for approval with conditions (in 
accordance with OCC's By-Laws, Article V, Section 1, Interpretation and 
Policy .06), or does not recommend an application for approval. The 
Risk Committee, based on Management's review of the application, 
recommends a course of action to OCC's Board. OCC's Board then approves 
or disapproves applications for clearing membership based on the Risk 
Committee's recommendation.
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    \4\ See 15 U.S.C. 78q-1(b)(3)(F).
    \5\ See 7 U.S.C. 7a-1(c)(2)(C)(iii)(III).
    \6\ See OCC's By-Laws Article V, Section 2.
    \7\ See OCC's By-Laws Article V, Section 2. The Risk Committee, 
from a practical perspective, has designated OCC's management as its 
agent to review applications for clearing membership. OCC's 
management reviews applications for clearing membership and makes a 
recommendation to the Risk Committee concerning the applicant's 
satisfaction of OCC's membership criteria.
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    Moreover, since the rules of the Commission and the Commodity 
Futures Trading Commission require OCC to have rules that do not 
unfairly discriminate in the admission of participants and provide fair 
and open access,\8\ OCC believes that, under its rules, it is required 
to admit applicants for clearing membership that clearly meet OCC's 
membership criteria, and therefore, the Board's ultimate approval of an 
application for clearing membership for which Management does not 
recommend approval with conditions or disapproval is pro forma. From a 
timing perspective, applications for clearing membership often do not 
track the Risk Committee or Board's regular meeting schedule and, on 
occasion, the Board has had to convene a special meeting for the sole 
purpose of considering an application for clearing membership or 
otherwise seek [sic] approval via unanimous written consent, which is 
an inefficient use of the Board's time and resources. In an effort to 
better allocate the time and resources of OCC's Board and Risk 
Committee as well as streamline its clearing membership approval 
process, OCC is proposing the amendments to Articles V and VIII of its 
By-Laws as well as the Board and Risk Committee Charters described 
below. The effect of such amendments is that either OCC's Executive 
Chairman or President would approve most applications for clearing 
membership, thereby allowing the Board and the Risk Committee to better 
allocate their time and resources.
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    \8\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C).
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Changes To Vest Authority of New Applicant Approvals With the Risk 
Committee
    OCC is proposing to amend Article V, Section 2 of its By-Laws to 
vest the authority to approve or disapprove new applicants for clearing 
membership with the Risk Committee. OCC believes that the members of 
the Board comprising the Risk Committee are capable of appropriately 
acting on membership applications. The Risk Committee is currently 
delegated the authority to (1) review applications for clearing 
membership and recommend approval or disapproval thereof to the Board, 
(2) conduct hearings if requested by applicants whose applications are 
proposed to be disapproved, and (3) review and approve or disapprove 
requests by clearing members to expand clearing activities.\9\ 
Therefore, OCC believes that requiring the Board to approve or 
disapprove an application for clearing membership that has already been 
reviewed by, and received a recommendation for approval or disapproval 
from, the Risk Committee is redundant and represents an inefficient use 
of the Board's time. Accordingly, OCC believes that the Risk Committee 
is the appropriate governing body in which to vest ultimate authority 
to approve or disapprove applications for clearing membership.\10\ 
Should the Risk Committee propose to disapprove an application for 
clearing membership, the Risk Committee must first provide the 
applicant an opportunity to be heard and present evidence on its own 
behalf (as is currently the case today with respect to the Board's 
decision to disapprove an application for clearing membership).\11\
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    \9\ See Section IV of the Risk Committee Charter attached hereto 
as Exhibit 5B.
    \10\ The Board would continue to oversee OCC's membership 
criteria and ongoing membership standards through its authority to 
approve changes to OCC's By-Laws and Rules (and specifically those 
By-Laws and Rules that concern membership). The Risk Committee would 
inform the Board, at the Board's next regularly scheduled meeting, 
of applications for clearing membership pursuant to proposed Article 
V, Section 2(c) of the By-Laws.
    \11\ See OCC's By-Laws Article V, Section 2. Typically, however, 
if OCC's due diligence review reveals issues that would prevent the 
Board or the Risk Committee from approving an application for 
clearing membership, the applicant voluntarily remediates such 
issues prior to the presentation of the application for clearing 
membership to the Risk Committee.
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    In order to effect the foregoing, and in addition to proposed 
changes to Article V, Section 2 of the By-Laws, OCC is proposing 
conforming changes to Article V, Sections 1 and 3 of the By-Laws as 
well as the Board and Risk Committee Charters.\12\ Such conforming 
changes would identify that the Risk Committee, and not the Board, 
would approve applications for clearing membership. Additionally, OCC 
is proposing changes to Article VIII, Section 2 of the By-Laws (as well 
as the Board and Risk Committee Charters) to identify that the Risk 
Committee, and not the Board, would set initial clearing fund 
requirements in connection with the approval of an application for 
clearing membership.
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    \12\ Marked versions of the Board and Risk Committee Charters 
are attached as Exhibits 5A and 5B.
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Delegation of Authority To Approve Applications for Membership to the 
Executive Chairman or President of OCC
    In order to better streamline OCC's membership application approval 
process, and allow the Board and the Risk Committee to more efficiently 
allocate their time, OCC is proposing additional amendments to Article 
V, Section 2 of its By-Laws to allow OCC's Executive Chairman or its 
President to approve certain applications for clearing membership. As 
described above: (i) OCC believes that, based on the applicable rules 
of the Commission and the Commodity Futures Trading Commission, 
applications for clearing membership that clearly meet OCC's membership 
criteria must be approved,\13\ and (ii) applications for clearing 
members do not necessarily track the Risk Committee or Board's regular 
meeting schedule and, on occasion, the Board has had to convene in a 
special meeting for the sole purpose of considering a clearing member

[[Page 35404]]

application or otherwise seek approval via unanimous written consent, 
which is not a good use of either the Board or the Risk Committee's 
time and resources. Therefore, OCC is proposing to amend Article V, 
Section 2 of its By-Laws to delegate the authority to approve 
applications for clearing membership to the Executive Chairman or 
President of OCC provided that: (i) It is not recommended that the Risk 
Committee impose additional membership criteria upon the applicant 
pursuant to Section 1, Interpretation and Policy .06 of Article V of 
OCC's By-Laws, and (ii) the Risk Committee is given not less than five 
business days from the date it is notified by its designated delegates 
or agents that the Executive Chairman or President intends to approve a 
given application to determine that such application should be reviewed 
at a meeting of the Risk Committee and the Risk Committee has not 
requested that the application be reviewed at a meeting of the Risk 
Committee within such five day period. If five business days pass and 
no member of the Risk Committee notifies Management that a given 
application for clearing membership should be reviewed at a meeting of 
the Risk Committee, then the Executive Chairman and President shall 
have the authority to approve the application for clearing membership. 
This proposed change would have the effect of allowing either OCC's 
Executive Chairman or the President to approve most applications for 
clearing membership received by OCC. Neither the Executive Chairman nor 
the President would be allowed to disapprove an application for 
clearing membership. Instead, if either the Executive Chairman or 
President determined he could not approve an application for clearing 
membership, the application would be considered by the Risk Committee 
for approval or disapproval at its next regularly scheduled meeting. 
OCC believes that allowing the Executive Chairman or President to 
approve applications for clearing membership that clearly meet OCC's 
membership criteria would allow the Board and the Risk Committee to 
allocate their time to more efficiently and effectively.
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    \13\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C).
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(2) Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) \14\ of the Act because it is designed to remove 
impediments to a national system for the prompt and accurate clearance 
and settlement of securities transactions by streamlining OCC's 
membership approval process. By vesting the authority to approve or 
disapprove applications for clearing membership with the Risk Committee 
and by delegating authority to the Executive Chairman or the President 
to approve new applications provided that: (i) It is not recommended 
that the Risk Committee impose additional membership criteria upon the 
applicant pursuant to Section 1, Interpretation and Policy .06 of 
Article V of OCC's By-Laws, and (ii) the Risk Committee is given not 
less than five business days to determine that the application should 
be reviewed at a meeting of the Risk Committee and the Risk Committee 
has not requested that the application be reviewed at a meeting of the 
Risk Committee within such five day period, OCC will not subject 
applicants for clearing membership to the regular meeting cycle of the 
Board or the Risk Committee, particularly when the approval of an 
application for clearing membership is pro forma in nature. 
Additionally, by streamlining OCC's membership approval process in this 
manner, OCC's Board and Risk Committee will be able to deploy their 
time and resources in a more efficient manner and allow the Board and 
Risk Committee more time to focus on other matters of significance to 
OCC and its role as a systemically important financial market utility. 
As a result, OCC believes the proposed rule change is also reasonably 
designed to provide for governance arrangements that are clear and 
transparent to fulfill the public interest requirements in Section 17A 
of the Act \15\ applicable to clearing agencies and support the 
objectives of owners and participants in accordance with Rule 17Ad-
22(d)(8).\16\ The proposed rule change is not inconsistent with any 
rules of OCC, including those rules proposed to be amended.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 15 U.S.C. 78q-1.
    \16\ 17 CFR 240.17Ad-22(d)(8).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impact or 
impose a burden on competition.\17\ OCC believes that the proposed rule 
change would not disadvantage or favor any particular user of OCC's 
services in relationship to another user because it would apply equally 
to all potential users of OCC, and would not impact current users of 
OCC. For the foregoing reasons, OCC does not believe that the proposed 
rule change would have any impact or impose a burden on competition.
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    \17\ 15 U.S.C. 78q-1(b)(3)(I).
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(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 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-2016-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2016-007. 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 proposed rule change that are 
filed with the Commission, and all written communications relating to 
the

[[Page 35405]]

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 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 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_16_007.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-2016-007 
and should be submitted on or before June 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13039 Filed 6-1-16; 8:45 am]
 BILLING CODE 8011-01-P


