
[Federal Register Volume 81, Number 158 (Tuesday, August 16, 2016)]
[Notices]
[Pages 54632-54634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19431]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78526; File No. SR-OCC-2016-008]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Revise The Options Clearing Corporation's Schedule of Fees

August 10, 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 July 29, 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 by OCC. OCC filed the proposed rule change pursuant 
to Section 19(b)(3)(A)(ii) \3\ of the Act and Rule 19b-4(f)(2) \4\ 
thereunder so that the proposal was effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 by OCC is to revise OCC's 
Schedule of Fees effective October 1,

[[Page 54633]]

2016, or such later date as OCC may determine and announce to its 
Clearing Members via Information Memo,\5\ to implement a change of fees 
in conjunction with enhancements to OCC's Stock Loan Program 
(``Program'').
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    \5\ On August 8, 2016, pursuant to a telephone conversation with 
Commission staff, OCC agreed that if OCC determines that an 
effective date later than October 1, 2016 is required for the fee 
change that is the subject of this filing, OCC will re-file a 
revised Schedule of Fees specifying the new effective date. In 
addition, OCC agreed to the insertion of clarifying language 
concerning its determination of any later effective date in its 
description of the proposed rule change.
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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 revise OCC's 
Schedule of Fees to more adequately cover the expenses incurred by OCC 
to operate the Program, including costs associated with ongoing and 
anticipated operational and risk management enhancements to the 
Program. The revised fee schedule would become effective on October 1, 
2016, or such later date as OCC may determine and announce via 
Information Memo.\6\
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    \6\ See supra note 5.
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    The Program began in 1993 as a tool for participants to use 
borrowed and loaned securities to reduce OCC margin requirements by 
reflecting the actual risks of their inter-market hedged positions. 
When the Program began, OCC implemented a risk management 
infrastructure based on the Program's scale and complexity. Over time, 
OCC's Clearing Members have discovered that the Program can provide 
valuable risk management and capital efficiency solutions. 
Specifically, the credit risk of a given stock loan transaction in the 
Program is significantly lower than a bilaterally executed stock loan 
as a result of OCC's novation and guarantee of stock loans in the 
Program, and Clearing Members' stock loans in the Program are netted 
against their other positions held at OCC. These factors have caused 
significant increases in both the scale of the Program and the 
resulting risk management demands. As a result of the increased 
operational and risk management demands of the Program, and in light of 
OCC's heightened responsibilities as a designated Systemically 
Important Financial Market Utility, OCC is considering a number of 
enhancements to its operational and risk management systems and 
processes, which require both process redesign and increased operating 
expenses. These enhanced systems and processes would include:
     The capture and validation of trades prior to facilitating 
settlement;
     A new position accounting system to support expanded 
guarantee of contract terms such as rebate rate and term;
     An automated trade correction mechanism;
     Automated systems to support re-matching upon the default 
of a participant lending and borrowing the same security; and,
     Automation of the default management process for any 
unmatched positions and limitation of the close-out period.
    Taking these enhancements into account, OCC analyzed its pricing 
for the Program, which has not been updated since 2009, against the 
Program's annual revenue as well as the Program's expenses assessed 
against OCC by the Depository Trust Company (``DTC'') and determined 
that current pricing would not reflect the expenses incurred by OCC to 
make the Program more robust and sustainable given its increased scope 
and risk managements demands.
    OCC arrived at the fee schedule presented herein by determining 
pricing for the Program that: (1) Covers OCC's costs in running the 
Program, including the transaction fees charged to OCC by DTC; (2) 
account for costs incurred by OCC to make the operational and risk 
management enhancements required to make the Program more robust and 
sustainable; and, (3) better reflects the value the Program provides 
participants, particularly to borrowers, by providing for a centrally 
cleared and risk managed stock loan clearing solution. As a result of 
the aforementioned analysis, OCC proposes to revise its Schedule of 
Fees \7\ by adding a monthly 0.4 basis point annualized charge for 
borrowers on average daily notional outstanding balances in addition to 
the current $1 clearing fee for both lenders and borrowers, which would 
be retained under the proposed fee change.\8\
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    \7\ These changes are also reflected in Exhibit 5.
    \8\ OCC notes that the proposed fee increase is designed to help 
defray increased expenses to OCC from the development and 
implementation of the ongoing and anticipated operational and risk 
management enhancements discussed above. Moreover, OCC would 
continue to monitor Program revenue and expenses in order to 
determine if further revisions to OCC's Schedule of Fees are 
required so that revenue is commensurate with expenses and the 
services provided. Any subsequent changes to OCC's Schedule of Fees 
would be the subject of a subsequent proposed rule change filed with 
the Commission.
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    OCC does not believe that its current pricing schedule reflects the 
value that the Program provides to its participants, particularly to 
borrowers using the Program. Securities lending transactions are 
typically driven by the need for borrowers to obtain specific 
securities. Lenders, in comparison, do not have a specific need to lend 
their securities and the price of a given stock loan transaction in 
part compensates the lender for the borrower's credit risk. As a 
result, it is common for the borrower to pay all ancillary fees related 
to a given stock loan transaction. Moreover, while borrowers and 
lenders both benefit from the risk management and capital efficiencies 
gained by clearing stock loan transactions through the Program, on 
balance, the capital efficiencies for borrowers are greater. 
Furthermore, the implementation of the aforementioned operational and 
risk management enhancements would provide for a more robust and 
sustainable Program, and as a result, OCC hopes to be able to build on 
this foundation in the future to attract a broader market of securities 
borrowers and lenders to the Program, particularly securities lenders, 
which would potentially lead to borrowers in the Program receiving 
better loan rates because there would a greater amount of willing 
lenders.
2. Statutory Basis
    OCC believes that the proposed rule change concerning a change to 
OCC's clearing fees is consistent with Section 17A(b)(3)(D) \9\ of the 
Act, because the proposed fee schedule provides for the equitable 
allocation of reasonable fees among its Clearing Members. OCC believes 
the proposed fee change is reasonable because it is designed to cover 
the costs incurred by OCC to implement operational and risk management 
enhancements designed to make the Program more robust and sustainable, 
particularly given the increased scale and risk management demands of 
the Program, and the increased revenue from the fee change

[[Page 54634]]

is anticipated to help offset the increased expenses incurred by OCC to 
make such enhancements. These enhancements would strengthen the 
Program's operational resiliency and risk management capabilities, 
potentially enabling the introduction of further enhancements that 
would allow the Program to service a broader market of participants, 
which in turn would provide economic benefits and lower risk for both 
borrowers and lenders. Moreover, OCC believes that the proposed fee 
schedule would provide for an equitable allocation of clearing fees to 
users of the Program. Specifically, OCC would retain the $1 new loan 
transaction clearing fee for both lenders and borrowers, and the 
proposed fee change would impose an additional monthly 0.4 basis point 
annualized charge for borrowers based on average daily notional 
outstanding balances to more appropriately allocate costs of the 
Program to those users benefiting most from the Program. The proposed 
fee change would therefore better align Program fees with the industry, 
in which is it common practice for borrowers to bear additional costs 
associated with stock loan transactions. The proposed rule change is 
not inconsistent with the existing rules of OCC, including any other 
rules proposed to be amended.
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    \9\ 17 U.S.C. 78q-1(b)(3)(D).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would have any 
impact or impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Act.\10\ Although this proposed 
rule change would assess an additional fee against borrowers utilizing 
the Program that is not assessed against lenders, as explained above, 
OCC believes that the proposed rule change appropriately aligns how 
fees are assessed with the economic and risk management benefits of the 
Program, and enables OCC to provide a more robust Program that will 
expand its user base and benefit borrowers. Also, the proposed fee 
changes would not disadvantage or favor any particular borrower or 
lender utilizing the Program in relationship to another borrower or 
lender, respectively, because the proposed clearing fees apply equally 
to all users of the Program. Accordingly, OCC does not believe that the 
proposed rule change would have any impact or impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
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    \10\ 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 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \11\ and Rule 19b-4(f)(2) thereunder.\12\ At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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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-2016-008 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-2016-008. 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 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_008.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-2016-008 
and should be submitted on or before September 6, 2016.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19431 Filed 8-15-16; 8:45 am]
 BILLING CODE 8011-01-P


