[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35446-35453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12519]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89014; File No. SR-OCC-2020-003]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Related to Proposed Changes to The 
Options Clearing Corporation's Framework for Liquidity Risk Management

June 4, 2020.

I. Introduction

    On April 6, 2020, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2020-003 (``Proposed Rule Change'') 
pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to adopt a written 
framework establishing OCC's approach to managing liquidity risk.\3\ 
The Proposed Rule Change was published for public comment in the 
Federal Register on April 24, 2020.\4\ The Commission has received no 
comments regarding the Proposed Rule Change.\5\ This order approves the 
Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, at 85 FR 23095.
    \4\ Securities Exchange Act Release No. 88690 (Apr. 20, 2020), 
85 FR 23095 (Apr. 24, 2020) (File No. SR-OCC-2020-003) (``Notice of 
Filing''). OCC also filed a related advance notice (SR-OCC-2020-802) 
(``Advance Notice'') with the Commission pursuant to Section 
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled the Payment, Clearing, and 
Settlement Supervision Act of 2010 and Rule 19b-4(n)(1)(i) under the 
Exchange Act. 12 U.S.C. 5465(e)(1). 15 U.S.C. 78s(b)(1) and 17 CFR 
240.19b-4, respectively. The Advance Notice was published in the 
Federal Register on May 8, 2020. Securities Exchange Act Release No. 
88792 (May 1, 2020), 85 FR 27470 (May 8, 2020) (File No. SR-OCC-
2020-802).
    \5\ Since the proposal contained in the Proposed Rule Change was 
also filed as an advance notice, all public comments received on the 
proposal are considered regardless of whether the comments are 
submitted on the Proposed Rule Change or Advance Notice.
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II. Background

    As noted above, OCC proposes to adopt a written framework 
establishing OCC's approach to managing liquidity risk. This written 
framework, the Liquidity Risk Management Framework (``LRMF''), sets 
forth a comprehensive overview of OCC's liquidity risk management 
practices and governs OCC's policies and procedures as they relate to 
liquidity risk management. In connection with implementing the proposed 
LRMF, OCC proposes to make revisions to its current rules regarding how 
OCC (1) maintains sufficient liquidity resources to meet its settlement 
obligations; (2) addresses foreseeable liquidity shortfalls not covered 
by OCC's liquidity resources; (3) replenishes any of OCC's resources 
employed during a stress event; (4) undertakes due diligence of OCC's 
liquidity providers; and (5) requires each Clearing Member to have 
procedures to ensure operational capacity to meet its obligations 
arising from participation in OCC. OCC proposes to make conforming 
changes throughout its rules to effect the substance of the changes 
described below. Such changes would be made to OCC's Clearing Fund and 
Stress Testing Methodology (``Methodology Description''), Risk 
Management Framework Policy, Clearing Fund Methodology Policy, 
Collateral Risk Management Policy, Counterparty Credit Risk Management 
Policy (``CCRM Policy''), and Default Management Policy.

[[Page 35447]]

    The proposed LRMF describes the primary liquidity risks OCC faces 
when managing a Clearing Member default. To determine the amount of 
resources it needs, OCC assumes a two-day period of risk (i.e., the 
period between a Clearing Member default and the settlement of the 
defaulted Clearing Member's obligations). According to OCC, the 
potential liquidity obligations arising from a Clearing Member default 
may include mark-to-market obligations on futures and stock loan 
positions, trade premiums, cash-settled exercise and assignment 
(``E&A'') activity, auction payments, settlements resulting from the 
E&A of physically-settled options, and funding of OCC's liquidation 
agents.\6\ Such obligations would represent the specific liquidity 
risks that OCC would monitor, size, and manage as described in the 
LRMF. OCC would consider such potential obligations when determining 
its liquidity resources needs.
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    \6\ See Notice of Filing, 85 FR at 23097.
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    The proposed LRMF also describes factors that OCC would not 
consider when determining its liquidity resources needs. Such factors 
include margin deficits and other payments associated with a 
liquidation (e.g., brokerage, bank, and legal fees), which OCC states 
do not generally create immediate liquidity demands that could impede 
settlement. OCC also does not consider the costs it would directly bear 
to hedge open positions in its liquidity resource determinations 
because OCC's primary goal is to liquidate positions prior to the need 
for hedging. Additionally, the proposed LRMF identifies liquidity risks 
that OCC would mitigate through tools other than the application of 
liquidity resources. Such risks include the operational failure or 
disruption of OCC's liquidity providers, custodian, or settlement bank 
as well as potential concentration risks from key settlement banks and 
liquidity providers.
    The proposed LRMF identifies and defines the four categories of 
liquidity resources that OCC would maintain: (1) ``Base Liquidity 
Resources,'' (2) ``Available Liquidity Resources,'' (3) ``Required 
Liquidity Resources,'' and (4) ``Other Liquidity Resources.'' The 
proposed LRMF defines Base Liquidity Resources as assets that are 
readily available and convertible into cash through prearranged funding 
arrangements \7\ and required Clearing Fund cash on deposit.\8\ The 
proposed LRMF defines Available Liquidity Resources as OCC's Base 
Liquidity Resources plus Clearing Fund cash deposits in excess of the 
minimum required amount.\9\ The proposed LRMF defines OCC's Required 
Liquidity Resources, which are comprised of OCC's Available Liquidity 
Resources plus any amount of cash margin deposits of a Clearing Member 
Group required under the Contingency Funding Plan (described below). 
Finally, the proposed LRMF describes OCC's Other Liquidity Resources, 
which may or may not be available to OCC in a default situation (e.g., 
non-cash margin deposits of the defaulting Clearing Member, including 
letters of credit, Government Securities, and Government Sponsored 
Entity securities that may be liquidated for same-day or next day 
settlement).
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    \7\ OCC endeavors to maintain committed liquidity facilities 
with both bank and non-bank counterparties. OCC maintains a 
committed credit facility syndicated among various commercial banks. 
OCC also attempts to maintain committed repurchase agreements, which 
may be with either bank or non-bank counterparties.
    \8\ OCC's rules require Clearing Members to collectively 
contribute $3 billion in U.S. dollar cash to the Clearing Fund.
    \9\ OCC would only include excess cash deposits up to the amount 
the required Clearing Fund size exceeds the minimum Clearing Fund 
size as determined by OCC Rule 1001(b). Further, cash deposits in 
excess of a Clearing Member's total Clearing Fund requirement would 
not be included.
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A. Sufficiency of Liquidity Resources

    The proposed changes include rules designed to ensure the 
sufficiency of OCC's liquidity resources. Such rules address the 
maintenance of liquidity resources designed to address a variety of 
stress scenarios through the sizing of such resources and the 
management of certain Clearing Member cash collateral withdrawals. The 
proposal also describes OCC's approach to liquidity stress testing more 
generally, including OCC's internal reporting processes related to 
liquidity stress testing.
1. Maintenance of Liquidity Resources
    To ensure that OCC identifies the appropriate amount of liquidity 
resources it should maintain, OCC's proposed LRMF describes OCC's 
overall approach to liquidity stress testing and liquidity resource 
sizing. OCC's approach for liquidity stress testing would rely on the 
stressed scenarios and prices generated under OCC's current stress 
testing and Clearing Fund methodology.\10\
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    \10\ See Securities Exchange Act Release No. 83735 (Jul. 27, 
2018), 83 FR 37855 (Aug. 2, 2018) (File No. SR-OCC-2018-008); 
Securities Exchange Act Release No. 83714 (Jul. 26, 2018), 83 FR 
37570 (Aug. 1, 2018) (File No. SR-OCC-2018-803). OCC's current 
methodology considers a range of stress scenarios and possible price 
changes in liquidation periods, including but not limited to: (1) 
Relevant peak historic price volatilities; (2) shifts in other 
market factors including, as appropriate, price determinants and 
yield curves; (3) the default of one or multiple members; (4) 
forward-looking stress scenarios; and (5) reverse stress tests aimed 
at identifying extreme default scenarios and extreme market 
conditions for which the OCC's resources would be insufficient. See 
Notice of Filing, 85 FR at 23098.
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    Under the proposal, OCC's Board of Directors (``Board'') would, at 
least annually, determine the size of OCC's Base Liquidity Resources 
based on a recommendation from the Risk Committee of OCC's Board 
(``RC''). The RC's recommendation would be based on an internal 
analysis summarizing OCC's projected liquidity demands under a variety 
of stress scenarios, including the sufficiency of OCC's Base Liquidity 
Resources against extreme historical scenarios such as the 1987 market 
break and 2008 financial crisis, and certain scenarios used to size 
OCC's Clearing Fund.\11\
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    \11\ Such analysis would also consider the parameters and 
assumptions underlying OCC's stress testing system as well as the 
then current composition of OCC's liquidity resources.
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    OCC proposes to revise how the Methodology Description describes 
key assumptions underlying OCC's calculation of its liquidity needs. 
Such assumptions include: (1) A two-day liquidation horizon; (2) the 
default of a Clearing Member sometime between the collection of 
collateral on a given day and settlement of Clearing Member obligations 
to OCC on the following day (i.e., the day of default, ``D''); (3) the 
gross calculation of cash-settled option liquidity demands due on the 
morning of D; (4) the National Securities Clearing Corporation 
(``NSCC'') normally guarantees the settlement of any E&A transactions; 
(5) the accounting of liquidity demands as required by relevant cross-
margin agreements; (6) that auction bids for a defaulting Clearing 
Member's portfolio are represented by stressed prices at the contract 
level; (7) that credits that occur on the first day of a liquidation 
persist and are available to offset debits on subsequent days; (8) that 
auction proceeds settle on D+2; (9) liquidity demands associated with 
Specific Wrong Way Risk (``SWWR'') positions are included in the 
appropriate calculations; \12\ and (10) no early exercise of options 
occurs.\13\
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    \12\ See Securities Exchange Act Release No. 87673 (Dec. 6, 
2019), 84 FR 67981 (Dec. 12, 2019) (File No. SR-OCC-2019-807); 
Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR 
68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010).
    \13\ OCC believes standard expiration is generally more 
meaningful than early exercise risk when calculating the liquidity 
risk associated with E&A activity. See Notice of Filing, 85 at 23101 
n. 31. OCC provided data supporting this belief in a confidential 
Exhibit 3 to the Proposed Rule Change.

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[[Page 35448]]

    Under the proposal, OCC would also make certain assumptions 
regarding the treatment of positions and cash flows based on timing. 
OCC would assume that positions with an expiration date of D+1 or 
greater will be liquidated via auction, and that option positions 
expiring on D-1 or D would be liquidated through normal OCC cash 
settlement processes or through physical settlement at NSCC. Under the 
proposed approach, cash inflows would be assumed to reduce outflows 
only for later dates.
    To facilitate the maintenance of identified and collected liquidity 
resources, OCC proposes to require a two-day notice period for the 
substitution of non-cash collateral for cash in the Clearing Fund. 
Currently, a Clearing Member may execute a same-day substitution of 
Government Securities \14\ for cash deposits in the Clearing Fund. 
Where substitution would not cause a Clearing Member's settlement 
obligations to exceed the liquidity resources it has pledged to OCC, 
OCC would retain discretion to waive the proposed notice period. OCC 
stated that the proposed change is intended provide additional 
certainty around the level of liquidity resources available to OCC at 
any given time by fixing the amount of cash in the Clearing Fund, and 
thereby fixing the amount of OCC's Available Liquidity Resources, for 
any given two-day liquidation horizon.\15\
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    \14\ OCC defines ``Government Securities'' as securities issued 
or guaranteed by the United States or Canadian Government, or by any 
other foreign government acceptable to the Corporation, except 
Separate Trading of Registered Interest and Principal Securities 
issued on Treasury Inflation Protected Securities (commonly called 
TIP-STRIPS). OCC By-Laws, Article I, Section 1.G.(5), available at 
https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_bylaws.pdf.
    \15\ See Notice of Filing, 85 FR at 23103.
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2. Liquidity Stress Testing
    As noted above, OCC's liquidity stress testing would be based on 
output of its current stress testing and Clearing Fund methodology. 
Daily, OCC performs stress tests designed to: (1) Determine whether 
OCC's collective financial resources are adequate to cover OCC's risk 
tolerance (``Adequacy Scenarios''); (2) establish the monthly size of 
the Clearing Fund based on the potential losses arising out of a 1-in-
80 year hypothetical market event; (3) measure the exposure posed by 
individual Clearing Member Groups, and determine whether such exposure 
necessitates OCC calling for additional financial resources 
(``Sufficiency Scenarios''); and (4) monitor and assess the size of 
OCC's pre-funded financial resource against a wide range of stress 
scenarios that may include extreme but implausible and reverse stress 
testing scenarios (``Informational Scenarios'').
    OCC proposes to revise how the Methodology Description discusses 
OCC's stress testing and reporting processes to support the 
determination of its liquidity needs. OCC would change how it 
constructs portfolios for stress tests as well as how it aggregates 
stress test results consistent with the practices that OCC would follow 
in an actual liquidation of a defaulter's portfolio. Currently, OCC's 
processes focus on calculating the liquidating value of a portfolio. 
OCC proposes to revise its description of this process in its 
Methodology Description to highlight the importance of the timing of 
the cash flows during a liquidation because offsetting cash flows may 
occur on different days thus creating a liquidity demand during the 
process without a loss at the end of the process.\16\
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    \16\ OCC also proposes changes to clarify the structure of 
Clearing Member accounts. For example, Clearing Members maintain 
separate accounts for separate business types or cross-margining 
arrangements. Further, positions and collateral credited to a 
particular type of Clearing Member account (e.g., customer, firm or 
market-maker) may be subject to a lien in favor of OCC, and such 
liens (or lack thereof depending on the account) would be 
contemplated in OCC's portfolio construction and aggregation 
processes.
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    OCC proposes to rely on the output from its Sufficiency Scenarios 
and Adequacy Scenarios to evaluate its liquidity resources. Under the 
proposed LRMF, OCC would assess its Base Liquidity Resources against 
its Adequacy Scenarios. OCC's proposed processes for increasing its 
Base Liquidity Resources as needed are described below. Similarly, OCC 
would evaluate the sufficiency of its Available Liquidity Resources 
based on the Sufficiency Scenarios.\17\ OCC's proposed process for 
evaluating and supplementing its Available Liquidity Resources is also 
described below. OCC also proposes to make other conforming and 
organizational changes to the Methodology Description to reflect the 
implementation of the new liquidity stress testing approach and make 
other non-substantive clarifications to the document.\18\
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    \17\ OCC also proposes to monitor and assess its liquidity 
resources under the Informational Scenarios. OCC would not be 
directly use the output of the Informational Scenarios to make 
decisions regarding the size of OCC's liquidity resources.
    \18\ For example, OCC would reorganize the document to relocate 
content specific to credit stress testing to sections of the 
document focused only on credit stress testing. OCC is also making 
clarifying and conforming changes to differentiate the usage of 
Adequacy, Sizing, Sufficiency, and Informational Scenarios for 
credit and liquidity purposes. Further, OCC proposes changes to more 
accurately describe the scope of volatility instruments cleared by 
OCC.
    OCC proposes to clarify that in most SWWR stress test scenarios, 
SWWR Equity and ETN charges computed for margins are added to stress 
scenario profit and loss calculations in order to account for SWWR 
in the stress testing system. See Securities Exchange Act Release 
No. 87673 (Dec. 6, 2019), 84 FR 67981 (Dec. 12, 2019) (File No. SR-
OCC-2019-807) and Securities Exchange Act Release No. 87718 (Dec. 
11, 2019), 84 FR 68992 (Dec. 17, 2019) (File No. SR-OCC-2019-010). 
OCC also proposes removing duplicative language regarding 
Idiosyncratic Scenarios, Sizing Scenarios, and certain key 
assumptions from the executive summary of the Methodology 
Description because such information is covered in greater detail 
later in later sections of the document.
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    The proposed LRMF also sets forth certain internal reporting 
processes related to OCC's liquidity stress testing. Daily, OCC staff 
would be required to review the output of OCC's liquidity stress tests, 
and such review could lead to a change in the size of OCC's Base 
Liquidity Resources. At least monthly, OCC staff would be required to 
develop and review reports detailing and analyzing OCC's daily stress 
tests.\19\ OCC would use the analysis provided in such reports to 
review the parameters and assumptions underlying OCC's stress tests. 
OCC staff would conduct such analyses more frequently than monthly when 
products cleared or markets served display high volatility or become 
less liquid, or when the size or concentration of positions held by 
OCC's participants increases significantly. OCC staff would be required 
to provide a summary of the results from its at least monthly review to 
OCC's Management Committee and the RC. At least annually, OCC staff 
would be required to assess the adequacy of OCC's stress testing 
methodology, and provide such assessment to the RC. Also at least 
annually, OCC staff would be required to perform a review of risk 
methodologies and the usage of any models to inform the management of 
liquidity risk.
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    \19\ Additionally, OCC staff would develop internal reports 
regarding the sufficiency of OCC's liquidity resources.
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B. Foreseeable Shortfalls

    In determining the sufficiency of its liquidity resources as 
described above, OCC may identify a foreseeable liquidity shortfall. In 
such a situation, OCC's proposed changes provide OCC tools designed to 
address such foreseeable liquidity shortfalls not otherwise addressed 
by OCC's liquidity resources. The proposed LRMF contemplates mechanisms 
for increasing the size of OCC's Base Liquidity Resources. The proposed 
LRMF also describes OCC's plan for collecting additional resources

[[Page 35449]]

when a Clearing Member Group's projected or actual liquidity risk 
exceeds certain thresholds (``Contingency Funding Plan'').
1. Increasing Base Liquidity Resources
    Under the proposed LRMF, OCC would maintain two tools by which it 
could increase its Base Liquidity Resources. As noted above, OCC 
maintains a committed credit facility with a syndicate of banks. The 
committed credit facility includes an uncommitted accordion 
feature,\20\ which OCC will endeavor to include in future iterations of 
the facility.
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    \20\ An accordion is an uncommitted expansion of a credit 
facility generally on the same terms as a credit facility.
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    OCC also requires Clearing Members to collectively contribute $3 
billion in cash to the Clearing Fund (``CF Cash Requirement''). OCC's 
current rules already authorize each of OCC's Executive Chairman, Chief 
Executive Officer, and Chief Operating Officer (collectively, the 
``OCEO'') individually to increase the CF Cash Requirement on a 
temporary basis for the protection of OCC, Clearing Members or the 
general public.\21\ OCC requires that such temporary increases be 
reviewed by the RC. OCC proposes to expand its authority to set and to 
temporarily increase the CF Cash Requirement. OCC proposes to authorize 
its Board to adjust the CF Cash Requirement periodically except that 
the Board would not be permitted to set the CF Cash Requirement at an 
amount lower than $3 billion. OCC also proposes that the OCEO may 
temporarily increase the CF Cash Requirement to respond to changing 
business or market conditions,\22\ and to require that the RCs' review 
of such an increase must (i) be based upon then-existing facts and 
circumstances, (ii) be in furtherance of the integrity of OCC and the 
stability of the financial system, and (iii) take into consideration 
the legitimate interests of Clearing Members and market 
participants.\23\ OCC also proposes to require that any increase in the 
CF Cash Requirement be satisfied no later than the second business day 
following notification unless the Clearing Member is notified by an 
officer of OCC an alternative time to satisfy such obligation.\24\
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    \21\ OCC utilized this authority in December 2019 when it 
informed Clearing Members that OCC would exercise this authority on 
January 3, 2020 to increase the CF Cash Requirement temporarily from 
$3 billion to $3.5 billion during the monthly sizing of the Clearing 
Fund. See Securities Exchange Act Release No. 88120 (Feb. 5, 2020), 
85 FR 7812, 7814 n. 20 (Feb. 11, 2020) (File No. SR-OCC-2020-801).
    \22\ OCC also proposes shifting the location of such 
authorization in its rules from Rule 1002 to the proposed LRMF.
    \23\ The criteria proposed for the RC's review are currently the 
criteria required for a member of the OCEO to authorize a temporary 
increase.
    \24\ OCC currently requires such temporary increases to be 
satisfied no later than one hour before the close of Fedwire on the 
business day following notification by OCC. OCC stated that the 
change is designed to provide more clarity and simplicity by more 
closely aligning the timeframes for meeting an increase in the CF 
Cash Requirement with the timing for satisfying Clearing Fund 
deficits in the monthly and intra-month sizing processes. See Notice 
of Filing, 85 FR at 23103.
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2. Addressing Shortfalls in Available Liquidity Resources
    Currently, OCC forecasts daily settlement obligations 30 days prior 
to a given settlement under normal market conditions and compares such 
demands to its resources. Based on such analysis, OCC may require a 
Clearing Member to deposit intra-day margin in the form of cash so that 
OCC's liquid financial resources would be sufficient to cover the 
Clearing Member's obligations. OCC proposes to replace its current 
forecasting process with an analysis of OCC's resources measured 
against the output of its Sufficiency Scenarios. Under the proposed 
LRMF, OCC would take specific actions in the event that the output of 
its Sufficiency Scenarios for a given Clearing Member Group were to 
exceed one of two thresholds. Where OCC observes that the output of a 
Sufficiency Scenario is in excess of 80 percent of OCC's Available 
Liquidity Resources, OCC would initiate enhanced monitoring of the 
Clearing Member Group's liquidity demand.\25\ Where OCC observes that 
the output of a Sufficiency Scenario is in excess of 90 percent of 
OCC's Available Liquidity Resources, OCC could require the Clearing 
Member Group to provide additional cash collateral (``Required Cash 
Deposits'').\26\ OCC proposes to amend its rules such that a Required 
Cash Deposit could be imposed either as part of OCC's normal daily 
margin process or as a special intra-day margin call.\27\
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    \25\ OCC described the process comprising such enhanced 
monitoring in a confidential Exhibit 3G provided as part of the 
proposal.
    \26\ The amount of a Required Cash Deposit would be equal to 90 
percent of OCC's Available Liquidity Resources less the relevant 
output of OCC's Sufficiency Scenario. Such a Required Cash Deposit 
could be provided as a substitute for non-cash collateral. OCC would 
generally require funding of Required Cash Deposits five business 
days before the date of the projected demand but may require funding 
up to 20 business days before the projected date as facts and 
circumstances may warrant.
    \27\ As proposed, OCC would generally require funding of 
Required Cash Deposits five business days before the date of the 
projected demand but could require funding up to 20 business days 
before the projected date.
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    Similar to margin calls designed to ensure the sufficiency of OCC's 
financial resources, OCC proposes to establish two thresholds for 
monitoring the potential impact of a Required Cash Deposit on the 
relevant Clearing Member.\28\ If the Required Cash Deposit for an 
individual Clearing Member were to exceed $500 million or 75 percent of 
the Clearing Member's excess net capital, OCC staff would be required 
to notify OCC's OCEO. If the Required Cash Deposit for an individual 
Clearing Member were to exceed 100 percent of the Clearing Member's 
excess net capital, OCC staff would escalate the matter to the OCEO, 
any member of which would be authorized to approve such Required Cash 
Deposit. The thresholds described above would be subject to annual 
review and approval by the RC. Additionally, each member of the OCEO 
would be authorized to approve temporary changes to the thresholds 
described above.\29\
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    \28\ See Securities Exchange Act Release No. 83735 (Jul. 27, 
2018), 83 FR 37855, 37858 (Aug. 2, 2018) (File No. SR-OCC-2018-008); 
Securities Exchange Act Release No. 83714 (Jul. 26, 2018), 83 FR 
37570, 37572-73 (Aug. 1, 2018) (File No. SR-OCC-2018-803).
    \29\ The RC would be obligated to review any temporary change in 
thresholds within 20 days of the change to determine whether to make 
such change a permanent part of OCC's rules. The RC's determination 
must (i) be based upon then-existing facts and circumstances, (ii) 
be in furtherance of the integrity of OCC and the stability of the 
financial system, and (iii) take into consideration the legitimate 
interests of Clearing Members and market participants.
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    Under the proposed LRMF, OCC would also have authority to impose 
Required Cash Deposits as a protective measure against a Clearing 
Member subject to enhanced monitoring and surveillance pursuant to 
OCC's watch level reporting process because OCC determines that the 
Clearing Member presents increased credit risk.\30\ Specifically, OCC 
proposes to authorize such a requirement by adopting new Rule 604(g). 
Under the proposed rule, a Clearing Member may be required to satisfy 
such required cash deposits through its daily margin requirements under 
Rule 601 or through intra-day margin calls under Rule 609.
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    \30\ OCC's watch level reporting process is outlined in its 
Counterparty Credit Risk Management Policy. See Securities Exchange 
Act Release No. 82312 (Dec. 13, 2017), 82 FR 60242 (Dec. 19, 2017) 
(File No. SR-OCC-2017-009).
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C. Replenishment of Liquidity Resources

    OCC's proposed changes include rules describing OCC's process for 
replenishing liquidity resources employed during a stress event. The 
proposal includes clarification of OCC's authority to borrow cash 
collateral from the Clearing Fund. The proposal also clarifies OCC's 
authority to reject substitutions that would affect non-cash

[[Page 35450]]

Clearing Fund collateral that has been used to access OCC's liquidity 
facilities. Additionally, OCC proposes changes to its rules to allow 
for the more timely declaration and allocation of certain losses 
charged to the Clearing Fund.
    The cash contributions to OCC's Clearing Fund serve as an important 
source of liquidity for OCC to manage potential liquidity risks 
associated with a Clearing Member default or the failure or operational 
disruption of a bank or securities or commodities clearing 
organization. Currently, OCC's rules permit OCC to use the Clearing 
Fund for borrowing or otherwise obtaining funds to be used for 
liquidity purposes. OCC has stated, however, that it would likely not 
use Clearing Fund cash as collateral for a loan from a third-party.\31\ 
Rather, OCC would directly borrow Clearing Fund cash to manage the 
financial obligations of a defaulted Clearing Member. OCC proposes to 
amend its rules to clarify its authority to borrow directly from the 
Clearing Fund.
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    \31\ See Notice of Filing, 85 FR at 23106.
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    The non-cash contributions to OCC's Clearing Fund provide a source 
of collateral necessary for OCC to access sources of liquidity such as 
OCC's liquidity facilities described above. Clearing Members may, from 
time to time, substitute new collateral for collateral already 
contributed to the Clearing Fund. OCC proposes to amend its rules to 
clarify its authority to reject substitutions that would affect 
collateral that OCC has already pledged as collateral to access its 
liquidity facilities.
    Under OCC's rules, amounts obtained through borrowing from the 
Clearing Fund are not considered losses charged against the Clearing 
Fund for a period of 30 days. Any transaction collateralized by 
Clearing Fund contributions that is outstanding for more than 30 days 
is considered an actual loss that OCC would then allocate to its 
Clearing Members, who would then be required to replenish the Clearing 
Fund. OCC proposes to amend its rules to authorize OCC to determine 
that an outstanding transaction collateralized by Clearing Fund 
contributions is a loss to be allocated to Clearing Members, even if 
that transaction has been outstanding for less than 30 days, which in 
turn would allow OCC to allocate the loss and replenish the Clearing 
Fund in a timely manner.

D. Due Diligence of Liquidity Providers

    OCC's ability to manage its liquidity risk is dependent on a 
supporting institutions, such as settlement banks, custodian banks, 
central banks, and liquidity providers. The proposed LRMF describes 
OCC's overall framework for monitoring, managing, and limiting its 
risks and exposures to these supporting institutions.\32\ This 
framework includes onboarding and monitoring processes, including: (1) 
Conducting due diligence to confirm each commercial institution meets 
OCC's financial and operational standards; (2) confirming each 
commercial institution's access to liquidity to meet its commitments to 
OCC; (3) monitoring and managing direct, affiliated, and concentrated 
exposures; and (4) conducting operational reviews of such institutions. 
The proposed LRMF also sets forth OCC's requirements for performing due 
diligence to confirm it has a reasonable basis to believe each of its 
liquidity providers has (1) sufficient information to understand and 
manage the potential liquidity demands of OCC and its associated 
liquidity risk and (2) the capacity to perform as required under its 
commitments to OCC, including the execution of periodic test borrows no 
less than once every 12 months to measure the performance and 
reliability of the liquidity facilities. Further, the proposed LRMF 
describes OCC's use of accounts and services at the Federal Reserve 
Bank of Chicago to custody funds to reduce counterparty credit risks.
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    \32\ OCC's framework for monitoring, managing, and limiting its 
risks and exposures to these supporting institutions is primarily 
governed by OCC's CCRM. See Securities Exchange Act Release No. 
82312 (Dec. 13, 2017), 82 FR 60242 (Dec. 19, 2017) (File No. SR-OCC-
2017-009).
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E. Participant Capacity

    Currently, OCC requires that each Clearing Member have access to 
sufficient financial resources to meet obligations arising from 
clearing membership in extreme but plausible market conditions. OCC's 
rules do not address circumstances in which a Clearing Member has 
sufficient resources to meet its obligations but is unable to meet 
settlement obligations due to a failure or operational issue at its 
primary settlement bank. OCC proposes to require that each Clearing 
Member maintain adequate procedures, including but not limited to 
contingency funding, to ensure that it is able to meet its liquidity 
obligations as OCC members.\33\
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    \33\ OCC regularly examines its Clearing Members for adherence 
to similar obligations arising out of OCC's membership requirements 
in connection with its existing annual Clearing Member examination 
process.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to such organization.\34\ After carefully 
considering the Proposed Rule Change, the Commission finds that the 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to OCC. More 
specifically, the Commission finds that the proposal is consistent with 
Section 17A(b)(3)(F) of the Exchange Act\35\ and Rules 17Ad-22(e)(7) 
and (18) thereunder.\36\
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    \34\ 15 U.S.C. 78s(b)(2)(C).
    \35\ 15 U.S.C. 78q-1(b)(3)(F).
    \36\ 17 CFR 240.17Ad-22(e)(7) and 17 CFR 240.17Ad-22(e)(18).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires, among other 
things, that the rules of a clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions.\37\ Based on its review of the record, the Commission 
believes that the changes proposed in the Proposed Rule Change are 
consistent with the promotion of prompt and accurate clearance and 
settlement of securities transactions for the reasons described below.
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    \37\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC proposes to adopt rules describing OCC's (i) primary liquidity 
risks; (ii) liquidity resources; (iii) requirements for liquidity 
provider due diligence; and (iv) requirements for procedures designed 
to ensure Clearing Member capacity to meet liquidity obligations 
arising out of participation in OCC. The Commission believes that 
having rules and policies that clearly determine and describe OCC's 
liquidity risks and resources would facilitate OCC's ability to size 
its liquidity resources commensurate with the risks it faces. OCC 
proposes to size and test the sufficiency of its liquidity resources 
based on its current credit stress tests, which include extreme 
historical scenarios such as the 1987 market break and 2008 financial 
crisis. Additionally, to support the application of OCC's current 
financial resource stress testing methodology to the management of 
liquidity risk, OCC proposes to revise its Methodology Description to 
describe the key assumptions underlying the

[[Page 35451]]

calculation of OCC's liquidity needs. The Commission believes that 
measuring the sufficiency of OCC's resources based on extreme 
historical scenarios would support OCC's ability to manage such 
scenarios should they arise again. Further, the Commission believes 
that the incorporation of the key assumptions described above would 
strengthen OCC's understanding of its ability to meet its settlement 
obligations on time and in the required currency. Further, the proposal 
would require daily, monthly, and annual liquidity stress test-related 
reporting. The Commission believes that such reporting is necessary to 
provide risk management information to decision-makers within OCC 
because it would allow OCC to monitor its liquidity exposures under a 
variety of foreseeable stress scenarios, and to call for additional 
liquid resources in the form of cash deposits to ensure that OCC 
continues to maintain sufficient liquid resources to meet its 
settlement obligations with a high degree of confidence. Finally, the 
proposal would require OCC to conduct due diligence of its liquidity 
providers and would require each Clearing Member to maintain policies 
and procedures to ensure its ability to meet its obligations arising 
out of participation in OCC. The Commission believes that such due 
diligence and membership requirements would allow OCC to more closely 
monitor the financial and operational capacity of its liquidity 
providers and Clearing Members. Such monitoring, in turn, would 
increase the likelihood that liquidity resources would be available to 
OCC when necessary.
    OCC is the only clearing agency for standardized U.S. securities 
options listed on Commission-registered national securities exchanges 
(``listed options'').\38\ Strengthening OCC's overall approach to 
liquidity risk management, strengthens OCC's ability to manage Clearing 
Member defaults, which, in turn, facilitates the clearance and 
settlement of listed options. The Commission believes that the Proposed 
Rule Change would promote the prompt and accurate clearance and 
settlement of securities transactions and is, therefore, consistent 
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\39\
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    \38\ See Securities Exchange Act Release No. 85121 (Feb. 13, 
2019), 84 FR 5157 (Feb. 20, 2019) (File No. SR-OCC-2015-02).
    \39\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(7) Under the Exchange Act

    Rule 17Ad-22(e)(7) under the Exchange Act requires that a covered 
clearing agency establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to effectively measure, 
monitor, and manage the liquidity risk that arises in or is borne by 
the covered clearing agency, including measuring, monitoring, and 
managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity.\40\
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    \40\ 17 CFR 240.17Ad-22(e)(7).
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1. Consistency With Sections (i), (vi), and (vii) of Rule 17Ad-22(e)(7)
    Rule 17Ad-22(e)(7)(i) under the Exchange Act requires that the 
covered clearing agency's policies and procedures be designed to 
require the maintenance of sufficient liquid resources at the minimum 
in all relevant currencies to effect same-day and, where appropriate, 
intraday and multiday settlement of payment obligations with a high 
degree of confidence under a wide range of foreseeable stress scenarios 
that includes, but is not limited to, the default of the participant 
family that would generate the largest aggregate payment obligation for 
the covered clearing agency in extreme but plausible market 
conditions.\41\
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    \41\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above in section II.A.1., the Propose Rule Change 
includes OCC's method for sizing its liquidity resources. First, the 
proposed LRMF describes OCC's overall approach to liquidity stress 
testing and liquidity resource sizing by relying on the stressed 
scenarios and prices generated under OCC's current stress testing and 
Clearing Fund methodology, which the Commission has reviewed closely 
and believes would be consistent with identifying a wide range of 
foreseeable stress scenarios.\42\ Specifically, the size of OCC's Base 
Liquidity Resources would be based upon an internal analysis 
summarizing OCC's liquidity demands under a variety of stress 
scenarios, including the sufficiency of OCC's Base Liquidity Resources 
against extreme historical scenarios such as the 1987 market break and 
2008 financial crisis. Second, OCC proposes to describe key assumptions 
underlying the calculation of its liquidity needs--such as a two-day 
liquidation horizon--as well as the treatment of cash flows such that 
cash inflows would be assumed to reduce outflows only for later dates. 
Finally, OCC would impose a two-day notice requirement on substitutions 
of Clearing Fund collateral to ensure access to cash Clearing Fund 
contributions throughout the two-day liquidation period. Taken 
together, the Commission believes that these proposed changes are 
reasonably designed to ensure that OCC sizes and maintains it liquidity 
resources consistent with the requirements of Rule 17Ad-22(e)(7)(i) 
under the Exchange Act.\43\
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    \42\ See Securities Exchange Act Release No. 83735 (Jul. 27, 
2018), 83 FR 37855, 37862-63 (Aug. 2, 2018) (File No. SR-OCC-2018-
008); Exchange Act Release No. 83714 (Jul. 26, 2018), 83 FR 37570, 
37577-78 (Aug. 1, 2018) (File No. SR-OCC-2018-803).
    \43\ 17 CFR 240.17Ad-22(e)(7)(i).
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    Rule 17Ad-22(e)(7)(vi) under the Exchange Act requires that the 
covered clearing agency's policies and procedures be reasonably 
designed to determine the amount and regularly test the sufficiency of 
its liquid resources held for purposes of meeting the minimum liquid 
resource requirement under paragraph (e)(7)(i) of this section by, at a 
minimum: (A) Conducting stress testing of its liquidity resources at 
least once each day using standard and predetermined parameters and 
assumptions; (B) conducting a comprehensive analysis on at least a 
monthly basis of the existing stress testing scenarios, models, and 
underlying parameters and assumptions used in evaluating liquidity 
needs and resources, and considering modifications to ensure they are 
appropriate for determining the clearing agency's identified liquidity 
needs and resources in light of current and evolving market conditions; 
(C) conducting a comprehensive analysis of the scenarios, models, and 
underlying parameters and assumptions used in evaluating liquidity 
needs and resources more frequently than monthly when the products 
cleared or markets served display high volatility or become less 
liquid, when the size or concentration of positions held by the 
clearing agency's participants increases significantly, or in other 
appropriate circumstances described in such policies and procedures; 
and (D) reporting the results of its analyses under Rules 17Ad-
22(e)(7)(vi)(B) and (C) to appropriate decision makers at the covered 
clearing agency, including but not limited to, its risk management 
committee or board of directors, and using these results to evaluate 
the adequacy of and adjust its liquidity risk management methodology, 
model parameters, and any other relevant aspects of its liquidity risk

[[Page 35452]]

management framework.\44\ Rule 17Ad-22(e)(7)(vii) under the Exchange 
Act requires that the covered clearing agency's policies and procedures 
be reasonably designed to ensure the performance of model validation of 
its liquidity risk models not less than annually or more frequently as 
may be contemplated by the covered clearing agency's risk management 
framework.\45\
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    \44\ 17 CFR 240.17Ad-22(e)(7)(vi).
    \45\ 17 CFR 240.17Ad-22(e)(7)(vii).
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    As described above in section II.A.2., OCC proposes to implement 
liquidity stress testing based on the output of its current stress 
testing and Clearing Fund methodology. After reviewing and assessing 
the proposal, including the methodology and results of OCC's proposed 
application of such output to its new liquidity stress testing 
approach, the Commission believes that the proposed changes described 
above are consistent with Rule 17Ad-22(e)(7)(vi) because OCC would 
assess its Base and Available Liquidity Resources against a set of 
stress scenarios, including extreme historical scenarios such as the 
1987 market break and 2008 financial crisis. Further, the key 
assumptions described above in section II.A.1. would facilitate the 
application of OCC's current Clearing Fund stress testing outputs to 
the management of liquidity risk in a manner that would be consistent 
with OCC's management of credit risk. The Commission continues to 
believe that OCC current stress testing methodology improved the 
testing of OCC's financial resources and increased the likelihood that 
OCC maintains sufficient resources at all times.\46\ Similarly, the 
Commission believes that the application of such a methodology to 
liquidity risk management would improve the testing of OCC's liquidity 
resources and increase the likelihood that OCC maintains sufficient 
liquid resources at all times. Further, the Commission believes that 
applying a consistent risk management approach across OCC's credit and 
liquidity risk exposures would support OCC's ability to maintain a more 
consistent, comprehensive view of its risk management processes more 
broadly.
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    \46\ See Securities Exchange Act Release No.83714 (Jul. 26, 
2018), 83 FR 37570, 37578 (Aug. 1, 2018) (File No. SR-OCC-2018-803).
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    Additionally, the Commission believes that the daily review of 
liquidity stress tests, which may lead to a change in OCC's Base 
Liquidity Resources would be consistent with the daily stress testing 
requirements of Rule 17Ad-22(e)(7)(vi)(A). Similarly, the Commission 
believes that the at least monthly analysis of daily stress tests for 
review of the parameters and assumptions underlying OCC stress tests 
with more frequent analysis as required would be consistent with the 
monthly comprehensive analysis requirements set forth in Rules 17Ad-
22(e)(7)(vi)(B) and (C). Likewise, the Commission believes that 
providing a summary of such monthly reporting, as well as an annual 
assessment of the adequacy of OCC's liquidity resources based on such 
reporting, to OCC's Management Committee and the RC would be consistent 
with the reporting requirements of Rule 17Ad-22(e)(7)(vi)(D). Finally, 
the Commission believes that the review of risk methodologies and the 
usage of any models to inform the management of liquidity risk at least 
annually would be consistent with the model validation requirements set 
forth in Rule 17Ad-22(e)(7)(vii).
    Taken together and for the reasons discussed above, the Commission 
believes that proposed approach to liquidity stress testing and 
reporting is consistent with the requirements of Rules 17Ad-
22(e)(7)(vi) and (vii) under the Exchange Act.\47\
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    \47\ 17 CFR 240.17Ad-22(e)(7)(vi) and (vii).
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2. Consistency With Section (viii) of Rule 17Ad-22(e)(7)
    Rule 17Ad-22(e)(7)(viii) under the Exchange Act requires that the 
covered clearing agency's policies and procedures be reasonably 
designed to address foreseeable liquidity shortfalls that would not be 
covered by the covered clearing agency's liquid resources and avoid 
unwinding, revoking, or delaying the same-day settlement of payment 
obligations.\48\
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    \48\ 17 CFR 240.17Ad-22(e)(7)(viii).
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    As described above in section II.B.1., OCC proposes to revise the 
available mechanisms for increasing its Base Liquidity Resources. The 
Commission believes such changes would be consistent with the 
requirements of Rule 17Ad-22(e)(7)(viii) because they would allow OCC 
to address settlement obligations that could exceed its Base Liquidity 
Resources, which could otherwise lead to liquidity shortfalls. 
Specifically, by allowing OCC's Board to adjust the CF Cash 
Requirement, OCC would be able to adjust to increases in its liquidity 
needs by acquiring additional pre-funded liquidity resources. 
Similarly, the Commission believes that the proposed changes to the 
OCEO's authority to temporarily increase the CF Cash Requirement would 
allow OCC to quickly react to changes in both OCC's liquidity needs and 
liquidity resources while still preserving the required analysis and 
existing factors that OCC must consider under its current rules.
    As described above in section II.B.2., OCC proposes a new 
Contingency Funding Plan, which would be described in OCC's rules. The 
Commission believes that OCC's proposed Contingency Funding Plan would 
be consistent with the requirements of Rule 17Ad-22(e)(7)(viii) because 
it would allow OCC to collect additional liquidity resources to address 
settlement obligations that could exceed OCC's Available Liquidity 
Resources, which could otherwise lead to liquidity shortfalls. In 
particular, the Contingency Funding Plan would provide for enhanced 
monitoring of any Clearing Member Group whose projected liquidity 
exposures under OCC's Sufficiency Scenarios exceed 80 percent of OCC's 
Available Liquidity Resources. Such monitoring should, in turn, 
facilitate OCC's ability to take further action as necessary, for 
example by temporarily increasing OCC's CF Cash Requirement. The 
Contingency Funding Plan would also provide OCC with additional 
liquidity resources in the form of cash margin deposits in the event 
that either (i) a Clearing Member Group's projected liquidity exposures 
under OCC's Sufficiency Scenarios exceed 90 percent of OCC's Available 
Liquidity Resources or (ii) it becomes necessary to impose protective 
measures on a Clearing Member on OCC's Watch List.\49\
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    \49\ Such authority would be tempered by OCC's monitoring of the 
potential effect of calling for such resources based on the absolute 
value of the requirement as well as the size of the requirement 
relative to the affected Clearing Member's excess net capital.
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    Taken together and for the reasons discussed above, the Commission 
believes that proposed changes authorizing OCC to collect liquidity 
resources to address settlement obligations that could exceed its Base 
or Available Liquidity Resources are consistent with the requirements 
of Rule 17Ad-22(e)(7)(viii) under the Exchange Act.\50\
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    \50\ 17 CFR 240.17Ad-22(e)(7)(viii).
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3. Consistency With Section (ix) of Rule 17Ad-22(e)(7)
    Rule 17Ad-22(e)(7)(ix) under the Exchange Act requires, in part, 
that the covered clearing agency's policies and procedures be designed 
to effectively manage liquidity risk by, at a minimum, describing the 
covered clearing agency's process to replenish any liquid resources 
that the clearing agency may employ during a stress event.\51\
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    \51\ 17 CFR 240.17Ad-22(e)(7)(ix).

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[[Page 35453]]

    As described above in section II.C., OCC proposes to clarify and 
amend its rules related to borrowing Clearing Fund collateral. 
Specifically, OCC proposes to clarify its authority to borrow cash 
directly from the Clearing Fund and to reject substitution requests 
that would require the withdrawal of non-cash collateral that OCC has 
pledged to access a liquidity facility. The proposal would also 
authorize OCC to charge as a loss amounts obtained through borrowing 
against the Clearing Fund earlier than currently permitted under OCC's 
rules, thereby permitting OCC to require Clearing Members to provide 
collateral to replenish the Clearing Fund earlier than would otherwise 
be permitted under its existing rules. Taken together, the Commission 
believes that the proposed changes concerning OCC borrowing of Clearing 
Fund collateral and losses related to such borrowing are consistent 
with the requirements of Rule 17Ad-22(e)(7)(ix) under the Exchange 
Act.\52\
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    \52\ 17 CFR 240.17Ad-22(e)(7)(ix).
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4. Consistency With Section (iv) of Rule 17Ad-22(e)(7)
    Rule 17Ad-22(e)(7)(iv) under the Exchange Act requires that the 
covered clearing agency's policies and procedures be designed to 
require the undertaking of due diligence to confirm that it has a 
reasonable basis to believe each of its liquidity providers, whether or 
not such liquidity provider is a clearing member, has: (A) Sufficient 
information to understand and manage the liquidity provider's liquidity 
risks; and (B) the capacity to perform as required under its 
commitments to provide liquidity to the covered clearing agency.\53\
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    \53\ 17 CFR 240.17Ad-22(e)(7)(iv).
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    As described above in section II.D., the proposed LRMF explicitly 
contemplates OCC's due diligence for supporting institutions, including 
liquidity providers, to confirm OCC has a reasonable basis to believe 
each of its liquidity providers has (1) sufficient information to 
understand and manage the potential liquidity demands of OCC and its 
associated liquidity risk and (2) the capacity to perform as required 
under its commitments. Such due diligence would include the execution 
of periodic tests at least once every 12 months to measure the 
performance and reliability of OCC's liquidity facilities. The 
Commission believes that proposed rules setting forth such due 
diligence requirements are consistent with the requirements of Rule 
17Ad-22(e)(7)(iv) under the Exchange Act.\54\
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    \54\ Id.
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    Accordingly, the Commission believes that implementation of 
Proposed Rule Change would be consistent with Rule 17Ad-22(e)(7) under 
the Exchange Act.\55\
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    \55\ 17 CFR 240.17Ad-22(e)(7).
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C. Consistency With Rule 17Ad-22(e)(18) Under the Exchange Act

    Rule 17Ad-22(e)(18) under the Exchange Act requires, in part, that 
a covered clearing agency establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to establish 
objective, risk-based, and publicly disclosed criteria for 
participation, which require participants to have sufficient financial 
resources and robust operational capacity to meet obligations arising 
from participation in the clearing agency.\56\
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    \56\ 17 CFR 240.17Ad-22(e)(18).
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    As described above in section II.E., OCC proposes to require that 
each Clearing Member maintain adequate procedures, including but not 
limited to contingency funding. More specifically, the proposed change 
would require Clearing Members to maintain procedures to address a 
failure or operational issue at a Clearing Member's settlement bank. 
Such a requirement would be in addition to the current requirement that 
Clearing Members have access to sufficient financial resources to meet 
obligations arising from clearing membership in extreme but plausible 
market conditions. The Commission believes that requiring Clearing 
Members to maintain such procedures would help to ensure that Clearing 
Members have the operational capacity to meet obligations arising from 
participation in OCC. The Commission believes, therefore, that the 
proposed change is consistent with the requirements of Rule 17Ad-
22(e)(18) under the Exchange Act.\57\
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    \57\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the 
Exchange Act, and in particular, the requirements of Section 17A of the 
Exchange Act \58\ and the rules and regulations thereunder.
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    \58\ In approving this Proposed Rule Change, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\59\ that the Proposed Rule Change (SR-OCC-2020-003) be, 
and hereby is, approved.
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    \59\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12519 Filed 6-9-20; 8:45 am]
BILLING CODE 8011-01-P


