[Federal Register Volume 86, Number 185 (Tuesday, September 28, 2021)]
[Notices]
[Pages 53718-53722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20969]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93102; File No. SR-OCC-2021-007]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Granting Approval of Proposed Rule Change Concerning the Options 
Clearing Corporation's Governance Arrangements

September 22, 2021.

I. Introduction

    On July 30, 2021, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2021-007 (``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 provide OCC's 
Board of Directors (``Board'') with the discretion to elect either an 
Executive Chairman or a Non-Executive Chairman to preside over the 
Board, provide the Board and stockholders with the discretion to elect 
a Management Director, clarify the respective authority and 
responsibility of any Executive Chairman or Non-Executive Chairman, and 
make other clarifying, conforming, and administrative changes to OCC's 
rules.\3\ The Proposed Rule Change was published for public comment in 
the Federal Register on August 11, 2021.\4\ The Commission has received 
no comments regarding the Proposed Rule Change. 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, 86 FR 44105.
    \4\ Securities Exchange Act Release No. 92584 (Aug. 5, 2021), 86 
FR 44105 (Aug. 11, 2021) (File No. SR-OCC-2021-007) (``Notice of 
Filing'').
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II. Background \5\
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    \5\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
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    Article III, Section I of OCC's By-Laws currently requires that the 
Board be composed of nine Member Directors,\6\ five Exchange 
Directors,\7\ five Public Directors,\8\ and an Executive Chairman (who 
also serves as a Management Director \9\). OCC's Executive Chairman is 
responsible for managing the Board while also being involved with the 
``day-to-day'' management decisions of OCC. By contrast, a ``Non-
Executive Chairman'' is typically not an employee of the company and 
focuses solely on leading and supporting its board of directors.
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    \6\ Member Directors include Clearing Members or representatives 
of a Clearing Member. OCC endeavors to achieve balanced 
representation among Clearing Members on the Board of Directors to 
assure that (i) not all Member Directors are representatives of the 
largest Clearing Member organizations based on the prior year's 
volume, and (ii) the mix of Member Directors includes 
representatives of Clearing Member organizations that are primarily 
engaged in agency trading on behalf of retail customers or 
individual investors. See Article III, Section 5 of the OCC By-Laws.
    \7\ Exchange Directors represent the equity exchanges that are 
holders of Class B Common Stock of the OCC. Exchange Directors need 
not be Clearing Members or be associated with a Clearing Member 
organization. See Article III, Section 6 of the OCC By-Laws.
    \8\ Public Directors are independent directors who are not 
affiliated with any national securities exchange or national 
securities association or with any broker or dealer. See Article 
III, Section 6A of the OCC By-Laws.
    \9\ Management Directors also serve as employees of OCC. See 
Article III, Section 7 of the OCC By-Laws.
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    As described in more detail below, OCC proposes to revise its 
governing documents, including its By-Laws, Rules, Board of Directors 
Charter and Corporate Governance Principles (``Board Charter''), Audit 
Committee Charter, Compensation and Performance Committee Charter, 
Governance and Nominating Committee Charter, Risk Committee Charter, 
Technology Committee Charter (such committee charters collectively 
being the ``Board Committee Charters''), and Amended and Restated 
Stockholders Agreement (``Stockholders Agreement''), to give the Board 
discretion to elect either an Executive or Non-Executive Chairman to 
preside over the Board. The Proposed Rule Change would also provide the 
Board and stockholders with discretion to elect Management Directors 
from OCC's management, which would be necessary if OCC does not have an 
Executive Chairman. OCC notes that the Proposed Rule Change would 
provide clarity around the authority and responsibilities of an 
Executive Chairman versus a Non-Executive Chairman.\10\ OCC also 
proposes to make additional clarifying, conforming, and administrative 
changes to the documents listed above. OCC believes that the Proposed 
Rule Change would provide appropriate flexibility to the Board to 
evaluate OCC's governance arrangements, including whether OCC should 
have an Executive or Non-

[[Page 53719]]

Executive Chairman, and adjust the composition of the Board and 
leadership structure more quickly in response to changing business 
conditions and personnel and the knowledge, skills, and experience of 
its various Board members and senior officers.\11\
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    \10\ See Notice of Filing supra note 4, 86 FR 44106.
    \11\ See Notice of Filing supra note 4, 86 FR 44106-07.
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    Proposed Changes Relating to the Chairman Role and 
Responsibilities. Under OCC's current By-Laws, the individual elected 
by the Board to be responsible for certain control functions of OCC and 
to preside at all meetings of the Board and stockholders is defined as 
the``Executive Chairman.'' \12\ OCC believes that as a result of this 
specificity, the Board likely would not consider Non-Executive Chairman 
candidates unless the By-Laws state explicitly that the Board has the 
ability to do so.\13\ Therefore, OCC proposes to revise Article III, 
Section 9 (currently Reserved) and Article IV, Sections 1 and 6 of its 
By-Laws to give its Board the discretion to elect either an Executive 
or Non-Executive Chairman. OCC believes that revising its By-Laws to 
provide this discretion would increase the potential pool of qualified 
candidates for the position and enable the Board to select the Chairman 
with the most suitable experience and skill set for OCC at any given 
time.\14\
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    \12\ See Article IV, Section 6 of the OCC By-Laws.
    \13\ See Notice of Filing supra note 4, 86 FR 44107.
    \14\ Id.
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    OCC also proposes to update Article III, Section 9 to provide that, 
upon the nomination of the Governance and Nominating Committee, the 
Board shall elect from among its members a Chairman of the Board (as 
opposed to an Executive Chairman), and if the Chairman is elected from 
among the employees of OCC, such Chairman would be an ``Executive 
Chairman'' for purposes of OCC's By-Laws and Rules. OCC proposes to 
revise Article I of its By-Laws to add a definition for the term 
``Chairman,'' which would be defined to mean the individual elected by 
the Board as the Chairman of the Board pursuant to Article III, Section 
9 of the By-Laws and that may be, but would not be required to be, an 
Executive Chairman.
    OCC also proposes to revise Article III, Section 9 of the By-Laws 
to provide the Board with additional flexibility to define the 
Chairman's role and responsibilities. The proposed language would be a 
general statement that the Chairman would have powers and perform such 
duties as the Board may designate.\15\ OCC asserts that the Proposed 
Rule Change would provide appropriate flexibility for the Board to 
assign or remove responsibilities of the Chairman based on whether such 
Chairman is an Executive or Non-Executive Chairman and based upon the 
needs of OCC at any given point in time.\16\
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    \15\ The proposed language would replace Article IV, Section 6, 
which currently states that the Executive Chairman is responsible 
for certain control functions of OCC, including internal audit and 
public affairs and government relations, and has supervision of the 
officers and agents appointed by him.
    \16\ See Notice of Filing supra note 4, 86 FR 44107.
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    OCC proposes to revise the following sections of its By-Laws so 
that any Chairman (whether Executive or Non-Executive) would retain the 
following authority and responsibility currently given to the Executive 
Chairman: Article II, Sections 2 and 4 concerning the authority to call 
and provide notice of meetings of OCC's stockholders; Article III, 
Section 10 concerning the authority to receive notice of resignation of 
a member of the Board; Article III, Section 14 concerning the authority 
to call special meetings of the Board; Article III, Section 15 
concerning the authority to exercise emergency powers and call special 
meetings of the Board during such an emergency; Article IV, Sections 2, 
3, 9 and 13 concerning the authority to appoint officers, fix the 
salaries of any appointed officers, and remove such officers; Article 
VIIB, Section 1, Interpretation and Policy .01 concerning the 
responsibility to promptly provide Non-Equity Exchanges with 
information the Chairman considers to be of competitive significance to 
such Non-Equity Exchanges that was disclosed to Exchange Directors at 
or in connection with any meeting or action of the Board or one of its 
committees; Article IX, Section 12 concerning the authority to sign 
certificates for shares of OCC; and Article IX, Section 14 concerning 
the authority to suspend the rules of OCC in emergency circumstances. 
OCC wants the Chairman, whether Executive or Non-Executive, to retain 
these authorities and responsibilities which OCC believes relate to 
governance matters appropriately assigned to any Chairman of the 
Board.\17\
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    \17\ Id.
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    The Proposed Rule Change would revise the following Rules so that 
any Chairman (whether Executive or Non-Executive) would retain the 
following authority and responsibility currently given to the Executive 
Chairman: Rule 505 concerning the authority to extend settlement times 
upon a determination that an emergency or force majeure condition 
exists; Rule 609A concerning the authority to waive margin deposits in 
limited circumstances; Rule 1006(f) concerning the authority to use 
Clearing Fund assets to borrow or otherwise obtain funds from third 
parties; Rule 1104, Interpretation and Policy .02 concerning the 
authority to elect to use one or more private auctions to liquidate 
collateral, open positions and/or exercised/matured contracts of a 
suspended Clearing Member; and Rule 1110 concerning the authority to 
appoint an appeals panel to considered and decided appeals by suspended 
Clearing Members. OCC believes that updating these Rules to allow the 
Chairman to retain these critical responsibilities would help to ensure 
the efficient management and operation of OCC in emergency or exigent 
circumstances where other authorized officers are absent or otherwise 
unable to perform their duties.\18\
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    \18\ See Notice of Filing supra note 4, 86 FR 44108.
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    Proposed Changes Relating to Responsibilities of Other Senior 
Officers. OCC proposes to make conforming changes to Article IV, 
Section 8 of the By-Laws to clarify that OCC's Chief Executive Officer 
(``CEO'') would be responsible for all aspects of OCC's business and 
for its day-to-day affairs, except for those that may report directly 
to the Chairman, as determined by the Board.
    OCC proposes to revise several By-Law sections to transfer certain 
responsibilities currently belonging to the Executive Chairman to the 
CEO. OCC proposes to revise Article VI, Section 11 of the By-Laws to 
assign to the CEO the responsibility for participating in the 
Securities Committee and panels thereof for purposes of contract 
adjustments. OCC also proposes similar changes to its By-Laws 
concerning the fixing of: (i) Underlying interest values of binary and 
range options (Article XIV, Section 5), (ii) exercise settlement 
amounts of yield-based Treasury options (Article XVI, Section 4), (iii) 
exercise settlement amounts of cash-settled securities options other 
than OTC index options (Article XVII, Section 4), (iv) exercise 
settlement amounts of cash-settled foreign currency options in 
circumstances where certain prices or values are determined to be 
unavailable or inaccurate for the contracts in question (Article XXII, 
Section 4), and (v) the Closing Price for BOUNDs contracts (Article 
XXIV). OCC believes that these responsibilities are best assigned to 
the CEO familiar with OCC's day-to-day operations, rather than to a

[[Page 53720]]

Chairman who may or may not possess that familiarity.\19\
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    \19\ See Notice of Filing supra note 4, 86 FR 44107.
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    OCC also proposes conforming changes to its Rules concerning the 
following responsibilities, which would remain with an Executive 
Chairman (as well as the CEO and the Chief Operating Officer) if one 
has been elected by the Board: Rule 1104(b) concerning the authority to 
delay the immediate liquidation of a suspended Clearing Member's margin 
deposits and to use such deposits to borrow or otherwise obtain funds 
from third parties; Rule 1106(e) concerning the authority to determine 
not to close out a suspended Clearing Member's unsegregated long 
positions or short positions in options or BOUNDs, or long or short 
positions in futures; and Rule 1106(f) concerning the authority to 
execute hedging transactions to reduce the risk associated with any 
collateral or positions not immediately liquidated or closed out 
pursuant to Rules 1104(b) and 1006(e). OCC believes that these 
responsibilities do not rise to the level of emergency or exigent 
circumstances, and should therefore remain with senior executives more 
closely familiar with the day-to-day operations of OCC. As a result, 
OCC would not substantively change the requirements in these existing 
rules.\20\
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    \20\ See Notice of Filing supra note 4, 86 FR 44108.
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    Proposed Changes Relating to OCC's Board and Committees. OCC 
proposes to revise Article III, Section I of the By-Laws to provide 
that the Board may have no less than five Public Directors, as opposed 
to the current requirement that OCC have exactly five Public Directors. 
The Proposed Rule Change would allow OCC to have a sixth Public 
Director serving on its Board if there is a Public Director serving as 
Chairman.\21\ The Chairman would preside at all meetings of the Board 
of Directors, be responsible for carrying out the policies of the 
Board, have general supervision over the Board and its activities, and 
provide overall leadership to the Board of Directors.
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    \21\ OCC notes that the proposed change, along with the 
potential election of a Management Director that is not an Executive 
Chairman (discussed below), could result in the Board having up to 
21 total directors as opposed to its current 20 directors. OCC also 
notes that if the Board elects a Non-Executive Chairman that is 
determined to be an independent Public Director, such a Chairman 
would be eligible to serve as the chair of any of OCC's Board 
Committees pursuant to the requirements of each Board Committee 
Charter. OCC does not believe that the potential addition of a 
Public Director to its Board, increasing the overall Board size by 
one director, would materially impact the composition, 
representation, or decision-making process of the Board. See Notice 
of Filing supra note 4, 86 FR 44107.
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    OCC proposes to revise Article VIIA, Section 3 of the By-Laws and 
Sections 2 and 3 of the Stockholder Agreement to provide the Board and 
stockholders with the discretion to elect a Management Director if the 
Board has elected a Non-Executive Chairman. OCC also proposes to revise 
Article III, Section 12 of the By-Laws to reflect that any vacancy in 
the position of Management Director may be filled by the Board until 
the next meeting of the stockholders. In addition, OCC proposes to 
revise Article IV, Sections 1 and 7 of the By-Laws to relocate certain 
provisions concerning the election of the Vice Chairman of the Board.
    OCC proposes to revise Article III, Section 4 of the By-Laws to 
remove specific references to various Board committees and their 
compositions. OCC notes that each of the Board Committee Charters are 
filed with the Commission as rules of OCC, and as a result, this 
information is unnecessarily duplicated in OCC's By-Laws.\22\ OCC would 
relocate from the By-Laws to each of the Board Committee Charters the 
requirement that committee members are selected by the Board from among 
the directors recommended by the then-constituted Governance and 
Nominating Committee after consultation with the Chairman and serve at 
the pleasure of the Board.
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    \22\ See Notice of Filing supra note 4, 86 FR 44108.
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    OCC proposes to make conforming changes to its Board Charter. 
First, OCC would remove the qualifier ``Executive'' before most 
occurrences of ``Executive Chairman'' throughout the charter. OCC would 
revise the Board Charter to clarify that those provisions relating to 
management structure, evaluation, and succession would be applicable 
only to any Executive Chairman. The Proposed Rule Change would clarify 
that, with respect to employee compensation, the Board would be 
responsible for the compensation, incentive, and benefit programs and 
evaluating the performance of any Executive Chairman. OCC also proposes 
to revise the Board Charter to reflect that the election of a 
Management Director would be at the discretion of the Board and provide 
that a Management Director would no longer be eligible to serve if he 
or she ceases to hold a senior officer position at OCC, by virtue of 
which he or she was elected as a Management Director. OCC also proposes 
to revise the Board Charter to include the Regulatory Committee in the 
list of charters required to be established by the Board.\23\ In 
addition, OCC proposes to revise its Board Charter to remove specific 
requirements around the composition of the Governance and Nominating 
Committee, which would align with proposed changes to the Governance 
and Nominating Committee.
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    \23\ See Securities Exchange Act Release No. 87577 (November 20, 
2019), 84 FR 65202 (November 26, 2019) (SR-OCC-2019-008).
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    OCC proposes changes to its Audit Committee Charter regarding the 
functional and administrative reporting lines for the Chief Audit 
Executive (``CAE'') and Chief Compliance Officer (``CCO'') and the 
review and oversight of OCC's Internal Audit and Compliance functions 
to accommodate the proposed changes to OCC's By-Laws. OCC would revise 
the Audit Committee Charter to state that the CAE would continue to 
report functionally to the Audit Committee and report administratively 
to a member of the Management Committee designated by the Audit 
Committee. The proposed rule change is intended to provide appropriate 
flexibility for the administrative reporting line of the CAE and in the 
officers that the committee may consult in their review of the Internal 
Audit function.\24\ OCC also proposes similar changes to the functional 
and administrative reporting lines of the CCO, who currently reports 
functionally to the Audit Committee and administratively to the CEO, 
and to the consultation requirements in reviewing the performance of 
the CCO and Compliance Department. OCC believes that these changes 
would provide for a consistent approach and similar flexibility for the 
Audit Committee's oversight of OCC's Compliance function.\25\
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    \24\ See Notice of Filing supra note 4, 86 FR 44109.
    \25\ Id.
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    OCC proposes to revise its Compensation and Performance Committee 
Charter to conform to the proposed changes to OCC's By-Laws. 
Specifically, the proposed revisions would reflect that the committee's 
responsibilities for reviewing the performance and compensation of 
OCC's management team, including the executive officers of OCC, would 
extend to any Executive Chairman of OCC.
    OCC proposes to revise its Governance and Nominating Committee 
Charter to conform to the proposed changes to OCC's By-Laws by 
clarifying that the Governance and Nominating Committee would consult 
with any Chairman in its oversight and advising responsibilities to the 
Board.

[[Page 53721]]

    OCC proposes changes to its Risk Committee Charter regarding the 
functional and administrative reporting lines for the Chief Risk 
Officer (``CRO''). Currently, the Risk Committee Charter provides that 
the CRO reports functionally to the Risk Committee and administratively 
to the CEO and that the Risk Committee consults with the CEO and other 
committees as appropriate in reviewing the CRO's performance. OCC 
proposes to revise the Risk Committee Charter to state that the CRO 
would continue to report functionally to the Risk Committee and would 
report administratively to a member of the Management Committee 
designated by the Committee. The proposed change is intended to provide 
flexibility for the administrative reporting line of the CRO and the 
particular officers and committees the Risk Committee may consult in 
their review of the CRO's performance depending on the Board's 
allocation of responsibilities at a given point in time.\26\
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    \26\ Id.
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    Finally, OCC proposes to revise its Technology Committee Charter to 
require that the chair of the committee be a Public Director. The 
proposed change would align the Technology Committee Charter with OCC's 
other Board Committee Charters, which also require that a Public 
Director serves as committee chair. OCC notes that the proposed change 
would not result in any practical change to the Technology Committee as 
it is currently chaired by a Public Director.\27\
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    \27\ Id.
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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.\28\ 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)(A) of the Exchange Act,\29\ and Rule 17Ad-22(e)(2) 
\30\ thereunder, as described in detail below.
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    \28\ 15 U.S.C. 78s(b)(2)(C).
    \29\ 15 U.S.C. 78q-1(b)(3)(A).
    \30\ 17 CFR 240.17Ad-22(e)(2).
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A. Consistency With Section 17A(b)(3)(A) of the Exchange Act

    Section 17A(b)(3)(A) of the Exchange Act requires, among other 
things, that a clearing agency is so organized and has the capacity to 
be able to facilitate the prompt and accurate clearance and settlement 
of securities transactions and derivative agreements, contracts, and 
transactions for which it is responsible.\31\
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    \31\ 15 U.S.C. 78q-1(b)(3)(A).
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    Based on its review of the record, and for the reasons described 
below, the Commission believes that the proposed changes to revise 
OCC's governing documents to provide Board discretion to elect either 
an Executive or Non-Executive Chairman is consistent with being 
organized to facilitate the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts, and transactions for which OCC is responsible. By providing 
the Board with discretion to choose a Chairman from a broader set of 
candidates, the Board would gain greater flexibility to select someone 
with the best and most appropriate experience for the role at any given 
point in time, whether as part of OCC's day-to-day operations or 
otherwise. The proposed changes allow the Board to reassign certain 
day-to-day responsibilities to other senior officers, depending on 
whether the Board elects a Chairman that is an Executive Chairman. 
Similarly, the proposed changes to provide the Board with greater 
flexibility to elect an additional Public Director under certain 
circumstances and to preserve the authority of the Board and 
stockholders to elect a Management Director are consistent with being 
organized to facilitate prompt and accurate clearance and settlement 
practices. This greater degree of flexibility would leave OCC better 
prepared to adjust its Board composition to changing market conditions 
and emerging business concerns, so that it can continue to successfully 
facilitate the prompt and accurate clearing and settlement of 
securities transactions and other transactions for which OCC is 
responsible.
    OCC also proposes to change to its Audit and Risk Committee 
Charters to adjust the administrative reporting lines for the CAE, CCO, 
and CRO so that they each report administratively to a member of the 
Management Committee designated by the Board Committee to which they 
report functionally. These proposed changes are consistent with 
facilitating prompt and accurate clearing and settlement practices, as 
the changes would provide OCC with the flexilibity to adjust these 
administrative reporting lines depending on the existing skill sets of 
the officers serving on OCC's Management Committee. This could in turn 
strengthen OCC's administrative review processes and ensure greater 
accountability from the CAE, CCO, and CRO roles, which would support 
the facilitation of prompt and accurate clearing and settlement of 
transactions for which OCC is responsible.
    The Commission believes, therefore, that the proposal to provide 
OCC's Board with the discretion to elect either an Executive Chairman 
or a Non-Executive Chairman, provide the Board and stockholders with 
the discretion to elect a Management Director, clarify the respective 
authority and responsibility of any Executive Chairman or Non-Executive 
Chairman, and make other clarifying, conforming, and administrative 
changes to OCC's rules is consistent with the requirements of Section 
17A(b)(3)(A) of the Exchange Act.\32\
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    \32\ 15 U.S.C. 78q-1(b)(3)(A).
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B. Consistency With Rule 17Ad-22(e)(2) Under the Exchange Act

    Rule 17Ad-22(e)(2)(i), (iv), (v), and (vi) under the Exchange Act 
require covered clearing agencies to have governance arrangements that 
are clear and transparent, establish that the board of directors and 
senior management have appropriate experience and skills to discharge 
their duties and responsibilities, specify clear and direct lines of 
responsibility, and consider the interests of participants' customers, 
securities issues and holders, and other relevant stakeholders of the 
covered clearing agency.\33\
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    \33\ 17 CFR 240.17Ad-22(e)(2)(i), (iv), (v), and (vi).
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    Based on its review of the record, and for the reasons described 
below, the Commission believes that the proposed changes described 
above are consistent with Rule 17Ad-22(e)(2)(i) under the Exchange Act, 
in that the Proposed Rule Change increases the clarity and transparency 
of OCC's governance arrangements. In recognizing that there may be a 
number of ways to address compliance with Rule 17Ad-22(e)(2), the 
Commission has stated that a covered clearing agency generally should 
consider, when establishing and maintaining policies and procedures 
that address governance, whether the roles and responsibilities of 
management have been clearly

[[Page 53722]]

specified.\34\ The proposal to update OCC's By-Laws to state explicitly 
that the Board may choose either a Non-Executive Chairman or an 
Executive Chairman rectifies current concerns that the Board likely 
would not consider Non-Executive Chairman candidates if the ability to 
do so were not already in the By-Laws.\35\ The Proposed Rule Change 
clarifies that the Board need not disregard non-Executive Chairman 
candidates, and that it actually has the option to elect either an 
Executive Chairman who is closely involved in the day-to-day 
responsibilities of running OCC, or a Non-Executive Chairman primarily 
focused on the running of the Board. Additionally, OCC's proposal to 
relocate from the By-Laws to each of the Board Committee Charters the 
requirement that committee members are selected by the Board from among 
the directors recommended by the then-constituted GNC after 
consultation with the Chairman and serve at the pleasure of the Board 
is consistent with increasing the clarity and transparency of OCC's 
governance arrangements, as it would eliminate unnecessary duplication 
in the governing documents, since OCC already files each of the Board 
Committee Charters as OCC rules with the Commission. These proposed 
changes are thus consistent with Rule 17Ad-22(e)(2)(i).
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    \34\ See Securities Exchange Act Release 78961, 81 FR 70786, 
70806 (Oct. 13, 2016) (File No. S7-03-14).
    \35\ See supra note 4 at 44107.
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    The Commission believes that based on its review of the record and 
for the reasons described below, the proposed changes are consistent 
with Rule 17Ad-22(e)(2)(iv) under the Exchange Act, in that they help 
to ensure that the Board and senior management have the appropriate 
experience and skills to discharge their duties and responsibilities. 
Specifically, OCC proposed changes to its By-Laws to ensure that the 
Board and stockholders retain the discretion to elect a Management 
Director to its Board if the Chairman is a Non-Executive Chairman, as 
well as to ensure that the Board has the discretion to elect an 
additional Public Director to its Board if the elected Chairman is a 
Public Director. These changes would provide the Board with the ability 
to increase the size of the Board by one Director to ensure that it 
continues to have members with the appropriate skills and incentives to 
fulfill the Board's multiple roles, by either replacing or 
supplementing the elected Chairman's skills and background depending on 
his or her competing demands.
    The Commission believes that the Proposed Rule Change is also 
consistent with Rule 17Ad-22(e)(2)(v) under the Exchange Act, in that 
the Proposed Rule Change does provide clear and direct lines of 
responsibility. The Commission has previously stated that covered 
clearing agencies should have policies and procedures that generally 
entail documenting the responsibilities of the board of directors and 
senior management, which could help foster accountability and 
complement requirements that address the qualifications of the board 
and management. This requires the covered clearing agency to further 
specify the roles that each individual would fulfill and the lines of 
responsibility that would exist within the board and within 
management.\36\ In the current instance, the Proposed Rule Change 
clarifies which authorities and responsibilities remain with the 
Chairman, whether Executive or Non-Executive, and which authorities and 
responsibilities are transferred to other senior officers such as the 
CEO or COO if the elected Chairman is Non-Executive.
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    \36\ See supra note 34 at 70804.
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    Finally, the Commission believes that the Proposed Rule Change is 
also consistent with Rule 17Ad-22(e)(2)(vi) under the Exchange Act, in 
that the Proposed Rule Change provides for governance arrangements that 
consider the interests of participants' customers, securities issues 
and holders, and other relevant stakeholders of the covered clearing 
agency. In recognizing that there may be a number of ways to address 
compliance with Rule 17Ad-22(e)(2), the Commission has stated that a 
covered clearing agency generally should consider, when establishing 
and maintaining policies and procedures that address governance, 
whether the major decisions of the covered clearing agency reflect 
appropriately the legitimate interests of its direct and indirect 
participants and other relevant stakeholders.\37\ OCC's proposed 
changes to its Technology Charter to require an independent director as 
the chair of the committee would help to ensure that the interests of 
direct and indirect participants are considered as part of Technology 
Committee determinations, and also makes the Technology Charter 
consistent with the other Board Committee Charters.
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    \37\ Id. at 70806-07.
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    The Commission believes, therefore, that the proposal to provide 
OCC's Board with the discretion to elect either an Executive Chairman 
or a Non-Executive Chairman, provide the Board and stockholders with 
the discretion to elect a Management Director, clarify the respective 
authority and responsibility of any Executive Chairman or Non-Executive 
Chairman, and make other clarifying, conforming, and administrative 
changes to OCC's rules is consistent with the requirements of Rule 
17Ad-22(e)(2)(i), (iv), (v), and (vi) under the Exchange Act.\38\
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    \38\ 17 CFR 240.17Ad-22(e)(2)(i), (iv), (v), and (vi).
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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 \39\ and the rules and regulations thereunder.
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    \39\ 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,\40\ that the Proposed Rule Change (SR-OCC-2021-007) be, 
and hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20969 Filed 9-27-21; 8:45 am]
BILLING CODE 8011-01-P


