[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20485-20488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07341]



[[Page 20485]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94587; File No. SR-OCC-2022-004]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change by The Options Clearing 
Corporation Concerning Settlement Timing

April 1, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 22, 2022, The Options Clearing 
Corporation (``OCC'' or ``Corporation'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
primarily by OCC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change by OCC would revise the required 
settlement time from 9:00 a.m. Central Time (``CT'') to 8:00 a.m. CT. 
In order to make this change, OCC is proposing changes to the OCC By-
Laws (``By-Laws'') and Rules. The proposed changes to OCC's By-Laws and 
Rules are included as Exhibits 5A-5C to file number SR-OCC-2022-004. 
Material proposed to be added is underlined and material proposed to be 
deleted is marked in strikethrough text. All terms with initial 
capitalization that are not otherwise defined herein have the same 
meaning as set forth in the OCC By-Laws and Rules.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's website: 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(1) Purpose
    OCC is filing this proposed rule change to change the time frame 
for collecting Margin \4\ and Clearing Fund deficits as well as 
increases in the Clearing Fund cash requirement (``Settlement Funds''). 
The proposed changes are generally intended to shorten the collection 
period for Settlement Fund deficits and align the time for satisfying 
start of day settlement to 8:00 a.m. CT (``SOD Settlement Time''). OCC 
believes the proposed changes will reduce operational complexity by 
creating a more uniform settlement time for Clearing Fund deficits. The 
earlier SOD Settlement Time will also provide OCC with additional time 
to address a default event and implement protective actions. To provide 
increased transparency, the proposal also grants OCC discretion to 
extend funding deadlines when warranted by the circumstances (e.g., 
operational or system difficulties).
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    \4\ Current OCC Rule 706(b) allows OCC to specify the settlement 
time for cross-margin accounts with Participating CCOs. As of the 
date of this filing, OCC only maintains cross-margin accounts with 
one Participating CCO, the Chicago Mercantile Exchange (``CME''). 
OCC's Operations Manual specifies that the settlement time for OCC/
CME cross margin debits is 7:30 a.m. CT. This filing will not change 
the start-of-day settlement time for OCC/CME cross-margin debits. 
For the avoidance of doubt, the settlement time for OCC's internal 
cross-margin program under Article VI, Section 25 of OCC's By-Laws 
will be 8:00 a.m. CT.
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    The contents of the proposed rule change are summarized as follows.
Background
    Under OCC's Rules, there are different windows for the collection 
of Settlement Funds depending on the reason for the deficit, and the 
settlement time for satisfying such deficits may vary. For example, OCC 
Rule 1005(a) currently requires Clearing Members to satisfy any general 
deficits within one hour of receiving notice from OCC; OCC Rule 1005(b) 
currently requires Clearing Members to satisfy any deficits related to 
a monthly or intra-month resizing of the Clearing Fund by 9:00 a.m. CT 
on the second business day following notice from OCC; and whenever an 
amount is paid out of the Clearing Fund, OCC Rule 1006(h) requires 
Clearing Members to replenish the Clearing Fund following a charge 
thereto by 9:00 a.m. CT on the first business day following notice from 
OCC. In certain cases, such as the monthly Clearing Fund sizing 
process, the current Rules provide a two day period for Clearing 
Members to deposit any additional required Clearing Fund assets, while 
simultaneously Clearing Members are eligible to withdraw any excess 
contributions based upon the new requirement. To address these issues, 
OCC proposes to change OCC's rules concerning the collection of 
Settlement Funds. The proposed changes would, in general, allow OCC to 
reduce operational complexity by creating a more uniform settlement 
time for Clearing Fund deficits.
    In addition, OCC proposes to align the collection of Settlement 
Funds with a consistent SOD Settlement Time. OCC's current SOD 
Settlement Time is 9:00 a.m. CT; however, the Board approved changing 
the SOD Settlement Time to 8:00 a.m. CT. By aligning the SOD Settlement 
Time for margin and Clearing Fund deficiencies, OCC believes the 
proposed change would provide a clear and consistent process for 
collecting Settlement Funds. Moving to an earlier settlement time would 
also provide OCC with more time to address a default event and 
implement necessary protective actions, including securing funds from 
its liquidity providers.
Changes to By-Laws
    Currently, two definitions in OCC's By-Laws (Article I, 
Definitions; Article XV, Foreign Currency Options, Definitions) refer 
to the term ``settlement time'' as 9:00 a.m. CT (10:00 a.m. Eastern 
Time (``ET'')). OCC proposes moving the definition in Article I of 
OCC's By-Laws to Chapter I, Rule 101 of OCC's Rules. This defined term 
does not appear elsewhere in the By-Laws, but is routinely used in 
OCC's Rules. OCC also proposes updating both definitions to instead 
provide for ``settlement time'' to be 8:00 a.m. CT (9:00 a.m. ET). 
Additionally, OCC proposes to clarify in the definition that would move 
to OCC's Rules that ``settlement time'' does not include settlements 
related to any cross-margin program with a Participating CCO. OCC Rule 
706 allows OCC to specify the settlement time for cross-margin accounts 
with Participating CCOs. This filing will not change the start-of-day 
settlement time for the OCC/CME cross-margin account, which is 
currently 7:30 a.m. CT, but will clarify any potential ambiguity about 
the start-of-day settlement time for these accounts.
Changes to Rules
Daily Margin Report
    OCC Rule 605 currently requires Clearing Members to satisfy margin 
deficits by 9:00 a.m. CT (10:00 a.m. ET).

[[Page 20486]]

OCC proposes to update Rule 605 to reference the above referenced 
defined term ``Settlement Time.''
    Interpretation and Policy .01 to Rule 605 currently provides that 
the Daily Margin Report will not include the amount of margin required 
for variance futures and requires OCC to advise Clearing Members of 
margin requirements for variance futures by 9:00 a.m. CT (10:00 a.m. 
ET). When OCC clears variance futures, the margin requirements for such 
products would be included in the Daily Margin Report. Accordingly, OCC 
proposes to delete Interpretation and Policy .01 to Rule 605.
Monthly and Intra-Month Resizing
    OCC Rule 1005(b) currently requires that Clearing Members satisfy 
any deficits due to a monthly or intra-month Clearing Fund resizing by 
the SOD Settlement Time on the second business day following 
notification of the resizing. The two-day collection period was 
intended to provide Clearing Members with sufficient notice of any 
changes to their Clearing Fund contribution requirements. However, this 
two-day collection period complicates the monitoring of OCC's prefunded 
credit and liquidity resources.
    To address these issues, Management proposes to amend Rule 1005(b) 
to require that deficits due to the standard monthly resizing of the 
Clearing Fund be satisfied by the SOD Settlement Time on the first 
business day of each month. The proposed change would reduce the time 
to collect Clearing Fund deficits required to meet the new monthly 
Clearing Fund size. This change would reduce operational complexity 
related to the monitoring of OCC's prefunded credit and liquidity 
resources by providing transparency and certainty to OCC around OCC's 
available liquidity resources during the resizing process. Management 
also proposes to shorten the collection period for intra-month resizing 
to the next SOD Settlement Time following notification of the re-sizing 
to align with the monthly resizing period and other Clearing Fund 
deficit collection times and help ensure that OCC maintains adequate 
prefunded financial resources at all times. To provide additional 
transparency, Rule 1005(b) also grants OCC discretion to extend funding 
deadlines when warranted by the circumstances (e.g., operational or 
system difficulties).
General Deficits
    OCC Rule 1005(a) currently requires that general Clearing Fund 
deficits (e.g., deficits caused by a decrease in the value of a 
Clearing Member's contribution or due to an adjusted contribution 
pursuant to Rule 1004 \5\) must be satisfied within one hour of being 
notified of the deficit. As a practical matter, these deficits are 
currently generally collected in the morning each business day but 
outside of the start of day settlement cycle, which means that OCC 
currently processes two separate collections from certain Clearing 
Members.
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    \5\ Under Rule 1004, Clearing Fund contributions may be adjusted 
due to a Clearing Member merger, consolidation, position transfer, 
business expansion, membership approval or other similar event.
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    OCC proposes to revise its rules to align the collection of general 
Clearing Fund deficits with the proposed SOD Settlement Time to provide 
consistency in settlement times throughout OCC's rules. Under revised 
Rule 1005(a), OCC would collect a general deficit arising under Rule 
1005(a) at the Settlement Time, provided that it notified the Clearing 
Member of such deficit at least one hour prior to the Settlement Time 
on the day the notice was provided. Notice of general deficits under 
Rule 1005(a) would typically be provided to Clearing Members through 
OCC's overnight reporting process but may also be issued in response to 
market conditions or adjustments arising from mergers, consolidations, 
position transfers, business expansions, membership approval or other 
similar events. To achieve the operational efficiency contemplated by 
the proposal, the proposed revisions to Rule 1005(a) would align the 
collection period for general deficits to the Settlement Time in the 
ordinary course, and continue to provide Clearing Members with one hour 
to satisfy a deficit if notice was not provided at least one hour 
before the Settlement Time on a particular day. To provide additional 
transparency, Rule 1005(a) also grants OCC discretion to extend funding 
deadlines when warranted by the circumstances (e.g., operational or 
system difficulties).
Adjustments to Clearing Fund Contributions
    Rule 1004 provides that any deficiency arising from an adjustment 
due to a Clearing Member merger, consolidation, position transfer, 
business expansion, membership approval or other similar event shall be 
satisfied in accordance with Rule 1005(a). Rule 1004 currently provides 
an exception that allows a Clearing Member to satisfy an obligation 
that would be due on the first business day of a calendar month to be 
satisfied on the second business day if the deficit coincides with a 
regular monthly sizing collection. The proposal would eliminate this 
exception because regular monthly sizing deficits would no longer be 
collected two business days after notification under the proposed 
formulation of Rule 1005.
Replenishment and Assessments
    OCC Rule 1006(h) currently requires that Clearing Members make good 
any charges to the Clearing Fund, whether in the form of replenishments 
or assessments, by 9:00 a.m. the following business day. OCC proposes 
to amend Rule 1006(h) to align the collection period for replenishments 
and assessments with the proposed SOD Settlement Time. OCC believes 
that using the defined term ``Settlement Time'' rather than stating a 
specific time in Rule 1006(h) will help achieve the consistency 
intended by this proposal. As described above, aligning the time for 
satisfying settlement and Clearing Fund obligations to the new 
definition of Settlement Time will reduce operational complexity by 
creating a more uniform settlement time. Moving to the earlier time 
(i.e., 8:00 a.m. CT) would also provide OCC with more time to address a 
default event and implement necessary protective actions, including 
securing funds from its liquidity providers. OCC also proposes to make 
corresponding changes to Rule 1006(h)(B), which reiterates that each 
Clearing Member shall have and shall at all times maintain the ability 
to make good any deficiency described in Rule 1006(h) during a cooling-
off period.
    OCC also proposes to amend Rule 1006(h)(A) and Rule 1006(h)(B) to 
allow the Corporation to specify a later time for which Clearing 
Members must make good on any charges to the Clearing Fund. The purpose 
of this change is to provide increased transparency by granting OCC 
discretion to extend funding deadlines when warranted by the 
circumstances (e.g., operational or system difficulties).
Deficits Due to Amendment of OCC's Rules
    Currently, under Rule 1002(e), if a Clearing Member's contribution 
to the Clearing Fund increases due to an amendment of OCC's Rules, the 
increase shall not become effective until the Clearing Member is given 
at least two business days prior written notice of the amendment. This 
notification period provides time for any Clearing Member to notify OCC 
in writing that it wishes to terminate its clearing membership and 
close out or transfer its open positions before the effective date of 
the

[[Page 20487]]

amendment. Clearing Members that do not notify OCC of such termination 
must satisfy the increased contribution by 9:00 a.m. CT on the second 
business day following notification of the amendment.
    OCC proposes to allow a five-business day notification period to 
allow Clearing Members additional time to determine whether to 
terminate clearing membership as a result of any such rule change and 
close out or transfer all open positions before the effective date of 
the amendment. The purpose of this change is to update Rule 1002(e) to 
better reflect OCC's current practice pursuant to which Clearing 
Members are generally afforded more than five-business days' notice of 
any change in Clearing Fund requirements that result from an amendment 
of OCC's Rules through the regulatory filing process. As this change 
codifies an existing practice, OCC does not believe it will modify 
Clearing Member behavior or otherwise have an adverse impact on OCC.
    OCC also proposes to revise Rule 1002(e) to align with the proposed 
SOD Settlement Time. As described above, this change is intended to 
reduce operational complexity by creating a more uniform settlement 
time for Clearing Fund deficits, including those described in Rule 
1002(e), that aligns with the current collection period for other 
obligations to OCC.
Temporary Increase in Clearing Fund Cash Requirement
    Interpretation and Policy .03 to Rule 1002 requires Clearing 
Members to satisfy any increase in their required cash contribution 
resulting from an increase in overall Clearing Fund Cash Requirement no 
later than the second business day following notification of the 
increase. OCC proposes to revise Rule 1002 to require that Clearing 
Members satisfy an increase in required cash contributions by the first 
SOD Settlement Time following notification of the increase. The purpose 
of this change is to reduce operational complexity by creating a more 
uniform settlement time that aligns with the current collection period 
for other obligations to OCC.
Conforming Changes to Policies and Agreements
    In connection with the proposed changes described above, OCC will 
need to make conforming changes to the Clearing Fund Methodology 
Policy. These changes include updating the policy to reflect the timing 
for satisfying an increase to the Clearing Fund Cash Requirements and 
eliminating the policy language describing the exception set forth in 
Rule 1004 as described more fully above. These changes are intended to 
update the Clearing Fund Methodology Policy to conform with the 
proposed changes to OCC's rules described above and support the reduced 
operational complexity that OCC expects to achieve by creating a more 
uniform SOD Settlement Time.
(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \6\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(A) of the Act \7\ requires, among other things, that a 
clearing agency be so organized and have the capacity to be able to 
facilitate the prompt and accurate clearance and settlement of 
securities transactions and derivatives agreements, contracts, and 
transactions for which it is responsible. OCC believes the proposed 
rule change is consistent with this requirement because the change 
would improve OCC's capacity to facilitate clearance and settlement by 
allowing OCC to collect financial resources consistent with its 
calculated requirements as soon as reasonably possible. OCC believes 
this change will facilitate the prompt and accurate settlement of the 
transactions for which it is responsible by harmonizing various 
settlement deadlines thereby reducing operational complexity. The 
change would also facilitate the prompt and accurate settlement of 
transactions by providing OCC assurance about available funds earlier 
on each business day.
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(A).
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    OCC also believes that the proposed rule change is consistent with 
the requirement in Rule 17Ad-22(e)(3)(i) \8\ to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to maintain a sound risk management framework for managing 
legal, credit, liquidity, operational, general business, investment, 
custody and other risks that arise in or are borne by OCC. OCC believes 
the proposed SOD Settlement Time changes will contribute to OCC's sound 
risk management framework for managing the risks borne by OCC. For 
example, OCC believes the proposed changes will reduce its liquidity 
risk by assuring start of day settlement requirements are met earlier 
on each business day. Additionally, OCC believes adding consistency to 
its start of day settlement time requirements will reduce operational 
risk by simplifying the requirements around settlement for both 
Clearing Members and OCC. While cross-margin deficits will still be 
required to be met by 7:30 a.m. CT, all other Settlement Funds will be 
required by 8:00 a.m. CT. OCC believes this reduction in complexity 
around required settlement timing will reduce risk and contribute to 
OCC's sound risk management framework. The proposal would also improve 
OCC's process for addressing delays arising from operational issues or 
system difficulties by granting OCC discretion to extend certain 
funding deadlines when warranted by the circumstances.
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    \8\ 17 CFR 240.17Ad-22(e)(3)(i).
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    The proposal is also consistent with the requirement in Rule 17Ad-
22(e)(8) to establish, implement, maintain, and enforce policies and 
procedures reasonably designed to define the point at which settlement 
is final to be no later than the end of the day on which the payment or 
obligation is due. Under the proposal, settlement finality for 
transactions cleared by OCC occurs when a settlement bank either 
accepts or confirms the settlement instruction. Moving to the earlier 
time would promote settlement finality by allowing OCC to more quickly 
identify issues that could potentially impact its ability to settle 
transactions (e.g., a Clearing Member default) and providing OCC with 
additional time to take protective actions, including securing funds 
from its liquidity providers.
    The proposed rule change is not inconsistent with the existing 
rules of OCC, including any other rules proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Exchange Act requires that the rules of 
a clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\9\ OCC does not 
believe that the proposed rule change would impact or impose any burden 
on competition. In connection with these changes, OCC will continue to 
provide daily reporting to Clearing Members with projected requirements 
to provide notice and transparency. While the proposed rule changes 
would reduce the time that Clearing Members have to respond to start of 
day settlement requirements, OCC does not believe the proposed change 
would present an undue burden on OCC's Clearing Members.
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    \9\ 15 U.S.C. 78q-1(b)(3)(I).
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    Additionally, the proposed rule changes would apply to all Clearing 
Members consistently and would not

[[Page 20488]]

provide any Clearing Member with a competitive advantage over any other 
Clearing Member. Further, the proposed rule change would not affect 
Clearing Member's access to OCC's services or impose any direct burdens 
on Clearing Members. Accordingly, the proposed rule change would not 
unfairly inhibit access to OCC's services or disadvantage or favor any 
particular user in relationship to another user.
    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impact or impose a burden on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    OCC shall post notice on its website of proposed changes that are 
implemented. The proposal shall not take effect until all regulatory 
actions required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2022-004 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2022-004. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2022-004 and 
should be submitted on or before April 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07341 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P


