[Federal Register Volume 87, Number 142 (Tuesday, July 26, 2022)]
[Notices]
[Pages 44457-44462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15919]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95326; File No. SR-OCC-2022-802]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice Related to a Master Repurchase 
Agreement as Part of The Options Clearing Corporation's Overall 
Liquidity Plan

July 20, 2022.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 
1934 (``Exchange Act'' or ``Act''),\3\ notice is hereby given that on 
July 7, 2022, The Options Clearing Corporation (``OCC'') filed with the 
Securities and Exchange Commission (``Commission'') an advance notice 
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 advance notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    This advance notice is submitted in connection a proposed change to 
its operations in the form of executing a committed master repurchase 
agreement with a bank counterparty as part of OCC's overall liquidity 
plan. The proposed changes do not require any changes to the text of 
OCC's By-Laws or Rules. 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.\4\
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    \4\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.

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[[Page 44458]]

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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) and (B) 
below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the advance notice and none have been received. OCC will 
notify the Commission of any written comments received by OCC.

(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing, and Settlement Supervision Act

Description of the Proposed Change
    As the sole clearing agency for standardized U.S. securities 
options listed on national securities exchanges registered with the 
Commission (``listed options''), OCC is obligated to make certain 
payments. In the event of a Clearing Member default, OCC would be 
obligated to make payments, on time, related to that member's clear 
transactions. To meet such payment obligations, OCC maintains access to 
cash from a variety of sources, including, a requirement for members to 
pledge cash collateral to OCC and various agreements with banks and 
other counterparties (``liquidity facilities'') to provide OCC with 
cash in exchange for collateral, such as U.S. Government securities. 
OCC routinely considers potential market stress scenarios that could 
affect such payment obligations. Based on such considerations, OCC now 
believes that it should seek to expand its liquidity facility to 
increase OCC's access to cash to manage a member default.
    OCC is proposing to expand its liquidity facilities to include a 
new arrangement with a bank to provide cash to OCC. Specifically, this 
advance notice concerns a change to OCC's operations to execute a 
master repurchase agreement with a bank counterparty as part of OCC's 
overall liquidity plan, which includes OCC's arrangements to access 
cash in exchange for U.S. Government securities deposited by Clearing 
Members in respect of their Clearing Fund requirements to meet OCC's 
settlement obligations. OCC is not, as part of this advance notice, 
proposing to require its members or other market participants provide 
additional or different collateral to OCC. Rather, the purpose of the 
proposal is to provide OCC with another vehicle for accessing cash to 
meet its payment obligations, including in the event that one of its 
members fails to meet its payment obligations to OCC.\5\
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    \5\ OCC may also use the Clearing Fund to address liquidity 
shortfalls arising from the failure of any bank, securities or 
commodities clearing organization, or investment counterparty to 
perform any obligation to OCC when due. See OCC Rule 1006(f)(1)(C); 
Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR 11776 (Mar. 2, 
2022) (SR-OCC-2021-014).
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Background
    OCC's current liquidity plan provides it with access to a diverse 
set of funding sources, including banks (i.e., OCC's syndicated credit 
facility),\6\ the Non-Bank Liquidity Facility program,\7\ and Clearing 
Members' Cash Clearing Fund Requirement.\8\ OCC is proposing to add to 
these sources a master repurchase agreement (``MRA'') with a bank 
counterparty (the ``Bank Repo Facility program''). This program would 
mirror the Repo Liquidity Facility that OCC executed with a bank 
counterparty in 2020 after obtaining a notice of no objection from the 
Commission (``2020 Bank Repo Facility''),\9\ except that in this case, 
the committed amount will be up to $1 billion (as opposed to $500 
million) and the bank counterparty will be one to which OCC has minimal 
other credit exposure. The counterparty would be one that has already 
been approved by OCC as a liquidity provider and would be subject to 
routine monitoring under OCC's Third-Party Risk Management 
Framework,\10\ which meets or exceeds the monitoring process discussed 
in the advance notice for the 2020 Bank Repo Facility.\11\
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    \6\ See Exchange Act Release No. 88971 (May 28, 2020), 85 FR 
34257 (June 3, 2020) (SR-OCC-2020-804).
    \7\ See Exchange Act Release No. 89039 (June 10, 2020), 85 FR 
36444 (June 16, 2020) (SR-OCC-2020-803); Exchange Act Release No. 
76821 (Jan. 4, 2016), 81 FR 3208 (Jan. 20, 2016) (SR-OCC-2015-805); 
Exchange Act Release No. 73979 (Jan. 2, 2015), 80 FR 1062 (Jan. 8, 
2015) (SR-OCC-2014-809).
    \8\ See OCC Rule 1002.
    \9\ See Exchange Act Release No. 88317 (Mar. 4, 2020), 85 FR 
13681 (Mar. 9, 2020) (SR-OCC-2020-801).
    \10\ See Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR 
86592 (Dec. 30, 2020) (SR-OCC-2020-014). The Third-Party Risk 
Management Framework is available on OCC's public website. See 
Documents & Archives, https://www.theocc.com/Company-Information/Documents-and-Archives.
    \11\ See Exchange Act Release No. 88120 (Feb. 5, 2020), 85 FR 
7812 (Feb. 11, 2020) (SR-OCC-2020-801).
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    Although the MRA would be based on the standard form of master 
repurchase agreement,\12\ OCC would require the MRA, or an annex 
thereto, to contain certain additional provisions tailored to help 
ensure certainty of funding and operational effectiveness, as described 
in more detail below. OCC believes that these provisions are necessary 
and appropriate to integrate the program into its operations and in 
order to promote safety and soundness consistent with OCC's systemic 
responsibilities. OCC provided a summary of the additional terms and 
conditions (``Summary of Terms'') as presented to the Board in 
confidential Exhibit 3 to File No. SR-OCC-2022-802.\13\ Because the 
arrangements between OCC and the bank counterparty have not been fully 
negotiated, OCC has identified the following as key standards that 
would need to be incorporated into the MRA.
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    \12\ The standard form master repurchase agreement is published 
by the Securities Industry and Financial Markets Association 
(``SIFMA'') and is commonly used in the repurchase market by 
institutional investors.
    \13\ In addition to the Summary of Terms, the confidential 
Exhibit 3 to File No. SR-OCC-2022-802 includes a summary of OCC 
management's recommendation to expand OCC's external liquidity 
sources as well as a discussion of the analysis underlying that 
recommendation.
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The Proposed Program: Standard Repurchase Agreement Terms
    The MRA would be structured like a typical repurchase arrangement 
in which the buyer (i.e., the bank counterparty) would purchase from 
OCC, from time to time, U.S. Government securities (``Eligible 
Securities'').\14\ OCC, as the seller, would transfer Eligible 
Securities to the buyer in exchange for a payment by the buyer to OCC 
in immediately available funds (``Purchase Price''). The buyer would 
simultaneously agree to transfer the purchased securities back to OCC 
at a specified later date (``Repurchase Date'') or on OCC's demand 
against the transfer of funds by OCC to the buyer in an amount equal to 
the outstanding Purchase Price plus the accrued and

[[Page 44459]]

unpaid price differential (together, ``Repurchase Price''), which is 
the interest component of the Repurchase Price.
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    \14\ OCC would use U.S. government securities that are included 
in Clearing Fund contributions by Clearing Members and margin 
deposits of any Clearing Member that has been suspended by OCC for 
the repurchase arrangements. OCC Rule 1006(f) and OCC Rule 1104(b) 
authorize OCC to obtain funds from third parties through securities 
repurchases using these sources. The officers who may exercise this 
authority include the Chairman, Chief Executive Officer, and Chief 
Operating Officer.
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    At all times while a transaction is outstanding, OCC would be 
required to maintain a specified amount of securities or cash margin 
with the buyer.\15\ The market value of the securities supporting each 
transaction would be determined daily, typically based on a price 
obtained from a generally recognized pricing source. If the market 
value of the purchased securities is determined to have fallen below 
OCC's required margin, OCC would be required to transfer to the buyer 
sufficient cash or additional securities reasonably acceptable to the 
buyer so that OCC's margin requirement is satisfied.\16\ If the market 
value of the purchased securities is determined to have risen to above 
OCC's required margin, OCC would be permitted to require the return of 
excess purchased securities from the buyer.
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    \15\ OCC expects that it would be required to maintain margin 
equal to 102% of the Repurchase Price, which is a standard rate for 
arrangements involving Government securities.
    \16\ OCC expects that it would use Clearing Fund securities and 
securities posted as margin by defaulting Clearing Members, as more 
fully discussed in footnote 14.
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    As in a typical master repurchase agreement, an event of default 
would occur with respect to the buyer if the buyer failed to purchase 
securities on a Purchase Date, failed to transfer purchased securities 
on any applicable Repurchase Date, or failed to transfer any interest, 
dividends or distributions on purchased securities to OCC within a 
specified period after receiving notice of such failure. An event of 
default would occur with respect to OCC if OCC failed to transfer 
purchased securities on a Purchase Date or failed to repurchase 
purchased securities on an applicable Repurchase Date. The MRA would 
also provide for standard events of default for either party, including 
a party's failure to maintain required margin or an insolvency event 
with respect to the party. Upon the occurrence of an event of default, 
the non-defaulting party, at its option, would have the right to 
accelerate the Repurchase Date of all outstanding transactions between 
the defaulting party and the non-defaulting party, among other rights. 
For example, if OCC were the defaulting party with respect to a 
transaction and the buyer chose to terminate the transaction, OCC would 
be required to immediately transfer the Repurchase Price to the buyer. 
If the buyer were the defaulting party with respect to a transaction 
and OCC chose to terminate the transaction, the buyer would be required 
to deliver all purchased securities to OCC. If OCC or the buyer did not 
timely perform, the non-defaulting party would be permitted to buy or 
sell, or deem itself to have bought or sold, securities as needed to be 
made whole and the defaulting party would be required to pay the costs 
related to any covering transactions. Additionally, if OCC was required 
to obtain replacement securities as a result of an event of default, 
the buyer would be required to pay the excess of the price paid by OCC 
to obtain replacement securities over the Repurchase Price.
The Proposed Program: Customized Features To Promote Certainty of 
Funding and Operational Effectiveness
    In addition to the typical repurchase arrangements, OCC would 
require the MRA, or an annex thereto, to contain certain additional 
provisions tailored to help ensure certainty of funding and operational 
effectiveness.\17\
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    \17\ OCC expects that the MRA will also include other, more 
routine, provisions such as the method for giving notices and basic 
due authorization representations by the parties.
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Commitment to Fund
    The buyer would provide a funding commitment of up to $1 billion, 
with the commitment extending for one year (plus or minus one day). The 
buyer would be obligated to enter into transactions under the MRA up to 
its committed amount so long as no default had occurred and OCC 
transferred sufficient Eligible Securities. The buyer would be 
obligated to enter into transactions even if OCC had experienced a 
material adverse change, such as the failure of a Clearing Member. This 
commitment to provide funding would be a key departure from ordinary 
repurchase arrangements and a key requirement for OCC.
Funding Mechanics
    Funding mechanics would be targeted so that OCC would receive the 
Purchase Price in immediately available funds within 60 minutes of its 
request for funds and delivery of Eligible Securities and, if needed, 
prior to OCC's regular daily settlement time.\18\ These targeted 
funding mechanics would allow OCC to receive needed liquidity in time 
to satisfy settlement obligations, even in the event of a default by a 
Clearing Member or a market disruption. The funding mechanism may be, 
for example, delivery versus payment/receive versus payment \19\ or 
another method acceptable to OCC that both satisfies the objectives of 
the Bank Repo Facility and presents limited operational risks.\20\
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    \18\ This would include OCC's regular daily settlement time and 
any extended settlement time implemented by OCC in an emergency 
situation under Rule 505.
    \19\ Delivery versus payment/receive versus payment is a method 
of settlement under which payment for securities must be made prior 
to or simultaneously with delivery of the securities.
    \20\ Unlike for the Non-Bank Liquidity Facility, OCC would not 
require the Bank Repo Facility counterparty to maintain cash and 
investments in a designated account in which OCC has visibility. OCC 
required a designated account for Non-Bank Liquidity Facility 
counterparties in order to facilitate prompt funding by 
counterparties that, unlike the Bank Repo Facility counterparty, are 
not commercial banks and therefore are not in the business of daily 
funding.
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No Rehypothecation
    The buyer would not be permitted to grant any third party an 
interest in purchased securities. This requirement is important to 
reduce the risk that a third party could interfere with the buyer's 
transfer of the purchased securities on the Repurchase Date. Further, 
the buyer would agree to provide OCC with daily information about the 
account the buyer uses to hold the purchased securities. This 
visibility would allow OCC to act quickly in the event the buyer 
violates any requirements.
Early Termination Rights
    OCC would have the ability to terminate any transaction upon 
written notice to the buyer, but the buyer would only be able to 
terminate a transaction upon the occurrence of an event of default with 
respect to OCC, as further described below. A notice of termination by 
OCC would specify a new Repurchase Date prior to the originally agreed 
upon Repurchase Date. Upon the early termination of a transaction, the 
buyer would be required to return all purchased securities to OCC and 
OCC would be required to pay the Repurchase Price. This optional early 
termination right is important to OCC because OCC's liquidity needs may 
change unexpectedly over time and as a result OCC may not want to keep 
a transaction outstanding as long as originally planned.
Substitution
    OCC would have the ability to substitute any Eligible Securities 
for purchased securities in its discretion by a specified time, so long 
as the Eligible Securities satisfy any applicable criteria contained in 
the MRA and the transfer of the Eligible Securities would not create a 
margin deficit, as described

[[Page 44460]]

above.\21\ This substitution right is important to OCC because it must 
be able to manage requests of Clearing Members to return excess or 
substitute Eligible Securities in accordance with established 
operational procedures.
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    \21\ In addition to its substitution rights, OCC could cause the 
return of purchased securities by exercising its optional early 
termination rights under the Master Repurchase Agreement. If OCC 
were to terminate the transaction, the buyer would be required to 
return purchased securities to OCC against payment of the 
corresponding Repurchase Price.
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Events of Default
    Beyond the standard events of default for a failure to purchase or 
transfer securities on the applicable Purchase Date or Repurchase Date, 
as described above, OCC would require that the MRA not contain any 
additional events of default that would restrict OCC's access to 
funding. Most importantly, OCC would require that it would not be an 
event of default if OCC suffers a ``material adverse change.'' \22\ 
This provision is important because it provides OCC with certainty of 
funding, even in difficult market conditions.
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    \22\ When included in a contract, a ``material adverse change'' 
is typically defined as a change that would have a materially 
adverse effect on the business or financial condition of a company.
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    The agreement also provides that upon the occurrence of an event of 
default, in addition to the non-defaulting party's right to accelerate 
the Repurchase Date of all outstanding transactions or to buy or sell 
securities as needed to be made whole, the non-defaulting party may 
elect to take the actions specified in a ``mini close-out'' provision 
of the MRA rather than declaring an event of default. For example, if 
the buyer fails to transfer purchased securities on the applicable 
Repurchase Date, rather than declaring an event of default, OCC may (1) 
if OCC has already paid the Repurchase Price, require the buyer to 
repay the Repurchase Price, (2) if there is a margin excess, require 
the buyer to pay cash or delivered purchased securities in an amount 
equal to the margin excess, or (3) declare that the applicable 
transaction, and only that transaction, will be immediately terminated, 
and apply default remedies under the MRA to only that transaction. 
Therefore, if the buyer fails to deliver purchased securities on any 
Repurchase Date, OCC would have remedies that allow it to mitigate risk 
with respect to a particular transaction, without declaring an event of 
default with respect to all transactions under the MRA.
The Proposed Program: Annual Renewal
    As discussed above, MRA would be for an annual term. OCC 
anticipates that it will renew the MRA with the same bank counterparty 
based on the same or substantially similar terms. At each renewal, OCC 
would evaluate the commitment amount so that OCC's available liquidity 
resources remain properly calibrated to its activities and settlement 
obligations. OCC would submit another advance notice with respect to 
such renewal for the same term only if: (i) OCC determines its 
liquidity needs merit funding levels above the $1 billion, (ii) OCC 
should seek to change the terms and conditions of the MRA in a manner 
that materially affects the nature or level of risk presented by 
OCC,\23\ (iii) OCC should seek to add counterparties or substitute the 
bank counterparty to the Bank Repo Facility program, or (iv) the bank 
counterparty has experienced a negative change to its credit profile or 
a material adverse change since the latest renewal of the MRA. As such, 
annual renewals for the Bank Liquidity Facility would proceed in a 
similar manner to renewals of term commitments under the Non-Bank 
Liquidity Facility--another MRA liquidity source.\24\
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    \23\ For the purposes of clarity, OCC would not consider changes 
to pricing or changes in representations, covenants, and terms of 
events of default, to be changes to a term or condition that would 
require the filing of a subsequent advance notice provided that 
pricing is at the then prevailing market rate and changes to such 
other provisions are immaterial to OCC as the seller and do not 
impair materially OCC's ability to draw against the facility.
    \24\ See Exchange Act Release No. 76821, 81 FR at 3209 
(describing OCC's proposal to submit an advance notice in connection 
with a renewal of commitments under the Non-Bank Liquidity Facility 
if: (i) OCC determined that its liquidity needs merited commitments 
above or below certain levels; (ii) OCC should seek to change the 
terms and conditions of the Non-Bank Liquidity Facility; and (iii) 
the commitment counterparty experienced a negative change to its 
credit profile or a material adverse change since entering the 
commitment or the latest renewal of the commitment). OCC 
subsequently submitted an advance notice pursuant to that commitment 
to support its ability to onboard multiple liquidity providers below 
the identified thresholds and with different term lengths to replace 
expiring commitments, see Exchange Act Release No. 89039, 85 FR at 
36445-46, and has, concurrent with the filing of SR-OCC-2022-802, 
submitted another advance notice to eliminate the current cap to 
that program in favor of a floor for external liquidity across all 
sources. The Bank Repo Facility would retain a cap and a limit on 
adding new counterparties because OCC is proposing this facility as 
a discrete MRA with a single counterparty. To the extent OCC 
determines to add additional commitments or counterparties to the 
Bank Repo Facility in the future, OCC would first file an advance 
notice.
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    OCC does not believe that, absent one or more of the changes 
described above, renewal of the MRA would constitute a change to OCC's 
operations that could materially affect the nature or level of risks 
presented by OCC so as to require an advance notice under Section 
806(e)(1) of the Clearing Supervision Act.\25\ Accordingly OCC would 
consider such a renewal to be on substantially the same terms and 
conditions such that executing such renewal would not be subject to the 
requirement to file an advance notice filing pursuant to Section 
806(e)(1) of the Clearing Supervision Act.\26\ If OCC determines to 
make changes to the Bank Repo Facility in a subsequent filing, it would 
include in that filing the proposed conditions to the terms of any 
renewals that could be done without an additional advance notice.
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    \25\ 12 U.S.C. 5465(e)(1).
    \26\ Id.
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Anticipated Effect on and Management of Risk
    Completing timely settlement is a key aspect of OCC's role as a 
clearing agency performing central counterparty services. OCC believes 
that the overall impact of the Bank Repo Facility on the risks 
presented by OCC would be to reduce settlement risk associated with 
OCC's operations as the clearing agency for all listed options. The 
Bank Repo Facility would reduce settlement risk by providing an 
additional source of liquidity that would promote the reduction of 
risks to OCC, its Clearing Members and the options market in general 
because it would allow OCC to obtain short-term funds to address 
liquidity demands arising out of the default or suspension of a 
Clearing Member, in anticipation of a potential default or suspension 
of Clearing Members, the insolvency of a bank, another securities or 
commodities clearing organization, or a counterparty with which OCC has 
invested Clearing Member funds, or the failure of such a bank, clearing 
organization or investment counterparty to meet an obligation to OCC 
when due. The resulting reduction in OCC settlement risk would lead to 
a corresponding reduction in systemic risk and would have a positive 
impact on the safety and soundness of the clearing system by enabling 
OCC to have continuous access to funds to settle its obligations to its 
Clearing Members. In order to sufficiently perform this key role in 
promoting market stability, it is critical that OCC continuously has 
access to funds to settle its obligations.
    Providing for another committed source of liquidity resources would 
also help OCC manage the allocation between its sources of liquidity by 
giving OCC more flexibility to adjust the

[[Page 44461]]

mix of liquidity resources based on market conditions, availability and 
shifting liquidity needs. If circumstances arise that affect OCC's 
current liquidity resources from another of its facilities, an 
additional source of liquidity resources would allow OCC to reallocate 
liquidity resources as necessary to avoid a shortfall in its overall 
liquidity resources.\27\
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    \27\ For example, OCC has authority under OCC Rule 1002(a)(i) to 
temporarily increase the cash funding requirement in its Clearing 
Fund for the protection of OCC, Clearing Members or the general 
public.
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    The Bank Repo Facility, like any liquidity source, would involve 
certain risks, but OCC would structure the program to mitigate those 
risks. Most of these risks are standard in any master repurchase 
agreement. For example, the buyer could fail to deliver, or delay in 
delivering, purchased securities to OCC by the applicable Repurchase 
Date. OCC will address this risk by seeking a security interest from 
the buyer in that portion of the purchased securities representing the 
excess of the market value over the Repurchase Price, or by obtaining 
other comfort from the buyer that the purchased securities will be 
timely returned. Further, the purchased securities generally will not 
be ``on-the-run'' securities, i.e., the most recently issued Treasury 
securities. The demand in the marketplace for Treasury securities, for 
uses other than collateral, is much greater for on-the-run Treasury 
securities, and therefore, OCC believes the buyer will have little 
incentive to retain the securities transferred by OCC.
    The mechanics under the Bank Repo Facility would be structured so 
that OCC could avoid losses by paying the Repurchase Price. For 
example, OCC will have optional early termination rights, under which 
OCC would be able to accelerate the Repurchase Date of any transaction 
by providing written notice to the buyer and paying the Repurchase 
Price. Through this mechanism, OCC can maintain the benefit of the Bank 
Repo Facility, while mitigating any risk associated with a particular 
transaction.
    The Bank Repo Facility would be structured to avoid potential 
third-party risks, which are typical of repurchase arrangements. The 
prohibition on buyer rehypothecation and use of purchased securities 
would reduce the risk to OCC of a buyer default.
    As with any repurchase arrangement, OCC is subject to the risk that 
it may have to terminate existing transactions and accelerate the 
applicable Repurchase Date with respect to the buyer due to changes in 
the financial health or performance of the buyer. Terminating 
transactions could negatively affect OCC's liquidity position. However, 
any negative effect is reduced by the fact that OCC maintains a number 
of different financing arrangements, and thus will have access to 
liquidity sources in the event the Bank Repo Facility is no longer a 
viable source.
    Under the MRA, OCC would be obligated to transfer additional cash 
or securities as margin in the event the market value of any purchased 
securities decreases. OCC seeks to ensure it can meet any such 
obligation by monitoring the value of the purchased securities and 
maintaining adequate cash resources to make any required payments. Such 
payments are expected to be small in comparison to the total amount of 
cash received for each transfer of purchased securities.
Consistency With the Payment, Clearing and Settlement Supervision Act
    The stated purpose of the Clearing Supervision Act is to mitigate 
systemic risk in the financial system and promote financial stability 
by, among other things, promoting uniform risk management standards for 
systemically important financial market utilities and strengthening the 
liquidity of systemically important financial market utilities.\28\ 
Section 805(a)(2) of the Clearing Supervision Act \29\ also authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like OCC, for which the Commission is the supervisory agency. Section 
805(b) of the Clearing Supervision Act \30\ states that the objectives 
and principles for risk management standards prescribed under Section 
805(a) shall be to:
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    \28\ 12 U.S.C. 5461(b).
    \29\ 12 U.S.C. 5464(a)(2).
    \30\ 12 U.S.C. 5464(b).
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     promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and the Exchange Act in 
furtherance of these objectives and principles.\31\ Rule 17Ad-22 
requires registered clearing agencies, like OCC, to establish, 
implement, maintain, and enforce written policies and procedures that 
are reasonably designed to meet certain minimum requirements for their 
operations and risk management practices on an ongoing basis.\32\ 
Therefore, the Commission has stated \33\ that it believes it is 
appropriate to review changes proposed in advance notices against Rule 
17Ad-22 and the objectives and principles of these risk management 
standards as described in Section 805(b) of the Clearing Supervision 
Act.\34\
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    \31\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release 
Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-
08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016), 
81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered 
Clearing Agencies'').
    \32\ 17 CFR 240.17Ad-22.
    \33\ See, e.g., Securities Exchange Act Release No. 86182 (June 
24, 2019), 84 FR 31128, 31129 (June 28, 2019) (SR-OCC-2019-803).
    \34\ 12 U.S.C. 5464(b).
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    OCC believes that the proposed changes are consistent with Section 
805(b)(1) of the Clearing Supervision Act \35\ because the proposed 
Bank Repo Facility would provide OCC with an additional source of 
committed liquidity to meet its settlement obligations while at the 
same time being structured to mitigate certain operational risks, as 
described above, that arise in connection with this committed liquidity 
source. In this way, the proposed changes are designed to promote 
robust risk management; promote safety and soundness; reduce systemic 
risks; and support the stability of the broader financial system.
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    \35\ 12 U.S.C. 5464(b)(1).
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    OCC believes that the Bank Repo Facility is also consistent with 
the requirements of Rule 17Ad-22(e)(7) under the Act.\36\ Rule 17Ad-
22(e)(7) requires OCC to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to effectively 
measure, monitor, and manage liquidity risk that arises in or is borne 
by OCC, including measuring, monitoring, and managing its settlement 
and funding flows on an ongoing and timely basis, and its use of 
intraday liquidity, as specified in the rule.\37\ In particular, Rule 
17Ad-22(e)(7)(i) under the Act \38\ directs that OCC meet this 
obligation by, among other things, ``[m]aintaining sufficient liquid 
resources at the minimum in all relevant currencies to effect same-day 
. . . 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 [OCC] 
in extreme but plausible market conditions.''
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    \36\ 17 CFR 240.17Ad-22(e)(7).
    \37\ Id.
    \38\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the Bank Repo Facility would provide OCC with a 
readily available liquidity resource that

[[Page 44462]]

would enable it to, among other things, continue to meet its 
obligations in a timely fashion and as an alternative to selling 
Clearing Member collateral under what may be stressed and volatile 
market conditions. For these reasons, OCC believes that the proposal is 
consistent with Rule 17Ad-22(e)(7)(i).\39\
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    \39\ Id.
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    Rule 17Ad-22(e)(7)(ii) under the Act requires OCC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to hold qualifying liquid resources sufficient to 
satisfy payment obligations owed to Clearing Members.\40\ Rule 17Ad-
22(a)(14) of the Act defines ``qualifying liquid resources'' to 
include, among other things, lines of credit without material adverse 
change provisions, that are readily available and convertible into 
cash.\41\ The MRA under the Bank Repo Facility would not be subject to 
any material adverse change provision and would be designed to permit 
OCC to, among other things, help ensure that OCC has sufficient, 
readily-available qualifying liquid resources to meet the cash 
settlement obligations of its largest Clearing Member Group. Therefore, 
OCC believes that the proposal is consistent with Rule 17Ad-
22(e)(7)(ii).\42\
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    \40\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \41\ 17 CFR 240.17Ad-22(a)(14).
    \42\ 17 CFR 240.17Ad-22(e)(7)(ii).
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    For the foregoing reasons, OCC believes that the proposed changes 
are consistent with Section 805(b)(1) of the Clearing Supervision Act 
\43\ and Rule 17Ad-22(e)(7) \44\ under the Act.
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    \43\ 12 U.S.C. 5464(b)(1).
    \44\ 17 CFR 240.17Ad-22(e)(7).
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III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date the proposed change was filed with the Commission or (ii) the date 
any additional information requested by the Commission is received. OCC 
shall not implement the proposed change if the Commission has any 
objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    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 advance 
notice 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-2022-802 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-2022-802. 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 advance notice that are filed with the 
Commission, and all written communications relating to the advance 
notice 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-2022-802 and 
should be submitted on or before August 16, 2022.
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    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-15919 Filed 7-25-22; 8:45 am]
BILLING CODE 8011-01-P


