90 FR 66 pgs. 15175-15178 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Options Clearing Corporation Concerning a Change in the Maximum Contingent Operational Loss Fee Listed in OCC's Schedule of Fees in Accordance With OCC's Capital Management Policy
Type: NOTICEVolume: 90Number: 66Pages: 15175 - 15178
Pages: 15175, 15176, 15177, 15178Docket number: [Release No. 34-102758; File No. SR-OCC-2025-004]
FR document: [FR Doc. 2025-05962 Filed 4-7-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
[top]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102758; File No. SR-OCC-2025-004]
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Options Clearing Corporation Concerning a Change in the Maximum Contingent Operational Loss Fee Listed in OCC's Schedule of Fees in Accordance With OCC's Capital Management Policy
April 2, 2025.
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 27, 2025, The Options Clearing Corporation ("OCC") filed with the Securities and Exchange Commission ("SEC" or "Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)? 3 of the Act and paragraph (f)(2) or Rule 19b-4? 4 thereunder, such that the proposed rule change was immediately effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
3 ?15 U.S.C. 78s(b)(3)(A).
4 ?17 CFR 240.19b-4(f)(2).
I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change
This proposed rule change would implement a change in the maximum contingent Operational Loss Fee listed in OCC's schedule of fees in accordance with OCC's Capital Management Policy. Proposed changes to OCC's schedule of fees are included as Exhibit 5 to File Number SR-OCC-2025-004. Material proposed to be added to OCC's schedule of fees as currently in effect is underlined and material proposed to be deleted is marked in strikethrough text. All capitalized terms not defined herein have the same meaning as set forth in the OCC By-Laws and Rules. 5 Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
Footnotes:
5 ?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.
In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
(1) Purpose
The purpose of this proposed rule change is to revise OCC's schedule of fees to update the maximum aggregate Operational Loss Fee that OCC would charge Clearing Members in equal shares in the unlikely event that OCC's Liquid Net Assets Funded by Equity ("LNAFBE")? 6 falls below certain thresholds defined in OCC's Capital Management Policy.
Footnotes:
6 ?While the relevant rules under the Exchange Act do not define the term, the Commission-approved Capital Management Policy defines LNFABE as the level of cash and cash equivalents, no greater than shareholders' equity, less any approved adjustments. These approved adjustments exclude cash that would not be available to cover general business expenses, including (1) cash collected by OCC in an agency-related capacity, including the Section 31 fees that OCC collects monthly and transmits to the Commission bi-annually on behalf of the options exchanges, and (2) OCC's Minimum Corporate Contribution, which is the minimum level of OCC funds maintained exclusively to cover credit losses or liquidity shortfalls arising from a Clearing Member default, often referred to as "skin-in-the-game." See Exchange Act Release Nos. 92038 (May 27, 2021), 86 FR 29861, 29862 (June 3, 2021) (SR-OCC-2021-003); 88029 (Jan. 24, 2020), 85 FR 5500 (Jan. 30, 2020) (SR-OCC-2019-007) ("Order Approving OCC's Capital Management Policy").
The proposed fee change is designed to enable OCC to replenish capital to comply with Rule 17Ad-22(e)(15) under the Exchange Act, which requires OCC, in pertinent part, to "hold[ ] [LNAFBE] to the greater of either (x) six months . . . current operating expenses, or (y) the amount determined by the board of directors to be sufficient to ensure a recovery or orderly wind-down of critical operations and service"? 7 and "[m]aintain[ ] a viable plan, approved by the board of directors and updated at least annually, for raising additional equity should its equity fall close to or below the amount required."? 8 The proposed rule change would implement a change in the maximum contingent Operational Loss Fee listed in OCC's schedule of fees in accordance with OCC's Capital Management Policy.
Footnotes:
7 ? See 17 CFR 240.17Ad-22(e)(15)(ii).
8 ? See 17 CFR 240.17Ad-22(e)(15)(iii).
OCC's Capital Management Policy includes OCC's replenishment plan. Pursuant to the Capital Management Policy, OCC would charge an Operational Loss Fee in equal shares to Clearing Members to raise additional capital should OCC's LNAFBE fall below certain defined thresholds relative to OCC's Target Capital Requirement ( i.e., a "Trigger Event"), after first applying the unvested balance held in respect of OCC's Executive Deferred Compensation Program. 9 Specifically, a Trigger Event is when LNAFBE: (i) remains below the Target Capital Requirement for 90 consecutive calendar days; or (ii) falls below 90% of the Target Capital Requirement. Based on the Board-approved Target Capital Requirement for 2025 of $286 million, a Trigger Event would occur if OCC's LNAFBE falls below $257.4 million at any time or below $286 million for a period of 90 consecutive calendar days.
Footnotes:
9 ? See Exchange Act Release No. 101151 (Sept. 24, 2024), 89 FR 79668, 79669 (Sept. 30, 2024) (SR-OCC-2024-012) (amending OCC's replenishment plant to measure the Trigger Event against OCC's LNAFBE, rather than shareholders' equity).
[top]
In the unlikely event those thresholds are breached, OCC would charge an Operational Loss Fee in an amount to raise LNAFBE to 110% of OCC's Target Capital Requirement, up to the maximum Operational Loss Fee identified in OCC's schedule of fees less the amount of any Operational Loss Fees previously charged and not refunded. 10 OCC calculates the maximum aggregate Operational Loss Fee based on the amount determined by the Board to be sufficient for a recovery or orderly wind-down of critical operations and services ("RWD Amount"), 11 which is determined based on the assumptions in OCC's Recovery and Orderly Wind-Down Plan ("RWD Plan"). 12 In order to account for OCC's tax liability for retaining the Operational Loss Fee as earnings, OCC may apply a tax gross-up to the RWD Amount ("Adjusted RWD Amount") depending on whether the operational loss that caused OCC's LNAFBE to fall below the Trigger Event thresholds is tax deductible. 13
Footnotes:
10 ? See Order Approving OCC's Capital Management Policy, 85 FR at 5503.
11 ? Id.
12 ?The RWD Plan states OCC's basic assumptions concerning the resolution process, including assumptions about the duration of the resolution process, the cost of the resolution process, OCC's capitalization through the resolution process, the maintenance of Critical Services and Critical Support Functions, as defined by the RWD Plan, and the retention of personnel and contractual relationships. See Exchange Act Release No. 83918 (Aug. 23, 2018), 83 FR 44091, 44094, 44096 (Aug. 29, 2018) (File No. SR-OCC-2017-021).
13 ? See Order Approving OCC's Capital Management Policy, 85 FR at 5503.
The RWD Amount and, in turn, the Adjusted RWD Amount are determined annually based on OCC's corporate budget, the assumptions articulated in the RWD Plan, and OCC's projected effective tax rate. 14 The current Operational Loss Fee listed in OCC's schedule of fees is the Adjusted RWD Amount calculated based on OCC's 2024 corporate budget. Budgeted operating expenses in 2025 are higher than the 2024 budgeted operating expenses. This proposed rule change would revise the maximum Operational Loss Fee to reflect the Adjusted RWD Amount based on OCC's 2025 budget, 15 as follows:
Footnotes:
14 ? See Order Approving OCC's Capital Management Policy, 85 FR at 5501 n.20, 5503.
15 ?Confidential data and analysis evidencing the calculation of the Adjusted RWD Amount based on OCC's 2025 corporate budget is included in Exhibit 3 to File Number SR-OCC-2025-004.
| Current fee schedule | Proposed fee schedule |
|---|---|
| $182,000,000.00 less the aggregate amount of Operational Loss Fees previously charged and not refunded as of the date calculated, divided by the number of Clearing Members at the time charged | $211,000,000.00 less the aggregate amount of Operational Loss Fees previously charged and not refunded as of the date calculated, divided by the number of Clearing Members at the time charged. |
Since the allocation of the Operational Loss Fee is a function of the number of Clearing Members at the time of the charge, the maximum Operational Loss Fee per Clearing Member is subject to fluctuation during the course of the year. However, if the proposed Operational Loss Fee were charged to 101 Clearing Members, the number of Clearing Members as of December 31, 2024, for example, the maximum Operational Loss Fee per Clearing Member would be approximately $2.09 million.
OCC would also update the schedule of fees to reflect the levels of LNAFBE at which OCC would charge the Operational Loss Fee according to the thresholds defined in the Capital Management Policy, as well as the level of LNAFBE at which OCC would limit the Operational Loss Fee charged, based on OCC's current Target Capital Requirement. 16 Consistent with OCC's approach to its persistent minimum skin-in-the-game, the threshold in the schedule of fees continues to reflect that consistent with OCC's Capital Management Policy, the Trigger Event threshold is measured against LNAFBE.
Footnotes:
16 ?OCC does not propose any change to the thresholds and limits defined in the Capital Management Policy. This proposed change merely conforms the disclosure in OCC's schedule of fees to the current amounts based on the Board-approved Target Capital Requirement of $286 million.
OCC proposes the fee change to be effective immediately upon filing, because the Board approved the Adjusted RWD Amount upon which the Operational Loss Fee is based for 2025. Notwithstanding the immediate effectiveness, OCC would not make the fee change operative until after the time required to self-certify the proposed change with the Commodity Futures Trading Commission ("CFTC").
(2) Statutory Basis
OCC believes the proposed rule change is consistent with the Act? 17 and the rules and regulations thereunder. In particular, OCC believes that the proposed fee change is also consistent with Section 17A(b)(3)(D) of the Act, 18 which requires that the rules of a clearing agency provide for the equitable allocation of reasonable dues, fees, and other charges among its participants. OCC believes that the proposed fee change is reasonable because it is designed to replenish OCC's LNAFBE as a component of OCC's plan to replenish its capital in the event that OCC's LNAFBE falls close to or below its Target Capital Requirement so that OCC can continue to meet its obligations as a systemically important financial market utility ("SIFMU") to Clearing Members and the general public should operational losses materialize (including through a recovery or orderly wind-down of critical operations and services) and thereby facilitate compliance with Rule 17Ad-22(e)(15)(iii). 19 The maximum Operational Loss Fee is sized to ensure that OCC maintains sufficient liquid net assets to support its RWD Plan and imposes a contingent obligation on Clearing Members that is similar to a Clearing Member's contingent obligation for Clearing Fund assessments for a Clearing Member operating at the minimum Clearing Fund deposit. 20 OCC thus believes the proposed maximum Operational Loss Fee sized to OCC's Adjusted RWD Amount is reasonable.
Footnotes:
17 ?15 U.S.C. 78a et seq.
18 ?15 U.S.C. 78q-1(b)(3)(D).
19 ?17 CFR 240.17Ad-22(e)(15)(iii).
20 ?A Clearing Member operating at the minimum Clearing Fund deposit ($500,000) could be assessed up to an additional $1 million (the minimum deposit, assessed up to two times), for a total contingent obligation of $1.5 million. See OCC Rule 1006(h).
[top] OCC also believes that the proposed Operational Loss Fee would result in an equitable allocation of fees among its participants because it would be equally applicable to all Clearing Members. As the Commission has recognized, OCC's designation as a SIFMU and its role as the sole covered clearing agency for all listed options contracts in the U.S. makes it an integral part of the national system for clearance and settlement, through which "Clearing Members, their customers, investors, and the markets as a whole derive significant benefit . . . regardless of their specific utilization of that system."? 21 Neither the SEC nor OCC is aware of a positive correlation
Footnotes:
21 ? See Order Approving OCC's Capital Management Policy, 85 FR at 5506.
22 ? Id. ("The Commission is not aware of evidence demonstrating that those benefits are tied directly or positively correlated to an individual Clearing Member's rate of utilization of OCC's clearance and settlement services.")
23 ? Id. (rejecting an objection to the equal allocation of the proposed Operational Loss Fee based on the SEC's regulatory experience and OCC's analyses of Clearing Member utilization ( e.g., contract volume) or credit risk ( e.g., Clearing Fund size) and the various operational and general business risks that could trigger an Operational Loss Fee). To date, OCC has observed no correlation between Clearing Member utilization or credit risk and OCC's potential risk of operational loss. See Confidential Exhibit 3 [sic], demonstrating that operational risks may arise from a variety of sources that are represented in different ways.
24 ?15 U.S.C. 78q-1(b)(3)(D).
In addition, OCC believes that the proposed rule change is consistent with Rule 17Ad-22(e)(15)(iii), which requires that OCC establish, implement, maintain and enforce written policies and procedures reasonably designed to identify, monitor, and manage OCC's general business risk, including by maintaining a viable plan, approved by the Board and updated at least annually, for raising additional equity should its equity fall close to or below the amount required under Rule 17Ad-22(e)(15)(ii). 25 While Rule 17Ad-22(e)(15)(iii) does not by its terms specify the amount of additional equity a clearing agency's plan for replenishment capital must be designed to raise, the Commission's adopting release states that "a viable plan generally should enable the covered clearing agency to hold sufficient liquid net assets to achieve recovery or orderly wind-down."? 26 OCC sets the maximum Operational Loss Fee at an amount sufficient to raise, on a post-tax basis, the amount determined annually by the Board to be sufficient to ensure recovery or orderly wind-down pursuant to the RWD Plan. 27 Therefore, OCC believes the proposed change to the Operational Loss Fee in OCC's schedule of fees is consistent with Rule 17Ad-22(e)(15)(iii) and the guidance provided by the SEC in the adopting release.
Footnotes:
25 ?17 CFR 240.17Ad-22(e)(15)(iii).
26 ?Standards for Covered Clearing Agencies, Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR 70786, 70836 (Oct. 13, 2016) (File No. S7-03-14).
27 ? See Order Approving OCC's Capital Management Policy, 85 FR at 5510 ("The Operational Loss Fee would be sized to the Adjusted RWD Amount, and therefore would be designed to provide OCC with at least enough capital either to continue as a going concern or to wind-down in an orderly fashion.").
OCC also believes that the proposed fee change is consistent with Section 19(g)(1) of the Act, 28 which, among other things, requires every self-regulatory organization to comply with its own rules. OCC filed its Capital Management Policy as a "proposed rule change" within the meaning of Section 19(b) of the Act, 29 and Rule 19b-4 under the Act. 30 The Capital Management Policy specifies that the maximum Operational Loss Fee shall be the Adjusted RWD Amount. 31 Because the Adjusted RWD Amount will change annually based, in part, on OCC's corporate budget, fee filings are necessary to ensure that the maximum Operational Loss Fee in OCC's schedule of fees remains consistent with the amount identified in the Capital Management Policy. In addition, the amounts associated with the thresholds at which OCC would charge the Operational Loss Fee and the limit to the amount that would change in accordance with the Capital Management Policy are determined based upon the level at which the Board sets OCC's Target Capital Requirement. Consequently, OCC seeks to amend the amounts identified in the schedule of fees to reflect OCC's current Target Capital Requirement.
Footnotes:
28 ?15 U.S.C. 78s(g)(1).
29 ?15 U.S.C. 78s(b).
30 ?17 CFR 240.19b-4.
31 ?Order Approving OCC's Capital Management Policy, 85 FR at 5503.
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act? 32 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. OCC does not believe that the proposed rule change would have any impact or impose a burden on competition. Although the proposed Operational Loss Fee affects Clearing Members, their customers, and the markets that OCC serves, OCC believes that the proposed increase in the Operational Loss Fee would not disadvantage or favor any particular user of OCC's services in relationship to another user because the proposed Operational Loss Fee would apply equally to all Clearing Members. In addition, OCC does not believe that the proposed Operational Loss Fee imposes a significant burden on smaller firms because the maximum Operational Loss Fee imposes a contingent obligation on Clearing Members that is similar to a Clearing Member's contingent obligation for Clearing Fund assessments for a Clearing Member operating at the minimum Clearing Fund deposit. 33 Accordingly, OCC does not believe that the proposed rule change would have any impact or impose a burden on competition.
Footnotes:
32 ?15 U.S.C. 78q-1(b)(3)(I).
33 ? See supra note 22.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received.
II. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act? 34 and paragraph (f)(2) of Rule 19b-4? 35 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. 36
Footnotes:
34 ?15 U.S.C. 78s(b)(3)(A).
35 ?17 CFR 240.19b-4(f)(2).
36 ?Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Regulation 40.6.
III. 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 ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include file number SR-OCC-2025-004 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[top] All submissions should refer to file number SR-OCC-2025-004. This file
All submissions should refer to File Number SR-OCC-2025-004 and should be submitted on or before April 29, 2025.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 37
Footnotes:
37 ?17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05962 Filed 4-7-25; 8:45 am]
BILLING CODE 8011-01-P