[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Notices]
[Pages 54707-54710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21537]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70289; File No. SR-OCC-2013-10]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Amend Its Policy Statement
Adopted Under Rule 205 Entitled ``Back-up Communication Channel to
Internet Access''
August 29, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 23, 2013, The Options Clearing Corporation (``OCC'' or
``Corporation'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared 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
OCC proposes to make certain changes to its Policy Statement
adopted under Rule 205 entitled ``Back-up Communication Channel to
Internet Access'' requiring clearing members that use the Internet as
their primary means to access OCC's information and data systems to
maintain a secure back-up means of communication in order to provide
for business continuance in the event of an Internet outage.
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 such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
OCC Rule 205 prescribes that OCC clearing members are required to
submit instructions, notices, reports, data and
[[Page 54708]]
other items to the Corporation electronically in accordance with
procedures prescribed by the Corporation. The Rule is designed to
promote operational efficiency and effectiveness and reduce input
errors. Position-related post-trade (e.g., exercise notices, position
adjustments) and collateral transactions are common examples of
instructions submitted by clearing members electronically.
OCC supports the submission of these instructions through use of an
Internet connection to OCC's secured Web site. In 2006, OCC adopted a
Policy Statement under Rule 205 requiring clearing members that
primarily use the Internet to access OCC's systems to maintain a secure
back-up means of communication as a contingency to perform on a timely
basis critical business activities in the event of an Internet outage,
as well as to maintain service arrangements with two independent
internet service providers.\3\
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\3\ Securities Exchange Act Release No. 53980 (June 14, 2006),
71 FR 36155 (June 23, 2006)(SR-OCC-2006-04).
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The Policy Statement adopted at the time required clearing members
to maintain: (i) Separate service agreements with two (2) independent
service providers, and (ii) an OCC-approved method for accessing OCC's
information and data systems even in the case of an Internet outage
(the ``Back-Up Communication Channel'').
Guidelines were established so that the Back-Up Communication
Channel authorized for a particular clearing member was determined in
accordance with the firm's business profile using certain criteria. For
example, a clearing member that: (i) ranked among the top twenty-five
of cleared volume during a calendar year; (ii) cleared more than one
account type as defined in OCC's By-Laws and Rules; (iii) cleared two
or more product types; (iv) conducted Clearing Member Trade Assignment
(``CMTA'') business; (v) input a high volume of daily post-trade
activity; (vi) generally utilized multiple forms of collateral; (vii)
utilized most ancillary services offered by OCC; (viii) used a lease
line for data transmissions, would generally be designated as a
``Category A'' firm. ``Category A'' firms were required to maintain a
T1 line as an acceptable form of back-up communication channel.
A clearing member that: (i) Transacted mid-level cleared volume
during a calendar year; (ii) cleared only one or more account types as
defined in OCC's By-Laws and Rules; (iii) cleared one or more product
types; (iv) input a moderate to small volume of post-trade activity;
(v) generally utilized one or two forms of collateral; (vi) may have
utilized a lease line for data transmissions, were generally designated
as a ``Category B'' firm. Under the Policy Statement, ``Category B''
firms were provided the option to either maintain a T1 line or ISDN
connection as acceptable forms of a back-up communication channel.
A clearing member that: (i) Transacted low-level cleared volume
during a calendar year; (ii) cleared no more than one account type as
defined in OCC's By-Laws and Rules; (iii) cleared no more than one
product type; (iv) generally utilized one or two forms of collateral;
(v) input minimal amounts of post-trade activity, would generally be
designated as a ``Category C'' firm. ``Category C'' firms were given
the option to maintain an ISDN connection, utilize OCC equipment if the
clearing member was located in or near a city where OCC maintains
operational center(s), or rely upon fax transmission in the event an
internet connection was not available.
Recent denial of service attacks on financial institutions, along
with changes in technology since the Policy Statement was first
adopted, have prompted OCC to reassess the risk to operations should
Internet connections supporting clearing member access to OCC's
information and data systems be interrupted. Through this assessment,
OCC has determined that its existing policy should be modified to
ensure it is easily understood and properly implemented by the clearing
membership.
OCC is now proposing to make updates to the Policy Statement
intended to simplify the criteria applied to a given firm in
determining the appropriate Back-Up Communication Channel. Instead of
having three categories of Business Profiles that include several
criteria to be applied, and offering multiple communication options
available to a particular firm, the updated Policy Statement will
contain two profiles. Clearing Members that rank in the top-25 of
cleared volume during a calendar year or act as a facilities manager to
one or more Clearing firms will be designated as a ``Category A'' firm,
and will be required to maintain a T1 line as its Back-Up Communication
Channel. All other firms will be designated as ``Category B'' firms,
and will be required to maintain a T1 line or utilize a fax line,
telephone or have ready access to an OCC office location.
OCC believes the proposed changes will present minimal to no impact
to clearing members. In particular, all firms that were previously
designated as ``Category A'' firms under the former policy will
continue to be designated as ``Category A'' firms under the revised
policy being proposed, and they will still be required to maintain a T1
line, as previously required. Those firms that will be designated as
Category B firms under the proposed policy will now have increased
flexibility under the back-up options being made available to them, in
that they can select between a T1 Line, fax, telephone, or use an OCC
office if they are located in a city where OCC maintains an operational
center. In preparation for the revisions to the Policy Statement, OCC
has acquired new fax servers that have increased bandwidth to support
multiple users that may select facsimile transmission as their
available back-up communication method. Meanwhile, the telephone
features used by OCC's Member Service staff are equipped so that calls
are automatically routed to an available representative in the event a
firm's designated contact is unavailable. Finally, OCC has confirmed
that: (i) The number of Category B firms who are located in a city
where OCC maintains an office; and (ii) do not currently maintain a T1
line, is sufficiently small enough so that OCC will be able to
accommodate those firms who may need to utilize OCC's equipment in the
event of an internet outage.
OCC also proposes to clarify the Policy Statement by expressly
adding a requirement for each clearing member to provide OCC with an
annual statement that the Clearing Member: (i) Has been and continues
to be in compliance with the Policy Statement; (ii) has successfully
tested its ability to access OCC's information and data systems using
its Back-Up Communication Channel since the last reporting period; and
(iii) will notify OCC within a reasonable period of any changes to
their Internet Service Providers since the date of the last notice
provided to OCC. While OCC believes that the existing policy reasonably
and fairly implies that clearing members would not only remain in
compliance with its requirements, but that clearing members would
perform periodic testing of its Back-Up Communication Channel, we
believe that the proposed modifications eliminate any ambiguity that
may exist and help ensure that OCC has sufficient information to
troubleshoot in case of an Internet outage, thereby helping to ensure
that critical business activities can still be performed in a timely
manner in such instances.
(2) Statutory Basis
The proposed changes to OCC's Rules are consistent with the
purposes and
[[Page 54709]]
requirements of Section 17A(b)(3)(F) of the Securities Exchange Act of
1934 (``Act'') \4\ and the rules and regulations thereunder because
they are designed to promote the prompt and accurate clearance and
settlement of securities transactions by simplifying the criteria used
to determine the authorized Back-Up Communication Channel(s) that may
be used by a given clearing member in the event the Internet is not
available, and reducing the administrative oversight associated with
making such determinations. The updates to OCC's Policy Statement
further clarify the means by which clearing members are required to
notify OCC of the Back-Up Communication Channel(s) adopted by each
clearing member, along with the internet service providers being used,
and confirmation that each clearing member has successfully tested its
ability to access OCC's systems, thereby helping to ensure that
critical business activities can still be performed in a timely manner
even in the event of an Internet outage. The proposed rule change is
not inconsistent with the existing rules of OCC, including any rules
proposed to be amended.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition
OCC believes that the proposed rule change will impose little to no
burden on competition and in no way impose any burden on competition
not necessary or appropriate in furtherance of the purposes of the Act.
While the updates to the Policy Statement now expressly provide for
clearing members to: (i) Notify OCC of the Back-Up Communication
Channel(s) adopted by each clearing member; (ii) provide OCC with the
names of its internet service providers, and (iii) confirm for OCC that
it has successfully tested its ability to access OCC's systems, OCC
believes that each of these measures impose little to no burden on
competition, individually or collectively, and any such burden imposed
will facilitate the prompt and accurate clearance and settlement of
securities transactions at all times.
In particular, Clearing Members are already required to maintain a
secure back-up means of communication under OCC's existing Policy
Statement, as well as, maintain service arrangements with two
independent internet service providers. Clearing Members are also
already required under OCC Rule 215 to provide information as OCC may
from time to time require. As such, OCC believes that requiring
Clearing Members to provide OCC with information they are already
required to maintain imposes little to no additional burden on
competition.
In addition, while the updated Policy Statement now expressly
requires Clearing Members to confirm that it has successfully tested
its ability to access OCC's systems, OCC also believes that such
requirement imposes little to no additional burden on competition and
is consistent with existing regulatory requirements pertaining to
business continuity planning and disaster recovery. First, OCC believes
that the testing requirement itself was already implied in the existing
Policy Statement to ensure the Back-Up Communication Channel was
effective and operational, so the only additional requirement being
imposed is an obligation to notify OCC. Again, given Clearing Members'
existing obligation to provide information that OCC may request, OCC
believes such requirement imposes little to no additional burden on
competition. Second, to the extent a particular Clearing Member may not
have understood the existing Policy Statement to include an obligation
to test its Back-Up Communication Channel, then OCC believes the Policy
Statement clarifies the obligations applicable to all Clearing Members
and is consistent with existing regulatory requirements pertaining to
business continuity planning and disaster recovery applicable to
Clearing Members.
Collectively, the updates to the Policy Statement are consistent
with requirements of the Act applicable to clearing agencies and are
designed to promote the prompt and accurate clearance and settlement of
securities transactions at all times. The updates ensure that OCC has
sufficient information to troubleshoot in case of an Internet outage,
and clarifies Clearing Members' obligations to confirm their ability to
successfully access OCC's information and data systems using their
Back-Up Communication Channel in the event of an Internet outage.
Accordingly, OCC believes that that [sic] updates will impose little to
no burden on competition and in no way impose a burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
(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.
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.
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 for (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-OCC-2013-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2013-10. 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 Web site (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 Web site 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 the
[[Page 54710]]
filing also will be available for inspection and copying at the
principal office of OCC and on OCC's Web site at http://www.theocc.com/about/publications/bylaws.jsp. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-OCC-2013-10 and should be submitted on or before
September 26, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\5\
Kevin M. O'Neill,
Deputy Secretary.
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\5\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-21537 Filed 9-4-13; 8:45 am]
BILLING CODE 8011-01-P