[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Notices]
[Pages 75659-75660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29621]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71022; File No. SR-OCC-2013-17]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change Concerning Charters for the Board
of Directors, the Membership/Risk Committee, the Audit Committee and
the Performance Committee
December 6, 2013.
I. Introduction
On October 17, 2013, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-OCC-2013-17 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on October 30, 2013.\3\ The Commission received no
comments concerning the proposed rule change. For the reasons set forth
below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 70753 (October 24,
2013), 78 FR 65027 (October 30, 2013) (SR-OCC-2013-17).
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II. Description
The proposed rule change concerns the charter of OCC's Board of
Directors (``Board''), as well as the charters of the Board's
Membership/Risk Committee (``MRC''), Audit Committee (``AC''), and
Performance Committee (``PC'') (collectively, ``Committee
Charters'').\4\
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\4\ OCC's Board adopted its charter on March 7, 2013. Although
OCC has had charters for its MRC, AC, and PC in place for a number
of years, it has not previously submitted those as proposed rule
changes pursuant to Section 19(b) of the Act.
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Board of Directors Charter
The Board's new charter (``Board Charter'') does not impose any new
responsibilities on the Board, but rather reflects the existing powers
and duties of the Board under OCC's By-Laws and Rules, as well as the
underlying practices that have been developed to aid the Board in
meeting its obligations. According to OCC, the Board adopted a charter
in an effort to provide outside parties with greater transparency into
the Board's oversight activities, to promote accountability, and to
align OCC with current best practices in corporate governance.
The Board Charter addresses the organization, composition,
authority, functions, and responsibilities of the Board. With respect
to membership, the Board Charter sets forth the size and composition of
the Board, the qualifications for Board membership, and the term,
tenure, and age limits applicable to each category of Board member. The
Board Charter also addresses Board meetings, specifying that the Board
will meet at least five times annually, that the Chairman of the Board
will establish the agenda for each meeting in consultation with the
President and Secretary, and that individual Directors must prepare for
and attend each Board meeting. Additionally, the Board Charter
incorporates many provisions of OCC's existing By-Laws, including those
governing the election, resignation, and disqualification of
Directors,\5\ the establishment of Board committees and subcommittees,
and the existence of a quorum.
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\5\ The Board Charter currently reflects that the Board has one
Management Director, who is both the Chairman of the Board and Chief
Executive Officer of OCC. OCC intends to split the office of the
Chairman into two offices, Executive Chairman and President, both of
whom will be elected as Management Directors. See Securities
Exchange Act Release No. 70076 (July 30, 2013), 78 FR 47449 (August
5, 2013) (SR-OCC-2013-09).
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The Board Charter also defines the scope of the Board's authority,
providing, among other things, that the Board may make any inquiries it
deems appropriate in executing its duties, and that the Board may
confer with OCC management or employees as needed.\6\ The Board Charter
reiterates the Board's authority under the By-Laws to elect certain
corporate officers annually, to form such committees and subcommittees
as it deems appropriate, and to delegate authority to committee
members.
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\6\ The Chairman is permitted to ask OCC management or others to
attend meetings and provide pertinent information. The Board may
also hire specialists or rely on outside advisors or specialists.
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The Board Charter describes the Board's cardinal duty as overseeing
OCC to ensure that it is managed and operates in a manner that is
consistent with OCC's regulatory responsibilities. The Board is also
tasked with
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stewarding OCC to ensure it has the ability to achieve its objectives
in a safe, sound, and prudential manner. The Board Charter reiterates
many of the Board's responsibilities under OCC's By-Laws, including the
obligations to determine disqualifications from Board service, to fill
vacancies, to conduct hearings in connection with a denial or
suspension of membership, and to suspend clearing members when
appropriate. The Board Charter also lists additional Board
responsibilities that do not appear in the By-Laws.\7\
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\7\ These additional responsibilities include the following: (i)
To oversee OCC's governance processes; (ii) to approve and oversee
OCC's business strategies; (iii) to monitor OCC's performance in
delivering clearance and settlement services; (iv) to oversee OCC's
processes and framework for assessing, managing, and monitoring
strategic, financial, and operational risk; (v) to oversee OCC's
financial reporting, auditing, accounting, and compliance processes;
(vi) to oversee OCC's system of internal controls; (vii) to foster
processes designed to ensure that OCC complies with applicable laws
and regulations, and that OCC operates in an ethical manner; (viii)
to oversee OCC's major capital expenditures and approve the annual
budget and corporate plan; (ix) to oversee the development and
design of employee compensation, incentive, and benefit programs;
(x) to evaluate senior management performance regularly and approve
the compensation of the Chairman and President; and (xi) to assure
management succession.
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The Board Charter also sets forth the duties and responsibilities
of individual Directors, including the duty to act in good faith in the
best interests of OCC, as well as with due regard for the fiduciary
responsibilities owed to OCC as a systemically important financial
market utility.\8\ Directors are also required to comply with the
provisions of the Code of Conduct for OCC Directors, including the
provisions relating to conflicts of interest and confidentiality.
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\8\ On July 18, 2012, the Financial Stability Oversight Council
(``FSOC'') designated OCC as a systemically important financial
market utility under Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act. Financial Stability Oversight Council,
2012 Annual Report, Appendix A, p.145, available at http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
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Committee Charters
OCC has long maintained Charters for the MRC, AC, and PC (each, a
``Committee,'' and collectively, the ``Committees''). These Committee
Charters describe the purpose of each Committee as assisting the Board
in fulfilling certain of its oversight responsibilities. The Committee
Charters further specify the policies and procedures governing the
membership,\9\ organization, scope of authority, functions, and
responsibilities of each Committee.
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\9\ Each Committee Charter requires the inclusion of at least
one Public Director and empowers the Board to remove or replace any
Committee member at any time.
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With respect to meetings, each Committee Charter establishes the
Committee's meeting schedule, quorum rules, minute-keeping, and
reporting requirements. Each Committee Charter further provides that
the meeting agenda is established by the Committee's chairman, or his
or her designee, in consultation with the Secretary and OCC's
management. A majority of the Committee members constitutes a quorum,
and if the chairman is not present at a meeting, the members who are
present must designate one of their number to serve as acting chairman.
All Committees are permitted to call executive sessions from which
guests of such Committee may be excluded, and Committee members are
permitted to participate in all meetings by teleconference or similar
means.\10\
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\10\ Meeting minutes must be kept and shared with the Board.
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Each Committee's charter describes the scope of its authority,
which includes the power to act, subject to the Board's direction, with
respect to any matter necessary or appropriate to accomplish the
purpose and responsibilities set forth in the Committee's Charter, as
well as the power to delegate this authority to any subcommittee that
the Committee may form. Each Committee is also authorized to make
inquiries into any matter related to its respective purpose and
responsibilities,\11\ and to confer with OCC's management and other
employees as it deems appropriate. Additionally, the chair of each
Committee is authorized to act on behalf of his or her Committee in the
event immediate action is required and it is impractical to convene
such Committee.\12\
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\11\ The Committee Charters further permit each Committee to
hire specialists or rely on outside advisors or specialists to
assist in carrying out the Committee's activities, and further
confirm the Committees' authority to approve any related terms of
retention and fees. The MRC and PC's authority under these
provisions, however, is subject to Board approval.
\12\ In such instances, the committee chair must, as soon as
practicable, seek ratification from the full committee for any
actions the chair has taken unilaterally.
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Each Committee Charter sets forth a detailed list of the
Committee's respective functions and responsibilities, and also
requires each Committee to review its charter annually and to submit
any revised charters to OCC's Board for reapproval.
III. Discussion
Section 19(b)(2)(C) of the Act \13\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to such
organization. Section 17A(b)(3)(F) of the Act \14\ requires that the
rules of a registered clearing agency be designed to, among other
things, promote the prompt and accurate clearance and settlement of
securities transactions, as well as protect investors and the public
interest. The Commission finds that the proposed rule change is
consistent with the Act's requirements because the new and revised
Board charters will clarify the responsibilities and operations of
OCC's Board and its committees. This clarity will help ensure that OCC
maintains a robust and transparent governance structure that should
promote the prompt and accurate clearance and settlement of securities
transactions, and should further safeguard investors and the public
interest.
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\13\ 15 U.S.C. 78s(b)(2)(C).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, particularly
the requirements of Section 17A of the Act \15\ and the rules and
regulations thereunder applicable to OCC.
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\15\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that proposed rule change SR-OCC-2013-17 be and hereby is
approved.\17\
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\16\ 15 U.S.C. 78s(b)(2).
\17\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-29621 Filed 12-11-13; 8:45 am]
BILLING CODE 8011-01-P