[Federal Register Volume 79, Number 14 (Wednesday, January 22, 2014)]
[Notices]
[Pages 3653-3655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71311; File No. SR-OCC-2014-01]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Concerning Amendments to the
Charters for the Membership/Risk Committee, Audit Committee and
Performance Committee of OCC's Board of Directors
January 15, 2014.
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 January 2, 2014, The Options Clearing Corporation (``OCC'') 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
This proposed rule change concerns amendments to the Charters for
the Membership/Risk Committee (``MRC Charter''), Audit Committee (``AC
Charter'') and Performance Committee (``PC Charter'') (collectively,
the ``Committee Charters'') of OCC's Board of Directors (``Board'').
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
On an annual basis, each Committee is required to review its
charter and recommend changes, if any, to the Board for approval. This
proposed rule change concerns proposed amendments to the MRC Charter,
AC Charter and PC Charter and is a result of that review and approval
process.\3\ All of the proposed amendments have been approved by the
Board.
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\3\ At its meeting on May 21, 2013, OCC's Board authorized
formation of a Governance Committee (``GC'') and approved the GC
Charter at its September 24, 2013, meeting. As set forth in the GC
Charter, the purpose of the GC is to review the overall corporate
governance of OCC and recommend improvements to OCC's Board. Changes
to the GC Charter are not included in this rule filing because the
GC was only recently formed. The GC work is ongoing and the MRC, the
AC and the PC continue to discharge their obligations under their
respective charters. The GC Charter was submitted as an Advance
Notice filing on November 26, 2013. See Securities Exchange Act
Release No. 71083 (December 16, 2013), 78 FR 76181 (December 20,
2013), (SR-OCC-2013-807).
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Common Changes
Each Committee Charter \4\ is proposed to be amended to more
clearly set forth certain uniform administrative functions of the
Membership/Risk Committee (``MRC''), Audit Committee (``AC'') and
Performance Committee (``PC'') (collectively, ``Committees''). Such
functions include: (1) Each Committee Chair is responsible for ensuring
that important issues discussed at Committee meetings are timely
reported to the Board, (2) each Committee Chair is allowed to determine
if minutes of executive sessions will be maintained, (3) each Committee
will annually confirm that all responsibilities outlined in its charter
have been carried out, and (4) the Committees' and individual members'
performance shall be evaluated on a regular basis and that the results
of such assessment are provide [sic] to the Governance Committee
(``GC'') for review.
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\4\ The current versions of the Committee Charters were approved
on December 6, 2013. See Securities Exchange Act Release No. 71022
(December 6, 2013), 78 FR 75659 (December 12, 2013), (SR-OCC-2013-
17).
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OCC also proposes to amend the MRC Charter, AC Charter and PC
Charter to better reflect certain specific functions of MRC, AC and PC,
respectively. Such proposed amendments are discussed in greater detail
below.
Membership/Risk Committee
The MRC assists the Board in overseeing OCC's policies and
processes for identifying and addressing strategic, operational and
financial risks. The MRC has had longstanding authority to review OCC's
risk management functions and practices, and consistent with that
authority, OCC is proposing to amend the MRC Charter to more clearly
provide for the MRC's oversight over the activities of the Chief Risk
Officer (``CRO''). Specifically, the proposed amendments to the MRC
Charter will expressly provide that: (1) The MRC will meet at least
annually with the CRO in executive session, (2) the MRC has the
authority to approve management's decision to appoint or replace the
CRO, (3) the MRC will assess the performance of the CRO and OCC's
Enterprise Risk Management (``ERM'') Department as well as oversee the
structure, staffing and resources of the ERM Department, and (4) the
MRC shall approve the CRO's salary, the MRC Chair will participate in
the PC meeting in which compensation for senior management is
determined and the MRC Chair has delegated authority to modify the
CRO's prior approved salary based on the discussions at such PC
meeting.
In addition, OCC proposes to amend the MRC Charter to expressly
state that the MRC has authority to review and recommend the OCC Risk
Appetite Statement \5\ to the Board for approval, and to review and
monitor OCC's risk profile for consistency with such statement.
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\5\ OCC's Risk Appetite Statement is a key component of its
enterprise risk management program. The Risk Appetite Statement
assists OCC management and its Board to more effectively communicate
and monitor OCC's tolerance for risk taking. The Risk Appetite
Statement sets the standards on which all of OCC's risk
identification, measurement, monitoring, and testing are based.
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Audit Committee
The AC assists the Board in overseeing OCC's financial reporting
process, OCC's system of internal control and OCC's auditing,
accounting and compliance processes. The AC has had longstanding
authority to review OCC's independent accountant and, consistent with
that authority, OCC proposes to amend the AC Charter to more clearly
describe such authority. Specifically, OCC proposes to amend the AC
Charter to expressly provide that the AC has the authority to pre-
approve the appointment and dismissal of OCC's independent accountant
as well as assess OCC's independent accountant's qualifications,
performance and independence. These proposed changes align with best
practices and reflect the AC's oversight of the external auditor to
better assure independence in connection with the performance of the
external auditors' function and services. In addition, OCC proposes to
amend the AC Charter to reflect the AC's oversight role in the
structure, staffing and resources of OCC's Internal Audit Department,
to recognize that OCC's Internal Audit Department will utilize co-
sourced resources \6\ and that OCC's
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Chief Audit Executive (``CAE'') will recommend to the AC a co-sourced
resource hour budget. The CAE is the head of OCC's Internal Audit
Department and reports to OCC's Chairman and to the AC Chair. The CAE
is a new title provided to the current senior staff person in OCC's
Internal Audit Department.
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\6\ Co-sourced resources are consultants hired on a temporary
basis to assist with a particular project when OCC's Internal Audit
Department staff is otherwise fully engaged and requires additional
resources or skill sets to complete a project on a timely basis.
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If the budget is approved, it is proposed that the CAE will be
delegated authority to (1) hire internal audit co-sourced service
providers to augment OCC's Internal Audit Department, as necessary, or
for any other practical purpose, (2) review the performance of the
internal audit co-sourcing service providers, and exercise final
approval on the appointment, retention and discharge of such service
providers, and (3) approve the scope of services to be performed by
internal audit co-sourcing service providers. OCC proposes that the AC
will oversee any co-sourcing activity while delegating the
administrative aspects of the arrangement to the CAE in order to
efficiently manage the process while not overburdening the AC.
Moreover, OCC proposes to amend the AC Charter to provide that the
AC shall approve the CAE's salary, to require the AC Chair to
participate in the PC meeting in which compensation for senior
management is determined and to delegate authority to the AC Chair to
modify the CAE's prior approved salary based on the discussion at such
PC meeting.
Performance Committee
The PC assists the Board in (i) overseeing the overall performance
of OCC in promptly and accurately delivering, clearance, settlement and
other designated industry services, and the accomplishment of other
periodically established corporate goals and objectives in light of
OCC's role as a systemically important financial market utility; (ii)
recommending the compensation of the Chairman, the Management Vice
Chairman, and President to the Board and approving the compensation of
certain other officers, and (iii) reviewing and approving the structure
and design of employee compensation, incentive and benefit programs. In
connection therewith, OCC proposes to amend the PC Charter to provide
that (1) the PC Chair will meet at least annually in private sessions
with the GC Chair to discuss the performance of key officers, and (2)
the PC will meet annually to discuss compensation levels of key
officers and that the Chairs of the AC and MRC will be invited to
attend such meeting with respect to the compensations levels of the CAE
and CRO, respectively.
(2) Statutory Basis
OCC believes that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \7\ and the rules and regulations
thereunder because the proposed amendments to the Committee Charters
clarify the roles of the Committees and will help ensure that OCC's
governance structure is designed to protect investors and the public
interest. By adopting certain proposed clarifying amendments to the MRC
Charter, AC Charter and PC Charter that specify the duties and
operations of such Committees, OCC will further ensure, as required
under Rule 17Ad-22(d)(8), a clear and transparent governance structure
that will fulfill the public interests requirements in Section 17A of
the Act, support the objectives of OCC's owners and participants, and
promote the effectiveness of OCC's risk management procedures.\8\ The
proposed rule change is not inconsistent with the existing rules of
OCC, including any other rules proposed to be amended.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 17 CFR 240.17Ad-22(d)(8).
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(B) Clearing Agency's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.\9\ This proposed rule change
will help ensure that OCC meets regulatory requirements that it has a
clear and transparent governance structure, as well as clarify the
duties and operation of the Committees, through the amendment of the
Committee Charters. To the extent OCC's clearing members are affected
by the proposed rule change, OCC believes that, by clarifying the terms
of the Committee Charters, OCC will not disadvantage or favor any
particular user in relationship to another user because all of its
participants will equally have greater certainty and visibility
concerning OCC's governance arrangements and that such clarification
will facilitate the prompt and accurate settlement of securities
transactions. Accordingly, OCC does not believe that the proposed rule
will impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
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\9\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-OCC-2014-01 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-2014-01. 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
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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 20549-1090 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of OCC and on OCC's Web site: http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_01.pdf
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-2014-01
and should be submitted on or before February 12, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01107 Filed 1-21-14; 8:45 am]
BILLING CODE 8011-01-P