[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9512-9515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03574]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71549; File No. SR-OCC-2014-801]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice of and No Objection to an Amendment
to The Options Clearing Corporation's Unsecured, Committed Credit
Agreement
February 12, 2014.
Notice is hereby given that, on January 14, 2014, The Options
Clearing Corporation (``OCC'') filed an advance notice with the
Securities and Exchange Commission (``Commission'') pursuant to Section
806(e)(1)(A) of Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, entitled the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule
19b-4(n)(1)(i) of the Securities Exchange Act of 1934 (``Exchange
Act'').\2\ The advance notice is described in Items I, II, and III
below, which Items have been prepared by OCC. The Commission is
publishing this notice to solicit comments from interested persons, to
issue a non-objection to the changes set forth in the advance notice,
and to authorize OCC to implement those changes earlier than 60 days
after the filing of the advance notice.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5465(e)(1)(A). The Financial Stability Oversight
Council designated OCC a systemically important financial market
utility on July 18, 2012. See Financial Stability Oversight Council
2012 Annual Report, Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is
required to comply with Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
\2\ 17 CFR 240.19b-4(n)(1)(i).
---------------------------------------------------------------------------
[[Page 9513]]
I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
This advance notice concerns a proposed change to OCC's operations
(the ``Change'') in the form of an amendment to its unsecured,
committed credit agreement (the ``Existing Agreement'' or the
``Existing Facility'').
The Commission previously published a notice of no objection to
OCC's advance notice filing through which OCC entered into the Existing
Facility.\3\ The Existing Facility currently provides OCC with access
to additional liquidity for working capital needs and general corporate
purposes. The Existing Facility also helps OCC satisfy the liquidity
requirement of the Commodity Futures Trading Commission's (``CFTC'')
regulation Section 39.11(e)(2). The Existing Facility is scheduled to
terminate on February 21, 2014. The Change would extend the termination
date of the Existing Facility for 364 days after the renewal date,
increase the commitment amount of the Existing Facility from $25
million to $35 million, and make minor, non-material, changes to the
terms of the Existing Facility requested by the lender (the ``Extended
Agreement'' or the ``Extended Facility'').
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 34-68935 (February 13,
2013), 78 FR 12121 (February 21, 2013), (SR-OCC-2012-801).
---------------------------------------------------------------------------
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 of the Purpose of, and Statutory Basis
for, the Advance Notice
Description of Change
The Change would provide OCC with continued access to an unsecured,
committed credit facility in an aggregate principal amount of $35
million until early 2015. The Extended Facility is designed to provide
OCC with access to additional liquidity for working capital needs and
general corporate purposes. The Extended Facility would also satisfy
the liquidity requirement of CFTC regulation Section 39.11(e)(2).
OCC's principal reason for entering into the Extended Facility is
to provide OCC additional flexibility in managing its liquid assets
while ensuring continued compliance with the liquidity requirements of
the CFTC regulation cited above. Among other things, CFTC regulation
Section 39.11(a)(2) requires a derivatives clearing organization
(``DCO'') to hold an amount of financial resources that, at a minimum,
exceeds the total amount that would enable the DCO to cover its
operating costs for a period of at least one year, calculated on a
rolling basis.\4\ In addition, CFTC regulation Section 39.11(e)(2)
provides that these financial resources must include unencumbered,
liquid financial assets (i.e., cash and/or highly liquid securities),
equal to at least six months' operating costs and that if any portion
of such financial resources is not sufficiently liquid, the DCO may
rely on a committed line of credit or similar facility.\5\ Accordingly,
OCC entered into the Existing Facility with BMO Harris Bank N.A.
(``Lender'') having a maximum aggregate principal loan amount not to
exceed $25 million. OCC now proposes to enter into an amendment to the
Existing Facility to increase the maximum aggregate principal loan
amount to $35 million, extend the termination date to February 20,
2015, and make other non-material changes requested by the Lender.
Attached to this filing as Exhibit 3B is a marked Summary of Terms and
Conditions that are applicable to the Extended Facility.\6\ The marked
Summary of Terms and Conditions show the changes from the Summary of
Terms and Conditions applicable to the Existing Facility.\7\
---------------------------------------------------------------------------
\4\ 17 CFR 39.11(a)(2).
\5\ 17 CFR 39.11(e)(2).
\6\ As OCC has requested confidential treatment of Exhibit 3B
pursuant to 17 CFR 240.24b-2, Exhibit 3B will not be attached to the
published version of this notice.
\7\ SR-OCC-2012-801, See Fn. 3 above. Other than as described in
this Section II.A., the differences between the Existing Facility
and the Extended Facility (that appear in the comparison attached to
this filing as Exhibit 3) are non-material. As OCC has requested
confidential treatment of Exhibit 3 pursuant to 17 CFR 240.24b-2,
Exhibit 3 will not be attached to the published version of this
notice.
---------------------------------------------------------------------------
In order to have continued access to the Existing Facility, OCC
must execute an amendment to the Existing Agreement between OCC and the
Lender. Ongoing conditions governing OCC's ability to access the
Extended Facility would be the same as with the Existing Facility and
would include that no default or event of default may exist before or
during an extension of credit by the Lender to OCC through the Extended
Facility and that certain representations of OCC must remain true and
correct. Events of default would include, but not be limited to,
failure to pay any interest, principal, fees or other amounts when due,
default under any covenant or agreement in any loan document,
repudiation or cessation of the effectiveness of any loan document,
materially inaccurate or false representations or warranties, cross
default with other material debt agreements, insolvency, bankruptcy and
unsatisfied judgments.
The Extended Facility would be available to OCC on a revolving
basis for a 364-day term. Upon written or telephonic notice by OCC to
the Lender of a request for funds, the Lender would disburse loaned
funds to OCC in U.S. dollars. The date of any loan would be required to
be a business day and the loans would be unsecured and made and
evidenced by a promissory note provided by OCC. Under the Extended
Facility, any loan proceeds would be required to be used by OCC to
finance its working capital needs or for OCC's general corporate
purposes.
As with the Existing Facility, OCC would have the ability to
terminate the Extended Facility at any time. Termination within the
first six months of the Extended Facility would trigger a termination
fee. After six months from the date of entering the Extended Agreement
with the Lender to establish the terms of the Extended Facility, OCC
would be permitted to cancel the Extended Facility with no termination
fee. Upon five days written notice during the term of the Extended
Facility, OCC would also be permitted to reduce the overall size of the
Extended Facility at any time. Any such reductions would be required to
be made in an initial amount of at least $2.5 million. Thereafter,
reductions would be able to be made by OCC in multiples of $1 million.
In no event, however, would OCC be permitted to reduce the size of the
Extended Facility to an amount that is less than the greater of either
its aggregate principal amount of indebtedness outstanding with respect
to loans from the Extended Facility or $15 million.
The outstanding principal balance of all loans made to OCC through
the Extended Facility will accrue interest equal to a base rate
(generally equal to a Prime Rate, a Federal Funds Rate, or a LIBOR
rate), as in effect from time to time, plus a certain applicable
margin. Regardless of which method applies to a particular portion of
OCC's total outstanding loan balance, in an event of a default, the
calculation of the amount of interest would be subject a 2.00%
[[Page 9514]]
increase above the otherwise applicable rate.
The Extended Facility would involve a variety of customary fees
payable by OCC to the Lender, including but not limited to: (1) A one-
time upfront fee payable at closing to the Lender calculated as a
percentage of the total commitment amount of the Extended Facility; (2)
commitment fees payable quarterly in arrears on the average daily
unused amount of the Extended Facility; (3) reasonable out-of-pocket
costs and expenses of the Lender in connection with the negotiation,
preparation, execution and delivery of the Extended Facility and loan
documentation, and costs and expenses in connection with any default,
event of default or enforcement of the Extended Facility; and (4)
termination fees if OCC elects to terminate the Extended Facility prior
to six months from the date of the credit agreement underlying the
Extended Facility.
Anticipated Effect on and Management of Risk
Overall, the Extended Facility would reduce the risks to OCC, its
clearing members and the options market in general because it would
provide OCC with additional liquidity for working capital needs and
general corporate purposes and thereby assist OCC in satisfying the
CFTC's requirements with respect to liquidity under CFTC regulation
Section 39.11.
Like any lending arrangement, the Extended Facility would involve
risks. One of the primary risks to OCC associated with the Extended
Facility is the risk that the Lender would fail to fund when OCC
requests a loan, because of the Lender's insolvency, operational
deficiencies, or otherwise. Even if OCC were to draw on the Extended
Facility for liquidity purposes, which it does not anticipate, OCC
believes the potential funding risk associated with the Extended
Facility is mitigated in several ways. First, the Lender would be a
national banking association that is subject to oversight by prudential
banking regulators with respect to its safety and soundness and its
ability to meet its lending obligations. Furthermore, the $35 million
maximum size of the Extended Facility would be relatively small when
compared to the total resources available to OCC. Therefore, if the
Extended Facility proved unavailable to OCC for any reason, OCC
believes it readily would be able to access, or arrange for access, to
other sources of liquidity if necessary.
A second risk associated with the Extended Facility is the risk
that OCC would default on its obligation to make timely payment of
principal or interest. Because the Extended Facility would be an
unsecured lending arrangement, OCC would not be at risk in an event of
default of the Lender's potentially liquidating OCC assets that are
used to secure loaned funds. Furthermore, OCC intends to mitigate the
risk of default by never drawing on the Extended Facility.
Accelerated Commission Action Requested
Pursuant to Section 806(e)(1)(I) of Title VIII of the Clearing
Supervision Act, OCC requests that the Commission notify OCC that it
has no objection to the Change no later than February 14, 2014, which
is one week prior to the February 21, 2014 termination date of the
Existing Facility. OCC requests Commission action one week in advance
of the effective date to ensure that there is no period of time that
OCC operates without access to additional liquidity for working capital
needs and general corporate purposes, and to satisfy the liquidity
requirements of CFTC regulation Section 39.11(e)(2).
(B) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants or Others
Written comments on the advance notice were not and are not
intended to be solicited with respect to the advance notice and none
have been received.
III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action
The advance notice may be implemented if the Commission does not
object to the advance notice within 60 days of the later of (i) the
date that the advance notice was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received. OCC shall not implement the advance notice if the Commission
has any objection to the advance notice.
The Commission may extend the period for review by an additional 60
days if the advance notice raises novel or complex issues, subject to
the Commission providing OCC with prompt written notice of the
extension. An advance notice 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 OCC in writing that it does not object to the advance notice
and authorizes OCC to implement the advance notice on an earlier date,
subject to any conditions imposed by the Commission.
The clearing agency shall post notice on its Web site of proposed
changes that are implemented.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. 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-2014-801 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-2014-801. 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 of submission. 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 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 Web site viewing and
printing in the Commission's Public Reference Section, 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 Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_801.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-2014-801
and should be submitted on or before March 12, 2014.
[[Page 9515]]
V. Commission's Findings and Notice of No Objection
Section 806(e)(1)(G) of the Clearing Supervision Act provides that
a designated financial market utility may implement a change if it has
not received an objection from the Commission within 60 days of the
later of (i) the date that the Commission receives notice of the
proposed change or (ii) the date the Commission receives any further
information it requests for consideration of the notice. A designated
financial market utility may implement a proposed change in less than
60 days from the date of receipt of the notice of the change by the
Commission, or the date the Commission receives any further information
it requested, if the Commission notifies the designated financial
market utility in writing that it does not object to the proposed
change and authorizes the designated financial market utility to
implement the proposed change on an earlier date, subject to any
conditions imposed by the Commission.\8\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 5465(e)(1)(I).
---------------------------------------------------------------------------
In its filing with the Commission, OCC requested that the
Commission notify OCC that it has no objection to the change no later
than February 14, 2014, which is one week before the February 21, 2014
termination date of the Existing Facility. OCC requested Commission
action by this date, which is fewer than 60 days after OCC filed this
advance notice, to ensure that there is no period of time during which
OCC operates without access to additional liquidity for working capital
needs and general corporate purposes, and to make certain that OCC
remains in compliance with the liquidity requirements of CFTC
regulation Section 39.11(e)(2) \9\ at all times.
---------------------------------------------------------------------------
\9\ 17 CFR 39.11(e)(2).
---------------------------------------------------------------------------
The Commission does not object to the changes described in the
advance notice. The Commission agrees that the Extended Facility will
afford OCC continued access to additional liquidity that should help
OCC meet its CFTC requirement for working capital. Moreover, the
Commission believes that access to the Extended Facility affords OCC
needed flexibility in meeting its daily needs for operating capital.
The Commission further believes that the Extended Facility represents
an important safeguard against potential disruptions to OCC's ability
to provide clearance and settlement services, and thereby enhances
OCC's safety and soundness.\10\ Improving OCC's resilience furthers the
objectives of the Clearing Supervision Act,\11\ and is consistent with
the regulations adopted by the Commission thereunder.\12\
---------------------------------------------------------------------------
\10\ See 12 U.S.C. 5464(b) (noting that the objectives of the
Clearing Supervision Act include a desire to ``promote the safety
and soundness'' of clearing agencies).
\11\ Id.
\12\ 17 CFR 240.17Ad-22(d)(4) (requiring, pursuant to the
Clearing Supervision Act, that clearing agencies (i) develop
procedures to minimize ``sources of operational risk,'' (ii)
implement systems that are ``reliable'' and ``resilient,'' and (iii)
have ``business continuity plans that allow for . . . fulfillment of
[the agency's] obligations,'' among other things).
---------------------------------------------------------------------------
VI. Conclusion
Pursuant to Section 806(e)(1)(I) of the Clearing Supervision
Act,\13\ the Commission does not object to the proposed change, and
hereby authorizes OCC to implement the Change (SR-OCC-2014-801) as of
the date of this Order.
---------------------------------------------------------------------------
\13\ 12 U.S.C. 5465(e)(1)(I).
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03574 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P