[Federal Register Volume 79, Number 104 (Friday, May 30, 2014)]
[Notices]
[Pages 31166-31171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12522]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72242; File No. SR-OCC-2014-09]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Concerning the Consolidation
of the Governance Committee and Nominating Committee into a Single
Committee, Changes to the Nominating Process for Directors, and
Increasing the Number of Public Directors on The Options Clearing
Corporation's Board of Directors
May 23, 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 May 13, 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.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ OCC also filed the proposed change as an advance notice
under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act titled the Payment, Clearing, and
Settlement Supervision Act of 2010 (``Payment, Clearing and
Settlement Supervision Act''). 12 U.S.C. 5465(e)(1). See AN-OCC-
2014-802.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
This proposed rule change would amend OCC's By-Laws regarding its
Nominating Committee (``NC'') and the Charter for OCC's Governance
Committee (``GC'') to consolidate the two Committees into a single
Governance and Nominating Committee (``GNC''), make changes to OCC's
nomination process for Directors and increase the number of Public
Directors on OCC's Board of Directors. Conforming amendments to these
changes are also proposed to OCC's Stockholders Agreement, Board of
Directors Charter and Fitness Standards for Directors.
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
OCC is proposing to amend its By-Laws and Governance Committee
Charter to combine the current NC and GC to establish a single GNC,
make changes concerning OCC's nomination process for Directors and to
increase the number of Public Directors on OCC's Board of Directors
(``Board''). The proposed modifications are based on recommendations
from the GC in the course of carrying out its mandate of reviewing the
overall corporate governance of OCC and recommending improvements to
the structure of OCC's Board. In part, the GC's recommendations stem
from suggestions of an outside consultant that was retained to review
and report on OCC's governance structure in relationship to industry
governance practices. To conform to these proposed changes OCC is also
proposing to make certain edits to its Stockholders Agreement, Board of
Directors Charter and Fitness Standards for Directors.
Currently, the GC operates pursuant to its own Charter.\4\ The NC
is not a Board level Committee and does not operate pursuant to a
charter, however, provisions in Article III of OCC's By-
[[Page 31167]]
Laws prescribe certain aspects of the NC's structure and operation. OCC
is proposing to apply to the GNC many of the existing provisions of the
relevant By-Laws and GC Charter that apply to the NC and GC. Where OCC
is proposing amendments to the existing By-Laws and GC Charter, they
are discussed below.
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release Nos. 71030 (Dec. 11, 2013),
78 FR 7612 (Dec. 16, 2013) (SR-OCC-2013-18); 71083 (Dec. 16, 2013),
78 FR 77182 (Dec. 20, 2013) (SR-OCC-2013-807).
---------------------------------------------------------------------------
Certain provisions of Article III govern the role the NC plays in
nominating persons as Member Directors \5\ on OCC's Board as well as
the composition and structure of the NC itself. The NC is required to
endeavor to achieve balanced representation in its Member Director and
Non-Director Member nominees, giving due consideration to business
activities and geographic distribution.
---------------------------------------------------------------------------
\5\ Under Article III, Section 2 every Member Director must be
either a Clearing Member or a representative of a Clearing Member
Organization.
---------------------------------------------------------------------------
Presently, the NC is composed of seven total members: One Public
Director and six Non-Director Members.\6\ The Public Director member,
who is nominated by the Executive Chairman with the approval of a
majority of the Board, generally serves a three year term, unless he or
she ceases to be a Public Director. The six Non-Director Members
nominated by the NC and selected by OCC's stockholders are divided into
two equal classes of three members, and the classes serve staggered two
year terms.\7\ By comparison, the GC Charter requires the current GC to
have not fewer than five directors and to include at least one Public
Director, at least one Exchange Director, and at least one Member
Director. It also provides that no Management Directors may serve on
the Committee.
---------------------------------------------------------------------------
\6\ Under Sections 4 and 5 of Article III, a Non-Director Member
of the NC must be a representative of a Clearing Member and no
person associated with the same Clearing Member Organization as a
member of the NC may be nominated by the NC for a position as a
Member Director on the Board of Directors or a Non-Director Member
of the NC for the ensuing year.
\7\ This tiered structure eliminated the complete turnover of
the members of the NC each year and fostered greater continuity
among its elected members. Securities Exchange Act Release No. 29437
(July 12, 1991), 56 FR 33319 (July 19, 1991) (SR-OCC-91-11).
---------------------------------------------------------------------------
OCC's Board currently has 19 members consisting of nine Member
Directors, five Exchange Directors, three Public Directors, who under
Article III, Section 6A of OCC's By-Laws, may not be affiliated with
any national securities exchange or national securities association or
any broker or dealer in securities, and OCC's Executive Chairman and
President, who are Management Directors. Based on recommendations from
the GC in the course of review of OCC's overall corporate governance,
OCC is proposing certain amendments detailed below to merge OCC's NC,
GC and their related responsibilities into a single GNC and increase
the number of Public Directors from three to five.
a. Proposed Amendments Common to the By-Laws and Other OCC Governance
Documents
Certain of the proposed changes would amend the existing By-Laws as
well as other governance documents of OCC. For example, conforming
edits would be made throughout the By-Laws and GC Charter to delete NC
and GC references and in many cases those references would be replaced
with references to the GNC.
(1) GNC Composition
The new GNC would be composed of a minimum of three total members:
At least one Public Director, at least one Exchange Director and at
least one Member Director. To reflect this change, OCC would eliminate
in Section 4 of Article III the requirement for six Non-Director
Members, add requirements for at least one Member Director and one
Exchange Director, and modify the current requirement for one Public
Director to instead require that there must be at least one Public
Director. The proposed composition for the GNC already mirrors the
existing composition specified in the GC Charter. Therefore, no changes
are proposed to the current GC Charter in that respect, other than the
elimination of the requirements that the GNC have no fewer than five
directors. That limitation would be eliminated with the goal of
providing the Board with greater flexibility to determine the optimal
size and composition of the GNC, so long as the composition also
facilitates diverse representation by satisfying the proposed
requirement for at least one GNC representative from each of the Member
Director, Exchange Director and Public Director categories.
(2) GNC Member Appointment Process and Term Limits
The members of the GNC would be appointed annually by the Board
from among certain Board members recommended by the GNC after
consultation with OCC's Executive Chairman, and GNC Members would serve
at the pleasure of the Board. The GNC's Chairman (``GNC Chair'') would
be designated from among the GNC's Public Directors. Provisions
implementing these changes would be added to Section 4 of Article III
to entirely supplant the class and term limit structure and nominations
process that currently applies to the NC and its Non-Director Members
and Public Director, and references to Non-Director Members would be
removed from the By-Laws. Section II.A. of the GC Charter would also be
amended to reflect this structure for GNC nominations and appointments.
(3) Number of Public Directors and Member Directors
OCC is proposing to amend its By-Laws to increase the number of
Public Directors on its Board from three to five and to make certain
other changes related to the overall composition of the Board and the
classification and term of office of Public Directors. The proposed
change in the number of Public Directors from three to five would
reconstitute OCC's Board with a total of 21 directors. OCC continues to
believe that, as indicated in OCC's initial 1992 proposal to add Public
Directors to its Board,\8\ Public Directors broaden the mix of
viewpoints and business expertise that is represented on the Board.
Accordingly, OCC believes that the input and expertise of two more
Public Directors will further benefit OCC in the administration of its
affairs in respect of the markets that it serves, and in the discharge
of its obligations as a systemically important financial market
utility. In addition, the decision to add two more Public Directors is
consistent with the principles discussed in the Commission's recent
release on standards for covered clearing agencies.\9\ In particular,
the additional Public Directors would facilitate OCC's compliance with
the public interest requirements of Section 17A of the Act and allow
OCC to balance potentially competing viewpoints of various stakeholders
in its decision making.
---------------------------------------------------------------------------
\8\ Securities Exchange Act Release No. 30328 (January 31,
1992), 57 FR 4784 (February 7, 1992) (SR-OCC-1992-02).
\9\ Securities Exchange Act Release No. 71699 (March 12, 2014),
79 FR 16866 (March 26, 2014).
---------------------------------------------------------------------------
The proposed changes would remove a provision that currently is
designed under certain conditions to automatically adjust the number of
Member Directors serving on the Board. Article III, Section 1 requires
that if the aggregate number of Exchange Directors and Public Directors
equals at least nine, the total number of Member Directors must be
automatically increased to always exceed that number by one. This
provision would be removed to provide the Board with greater
flexibility to be able to determine its optimal composition. OCC also
proposes to make corresponding changes to Article III, Section 3 under
[[Page 31168]]
which it would remove provisions that provide for the classification
and term of office of Member Directors where the number of Member
Directors increases based on the provision in Article III, Section 1
that OCC proposes to delete. The proposed changes also remove a
provision that reduces the number of Member Directors if the number is
above nine and exceeds the sum of the number of Exchange Directors and
the number of Public Directors by more than one, because as a result of
the deletion of the above provision in Article III, Section 1, the
number of Member Directors would be fixed at nine.
OCC is also proposing certain amendments to its Stockholders
Agreement, Board of Directors Charter and Fitness Standards for
Directors, Clearing Members and Others. In each case, conforming
changes would be made to recognize the merger of the Nominating
Committee and Governance Committee into the GNC as a standing Committee
of the Board and reflect the role it would play in OCC's director
nomination process. The proposed modifications to the Board Charter and
Fitness Standards would reflect the increase in the number of Public
Directors serving on the Board from three to five and the removal of
the provision that currently is designed under certain conditions to
automatically adjust the number of Member Directors serving on the
Board. The criteria specified in the Fitness Standards for Directors,
Clearing Members and Others for use in considering Member Director
nominees would also be revised for consistency with the criteria
proposed to be added to Article III, Section 5 designed to achieve
balanced Board representation.
The Stockholders Agreement also contains proposed amendments to
replace the term Chairman with Executive Chairman. This parallels a
separate proposed amendment by OCC to implement this change in its By-
Laws and Rules, but a consolidated amendment to the Stockholders
Agreement is proposed for ease of administration.
b. Proposed Amendments to By-Laws Only
As explained in more detail below, certain of the proposed changes
would require amendments only to OCC's existing By-Laws. One such
example is that Sections 2 and 5 of Article III would be amended to
remove prohibitions against representation of the same Clearing Member
Organization on the Board and the NC.\10\ This barrier would be
eliminated since GNC members will be selected from among the members of
the Board under the new approach.
---------------------------------------------------------------------------
\10\ A Clearing Member Organization is a Clearing Member that is
a legal entity rather than a natural person.
---------------------------------------------------------------------------
(1) Balanced Representation
The NC's responsibility to endeavor to achieve balanced
representation among Clearing Members on the Board would be carried
over to the GNC. The proposed amendments would also add more detailed
guidance for the GNC concerning how to achieve balanced Board
representation. Specifically, the GNC would be required to assure that
not all of the Member Directors represent the Clearing Member
Organizations having the largest volume of business with OCC during the
prior year and that the mix of Member Directors includes Clearing
Member Organizations primarily engaged in agency trading on behalf of
retail customers or individual investors.
(2) Nomination and Election Process
In place of the existing structure under which the NC nominates
candidates to be Non-Director Members, who are not also required to be
Board members, the Board would appoint members to the GNC from among
the Board's members who are recommended by the GNC. This change
requires certain proposed modifications to the nomination and election
process currently reflected in Article III, Section 5. Changes are also
proposed that would change the deadlines for nominations of Member
Directors by both the GNC and Clearing Members, and OCC would preserve
the petition process by which Clearing Members may nominate additional
candidates for Member Director positions on the Board. In recognition
of the elimination of the concept of Non-Director Members, several
provisions in Section 5 of Article III addressing the ability of
stockholders to elect or nominate Non-Director Members of the NC would
be deleted. In relevant part, however, these provisions would be
retained to the extent they apply to the ability of stockholders under
certain conditions to nominate and elect Member Directors of the Board.
(3) Public Directors
Proposed changes to Section 6A of Article III would require the GNC
to nominate Public Directors for election by OCC's stockholders and to
use OCC's fitness standards in making such nominations. Presently,
OCC's Executive Chairman makes Public Director nominations with Board
approval. Changes are also proposed to help clarify the class structure
and term limits of Public Directors that are independent of changes
proposed to facilitate the formation of the GNC. These changes would
specify that, aside from the Class II Public Director who was elected
to the Board at the 2011 annual meeting, two other Public Directors
were appointed to the Board prior to its 2013 annual meeting, one
designated as a Class I Public Director and the other designated as a
Class III Public Director. Generally, the three year terms for Public
Directors with staggered expiration for each class would be preserved,
however, an exception would be added for the initial Class I and III
Public Directors.
The proposed changes to Article III, Section 6A would also provide
for the classification of the two new Public Directors, who will be
first appointed or elected after the 2014 annual meeting. One of the
new Public Directors will be designated as a Class I Public Director,
and the other will be designated as a Class III Public Director. The
proposed changes also establish the times at which the successors of
the two new Public Directors will be elected. The successor of the new
Public Director that is a Class III Public Director will be elected at
the 2015 annual meeting of stockholders, and the successor of the new
Public Director that is a Class I Public Director will be elected at
the 2016 annual meeting.
(4) Disqualifications and Filling Vacancies and Newly Created
Directorships
The disqualification provisions in Article III, Section 11 would be
revised to reflect that any determination to disqualify a director
would be effective and result in a vacancy only if the GNC makes a
recommendation for disqualification in addition to an affirmative vote
for disqualification by a majority of the whole Board. The By-Laws
currently provide that if a Member Director vacancy is filled by the
Board, the person filling the vacancy will serve until the next
scheduled election for the relevant class of Member Director and a
successor is elected. However, if the term for that class of Member
Director extends beyond the Board's next annual meeting the vacancy
must be filled by a person who is recommended by the Nominating
Committee. Proposed changes to these terms in respect of the GNC would
require the Board in all cases to appoint a person who is recommended
by the GNC. Similarly,
[[Page 31169]]
Public Director vacancies would be required to be filled by the Board
as generally provided for in Section 6A of Article III, including with
regard to candidates being nominated by the GNC using OCC's fitness
standards for directors. Provisions concerning filling vacancies with
respect to the NC would be deleted, consistent with its elimination in
favor of the GNC.
(5) Ministerial Changes
The proposed changes to Article III also include certain
ministerial changes. A reference to stockholder exchanges in the
interpretation and policy to Section 6 would be replaced by the defined
term Equity Exchanges, and a reference in Section 14 to notice by
telegram would be changed to facsimile to reflect current means of
communication.
c. Proposed Amendments to the GC Charter Only
Certain of the proposed amendments relating to the creation of the
GNC would apply only to OCC's existing GC Charter. These amendments are
discussed below.
(1) GNC Purpose
The statement of purpose in the GC Charter would be revised to
reflect the GNC's larger scope of responsibilities. The existing GC
purpose of reviewing the overall corporate governance of OCC would be
maintained, along with language clarifying that this review would be
performed on a regular basis and that recommendations concerning Board
improvements should be made when necessary. The GNC Charter would also
provide that the GNC assists the Board in identifying, screening and
reviewing individuals qualified to serve as directors and by
recommending candidates to the Board for nomination for election at the
annual meeting of stockholders or to fill vacancies. The GNC Charter
would also specify that the GNC would develop and recommend to the
Board, and oversee the implementation of, a Board Code of Conduct.
(2) GNC Membership and Organization
The requirement in the GC Charter that the GC hold four meetings
annually would be modified to also permit the GNC to call additional
meetings as it deems appropriate.\11\ The GC Charter requirement for
regular reporting to the Board on Committee activities by the GC chair
or a designee would be revised in favor of placing the reporting
responsibility solely on the GNC Chair and requiring the GNC Chair to
make timely reports to the Board on important issues discussed at GNC
meetings. Taking into consideration certain pre-established guidelines
in the GNC Charter, the GNC Chair would also be given responsibility
for determining whether minutes should be recorded at any executive
session. Aside from this exception for executive sessions, GNC meeting
minutes would be required to be recorded. The GNC Charter would also
create a position to be filled by an OCC officer who would assist the
GNC and liaise between it and OCC's staff.
---------------------------------------------------------------------------
\11\ This would bring the Governance and Nominating Committee
Charter in line with the Charters of OCC's other Board Committees.
---------------------------------------------------------------------------
(3) GNC Authority
As in the case of the existing GC, the GNC would have authority to
inquire into any matter relevant to its purpose and responsibilities in
the course of carrying out its duties. The GNC Charter would further
specify that in connection with any such inquiry the GNC would have
access to all books, records, facilities and personnel of OCC. Unlike
the existing GC Charter, the GNC Charter would not provide express
authority for the GNC to rely on members of OCC's management for
assistance. Instead, this relationship between the GNC and OCC's
management would be more specifically addressed through the role of the
newly created staff liaison position. Additional revisions to the GC
Charter would also establish that the GNC Chair would not have
discretion to take unilateral action on behalf of the Committee, even
in special circumstances.
(4) Board Composition
Without limiting the GNC to particular activities, the GNC Charter
would specify certain responsibilities meant to guide the GNC in
achieving its purposes, including with respect to its role in the
development of the Board's composition. As an overarching goal, the
GNC's Charter would require it to pursue development of a Board
comprised of individuals who have a reputation for integrity and
represent diverse professional backgrounds as well as a broad spectrum
of experience and expertise. The GNC Charter would also prescribe more
detailed responsibilities designed to further this goal. For example,
the GNC would be required to conduct periodic reviews of the
composition of the Board against the goal, including whether the Board
reflects the appropriate balance of types of directors, business
specialization, technical skills, diversity and other qualities.\12\
The GNC would be required to recommend policies and procedures to the
Board for identifying and reviewing Board nominee candidates, and it
would implement and oversee the effectiveness of those policies,
including with regard to criteria for Board nominees. Using criteria
approved by the Board, the GNC would identify, screen and review
persons who it determines are qualified to serve as directors. This
process would also extend to incumbent directors concerning any
potential re-nomination. In all cases, the GNC would only recommend
candidates to the Board for nomination for election after consulting
with OCC's Executive Chairman. In the event that a sitting director
offers to resign because of a change in occupation or business
association, the GNC would be responsible for reviewing whether
continued service is appropriate and making a recommendation of any
action, consistent with OCC's By-Laws and Rules, that should be taken
by the Board. The GNC would also undertake periodic reviews of term
limits for certain directors and recommend changes to these limits
where appropriate.
---------------------------------------------------------------------------
\12\ The GNC would also review director conflicts of interest
and the manner in which any such conflicts are to be monitored and
resolved.
---------------------------------------------------------------------------
(5) Governance Practices
The GNC would have responsibility for reviewing the Board's Charter
for consistency with regulatory requirements, transparency of the
governance process and other sound governance practices. Currently,
this is a GC function, and certain GC Charter amendments are proposed
to help further detail the GNC's review responsibilities. These include
a general responsibility to recommend changes, as the GNC deems
appropriate, to the Board concerning Committee Charters. This would
include the GNC Charter, which the GNC would be required to review
annually.\13\ In connection with a periodic review of Board Committee
structure, the GNC would advise the Board regarding related matters of
structure, operations and charters. Furthermore, and in each case after
consultation with OCC's Executive Chairman, the GNC would recommend to
the Board for its approval certain directors for Committee service as
well as for assignment as Committee chair persons.
---------------------------------------------------------------------------
\13\ As part of the annual review, the GNC would also submit the
GNC Charter to the Board for re-approval, including any changes the
GNC deems advisable.
---------------------------------------------------------------------------
[[Page 31170]]
The GNC would develop and recommend to the Board the annual process
used by the Board and Board Committees for self-evaluation of their
role and performance in the governance of OCC. The GNC would also be
responsible for coordinating and providing oversight of that process.
Corporate governance principles applicable to OCC would be developed by
the GNC for recommendation to the Board, and the GNC would review them
at least once a year.
(6) Other Proposed GC Charter Amendments
The GNC Charter would require the Committee to regularly evaluate
its performance and the performance of its individual members and
provide results of such assessments to the Board. It would also require
an annual report to be prepared by the GNC and delivered to the Board
regarding the GNC's activities for the preceding year, and the GNC
would be required to include a statement that it carried out all of its
GNC Charter responsibilities. In addition to such responsibilities, the
GNC would generally be empowered to perform any other duties that it
deems necessary or appropriate and consistent with the GNC Charter or
as may otherwise be further delegated to it by the Board.
d. Fair Representation Requirement for Clearing Agencies
Section 17A(b)(3)(C) of the Act requires the rules of a clearing
agency to assure fair representation of its shareholders (or members)
and participants \14\ in the selection of its directors and
administration of its affairs.\15\ The Act does not define fair
representation but instead reserves to the Commission the authority to
determine whether a clearing agency's rules give fair voice to
participants and shareholders or members in the selection of directors
and administration of affairs. On this subject, the Division of Market
Regulation's Announcement of Standards for the Registration of Clearing
Agencies provides that a clearing agency's procedures concerning fair
representation are evaluated on a case-by-case basis but that a
clearing agency could comply with the standard, including with respect
to board nominations, through the use of a nominating committee
composed of and selected by participants or their representatives.\16\
Subsequent Commission guidance in this area also provides that the
entity responsible for nominating individuals for membership on the
board of directors should be obligated by by-law or rule to make
nominations with a view toward assuring fair representation of the
interests of shareholders and a cross-section of the community of
participants.\17\
---------------------------------------------------------------------------
\14\ In relevant part, a clearing agency participant is defined
in Section 3(a)(24) of the Act as ``any person who uses a clearing
agency to clear or settle securities transactions or to transfer,
pledge, lend, or hypothecate securities. . .''
\15\ 15 U.S.C. 78q-1(b)(3)(C). The statute further provides that
one way of establishing that the representation of participants is
fair is by affording them a reasonable opportunity to acquire voting
stock of the clearing agency in reasonable proportion to their use.
\16\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 41 (June 23, 1980) (citing in relevant part Securities
Exchange Act Release 14531 (March 6, 1978), 43 FR 10288, 10291
(March 10, 1978) regarding proposed Commission-level standards for
clearing agency registration). The Division of Market Regulation is
now known as the Division of Trading and Markets.
\17\ Securities Exchange Act Release No. 20221 (September 23,
1983), 48 FR 45167, 45172 (October 3, 1983) (Depository Trust Co.,
et. al.; Order).
---------------------------------------------------------------------------
OCC believes for several reasons that the proposed amendments to
the By-Laws and GC Charter would continue to assure fair representation
of OCC's shareholders and participants in the selection of its
directors and the administration of its affairs. First, as the body
responsible for nominating Member Director and Public Director
candidates to OCC's Board, the GNC would be composed of and selected by
OCC's participants and shareholders or their representatives because,
along with at least one Public Director, the GNC would be composed of
Board members who represent OCC's Clearing Members and equity
exchanges. Furthermore, the GNC would be obligated by OCC's By-Laws and
the GNC Charter to make nominations that serve the interests of
shareholders and a cross-section of participants because it would be
required to nominate candidates with a view toward: Assuring that the
Board consists of, among other things, individuals who have a
reputation for integrity and represent diverse professional backgrounds
and a broad spectrum of experience and expertise; that not all Member
Directors of the Board would represent the largest Clearing Member
Organizations; and that the mix of Member Directors on the Board should
include representatives of Clearing Member Organizations primarily
engaged in agency trading on behalf of retail customers or individual
investors. Finally, rather than prescribing pre-set term limits, OCC
believes that having GNC members serve at the pleasure of the Board
would help foster continuity on the GNC and thereby strengthen the
quality of the representation of OCC's participants and shareholders in
the administration of its affairs.
2. Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A(b)(3)(C) of the Act,\18\ and the rules and regulations thereunder
because by creating the GNC and requiring it to in part be composed of
and selected by representatives of OCC's participants and also
requiring it to nominate candidates to the Board with a view toward,
among other things, assuring diverse professional backgrounds and a
broad spectrum of experience and expertise, the proposed changes would
help assure fair representation of OCC's shareholders and participants
in the selection of OCC's directors and the administration of its
affairs. OCC also believes the proposed rule change is consistent with
Rule 17Ad-22(d)(8) \19\ because by, among other things, creating a
framework that requires the GNC to be composed of representatives of at
least one Member Director, Exchange Director and Public Director,
requiring the GNC to endeavor to develop a Board that represents a
broad range of skills and experience and increasing the number of
Public Directors the proposed changes would help ensure that OCC
continues to have clear and transparent governance arrangements that
fulfill the public interest requirements of Section 17A of the Act,
support the objectives of OCC's owners and participants and promote the
effectiveness of OCC's risk management procedures. The proposed rule
change is not inconsistent with the existing rules of OCC, including
any other rules proposed to be amended.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(C).
\19\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition.\20\ Changes to the rules of a clearing agency
may have an impact on the participants in a clearing agency, their
customers, and the markets that the clearing agency serves. This
proposed rule change primarily affects certain Clearing Members and
participant exchanges, through their respective representative
directors, in terms of how they would participate in OCC's governance
process on the Board and Board Committees. For example, OCC believes
that the proposed formation of the GNC would help to consolidate and
improve the efficiency of Board level action regarding roles and
responsibilities that
[[Page 31171]]
are related but are currently performed separately by the NC and GC and
that adding two Public Directors to the Board would broaden the mix of
viewpoints and business expertise that informs the administration of
OCC's affairs with respect to the markets that it serves. These
proposed modifications would not disadvantage or favor any particular
user in relationship to another user because they relate to the
overarching governance structure of OCC that affects all users and does
not relate directly to any particular service or particular use of
OCC's facilities.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
For the foregoing reasons, OCC believes that the proposed rule
change is in the public interest, would be consistent with the
requirements of the Act applicable to clearing agencies and would not
impose a burden on competition.
(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.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\21\
---------------------------------------------------------------------------
\21\ OCC also filed the proposed rule change as an advance
notice under Section 806(e)(1) of the Payment, Clearing and
Settlement Supervision Act. See supra note 3.
---------------------------------------------------------------------------
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-2014-09 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.
All submissions should refer to File Number SR-OCC-2014-09. 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 20549-1090 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_09.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-2014-09
and should be submitted on or before June 20, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------
\22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12522 Filed 5-29-14; 8:45 am]
BILLING CODE 8011-01-P