[Federal Register Volume 83, Number 20 (Tuesday, January 30, 2018)]
[Notices]
[Pages 4324-4327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01676]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82576; File No. SR-OCC-2018-001]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Related to The Options
Clearing Corporation's Fee Policy
January 24, 2018.
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 18, 2018, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III 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
The proposed rule change by OCC would make certain revisions to
OCC's Fee Policy to reduce the permitted implementation time for
proposed changes to its Schedule of Fees. Under the proposed rule
change, the Fee Policy would provide that any change to the Schedule of
Fees resulting from a review of OCC's fees by the Board of Directors
(``Board'') as stipulated under the Fee Policy would be implemented no
sooner than 30 days from the date of the filing of the proposed fee
change with the Commission, rather than the minimum 60-day period
provided for currently in the Fee Policy.
The Fee Policy is included as confidential Exhibit 5 to the filing.
Material proposed to be added to the Fee Policy as currently in effect
is marked by underlining and material proposed to be deleted is marked
in strikethrough text. All terms with initial capitalization that are
not otherwise defined herein have the same meaning as set forth in the
By-Laws and Rules.\3\
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\3\ OCC's By-Laws and Rules can be found on OCC's public
website: http://optionsclearing.com/about/publications/bylaws.jsp.
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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
[[Page 4325]]
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
The purpose of this proposed rule change is to amend OCC's Fee
Policy \4\ to provide that any change to OCC's Schedule of Fees
resulting from a review of OCC's fees by the Board as stipulated under
the Fee Policy \5\ would be implemented no sooner than 30 days
following the filing of the revised Schedule of Fees as a proposed rule
change with the Commission, rather than no sooner than 60 days after
filing. Under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of
1934, as amended (``Act''),\6\ a proposed rule change takes effect upon
filing with the Commission if it is designated by OCC as establishing
or changing a due, fee or other charge on any person. This proposed
rule change, however, specifically concerns the time frame in which OCC
permits itself to implement any proposed fee change under its Fee
Policy.
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\4\ OCC's Fee Policy was adopted as part of OCC's plan for
raising additional capital (``Capital Plan''), which was put in
place in light of proposed regulatory capital requirements
applicable to systemically important financial market utilities,
such as OCC. See Exchange Act Release No. 34-74452 (March 6, 2015),
80 FR 13058 (March 12, 2015) (SR-OCC-2015-02); Exchange Act Release
No. 34-74387 (February 26, 2015), 80 FR 12215 (March 6, 2015) (SR-
OCC-2014-813) (``Approval Orders''). BATS Global Markets, Inc., BOX
Options Exchange LLC, KCG Holdings, Inc., Miami International
Securities Exchange, LLC, and Susquehanna International Group, LLP
each filed petitions for review of the Approval Order, challenging
the action taken by delegated authority. Following review of these
petitions, on August 8, 2017, the U.S. Court of Appeals for the DC
Circuit remanded the Approval Orders to the Commission to further
analyze whether the Capital Plan is consistent with the Securities
Exchange Act of 1934. Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d
442 (DC Cir. 2017). While the Commission further analyzes the
Capital Plan, it remains in effect as originally approved by the
Commission. See id.
\5\ OCC notes that authority to review and approve changes to
OCC's fees pursuant to the Capital Plan has been delegated to the
Compensation and Performance Committee of the Board. See OCC
Compensation and Performance Committee Charter, available at: http://www.optionsclearing.com/components/docs/about/corporate-information/performance_committee_charter.pdf.
\6\ See 15 U.S.C. 78s(b)(3)(A)(ii). Regarding any such proposed
rule change that becomes immediately effective, however, the
Commission also has certain conditional authority to summarily
temporarily suspend the change and institute proceedings to
determine whether to approve or disapprove it. See 15 U.S.C.
78s(b)(3)(C).
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In General, Article IX, Section 9 of OCC's By-Laws requires that
OCC's fee structure be designed to: (1) Cover OCC's operating expenses
plus a business risk buffer; (2) maintain reserves deemed reasonably
necessary by OCC's Board; and (3) accumulate an additional surplus
deemed advisable by the Board to permit OCC to meet its obligations to
its Clearing Members and the public.\7\ In connection with these
requirements, OCC has adopted a Fee Policy under which the Board
determines OCC's fee structure. As part of the Fee Policy, the Board
reviews the existing Schedule of Fees on a quarterly basis to determine
its appropriateness. Central to the Board's determination of the
appropriate level of fees is the requirement to cover OCC's operating
expenses plus an additional amount referred to as a ``Business Risk
Buffer.'' The Business Risk Buffer is an amount of fee revenue that OCC
targets above its anticipated operating expenses to allow for
unexpected fluctuations in operating expenses, business capital needs,
and regulatory capital requirements. Under the Fee Policy, OCC
generally sets clearing fees at a level designed to cover operating
expenses plus a Business Risk Buffer of 25%. In determining the proper
level of fees to achieve this goal, the Board may rely on a
recommendation of OCC staff that is based on an analysis of, among
other things, year-to-date revenue and operating expenses and projected
clearing volume and operating expenses.
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\7\ OCC notes that clauses two and three above would be invoked
only at the discretion of OCC's Board and in extraordinary
circumstances.
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OCC believes that the current 60-day implementation period under
the Fee Policy (i) increases the difficulty of projecting appropriate
fee levels needed to cover OCC's operating expenses plus the Business
Risk Buffer given the amount of time that passes between OCC's analysis
and the implementation of the fee change, (ii) increases the risk that
by the time the fee change is implemented, the extended delay in
implementation may result in revenues that diverge further from the
target the Business Risk Buffer (either higher or lower), and (iii)
increases the impact of a fee change due to the delayed implementation
timing.\8\ As a result, OCC may need to make more frequent and/or more
dramatic changes to its Schedule of Fees in order to maintain its
target Business Risk Buffer, resulting in less stability in fees for
OCC's participants. OCC believes that reducing the 60-day
implementation period to 30 days would allow for fee adjustments that
are based on revenue and expense data that is more current, and
therefore projections that are more accurate. OCC believes the proposed
rule change would therefore improve its ability to set fees at an
appropriate level to meet its requirements under the Capital Plan while
still providing adequate notice to its participants of any proposed fee
changes.
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\8\ OCC notes that, as a practical matter, it typically
implements changes to its Schedule of Fees on the first of the
month. As a result, the actual delay in implementing a proposed fee
change may be significantly longer than 60 days depending on the
timing of Board approval of any fee change and subsequent filing of
the associated proposed rule change.
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(2) Statutory Basis
Section 17A(b)(3)(D) of the Act \9\ requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants. In addition, Rule
17Ad-22(e)(21) \10\ requires that a covered clearing agency establish,
implement, maintain and enforce written policies and procedures
reasonably designed to be efficient and effective in meeting the
requirements of its participants and the markets it serves. OCC
believes the proposed rule change is consistent with Section
17A(b)(3)(D) of the Act \11\ and the rules thereunder because allowing
earlier implementation of changes to OCC's Schedule of Fees would
ensure that the fees charged to Clearing Members are based on based on
revenue and expense data that is more current, and therefore
projections that are more accurate. As a result, OCC believes it would
be able to implement fee changes that are more accurately calibrated to
meet the requirements of its Fee Policy and Capital Plan, which in turn
would foster the equitable allocation of reasonable dues, fees and
other charges among Clearing Members. OCC also believes that the
proposed rule change is consistent with Rule 17Ad-22(e)(21) \12\
because the shortened implementation period would improve OCC's ability
to implement a Schedule of Fees that is based on revenue and expense
data that is more current and indicative of OCC's business, and
therefore, the change would enhance OCC's ability to be cost-effective
in meeting the requirements of its Clearing Members.
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\9\ 15 U.S.C. 78q-1(b)(3)(D).
\10\ 17 CFR 240.17Ad-22(e)(21).
\11\ 15 U.S.C. 78q-1(b)(3)(D).
\12\ 17 CFR 240.17Ad-22(e)(21).
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[[Page 4326]]
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \13\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the Act. OCC believes that the proposed
rule change would not have any impact or impose a burden on
competition. The proposed changes to the Fee Policy would not
disadvantage or favor any particular user in relationship to another
user because the potential for earlier implementation of changes to the
Schedule of Fees would apply equally to all Clearing Members and market
participants. Moreover, the proposed rule change would continue to
allow for a notification period of at least 30 days following the
filing of a revised Schedule of Fees with the Commission before such a
proposed fee change could be implemented. As a result, OCC believes
that the proposed rule change would not have any impact or impose a
burden on competition.
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\13\ 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 the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
OCC respectfully requests that the Commission approve the proposed
rule change on an accelerated basis pursuant to Section
19(b)(2)(C)(iii) of the Act.\14\ OCC believes that good cause exists
for the Commission to accelerate the effectiveness of the proposed rule
change because the proposed changes to the Fee Policy would improve
OCC's ability to implement fee changes that are more accurately
calibrated to meet the requirements of its Fee Policy and Capital Plan.
As describe above, OCC believes that the current 60-day implementation
period under the Fee Policy (i) increases the difficulty of projecting
appropriate fee levels needed to cover OCC's operating expenses plus
the Business Risk Buffer given the amount of time that passes between
OCC's analysis and the implementation of the fee change, (ii) increases
the risk that by the time the fee change is implemented, the extended
delay in implementation may result in revenues that diverge further
from the target the Business Risk Buffer (either higher or lower), and
(iii) increases the impact of a fee change due to the delayed
implementation timing. As a result, OCC may need to make more frequent
and/or more dramatic changes to its Schedule of Fees in order to
maintain its target Business Risk Buffer, resulting in less stability
in fees for OCC's participants. OCC believes that reducing the 60-day
implementation period to 30 days would allow for fee adjustments that
are based on revenue and expense data that is more current, and
therefore projections that are more accurate and fee levels that are
generally more stable. Accordingly, OCC believes the proposed rule
change promotes OCC's ability to comply with its obligations under the
Act to be efficient and effective in meeting the requirements of its
participants and the markets it serves.
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\14\ 15 U.S.C. 78s(b)(2)(C)(iii).
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While the proposed rule change would reduce the 60-day notification
period prior to implementing fee changes under the Fee Policy, any
proposed fee change would still require at least a 30-day notification
period prior to implementation and would continue to be subject to the
Commission's rule filing process, including the notice and public
comment period. OCC believes that the proposed 30-day implementation
period, along with the Commission's rule filing process, would continue
to provide Clearing Members and other market participants with
appropriate and adequate notice of fee changes so that they are able to
take any necessary action to prepare for the proposed fee change.
Moreover, participants would continue to have an opportunity to comment
on any fee changes prior to such fee change being implemented, and the
Commission would continue to review all such fee changes as part of the
proposed rule change process. OCC notes that the proposed rule change
would not alter the manner in which OCC determines potential fee
changes under its Fee Policy or the applicability of any such fee
changes to its Clearing Members and market participants.
For all of the reasons above, OCC requests that the Commission
approve the proposed rule change on an accelerated basis because there
is good cause consistent with the Act.
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-2018-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2018-001. 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 website (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 website 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 such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information
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that you wish to make available publicly.
All submissions should refer to File Number SR-OCC-2018-001 and
should be submitted on or before February 14, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
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\15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-01676 Filed 1-29-18; 8:45 am]
BILLING CODE 8011-01-P