[Federal Register Volume 83, Number 23 (Friday, February 2, 2018)]
[Notices]
[Pages 4944-4946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02124]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82596; File No. SR-OCC-2018-004]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Revise The Options Clearing Corporation's Schedule of Fees
January 30, 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 19, 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. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) \3\ of the Act and Rule 19b-4(f)(2)
\4\ thereunder so that the proposal was effective upon filing with the
Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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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 revise OCC's Schedule of Fees
effective March 1, 2018, to implement an increase in clearing fees in
accordance with OCC's Fee Policy.\5\ The proposed changes to the
Schedule of Fees can be found in Exhibit 5 to the proposed rule change.
All capitalized terms not defined herein have the same meaning as set
forth in the OCC By-Laws and Rules.\6\
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\5\ 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 D.C.
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 (D.C. Cir. 2017). While the Commission further analyzes the
Capital Plan, it remains in effect as originally approved by the
Commission. See id.
\6\ 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 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 revise OCC's
Schedule of Fees in accordance with its Fee Policy to set OCC's fees at
a level designed to cover OCC's operating expenses and maintain a
Business Risk Buffer of 25%.\7\ The revised fee schedule would become
effective on March 1, 2018.\8\
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\7\ The Business Risk Buffer is equal to net income before
refunds, dividends, and taxes divided by total revenue.
\8\ OCC recently filed a proposed rule change with the
Commission to revise its Fee Policy to provide that proposed fee
changes are required to be implemented no sooner than thirty (30)
days from the date of filing of the proposed rule change concerning
such fee change (as opposed to sixty (60) days). See SR-OCC-2018-
001. OCC also has submitted the proposed changes to its Fee Policy
to the Commodity Futures Trading Commission (``CFTC'') under CFTC
Regulation 40.6 and expects the proposed changes to be certified on
January 24, 2018. OCC notes that implementation of the proposed fee
change on March 1, 2018, requires either (i) Commission approval of
SR-OCC-2018-001 and certification of the Fee Policy changes in SR-
OCC-2018-001 under CFTC Regulation 40.6 or (ii) an exception to the
60-day notice period provision in the Fee Policy authorized by OCC's
Board of Directors and the holders of all of the outstanding Class B
Common Stock of OCC. OCC's Board of Directors unanimously approved,
and the holders of all of the outstanding Class B Common Stock of
OCC unanimously consented to, the reduction of the 60-day notice
period to 30 days on December 15, 2016.
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By way of background, OCC implemented its Capital Plan in 2015,\9\
which was put in place in light of proposed regulatory capital
requirements applicable to systemically important financial market
utilities, such as OCC. As part of OCC's Capital Plan, OCC adopted a
Fee Policy whereby OCC would set clearing fees at a level that covers
OCC's operating
[[Page 4945]]
expenses plus a Business Risk Buffer of 25%.\10\ The purpose of the
Business Risk Buffer is to ensure that OCC accumulates sufficient
capital to cover unexpected fluctuations in operating expenses,
business capital needs, and regulatory capital requirements.
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\9\ See supra note 5.
\10\ OCC's Schedule of Fees must also meet the requirements set
forth in Article IX, Section 9 of OCC's By-Laws. 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 of Directors; and 3) accumulate an additional surplus deemed
advisable by the Board of Directors to permit OCC to meet its
obligations to its clearing members and the public. Clauses 2 and 3
above will only be invoked at the discretion of OCC's Board of
Directors and in extraordinary circumstances.
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OCC recently reviewed its current Schedule of Fees \11\ against
projected revenues and expenses for 2018 in accordance with its Fee
Policy, to determine whether the Schedule of Fees was sufficient to
cover OCC's anticipated operating expenses and achieve a Business Risk
Buffer of 25%. In reviewing the Schedule of Fees, OCC analyzed: (i)
Expenses budgeted for 2018, (ii) projected other revenue streams for
2018, (iii) projected volume ``mix,'' and (iv) projected volume growth
for 2018. Based on the foregoing analysis, OCC determined that the
current fee schedule is set at a level that would be insufficient to
ensure that OCC achieves its Business Risk Buffer of 25% as required
under the Fee Policy.\12\ OCC arrived at the proposed fee schedule
presented herein by determining the figures that provide the best
opportunity for OCC to achieve coverage of its anticipated operating
expenses plus a Business Risk Buffer of 25%.
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\11\ OCC previously revised its Schedule of Fees effective
December 1, 2016, to implement a fee increase in accordance with the
Fee Policy. See Securities Exchange Act Release No. 79028 (October
3, 2016), 81 FR 69885 (October 7, 2016) (SR-OCC-2016-012).
\12\ OCC has provided a summary of its analysis in confidential
Exhibit 3 of the filing.
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As a result of the aforementioned analysis, OCC proposes to revise
its Schedule of Fees as set forth below.\13\
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\13\ These changes are also reflected in Exhibit 5.
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Current fee schedule Proposed fee schedule
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Trades with
Trades with contracts of: Current fee contracts of: Proposed fee
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1-1100.............................. $0.050/contract........ 1-1018 $0.054/contract.
>1100............................... $55/trade.............. >1018 $55/trade.
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OCC proposes to modify its fee schedule to: (i) Increase its per
contract clearing fee from $0.050 to $0.054 per contract and (ii)
adjust the quantity of contracts at which the fixed, per trade clearing
fee begins from greater than 1100 contracts per trade to greater than
1018 contracts per trade. The proposed changes are designed to target a
level of revenues sufficient to cover OCC's operating expenses plus a
Business Risk Buffer of 25% while continuing to maintain OCC's existing
fixed, per trade fee at a level of $55 per trade.
In accordance with its Fee Policy, OCC will continue to monitor
cleared contract volume and operating expenses in order to determine if
further revisions to OCC's Schedule of Fees are required so that monies
received from clearing fees cover OCC's operating expenses plus a
Business Risk Buffer of 25%.\14\
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\14\ Any subsequent changes to OCC's Schedule of Fees would be
the subject of a subsequent proposed rule change filed with the
Commission.
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(2) Statutory Basis
Section 17A(b)(3)(D) of the Act, requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants.\15\ The proposed
fee schedule was set in accordance with the criteria set forth in OCC's
Capital Plan, which requires that OCC's fees be set at a level designed
to cover OCC's operating expenses and maintain a Business Risk Buffer
of 25%.\16\ OCC believes the proposed fee change is reasonable because
the fee increase would be set at a level intended only to facilitate
the maintenance of OCC's Business Risk Buffer of 25%, which is designed
to ensure that OCC accumulates sufficient capital to cover unexpected
fluctuations in operating expenses, business capital needs, and
regulatory capital requirements. Moreover, OCC believes that the
proposed fee change would result in an equitable allocation of fees
among its participants because it would be equally applicable to all
market participants. As a result, OCC believes that the proposed fee
schedule provides for the equitable allocation of reasonable fees in
accordance with Section 17A(b)(3)(D) of the Act.\17\ 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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\15\ 17 U.S.C. 78q-1(b)(3)(D).
\16\ See supra note 5.
\17\ 17 U.S.C. 78q-1(b)(3)(D).
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act\18\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would have any impact or impose a
burden on competition. Although this proposed rule change affects
clearing members, their customers, and the markets that OCC serves, OCC
believes that the proposed rule change would not disadvantage or favor
any particular user of OCC's services in relationship to another user
because the proposed clearing fees apply equally to all users of OCC.
Accordingly, OCC does not believe that the proposed rule change would
have any impact or impose a burden on competition.
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\18\ 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
Pursuant to Section 19(b)(3)(A)(ii) \19\ of the Act, and Rule 19b-
4(f)(2) thereunder,\20\ the proposed rule change is filed for immediate
effectiveness as it constitutes a change in fees charged to OCC
Clearing Members. At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors,
[[Page 4946]]
or otherwise in furtherance of the purposes of the Act.\21\
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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
\20\ 17 CFR 240.19b-4(f)(2).
\21\ Notwithstanding its immediate effectiveness, implementation
of this rule change will be delayed until this change is deemed
certified under CFTC Rule 40.6.
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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-2018-004 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-2018-004. 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 that you wish to make available publicly.
All submissions should refer to File Number SR-OCC-2018-004 and
should be submitted on or before February 23, 2018.
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\22\ 17 CFR 200.30-3(a)(12). OCC filed this proposed rule change
for immediate effectiveness pursuant to Exchange Act Section
19(b)(3)(A)(ii) and Rule 19b-4(f)(2). As stated above in note 8, OCC
may not implement the proposed change unless either (i) the
Commission issues an Order approving the proposed rule change SR-
OCC-2018-001 or (ii) an exception to the 60-day notice period
provision in the Fee Policy is authorized by OCC's Board of
Directors and the holders of all of the outstanding Class B Common
Stock of OCC.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02124 Filed 2-1-18; 8:45 am]
BILLING CODE 8011-01-P