[Federal Register Volume 85, Number 20 (Thursday, January 30, 2020)]
[Notices]
[Pages 5500-5511]
[FR Doc No: 2020-01643]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88029; File No. SR-OCC-2019-007]

Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change, as Modified by Partial Amendment
No. 1, Concerning a Proposed Capital Management Policy That Would
Support The Options Clearing Corporation's Function as a Systemically
Important Financial Market Utility

January 24, 2020.

I. Introduction

    On August 9, 2019, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2019-007 (``Proposed Rule Change'')
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to adopt a policy
concerning capital management at OCC, which includes OCC's plan to
replenish its capital in the event it falls close to or below target
capital levels.\3\ The Proposed Rule Change was published for public
comment in the Federal Register on

August 27, 2019.\4\ The Commission received comments regarding the
Proposed Rule Change.\5\ On September 11, 2019, OCC filed a partial
amendment (``Partial Amendment No. 1'') to modify the Proposed Rule
Change.\6\ On October 8, 2019, the Commission designated a longer
period of time for Commission action on the Proposed Rule Change.\7\
Notice of Partial Amendment No. 1 and of the designation of a longer
period of time was published in the Federal Register on October 15,
2019.\8\ On November 22, 2019, the Commission issued an order to
institute proceedings to determine whether to approve or disapprove the
Proposed Rule Change.\9\ This order approves the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, at 84 FR 44952.
    \4\ Securities Exchange Act Release No. 86725 (Aug. 21, 2019),
84 FR 44952 (Aug. 27, 2019) (SR-OCC-2019-007) (``Notice of
Filing''). OCC also filed a related advance notice (SR-OCC-2019-805)
(``Advance Notice'') with the Commission pursuant to Section
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, entitled the Payment, Clearing, and
Settlement Supervision Act of 2010 and Rule 19b-4(n)(1)(i) under the
Exchange Act. 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4,
respectively. The Advance Notice was published in the Federal
Register on September 11, 2019. Securities Exchange Act Release No.
86888 (Sep. 5, 2019), 84 FR 47990 (Sep. 11, 2019) (SR-OCC-2019-805).
    \5\ Comments are available at https://www.sec.gov/comments/sr-occ-2019-007/srocc2019007.htm.
    \6\ See Notice of Extension infra note 8, at 84 FR 55189. In
Partial Amendment No. 1, OCC appended an Exhibit 2 to the materials
filed on August 9, 2019 regarding File No. SR-OCC-2019-007. The
appended Exhibit 2 consists of communications from OCC concerning
the proposal dated after OCC filed the proposal on August 9, 2019
and does not change the purpose of or basis for the Proposed Rule
Change. References to the Proposed Rule Change from this point
forward refer to the Proposed Rule Change, as amended by Partial
Amendment No. 1.
    \7\ See Notice of Extension infra note 8, at 84 FR 55189.
    \8\ Securities Exchange Act Release No. 87246 (Oct. 8, 2019), 84
FR 55189 (Oct. 15, 2019) (SR-OCC-2019-007) (``Notice of
Extension'').
    \9\ Securities Exchange Act Release No. 87603 (Nov. 22, 2019),
84 FR 65858 (Nov. 29, 2019) (SR-OCC-2019-007).
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II. Background

    One reason for the Proposed Rule Change is a specific Commission
requirement for covered clearing agencies such as OCC. Rule 17Ad-
22(e)(15) under the Exchange Act requires that a covered clearing
agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to identify, monitor, and manage the
covered clearing agency's general business risk and hold sufficient
liquid net assets funded by equity to cover potential general business
losses so that the covered clearing agency can continue operations and
services as a going concern if those losses materialize, including by
taking the actions described in Rules 17Ad-22(e)(15)(i)-(iii) under the
Exchange Act.\10\ In adopting Rule 17Ad-22(e), which includes Rule
17Ad-22(e)(15), the Commission noted that ``each registered clearing
agency has different organizational and operating structures and clears
distinct products that warrant a tailored approach to governance and
risk management, respectively.'' \11\ The Commission also noted its
belief that Rule 17Ad-22(e) ``achieves the appropriate balance between
imposing new requirements on covered clearing agencies and allowing
each covered clearing agency, subject to its obligations and
responsibilities as an SRO under the Exchange Act, to design its
policies and procedures pursuant to Rule 17Ad-22(e).''\12\
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    \10\ 17 CFR 240.17Ad-22(e)(15).
    \11\ Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786, 70797 (October 13, 2016) (S7-03-14) (``Covered
Clearing Agency Standards'').
    \12\ Id.
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    Rule 17Ad-22(e)(15) was adopted in 2016 as part of the Covered
Clearing Agency Standards, with a compliance date of April 11,
2017.\13\ Anticipating the need to come into compliance with new Rule
17Ad-22(e)(15), in January 2015, OCC filed with the Commission a
proposed rule change regarding a plan to increase OCC's capitalization
(the ``Capital Plan'').\14\ The Capital Plan was approved by the
Commission in February 2016,\15\ and subsequently implemented by OCC.
However, the approval order was vacated by the Court of Appeals for the
D.C. Circuit and remanded to the Commission. On February 13, 2019, the
Commission issued an order disapproving the Capital Plan on remand.\16\
In order to come back into compliance with Rule 17Ad-22(e)(15), among
other things, OCC now proposes changes to adopt, as part of its rules,
a new policy concerning capital management at OCC (``Capital Management
Policy''). Specifically, the proposed Capital Management Policy would
(i) describe how OCC would determine the amount of liquid net assets
funded by equity (``LNAFBE'') necessary to cover OCC's potential
general business losses; (ii) require OCC to hold a minimum amount of
shareholders equity (``Equity'') sufficient to support the amount of
LNAFBE determined to be necessary; \17\ and (iii) establish a plan for
replenishing OCC's capital in the event that Equity were to fall below
certain thresholds. OCC also proposes to revise its existing rules to
support the terms of the proposed Capital Management policy.
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    \13\ See Covered Clearing Agency Standards, 81 FR at 70786.
    \14\ See Securities Exchange Act Release No. 74136 (Jan. 26,
2015, 80 FR 5171 (Jan. 30, 2015) (File No. SR-OCC-2015-02).
    \15\ Securities Exchange Act Release No. 7112 (Feb. 11, 2016),
81 FR 8294 (Feb. 18, 2016) (File No. SR-OCC-2015-02).
    \16\ See Securities Exchange Act Release No. 85121 (Feb. 13,
2019), 84 FR 5157 (Feb. 20, 2019) (File No. SR-OCC-2015-02).
    \17\ LNAFBE would mean cash and cash equivalents to the extent
that such cash and cash equivalents do not exceed Equity.
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A. Determining Capital Requirements

    As noted above, OCC proposes to adopt rules describing the
determination of the LNAFBE necessary to cover potential general
business losses. As proposed, LNAFBE would be a subset of OCC's overall
Equity--cash and cash equivalents, less any approved adjustments--and
therefore, could not, by definition, exceed Equity. OCC proposes to set
a ``Target Capital Requirement,'' which would be based on two
components: (i) The amount of LNAFBE determined by OCC to be necessary
to ensure compliance with OCC's regulatory obligations, including Rule
17Ad-22(e)(15) under the Exchange Act; \18\ and (ii) any additional
amounts determined to be necessary and appropriate for capital
expenditures approved by OCC's Board.\19\
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    \18\ 17 CFR 240.17Ad-22(e)(15).
    \19\ In setting the Target Capital Requirement, OCC would also
consider, but not be bound by, its projected rolling twelve-months'
operating expenses pursuant to OCC's interpretation of Commodity
Exchange Act Rule 39.11(a)(2). 17 CFR 39.11(a)(2). Nothing in this
Order constitutes an interpretation of Rule 39.11(a)(2) under the
Commodity Exchange Act by the Commission or an endorsement of OCC's
interpretation of Rule 39.11(a)(2).
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    With respect to the first component of the Target Capital
Requirement, to ensure that it is set at a level sufficient to ensure
compliance with OCC's regulatory obligations, OCC proposes to set its
Target Capital Requirement, at a minimum, equal to the greater of three
amounts: (i) An amount equal to six-months of OCC's current operating
expenses; (ii) the amount determined by OCC's Board to be sufficient to
ensure a recovery or orderly wind-down of critical operations and
services (``RWD Amount''); \20\ or (iii) the amount determined by OCC's
Board to be sufficient for OCC to continue

operations and services as a going concern if general business losses
materialize (``Potential Loss Amount'').\21\ OCC believes that a
minimum Target Capital Requirement sized to cover at least these three
amounts would address OCC's obligations under Exchange Act Rule 17Ad-
22(e)(15).\22\ With respect to the second component of the Target
Capital Requirement, the proposal would authorize OCC's Board to
increase the Target Capital Requirement by an amount to be retained for
capital expenditures.\23\ OCC's Board would be responsible for
reviewing and approving the Target Capital Requirement annually.
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    \20\ Under the proposal, OCC's Board would approve the RWD
Amount annually at a level designed to cover the cost to maintain
OCC's critical services over the recovery or wind-down period.
Identification of OCC's critical services and the length of time
necessary to recover or wind-down is covered in OCC's Recovery and
Wind-Down Plan. See Securities Exchange Act Release No. 83918 (Aug.
23, 2018), 83 FR 44091 (Aug. 29, 2018).
    \21\ Under the proposal, OCC's Board would set the Potential
Loss Amount by analyzing and aggregating potential losses from
individual operational risk scenarios, aggregating the loss events,
and conducting loss modeling at or above the 99 percent confidence
level.
    \22\ See Notice of Filing, 84 FR at 44945.
    \23\ Under the proposal, OCC's Board could determine, in the
alternative, to fund capital expenditures out of funds in excess of
the Target Capital Requirement. OCC stated that, in making such a
determination, its Board would consider factors including, but not
limited to, the amount of funding required, the amount of Equity
proposed to be retained, the potential impact of the investment on
OCC's operations, and the duration of time over which funds would be
accumulated. See id.
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B. Maintaining Capital

    As noted above, OCC proposes to adopt rules that would require it
to hold the minimum amount of Equity necessary to cover the Target
Capital Requirement. Specifically, OCC proposes to adopt rules
pertaining to the monitoring and management of OCC's Equity. Under the
proposed rules, OCC's senior management would be responsible for
reviewing analyses, including projections of future volume, expenses,
cash flows, capital needs and other factors, to help ensure adequate
financial resources are available to meet general business obligations.
Such analyses would also include a monthly review of whether OCC's
Equity falls close to or below the Target Capital Requirement. Under
the proposal, OCC would view Equity less than 110 percent of the Target
Capital Requirement as falling close to the Target Capital
Requirement.\24\ OCC would refer to a breach of this 110 percent
threshold as an ``Early Warning.'' Under the proposed rules, OCC's
senior management would be obligated to notify OCC's Board promptly if
Equity were to fall below the Early Warning threshold and to recommend
to the Board whether to implement a fee increase in an amount that the
Board determines necessary and appropriate to raise additional Equity.
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    \24\ OCC stated that 10 percent of the Target Capital
Requirement represents approximately two months of earnings, and
that OCC believes that a two-month window would provide OCC's senior
management and Board sufficient time to respond to a deterioration
of OCC's capital. See Notice of Filing, 84 FR at 44946.
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    Under the proposal, OCC's senior management would also, on a
quarterly basis, review OCC's schedule of fees in consideration of
projected operating expenses, projected volumes, anticipated cash
flows, and capital needs. Based on its review, OCC's senior management
would recommend to OCC's Board Compensation and Performance Committee
whether to issue a fee increase, decrease or fee waiver. Additionally,
if Equity were to exceed 110 percent of the Target Capital Requirement
plus an amount of excess Equity approved for capital expenditures,
OCC's Board could reduce the cost of clearing by lowering fees,
declaring a fee holiday, or issuing refunds.
    OCC stated that resources held to meet OCC's Target Capital
Requirement would be in addition to OCC's resources to cover
participant defaults.\25\ OCC proposes, however, to mitigate losses
arising out of a Clearing Member default with OCC's own excess capital.
Specifically, OCC proposes to offset default losses remaining after the
application of a defaulted Clearing Member's margin deposits and
Clearing Fund contributions with OCC's capital in excess of 110 percent
of the Target Capital Requirement at the time of the default. OCC also
proposes to charge losses remaining after the application of OCC's
excess capital to OCC senior management's deferred compensation as well
as non-defaulting Clearing Members.\26\ The Commission understands
these aspects of the proposal to constitute the first instance where a
covered clearing agency is seeking Commission consideration of a
``skin-in-the-game'' component to financial risk management for central
clearing. A skin-in-the-game component to financial risk management
entails a covered clearing agency (in this instance, OCC), upon the
occurrence of a default or series of defaults and application of all
available assets of the defaulting participant(s), choosing to apply
its own capital contribution to the relevant clearing or guaranty fund
in full to satisfy any remaining losses prior to the application of any
(a) contributions by non-defaulting members to the clearing or guaranty
fund, or (b) assessments that the covered clearing agency require non-
defaulting participants to contribute following the exhaustion of such
participant's funded contributions to the relevant clearing or guaranty
fund.\27\
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    \25\ See Notice of Filing, 84 FR at 44950.
    \26\ Such losses would be charged on a pro rata basis to (a)
non-defaulting Clearing Members' Clearing Fund contributions, and
(b) the aggregate value of the EDCP Unvested Balance (defined
below).
    \27\ See Covered Clearing Agency Standards, 81 FR at 70806.
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C. Replenishing Capital

    OCC proposes to establish a plan for replenishing its capital in
the event that Equity were to fall below certain thresholds
(``Replenishment Plan''). As described above, OCC proposes to establish
an Early Warning threshold to define when OCC's Equity falls close
enough to the Target Capital Requirement to require action. OCC also
proposes to establish two ``Trigger Event'' thresholds to identify (i)
whether OCC's Equity were to fall below the Target Capital Requirement;
and (ii) the appropriate response based on the severity and speed of
capital deterioration. Further, the proposed Capital Management Policy
would require that, on an annual basis, OCC's management recommend that
the Board approve or, as appropriate, modify the Replenishment Plan,
and that the Board review and, as appropriate, approve Management's
recommendation.
    Under the proposed rules, a Trigger Event would occur if OCC's
Equity were to remain below 100 percent of the Target Capital
Requirement for a period of 90 consecutive calendar days (referred to
herein as the ``Moderate Trigger Event''). OCC believes that the
failure of a fee increase resulting from an Early Warning to increase
OCC's Equity above the Target Capital Requirement within 90 days would
indicate that corrective action in the form of a fee increase would be
insufficient.\28\ Under the proposed rules, a Trigger Event would also
occur if OCC's Equity were to fall below 90 percent of the Target
Capital Requirement at any time (referred to herein as the ``Severe
Trigger Event''). OCC believes that a Severe Trigger Event would be a
sign that corrective action more significant and with a more immediate
impact than increasing fees should be taken to increase OCC's
Equity.\29\
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    \28\ See Notice of Filing, 84 FR at 44946-47.
    \29\ See Notice of Filing, 84 FR at 44946.
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    As noted above, OCC's Board would be authorized to approve fee
increases to address the deterioration of OCC's capital over time. To
address the more acute capital replenishment needs posed by the Trigger
Events, OCC proposes to authorize the use of two

additional resources: (i) Funds held under The Options Clearing
Corporation Executive Deferred Compensation Plan Trust (``EDCP''); \30\
and (ii) funds obtained by levying a special fee on Clearing Members.
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    \30\ The EDCP funds available for capital replenishment would be
only those funds that are (x) deposited on or after January 1, 2020
in respect of the EDCP and (y) in excess of amounts necessary to pay
for benefits accrued and vested under the EDCP at such time (``EDCP
Unvested Balance'').
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    In response to a Trigger Event, OCC would be required to replenish
its capital first through the contribution of the EDCP Unvested
Balance. The amount of the EDCP Unvested Balance contributed would be
the lesser of (i) the entire EDCP Unvested Balance or (ii) the amount
necessary to raise OCC's Equity above 110 percent of the Target Capital
Requirement. If a contribution of the entire EDCP Unvested balance were
necessary, OCC would be required to reevaluate its Equity vis-[agrave]-
vis the Target Capital Requirement to determine whether further action
would be required following such a contribution.
    The proposed rules would require that OCC take further action if,
after contributing the entire EDCP Unvested Balance, either: (i) Equity
were to remain above 90 percent, but below 100 percent, of the Target
Capital Requirement for an additional 90-day period; \31\ or (ii)
Equity were below 90 percent of the Target Capital Requirement. Under
the proposal, if OCC were to determine that further action would be
necessary to replenish its capital, OCC would be required to levy a
special fee on its Clearing Members (``Operational Loss Fee''), which
would be payable within five business days of OCC providing notice to
the Clearing Members. Accordingly, OCC proposes to amend its schedule
of fees to describe the maximum Operational Loss Fee that it could
charge Clearing Members. The maximum Operational Loss Fee would be
sized to provide OCC with the RWD Amount after any applicable taxes
(``Adjusted RWD Amount'').\32\ Under the proposal, OCC would be
authorized to charge Clearing Members, collectively, the lesser of (i)
the maximum Operational Loss Fee or (ii) the amount necessary to raise
OCC's Equity above 110 percent of the Target Capital Requirement. Under
the proposal, OCC would allocate the Operational Loss Fee equally among
the Clearing Members. OCC believes that charging the Operational Loss
Fee in equal shares is preferable to other potential allocation methods
because it would equally mutualize the risk of operational loss among
the firms that use OCC's services.\33\
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    \31\ The 90-calendar day term of a subsequent Moderate Trigger
Event would be measured beginning on the date OCC applies the EDCP
Unvested Balance.
    \32\ OCC acknowledged that the tax implications of the income
represented by the Operational Loss Fee would depend on the extent
to which any operational loss giving rise to a Trigger Event would
be tax deductible. See Notice of Filing, 84 FR at 44947.
    \33\ See id. OCC stated that it found no evidence of a
correlation between the risk of operational loss and either volume
or a Clearing Member's credit risk profile. See id.
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    The proposed rules would permit OCC to charge amounts only up to
the maximum Operational Loss Fee. If, after charging some amount less
than the maximum Operational Loss Fee, OCC were to issue clearing fee
refunds to manage excess capital, OCC would issue such refunds in equal
shares until the amount of the Operational Loss Fee charged to each
Clearing Member had been fully refunded. If OCC were to charge some
amount less than the maximum Operational Loss Fee, then the proposed
rules would allow OCC to charge another Operational Loss Fee in the
future, provided that the sum of all Operational Loss Fees, less
amounts refunded, could not exceed the maximum Operational Loss Fee. In
the event that OCC were to charge the maximum Operational Loss Fee, OCC
would then be required to convene its Board to develop a new
replenishment plan.

III. Statutory Standards

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\34\ The Commission
addresses in its review of the Proposed Rule Change the following
relevant provisions of the Exchange Act and the rules and regulations
thereunder applicable to registered clearing agencies:
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    \34\ 15 U.S.C. 78s(b)(2)(C).
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     Section 17A(b)(3)(F) of the Exchange Act requires, in
part, that the rules of a registered clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions, to assure the safeguarding of securities and funds which
are in the custody or control of OCC or for which it is responsible,
and to protect investors and the public interest.\35\
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    \35\ 15 U.S.C. 78q-1(b)(3)(F).
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     Section 17A(b)(3)(D) of the Exchange Act requires, in
part, that the rules of a clearing agency provide for the equitable
allocation of reasonable dues, fees, and other charges among its
participants.\36\
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    \36\ 15 U.S.C. 78q-1(b)(3)(D).
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     Rule 17Ad-22(e)(2) under the Exchange Act requires, in
part, that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
provide for governance arrangements that meet a number of criteria.\37\
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    \37\ 17 CFR 240.17Ad-22(e)(2).
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     Rule 17Ad-22(e)(15) under the Exchange Act requires, in
part, that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
identify, monitor, and manage the covered clearing agency's general
business risk and hold sufficient liquid net assets funded by equity to
cover potential general business losses so that the covered clearing
agency can continue operations and services as a going concern if those
losses materialize, including by taking the actions described in Rules
17Ad-22(e)(15)(i)-(iii) under the Exchange Act.\38\
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    \38\ 17 CFR 240.17Ad-22(e)(15).
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IV. Discussion and Commission Findings

    After considering the entire record, and for the reasons discussed
below, the Commission finds the proposal is consistent with Sections
17A(b)(3)(F) and 17A(b)(3)(D) of the Exchange Act,\39\ as well as Rules
17Ad-22(e)(2) and 17Ad-22(e)(15) thereunder.\40\
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    \39\ 15 U.S.C. 78q-1(b)(3)(D) and (F).
    \40\ 17 CFR 240.17Ad-22(e)(2) and 17 CFR 240.17Ad-22(e)(15).
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    Before addressing the relevant portions of the Exchange Act and the
rules and regulations thereunder, however, we address a comment
submitted by Susquehanna International Group (``SIG''). SIG does not
comment on the substance of the proposal, but, rather, expresses a
generalized concern that the capital accumulated through the proposed
Capital Management Policy could ultimately be monetized only or
disproportionately for the benefit of the OCC shareholders in the event
of a future sale of OCC.\41\ SIG acknowledges that OCC's By-Laws
currently limit the shareholders of OCC to national securities
exchanges or national securities associations.\42\ SIG states, however,
that OCC's By-Laws leave

open the possibility of one of these organizations acquiring OCC or a
future change to OCC's By-Laws to permit others to acquire OCC.\43\ The
Commission notes that any such future transformative transaction
(including any related proposals concerning the Capital Management
Policy) would be subject to the filing requirements of Section 19 of
the Exchange Act. We would therefore assess the details and potential
effects of the transaction at that time, including the treatment of
fees collected from Clearing Members. In light of this required review
of any such transaction, the Commission does not believe that the
concerns raised by SIG about such a future transaction render the
Capital Management Policy inconsistent with the Exchange Act.
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    \41\ Letter from Brian Sopinsky, General Counsel, Susquehanna
International Group, dated October 1, 2019, to Vanessa Countryman,
Secretary, Commission (``SIG Letter'') at 1.
    \42\ SIG Letter at 1.
    \43\ SIG Letter at 1.
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires, in part, that
the rules of OCC be designed to promote the prompt and accurate
clearance and settlement of securities transactions and to assure the
safeguarding of securities and funds which are in the custody or
control of OCC or for which it is responsible.\44\ Based on its review
of the record, the Commission finds the proposal is consistent with
Section 17A(b)(3)(F) of the Exchange Act.
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    \44\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the Capital Management Policy as a
whole would help to ensure that OCC monitors and maintains its Equity
at a level sufficient to either continue operating as a going concern
or to wind-down its operations in an orderly manner in the event that
OCC incurs potential operational or general business losses. In
particular, the Commission believes that the proposed establishment of
a Target Capital Requirement in combination with the capital
monitoring, management, and replenishment tools described above,
including the Operational Loss Fee, would reduce the risk that OCC
would be unavailable to clear and settle securities transactions and
therefore is consistent with promoting prompt and accurate clearance
and settlement of securities transactions. The Commission did not
receive any comments on this aspect of the proposal.
    In addition, as described above, OCC proposes to mitigate losses
arising out of a Clearing Member default with OCC's excess capital
(i.e., skin-in-the-game). Further, OCC proposes to charge losses
remaining after the application of skin-in-the-game to OCC senior
management as well as Clearing Members through the contribution of the
EDCP Unvested Balance. Taken together, these aspects of the Proposed
Rule Change could reduce the potential losses charged to the Clearing
Fund contributions of non-defaulting Clearing Members in the event of a
Clearing Member default, which in turn would help preserve the Clearing
Fund contributions of non-defaulting Clearing Members.\45\ As such, the
components of the Proposed Rule Change related to skin-in-the-game are
consistent with promoting the safeguarding of securities and funds in
OCC's custody or for which OCC is responsible.
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    \45\ Additional issues relevant to the skin-in-the-game aspects
of the proposal, including relevant comments, are discussed below in
Section V.C.
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    Accordingly, the Commission finds that the proposed Capital
Management Policy is consistent with the requirements of Section
17A(b)(3)(F) of the Exchange Act.\46\
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    \46\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Section 17A(b)(3)(D) of the Exchange Act

    Section 17A(b)(3)(D) of the Exchange Act requires the rules of a
clearing agency to provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants.\47\ As discussed
below, based on its review of the record, the Commission finds that
OCC's proposal--as relevant here, the proposal to adopt the Operational
Loss Fee--is consistent with Section 17A(b)(3)(D) of the Exchange Act.
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    \47\ 15 U.S.C. 78q-1(b)(3)(D).
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1. OCC's Proposal To Set the Amount of the Operational Loss Fee Is
Reasonable
    As discussed above, the Operational Loss Fee is designed to
replenish OCC's capital following the realization of losses arising out
of operational or general business risk exposures (as opposed to losses
arising out of the default of a Clearing Member). To that end, OCC
proposes to set the maximum amount of the Operational Loss Fee based on
the amount determined necessary to either recover and continue
operating as a going concern, or wind-down its operations in an orderly
manner, with adjustments to those amounts to account for the potential
tax implications of revenues that would be generated by the fee.\48\
Additionally, the proposal would not require OCC to charge the maximum
amount of the Operational Loss Fee, and would provide OCC the means to
repay any Operational Loss Fee charged to Clearing Members through
subsequent refunds.\49\
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    \48\ See Notice of Filing, 84 FR at 44947. As discussed in
Section V.D.2 herein, the Commission finds that the approach OCC
applies to determining such amounts is reasonable and supported by
the record.
    \49\ See id.
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    As noted, the purpose of the Operational Loss Fee is to provide OCC
with sufficient replenishment capital following an operational- or
general business risk-related loss, such that OCC could either recover
its operations and continue operating as a going concern, or wind-down
its operations in an orderly manner. The Commission did not receive any
comments on the aspects of the proposal related to the sizing of the
Operational Loss Fee. Further, as discussed above, the Commission has
reviewed the regulatory information available to it related to OCC's
Clearing Members and understands that the maximum Operational Loss Fee
would be approximately the same as the contingent obligations under the
OCC Clearing Fund assessment requirements for a Clearing Member
operating at the minimum Clearing Fund deposit.\50\ The Commission
believes that OCC's proposal to size the Operational Loss Fee
consistent with other Clearing Member obligations while also generating
an amount of capital appropriate to recover OCC's operations and
continue as a going concern or wind down its operations in an orderly
manner is reasonable and therefore consistent with the requirements of
Section 17A(b)(3)(D) of the Exchange Act.\51\
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    \50\ Such minimum assessments could equal up to an additional $1
million ($500,000 minimum Clearing Fund requirement, assessed up to
two times) on top of a Clearing Member's existing $500,000 minimum
Clearing Fund contribution, for a total contribution of $1.5
million. See, generally, OCC Rule 1006(h), available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf
    \51\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

2. OCC's Proposal Would Provide for the Equitable Allocation of the
Operational Loss Fee
    If levied, OCC would allocate the Operational Loss Fee equally
among all Clearing Members.\52\ According to OCC, equal allocation is
preferable to a proportional allocation based on, for example, Clearing
Members' trade volume or Clearing Fund contributions, because, in OCC's
view, all Clearing Members benefit from equal access to the clearance
and settlement services provided by OCC, irrespective of how much a
given Clearing Member chooses to use those services.\53\ Additionally,
in developing its proposal to adopt the

Operational Loss Fee, OCC considered alternative allocation methods for
the Operational Loss Fee, including allocating the Operational Loss Fee
proportionally among Clearing Members based on trade volume, risk
profile, and other metrics.\54\ As part of this process, OCC reviewed
available data related to different measures of Clearing Members' use
of OCC's clearance and settlement services, such as trade volume and
credit risk profiles, and performed a series of analyses to determine
whether there is a potential correlation between and among those
metrics and the various operational and general business risks that
could give rise to the Operational Loss Fee.
---------------------------------------------------------------------------

    \52\ See Notice of Filing, 84 FR at 44947.
    \53\ See id.
    \54\ See id. Additionally, OCC discussed the equal allocation of
the Operational Loss Fee with Clearing Members on May 31, 2019. See
Notice of Filing, 84 FR at 44949.
---------------------------------------------------------------------------

    The Commission received, and has reviewed, these analyses.\55\
These analyses did not show a correlation between the operational and
general business risks that could give rise to the Operational Loss Fee
and contract volume, Clearing Fund contributions, risk profile, or
other metrics.\56\ Based on our review of the record, we conclude that
it is consistent with the Exchange Act to allocate the Operational Loss
Fee equally among all Clearing Members.
---------------------------------------------------------------------------

    \55\ See Notice of Filing, 84, FR at 44947 (noting that OCC
included as confidential Exhibit 3e a comparison of its
quantification of operational risks to contract volume and the
amount of Clearing Fund deposits).
    \56\ See Notice of Filing, 84, FR at 44947 (noting that ``OCC
has not observed any correlation between the annual quantifications
of these risks and contract volume or Clearing Member credit
risk.'').
---------------------------------------------------------------------------

    One commenter, the FIA, submitted a comment letter noting that the
use of the Operational Loss Fee could allocate some amount of non-
default losses to OCC's Clearing Members and stating that non-default
losses should not be allocated to Clearing Members. In the FIA's view,
as a CCP, OCC should absorb such losses rather than utilize capital on
a discretionary basis.\57\ Rather than assess the Operational Loss Fee
in the event of a Trigger Event, the FIA asserts that OCC should begin
accumulating retained earnings now so that it will be in a position to
use them instead of the Operational Loss Fee.\58\ OCC responds that
raising additional capital through the accumulation of retained
earnings over a number of years would still source the funds from
Clearing Members, but would do so in a manner that essentially would
pre-fund the replenishment obligation rather than only impose it if and
when doing so became necessary.\59\ OCC further describes the series of
events that would have to occur in the event that its Equity fell at or
below different percentages of the Target Capital Requirement, and the
different measures OCC would have to take, including potentially
raising fees, lowering costs, and using its available skin-in-the-game
to cure such losses (and that would have to fail) before OCC would be
permitted to charge the Operational Loss Fee.\60\
---------------------------------------------------------------------------

    \57\ FIA Letter at 3.
    \58\ FIA Letter at 2.
    \59\ OCC Letter at 2.
    \60\ OCC Letter at 4-5.
---------------------------------------------------------------------------

    OCC's proposal with respect to the Operational Loss Fee will permit
OCC to raise additional equity in the event that its equity falls close
to or below the Target Capital Requirement. The Operational Loss Fee
represents an appropriate and reasonable allocation of potential
contingent costs to Clearing Members. The FIA's suggested approach
would still source the required funds from Clearing Members, but in a
manner that essentially pre-funds the maximum potential replenishment
obligation without being informed by the specific facts and
circumstances that inform OCC's determination of the actual required
amount.\61\ In contrast, under OCC's proposal, the Operational Loss Fee
would be imposed only if and when OCC's efforts to set and maintain its
capital reserves at a level sufficient to withstand operational and
business losses are insufficient, OCC's capital reserves deteriorate to
a significant degree as a result, and the other tools available to OCC
are insufficient to return OCC's capital reserves to a minimum
acceptable level. In this respect, the Commission believes that OCC's
approach is both reasonable and consistent with the Exchange Act.
Because the Operational Loss Fee is not assessed until a specific but
contingent future time, it leaves available to Clearing Members funds
and liquidity that may be put to more efficient use as opposed to being
held indefinitely at OCC in the form of collected fees. Further, the
Proposed Rule Change would allow OCC to charge less than the maximum
Operational Loss Fee because, if and when such a fee were to become
necessary, OCC would know that actual amount required to achieve
replenishment. In the Commission's view, this approach is more precise,
requiring OCC to determine and collect only the amount of the
Operational Loss Fee required by OCC under the given circumstances to
replenish its resources.
---------------------------------------------------------------------------

    \61\ OCC Letter at 2.
---------------------------------------------------------------------------

    Further, as the FIA noted, OCC estimates that the Operational Loss
Fee, if assessed now, would be around $1.4 million per Clearing
Member.\62\ OCC's rules currently require Clearing Members to maintain
net capital of at least $2 million.\63\ Based on its review of data
provided by OCC, as of the time of filing, 98 percent of Clearing
Members would be able to absorb the maximum Operational Loss Fee
without breaching that requirement.\64\ Further, a $1.4 million
Operational Loss Fee would be roughly similar to the contingent
obligations under the OCC Clearing Fund assessment requirements for a
Clearing Member operating at the minimum Clearing Fund deposit.\65\ In
the Commission's view, this helps ensure that any potential liquidity
obligations OCC may place on its Clearing Members via the Operational
Loss Fee is at a level that is generally consistent with OCC's existing
assessment demands on such Clearing Members.
---------------------------------------------------------------------------

    \62\ FIA Letter at 2.
    \63\ Notice of Filing, 84 FR at 44951-52 (citation omitted).
    \64\ See Notice of Filing, 84, FR at 44952 (stating that OCC
included, as confidential Exhibit 3h, financial data reported by
Clearing Members).
    \65\ Notice of Filing, 84 FR at 44951; see also supra note 51.
---------------------------------------------------------------------------

    Finally, the FIA's preferred approach of imposing higher fees now
and building up OCC's capital reserves to the necessary level over time
would not provide OCC with an immediately available replenishment plan,
and would therefore, not be consistent with OCC's obligation to comply
with Rule 17Ad-22(e)(15)(iii) of the Exchange Act. As such, although
the FIA has a general objection to any CCP allocating non-default
losses to Clearing Members, the FIA does not assert that, or otherwise
explain how, OCC's specific proposal to do so in the context of the
Operational Loss Fee would render the Proposed Rule Change inconsistent
with the Exchange Act.
    The FIA further expresses the belief that imposing the Operational
Loss Fee on Clearing Members without providing a return to Clearing
Members is inequitable and that, ideally, OCC's shareholders should
either be required to provide ``similar such commitment or allow for an
equity dilution.'' \66\
---------------------------------------------------------------------------

    \66\ FIA Letter at 2.
---------------------------------------------------------------------------

    As explained above, the Commission believes that the record
demonstrates that OCC has designed the Operational Loss Fee in a manner
that is equitable to the Clearing Members in terms of determining (i)
the overall amount of the Operational Loss Fee, and (ii) the relative
burdens and obligations Clearing Members must meet in paying the
Operational Loss Fee. Moreover, the Commission believes that the

Operational Loss Fee serves a critical purpose for the benefit of
Clearing Members, their customers and the broader U.S. equity markets.
OCC is the only clearing agency for standardized U.S. securities
options listed on SEC-registered national securities exchanges
(``listed options'') and provides central counterparty services for the
U.S. listed-options markets.\67\ OCC's role as the sole CCP for all
listed options contracts in the U.S. makes it an integral part of the
national system for clearance and settlement, and the Financial
Stability Oversight Council designated OCC as a systemically important
financial market utility (``SIFMU'') in 2012.\68\ The resilience and
ongoing orderly operations of OCC thus broadly benefits Clearing
Members, their customers, and the broader U.S. financial system.\69\
While OCC could have considered or proposed other approaches that might
have entailed different obligations and burdens for Clearing Members
(including via raising additional capital from the Clearing Members),
the failure of OCC to consider or propose such alternative measures
does not render the Proposed Rule Change inequitable.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 85121 (Feb. 13,
2019), 84 FR 5157 (Feb. 20, 2019) (File No. SR-OCC-2015-02); see
id., 84 FR at 5158.
    \68\ See Financial Stability Oversight Council (``FSOC'') 2012
Annual Report, Appendix A, https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf (last visited November 25,
2019).
    \69\ See id. As a registered clearing agency, OCC plays an
important role in fostering the proper functioning of financial
markets and, by centralizing the clearance and settlement of listed
options, allows market participants to reduce costs, increase
operational efficiency, and manage risks more effectively. See
Covered Clearing Agency Standards, 81 FR at 70860-61.
---------------------------------------------------------------------------

    A different commenter--LPL Financial (``LPL'')--expresses the
belief that the proposal to allocate the Operational Loss fee in equal
shares among OCC's Clearing Members would be inequitable and suggests
that, instead, the Operational Loss Fee should be allocated ``in a
manner that corresponds to the extent to which each Clearing Member
utilizes (and therefore benefits from) the OCC's operations.'' \70\ In
LPL's view, such an allocation would ``correctly acknowledge that the
extent to which a Clearing Member makes use of the OCC's clearing and
settlement systems does, in some cases, directly correspond to the risk
that the OCC will incur certain operational losses.'' \71\ LPL further
challenges OCC's statement that ``there is no correlation between
operational risks, on the one hand, and contract volume, on the other
hand,'' as ``flawed inasmuch as it ignores the fact that a Clearing
Member that makes greater use of the OCC's clearing and settlement
system places greater strain on that system and thus exposes the system
to greater operational risk.''\72\
---------------------------------------------------------------------------

    \70\ Letter from Steven Morrison, SVP, Associate General
Counsel, LPL, dated September 17, 2019 (received September 26, 2019)
to Brent J. Fields, Secretary, Commission, (``LPL Letter'') at 1-2.
    \71\ LPL Letter at 1-2.
    \72\ LPL Letter at 3.
---------------------------------------------------------------------------

    Based on the Commission's regulatory and supervisory experience,
the Commission does not agree that a Clearing Member that ``makes
greater use of OCC's clearing and settlement system necessarily places
greater strain on that system and thus exposes the system to greater
operational risk.'' Contrary to LPL's assertion that ``each contract
introduced to the OCC's system brings with it a new opportunity for
internal fraud and cyber-attack,'' \73\ based on its supervisory and
regulatory experience with OCC, the Commission understands that
contracts are not submitted to be processed by OCC on a one-by-one
basis such that each contract represents an equal potential for
operational risk.
---------------------------------------------------------------------------

    \73\ LPL Letter at 3.
---------------------------------------------------------------------------

    Further, in the Commission's experience, a Clearing Member's
``use'' of OCC's services is not necessarily correlated to that
Clearing Member's operational resiliency. OCC has a broad range of
geographically diverse Clearing Members, comprised of U.S. broker-
dealers, future commission merchants, and foreign securities firms of
various sizes, all of which serve diverse markets and engage in diverse
strategies and activities on behalf of diverse clients, including
professional traders, as well as institutional and retail investors.
There is, therefore, no basis to conclude, for example, that a Clearing
Member that clears 1,000 contracts in a given month in a particular set
of financial products necessarily introduces less operational risk to
OCC than a Clearing Member that clears 10,000 contracts in a different
set of financial products in that same month.
    LPL also fails to acknowledge or address the specific operational
and business risks that could give rise to the Operational Loss Fee. As
noted above, OCC conducted analyses to determine whether it could
identify a correlation between various measures of Clearing Members'
use of OCC's clearance and settlement services and the specific types
of operational and general business risks that could give rise to the
Operational Loss Fee. These included, among others, internal fraud,
external fraud, employment practices, workplace safety, damage to
physical assets, business disruption and system failures, and
execution, delivery, and process management at OCC. The Commission
believes that the operational and business risks identified and
analyzed by OCC are reasonable in light of the requirements of Rule
17Ad-22(e)(15) discussed above.\74\ And based on the Commission's
review of the record, we do not believe that there is a positive
correlation between these types of risks and a Clearing Member's ``use
of OCC's clearing and settlement services.'' For example, OCC's
analyses do not show a correlation between a Clearing Member's contract
volume or credit risk profile, which are reasonable proxies for a
Clearing Member's ``use'' of OCC's clearance and settlement services,
and the specific operational risk that that Clearing Member poses to
OCC.
---------------------------------------------------------------------------

    \74\ The Commission notes that these operational and business
risk metrics correspond to the Basel II Advanced Measurement
Approach. See International Convergence of Capital Measurements and
Capital Standards: a Revised Framework, Basel Committee on Banking
Supervision, 2005, available at https://www.bis.org/publ/bcbs128.pdf.
---------------------------------------------------------------------------

    Further, the Commission does not agree with the assertion that
Clearing Members that ``use'' OCC's clearance and settlement services
more derive more benefit from those services, and therefore should be
allocated a larger portion of the Operational Loss Fee. As an initial
matter, OCC has been designated as a SIFMU and its role as the sole CCP
for all listed options contracts in the U.S. makes it an integral part
of the national system for clearance and settlement. Clearing Members,
their customers, investors, and the markets as a whole derive
significant benefit from that national system and the overall market
system it supports, regardless of their specific utilization of that
system. As such, Clearing Members benefit from OCC's efforts to ensure
that it is and remains well capitalized, that it has sufficient
financial resources to withstand operational or general business
losses, and that it has a plan in place to replenish those resources in
the event that it incurs such losses. The Commission is not aware of
evidence demonstrating that those benefits are tied directly or
positively correlated to an individual Clearing Member's rate of
utilization of OCC's clearance and settlement services. Further, as
noted, the Commission has reviewed data provided by OCC that
demonstrates a lack of correlation between use (as represented by
volume) and operational risk.\75\ Such data is consistent with the
Commission's regulatory and

supervisory experience, which demonstrates that operational risks can
arise from a variety of disparate sources that are represented in
different ways and to different degrees among OCC's diverse membership,
such that, as noted above, the level of operational risk presented to
OCC by a given Clearing Member does not appear to be positively
correlated to the number, type, or volume of contracts that that
Clearing Member clears through OCC.
---------------------------------------------------------------------------

    \75\ See Notice of Filing, 84, FR at 44947 (noting that OCC
included as confidential Exhibit 3e a comparison of its
quantification of operational risks to contract volume and the
amount of Clearing Fund deposits).
---------------------------------------------------------------------------

    Taken together, the Commission believes that OCC's current proposal
to fund replenishment capital through the Operational Loss Fee includes
a sizing and allocation methodology that, as discussed above, is
reasonably designed to minimize the potential burden of the fee on
Clearing Members, as supported by data on the record, and would result
in both the reasonable sizing and the equitable allocation of the
Operational Loss Fee. Accordingly, for the reasons discussed above, the
Commission believes that the proposed allocation method is consistent
with the requirement that OCC's rules provide for the equitable
allocation of fees. The Commission finds, therefore, that OCC's
proposal to adopt the Operational Loss Fee is consistent with the
requirements of Section 17A(b)(3)(D) of the Exchange Act.\76\
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

C. Consistency With Rule 17Ad-22(e)(2) Under the Exchange Act

    Rule 17Ad-22(e)(2) under the Exchange Act requires, in part, that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to provide for
governance arrangements that, among other things, are clear and
transparent; clearly prioritize the safety and efficiency of the
covered clearing agency; and support the public interest requirements
of the Exchange Act.\77\ Based on its review of the record, the
Commission finds the proposal is consistent with Rule 17Ad-22(e)(2)
under the Exchange Act.
---------------------------------------------------------------------------

    \77\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

    As described in more detail above, under the proposal OCC would
introduce a skin-in-the-game component to its existing default
waterfall to offset losses in the event of a Clearing Member default.
The FIA stated that it is unclear how material these skin-in-the-game
contributions would be and whether they would be meaningful enough to
result in an alignment of interest from a shareholder perspective.\78\
The FIA notes that capital expenditures planned and approved by the OCC
Board can be met through amounts in excess of the Target Capital
Requirement and, as such, it is unclear how this may tie in with OCC's
plans to contribute skin-in-the-game.\79\ The FIA also notes that
``capital levels in excess of 110% of threshold could result in OCC
revisiting the fee schedule,'' and that it is ``unclear if/how this may
impact the funded level of skin in the game.'' \80\ As such, the FIA
seeks ``greater transparency on the size of these resources,'' states
that OCC should have a minimum amount of skin-in-the-game that ``scales
with risk and is defined and funded upfront,'' and urges OCC ``to
define a level of [skin-in-the-game] ex ante that would always be
readily available in case of a default loss.'' \81\
---------------------------------------------------------------------------

    \78\ FIA Letter at 1.
    \79\ FIA Letter at 2.
    \80\ FIA Letter at 2.
    \81\ FIA Letter at 1-2.
---------------------------------------------------------------------------

    OCC responds that the Commission has not imposed a skin-in-the-game
requirement, but that OCC nevertheless believes it is prudent to align
OCC's incentives with those of the broader industry with respect to the
management of risks faced by OCC and, as a result, has determined to
propose the skin-in-the-game provisions included in its proposal.\82\
OCC states that, under the proposed Capital Management Policy, it would
provide a layer of skin-in-the-game to be used for both default losses
and non-default losses, and that the skin-in-the-game would be a
combination of two sources: Current and retained earnings of OCC and
available funds in OCC's EDCP.\83\ OCC acknowledges that, because it
would be determined based on a function of available funds at a
specific point in time, the specific amount of skin-in-the-game will be
unknown until the time of an operational loss event, but emphasizes its
belief that the skin-in-the-game component of the proposed Capital
Management Policy, particularly with respect to the EDCP funds that
would be a direct contribution from OCC management, is sufficient to
ensure the alignment of incentives for risk management between OCC and
the Clearing Member community.\84\
---------------------------------------------------------------------------

    \82\ OCC Letter at 1.
    \83\ OCC Letter at 1-2.
    \84\ OCC Letter at 2.
---------------------------------------------------------------------------

    We conclude that OCC's skin-in-the-game proposal is consistent with
the Exchange Act and the rules and regulations thereunder. In adopting
Rule 17Ad-22(e)(2), the Commission discussed comments it received
regarding the concept of skin-in-the-game as a potential tool to align
the various incentives of a covered clearing agency's stakeholders,
including management and clearing members.\85\ And, while the
Commission declined to include a specific skin-in-the-game requirement,
it stated its belief that ``the proper alignment of incentives is an
important element of a covered clearing agency's risk management
practices,'' and noted that skin-in-the-game ``may play a role in those
risk management practices in many instances.'' \86\
---------------------------------------------------------------------------

    \85\ Covered Clearing Agency Standards, 81 FR at 70805-06.
    \86\ Covered Clearing Agency Standards, 81 FR at 70806.
---------------------------------------------------------------------------

    Here, OCC has considered its financial resources, ownership
structure, existing risk management framework, and other factors and,
in light of these considerations, proposes to add to its current
default waterfall two potential sources of skin-in-the-game for
offsetting losses associated with Clearing Member defaults: (i)
Deferred compensation in the form of the EDCP Unvested Balance (i.e.,
executive bonuses awarded but not yet paid) and (ii) capital reserves
(i.e., Shareholder equity) in excess of 110 percent of the Target
Capital Requirement. OCC proposes to modify its current default
waterfall such that it would be required to use these skin-in-the-game
resources before utilizing non-defaulting members' Clearing Fund
contributions.\87\
---------------------------------------------------------------------------

    \87\ Specifically, OCC's current default waterfall, in general,
utilizes the following resources in the following order: (i) The
defaulting Clearing Member's margin deposit; (ii) the defaulting
Clearing Member's Clearing Fund contribution; and (iii) non-
defaulting Clearing Members' Clearing Fund contributions. Under the
proposal the new default waterfall would require OCC to utilize the
following resources in the following order: (i) The defaulting
Clearing Member's margin deposit; (ii) the defaulting Clearing
Member's Clearing Fund contribution; (iii) skin-in-the-game in the
form of capital reserves above 110 percent of the Target Capital
Requirement at the time of the default; and (iv) skin-in-the-game in
the form of the aggregate value of the EDCP Unvested Balance at the
time of the default and non-defaulting Clearing Members' Clearing
Fund contributions, both charged on a pro rata basis. In addition,
under the proposal, OCC would be permitted (but would not be
required) to also utilize capital reserves between 100 percent and
110 percent of the Target Capital Requirement.
---------------------------------------------------------------------------

    In the Commission's view, with this aspect of the Proposed Rule
Change OCC would be taking an important step toward incorporating a
skin-in-the-game component into its existing risk management framework,
which in turn should help further align the interests of OCC's
stakeholders, including OCC management and Clearing Members. The direct
contribution of the EDCP Unvested Balance in particular would represent
a direct contribution of executive compensation by OCC's senior
managers and therefore would help align the incentives of OCC's

senior management with those of the broader industry with respect to
the management of risks faced by OCC. Further, the EDCP Unvested
Balance would not be affected directly by the issues relating to
capital expenditures and revisions to the fee schedule noted by the
FIA. Finally, although the size of OCC's skin-in-the-game resources in
absolute terms would not be set unless and until they were utilized,
the Proposed Rule Change establishes a clear and transparent
methodology for establishing the amount of skin-in-the-game that would
be available at the time and in the event of a Clearing Member default.
As such, the Commission believes that the skin-in-the-game aspects of
the Proposed Rule Change are consistent with Section 17Ad-22(e)(2) of
the Exchange Act.
    In addition to the skin-in-the-game components discussed above, the
Proposed Rule Change includes the various components that would govern
the sizing and imposition of the Operational Loss Fee. The FIA comment
letter expresses the belief that any Board decision that results in the
imposition of an Operational Loss Fee should be ``syndicated with''
Clearing Members and that any resulting feedback from Clearing Members
should be ``presented to the Board before any decisions are taken.''
\88\ In response, OCC refers to the requirements of its By-Laws that
result in more than two-thirds of OCC's directors being either Clearing
Member directors or public directors.\89\ Further, OCC expresses its
strong belief that part of the viability of a plan to replenish capital
is the speed at which that replenishment capital is accessible.
---------------------------------------------------------------------------

    \88\ FIA Letter at 3.
    \89\ OCC Letter at 3.
---------------------------------------------------------------------------

    We find that the Operational Loss Fee is consistent with Rule 17Ad-
22(e)(2)(iii). That rule requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that support the public interest requirements of Section 17A of the
Exchange Act applicable to clearing agencies, and the objectives of
owners and participants.\90\ In adopting Rule 17Ad-22(e)(2), the
Commission added paragraph (vi) in response to comments regarding the
scope of Rule 17Ad-22(e)(2)(iii).\91\ Paragraph (vi) of Rule 17Ad-
22(e)(2) specifically addresses the consideration of the interests of
participants' customers, securities issuers and holders, and other
relevant stakeholders of the covered clearing agency.\92\ In adopting
Rule 17Ad-22(e)(2), the Commission noted that the inclusion of
independent directors on a clearing agency's board may be one mechanism
for helping to ensure that the relevant views of stakeholders are
presented and considered.\93\ In the context of default management, the
Commission has acknowledged that risk exposures can change rapidly
during periods of market stress.\94\ Similarly, the Commission believes
that the general business risk exposures, and related losses, may
change rapidly during periods of stress, and, in turn, that there is a
benefit to a covered clearing agency's ability to respond to such
changes in a timely fashion.
---------------------------------------------------------------------------

    \90\ 17 CFR 240.17Ad-22(e)(2)(iii).
    \91\ Covered Clearing Agency Standards, 81 FR at 70803.
    \92\ 17 CFR 240.17Ad-22(e)(2)(vi).
    \93\ Covered Clearing Agency Standards, 81 FR at 70803.
    \94\ Covered Clearing Agency Standards, 81 FR at 70806.
---------------------------------------------------------------------------

    The FIA also expresses a concern that OCC's Board has a fiduciary
duty to OCC, and by implication, not to Clearing Members; however, OCC
responds that, in furtherance of the Exchange Act requirement that
OCC's rules must assure a fair representation of its shareholders (or
members) and participants in the selection of its directors and the
administration of its affairs, OCC's By-Laws ``state that nine of the
twenty directorships are reserved for representatives of OCC clearing
members,'' and that, in addition, five of the twenty directorships are
reserved for public directors, who are charged with representing the
interests of all stakeholders, such that more than two-thirds of OCC's
directors are either Clearing Member directors or public directors.\95\
OCC also describes the formal and informal mechanisms that OCC employs
to solicit feedback from Clearing Members and other interested
stakeholders, including its Financial Risk Advisory Committee,
Operations Roundtable, multiple letters and open calls with Clearing
Members and other interested stakeholders, and routine in-person
meetings with trade groups and individual firms.\96\ As such, OCC
contends that the Capital Management Policy was constructed with the
benefit of the perspective of the Clearing Member community, and any
further discussions at the Board will benefit from this same
perspective.\97\
---------------------------------------------------------------------------

    \95\ OCC Letter at 3-4.
    \96\ OCC Letter at 4.
    \97\ OCC Letter at 4.
---------------------------------------------------------------------------

    Again, we agree that the proposal is consistent with Rule 17Ad-
22(e)(2). In adopting Rule 17Ad-22(e)(2), the Commission noted that the
approach a covered clearing agency may take in considering the views of
stakeholders could vary depending on the ownership structure or
organizational form of the covered clearing agency.\98\ The Commission
believes that the governance arrangements currently in existence and
proposed by OCC in connection with the Proposed Rule Change, as
discussed above, are consistent with the requirement to consider the
interests of OCC's participants, and are therefore consistent with Rule
17Ad-22(e)(2).
---------------------------------------------------------------------------

    \98\ Covered Clearing Agency Standards, 81 FR at 70803.
---------------------------------------------------------------------------

    Accordingly, and for the reasons stated above, the Commission finds
the changes proposed in the Proposed Rule Change are consistent with
Rule 17Ad-22(e)(2) under the Exchange Act.\99\
---------------------------------------------------------------------------

    \99\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

D. Consistency With Rule 17Ad-22(e)(15) Under the Exchange Act

    Rule 17Ad-22(e)(15) under the Exchange Act requires, in part, that
a covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to identify,
monitor, and manage the covered clearing agency's general business risk
and hold sufficient liquid net assets funded by equity to cover
potential general business losses so that the covered clearing agency
can continue operations and services as a going concern if those losses
materialize, including by taking the actions described in Rules 17Ad-
22(e)(15)(i)-(iii) under the Exchange Act.\100\ As discussed below,
based on its review of the record, the Commission finds that the
proposal is consistent with Rule 17Ad-22(e)(15) of the Exchange Act.
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    \100\ 17 CFR 240.17Ad-22(e)(15).
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1. Rule 17Ad-22(e)(15)(i)
    Rule 17Ad-22(e)(15)(i) under the Exchange Act requires that the
policies and procedures described under Rule 17Ad-22(e)(15) include
determining the amount of liquid net assets funded by equity based upon
a covered clearing agency's general business risk profile and the
length of time required to achieve a recovery or orderly wind-down, as
appropriate, of its critical operations and services if such action is
taken.\101\
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    \101\ 17 CFR 240.17Ad-22(e)(15)(i).
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    As described above, OCC proposes to adopt rules governing OCC's
process for determining the amount of Equity required to support the
LNAFBE necessary to cover potential general business losses, which
would then be

used to help set its Target Capital Requirement.\102\ In turn, the
Target Capital Requirement would be designed to ensure, among other
things, that OCC holds sufficient capital to continue operations and
services as a going concern if general business losses materialize,
which OCC refers to as the Potential Loss Amount.\103\ To set the
Potential Loss Amount, OCC would conduct an annual analysis of its
capital requirements by analyzing and aggregating potential losses from
individual operational risk scenarios, aggregating the loss events, and
conducting loss modeling at or above the 99 percent confidence
level.\104\ The Commission did not receive any comments on this aspect
of the proposal. Taken together, the Commission believes the proposal
is designed to identify and maintain the resources necessary for OCC to
recover or wind-down its critical operations or services as well as to
remain a going concern following the realization of losses due to
general business risk, and therefore finds that it is consistent with
Rule 17Ad-22(e)(15)(i).\105\
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    \102\ See supra Section V.A; see also Notice of Filing, 84 FR at
44945.
    \103\ See id.
    \104\ See id.; OCC Letter at 4.
    \105\ 17 CFR 240.17Ad-22(e)(15)(i).
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2. Rule 17Ad-22(e)(15)(ii)
    Rule 17Ad-22(e)(15)(ii) under the Exchange Act requires that the
policies and procedures described under Rule 17Ad-22(e)(15) include
holding liquid net assets funded by equity equal to the greater of
either (i) six months of the covered clearing agency's current
operating expenses, or (ii) the amount determined by the board of
directors to be sufficient to ensure a recovery or orderly wind-down of
critical operations and services of the covered clearing agency, as
contemplated by the plans established under Rule 17Ad-22(e)(3)(ii), and
which shall be in addition to resources held to cover participant
defaults or other risks covered under applicable credit risk and the
liquidity risk standards, and shall be of high quality and sufficiently
liquid to allow the covered clearing agency to meet its current and
projected operating expenses under a range of scenarios, including in
adverse market conditions.\106\
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    \106\ 17 CFR 240.17Ad-22(e)(15)(ii).
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    As described above, OCC proposes to adopt rules that would require
it to hold at least the minimum amount of Equity necessary to meet the
Target Capital Requirement. In turn, the Target Capital Requirement
would be set at a level at least sufficient to comply with Rule 17Ad-
22(e)(15)(ii) under the Exchange Act. Specifically, the Target Capital
Requirement would equal or exceed, at a minimum, the greater of (i) six
months of OCC's current operating expenses; (ii) the RWD Amount (which
would equal or exceed the amount determined by the board of directors
to be sufficient to ensure a recovery or orderly wind-down of critical
operations and services); or (iii) the Potential Loss Amount. Thus,
under the proposal, OCC would maintain LNAFBE in an amount that would
equal or exceed the amount determined by OCC to correspond to the
amounts described in Rule 17Ad-22(e)(15)(ii).
    To ensure that OCC continues to hold the amount of LNAFBE required
under Rule 17Ad-22(e)(ii), as detailed above, OCC would also, on a
monthly basis, monitor its Equity relative to the Target Capital
Requirement to determine whether an Early Warning or Trigger Event had
occurred. In addition, in response to such monitoring and any
associated Early Warnings, OCC would use fee-related tools currently
available under its existing Rules (e.g., increases, decreases,
refunds, or fee waivers) to manage and maintain its capital levels at
or near the Target Capital Requirement. For example, OCC proposes to
require OCC Management to notify OCC's Board promptly if Equity were to
fall below the Early Warning threshold and to recommend to the Board
whether to implement a fee increase in an amount that the Board
determines necessary and appropriate to raise additional Equity. The
requirement to notify the Board, and recommend appropriate action,
would help to ensure that OCC continues to hold sufficient resources to
meet the Target Capital Requirement. As such, the proposal would be
designed to ensure that OCC holds Equity sufficient to support the
amount of LNAFBE equal to the Target Capital Requirement, which
requirement would correspond to the amounts specified under Rule 17Ad-
22(e)(15)(ii).
    The Capital Management Policy would provide objective, quantifiable
metrics and tools that OCC would use to determine its forward six-
months operating expenses and RWD Amount (i.e., the cost of recovery or
orderly wind-down) and ensure that it holds at least those amounts in
LNAFBE at all times.\107\ Specifically, to determine the RWD Amount, on
an annual basis OCC would follow the process and use the assumptions
laid out in its Recovery and Wind-Down Plan (``RWD Plan''), which the
Commission previously reviewed and approved.\108\ Under the RWD Plan,
on an annual basis, OCC identifies its critical services and determines
the cost to maintain those critical services over the prescribed
recovery or wind-down period, assuming costs remain at historical
levels.\109\ As noted above, OCC would also set the Target Capital
Requirement at a level designed to cover the Potential Loss Amount,
which would be designed to address losses arising out of operational
risk. On an annual basis, OCC would quantify the amount of capital to
be held against OCC's operational risks by analyzing and aggregating
potential losses from individual operational risk scenarios,
aggregating the loss events, and conducting loss modeling at or above
the 99 percent confidence level.\110\
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    \107\ OCC has, in prior filings, discussed the quantitative
analyses underlying the calculation of operating expenses and
potential recovery and wind-down costs. See Securities Exchange Act
Release No. 85322 (Mar. 14, 2019), 84 FR 10377, 10378 (Mar. 20,
2019) (File No. SR-OCC-2019-001) (stating that such quantitative
assumptions are based on a number of assumptions and projections,
including, among other things, (i) projected average daily volumes;
(ii) projected expenses and known cash flows; (iii) an operating
margin based on historical volumes; and (iv) known capital needs to
replace and modernize OCC's technology infrastructure).
    \108\ See Notice of Filing, 84 FR at 44945. See also Securities
Exchange Act Release No. 83918 (Aug. 23, 2018), 83 FR 44091 (Aug.
29, 2018) (File No. SR-OCC-2017-021) (approving OCC's proposal to
formalize and update its Recovery and Orderly Wind-Down Plan).
    \109\ See Notice of Filing, 84 FR at 44945.
    \110\ See Notice of Filing, 84 FR at 44945.
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    The Commission also finds that the proposed rules concerning the
form of OCC's LNAFBE and manner in which it would be held are
consistent with the requirements of Rule 17Ad-22(e)(15)(ii). OCC
proposes to define LNAFBE such that it would consist of only cash and
cash equivalents. OCC's LNAFBE would, therefore, be liquid by
definition. Further, OCC proposes to adopt rules requiring that OCC
hold Equity equal to 110 percent of the Target Capital Requirement
separate from OCC's resources to cover participant defaults, which
would help ensure that the Equity it holds to comply with Rule 17Ad-
22(e)(ii) is in addition to OCC's resources to cover participant
defaults and other risks covered under applicable credit risk and
liquidity risk standards. The Commission did not receive any comments
opposing OCC's proposed approach to determining its forward six-months
operating expenses and cost of recovery or orderly wind-down. For the
reasons discussed above, the Commission believes that the

proposal is consistent with Rule 17Ad-22(e)(15)(ii) of the Exchange
Act.
    The Commission did receive one comment regarding the degree of
transparency OCC proposes to maintain in respect of the Target Capital
Requirement. In its comment letter, the FIA states that the Target
Capital Requirement information that OCC would publish on its website
quarterly is ``important for transparency purposes'' and that OCC
should ``also provide disclosures on any expenses/losses that could
result in the operational loss fee being charged as this will assist
members in their own risk management.'' \111\ Rule 17Ad-22(e)(15) does
not require OCC to publish the information to which the FIA refers, and
Clearing Members already receive from OCC a wide range of information
to assist with their own risk management and to help them anticipate
and satisfy their obligations as Clearing Members of OCC, such as the
Daily Position Report,\112\ Daily Margin Report,\113\ X-M Margin and
Settlement Report,\114\ Expiration Exercise Report,\115\ Exercise and
Assignment Activity Report,\116\ and reports listing the current amount
and form of a Clearing Member's required contribution to the Clearing
Fund.\117\ The Commission believes that such information already
provides Clearing Members with timely, relevant information that
Clearing Members are able to incorporate into their existing risk
management efforts. As such, the Commission does not believe that OCC's
failure to propose to provide the type of additional disclosures
advocated by the FIA renders the Proposed Rule Change inconsistent with
Rule 17Ad-22(e)(15)(ii) under the Exchange Act.
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    \111\ FIA Letter at 4.
    \112\ See OCC Rule 501, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
    \113\ See OCC Rule 605, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
    \114\ See OCC Rule 706, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
    \115\ See OCC Rule 805, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
    \116\ See OCC Rule 901, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
    \117\ See OCC Rule 1007, available at https://www.theocc.com/components/docs/legal/rules_and_bylaws/occ_rules.pdf.
---------------------------------------------------------------------------

3. Rule 17Ad-22(e)(15)(iii)
    Rule 17Ad-22(e)(15)(iii) under the Exchange Act requires that the
policies and procedures described under Rule 17Ad-22(e)(15) include
maintaining a viable plan, approved by the board of directors and
updated at least annually, for raising additional equity should a
covered clearing agency's equity fall close to or below the amount
required under Rule 17Ad-22(e)(15)(ii).\118\
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    \118\ 17 CFR 240.17Ad-22(e)(15)(iii).
---------------------------------------------------------------------------

    As described above, the proposed Replenishment Plan would govern
OCC's process for replenishing its capital in the event that Equity
were to fall close to or below the Target Capital Requirement by, among
other things, implementing tools that would allow OCC to replenish its
capital levels in the event that routine monitoring and management
through its existing fee-related tools is insufficient to avoid a
Trigger Event, which would only occur if OCC's Equity fell below 100%
of the Target Capital Requirement and stayed there for 90 consecutive
days or OCC's Equity fell below 90% of the Target Capital Requirement
at any point in time. The proposed Replenishment Plan would require
OCC's Management to monitor changes in Equity and to notify OCC's Board
of a Trigger Event. If a Trigger Event were to occur, OCC would attempt
to replenish its capital levels first through the contribution of the
EDCP Unvested Balance. If and only if the entire EDCP Unvested Balance
were insufficient to bring OCC's Equity back to or above 100% of the
Target Capital Requirement, OCC would be required to levy the
Operational Loss Fee on Clearing Members. The Operational Loss Fee
would be sized to the Adjusted RWD Amount, and therefore would be
designed to provide OCC with at least enough capital either to continue
as a going concern or to wind-down in an orderly fashion.
    Under the proposal, on an annual basis OCC's Management would be
obligated to recommend that the Board approve or, as appropriate,
modify the proposed Replenishment Plan. In turn, OCC's Board would be
obligated annually to approve or, as appropriate, modify the proposed
Replenishment Plan based on Management recommendation.
    To the extent the Operational Loss Fee is levied, the FIA suggests
that OCC should clarify the mechanism for returning such resources to
Clearing Members.\119\ In response, OCC states that if an Operational
Loss Fee were charged and OCC's capital subsequently exceeded 110
percent of the Target Capital Requirement such that OCC determined to
return to Clearing Members funds received pursuant to the charge, OCC
would return the funds to Clearing Members in equal share to each
Clearing Member that paid the Operational Loss Fee until such time as
the aggregate amount of the Operational Loss Fee was returned.\120\
OCC's comment included an example to further clarify OCC's
explanation.\121\ This information also is described in the Notice of
Filing,\122\ and is consistent with the Commission's understanding,
based on its review of the record, of the mechanisms that OCC would use
to return the Operational Loss Fee in the event that it is levied.
Accordingly, the Commission believes that the information provided by
OCC in the Notice of Filing and subsequently in its comment letter
provides a comprehensive and sufficient response to the FIA's request
for clarification.
---------------------------------------------------------------------------

    \119\ FIA Letter at 3.
    \120\ OCC Letter at 3.
    \121\ Id.
    \122\ See Notice of Filing, 84 FR at 44946.
---------------------------------------------------------------------------

    The FIA also requests clarification regarding OCC's proposal to
charge the Operational Loss Fee in an amount that would return OCC to a
capitalization of 110 percent of the Target Capital Requirement,
instead of just returning to the target capital levels.\123\ OCC
clarifies that the reason for this 10 percent buffer is ``embedded in
the requirement itself: OCC's replenishment plan is to be used when
OCC's Equity falls `close to or below the [Target Capital
Requirement],''' \124\ which OCC interprets as requiring it to maintain
capital reserves, at a minimum, above 100 percent of the Target Capital
Requirement. In determining how much above 100 percent of the Target
Capital Requirement, OCC determined that maintaining capital reserves
at or around 110 percent of the Target Capital Requirement was the
appropriate amount, in part because 10 percent of the Target Capital
Requirement represents approximately two months of earnings, and OCC
believes that a two-month window would provide OCC's senior management
and Board sufficient time to respond to a deterioration of OCC's
capital.\125\ The Commission has reviewed the analysis provided by OCC
\126\ and believes that a 110 percent buffer representing approximately
two months of earnings is reasonable in light of the requirement set
forth in Rule 17Ad-22(e)(15)(iii) that a viable replenishment plan be
calibrated to circumstances where a covered clearing agency's capital
level falls below or close to the required capital amount. Accordingly,
here as well the

Commission believes that the information provided by OCC provides a
comprehensive and sufficient response to the FIA's request for
clarification.
---------------------------------------------------------------------------

    \123\ FIA Letter at 3.
    \124\ OCC Letter at 3 (emphasis in original) (citation omitted).
    \125\ See Notice of Filing, 84, FR at 44946.
    \126\ See Notice of Filing, 84, FR at 44946, n. 17 (stating that
OCC included its analysis in confidential exhibit 3d).
---------------------------------------------------------------------------

    The Commission believes that OCC's proposal with respect to the
Operational Loss Fee will permit OCC to raise additional equity in the
event that its equity falls close to or below the Target Capital
Requirement and therefore finds that it is consistent with Rule 17Ad-
22(e)(15)(iii) of the Exchange Act. The Commission finds, therefore,
that adoption of these aspects of the proposed Capital Management
Policy and supporting rule changes are consistent with Exchange Act
Rule 17Ad-22(e)(15).\127\
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    \127\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------

V. Conclusion

    On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \128\ and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \128\ In approving this Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\129\ that the Proposed Rule Change (SR-OCC-2019-007), as
modified by Partial Amendment No. 1, be, and hereby is, approved.
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    \129\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\130\
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    \130\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01643 Filed 1-29-20; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: March 19, 2008 (Volume 73, Number 54)]
[Notices]
[Page 14790-14791]
[DOCID:fr19mr08-47]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings 1

March 12, 2008.
    Take notice that the Commission received the following electric
corporate filings:
    Docket Numbers: EC08-36-001.
    Applicants: Consolidated Edison Development, Inc.; CED/SCS
Newington, LLC; North American Energy Alliance, LLC.
    Description: Consolidated Edison Development, Inc et al submits
response to the 3/3/08 deficiency letter, updated of certain
information provided in the 1/9/08 filed application with regard to
purchasers.
    Filed Date: 03/10/2008.
    Accession Number: 20080312-0128.
    Comment Date: 5 p.m. Eastern Time on Monday, March 17, 2008.

    Docket Numbers: EC08-52-000.
    Applicants: Noble Thumb Windpark, LLC; Noble Thumb Windpark I, LLC;
Babcock & Brown Renewable Holdings Inc.
    Description: Noble Thumb Windpark, LLC and Noble Thumb Windpark I,
LLC et al submits the Joint Application for authorization for the sale
by Noble Thumb and acquisition by BBRH of 100% membership interests and
requests for waivers of filing requirements.
    Filed Date: 03/06/2008.
    Accession Number: 20080311-0175.
    Comment Date: 5 p.m. Eastern Time on Thursday, March 27, 2008.

    Take notice that the Commission received the following electric
rate filings:
    Docket Numbers: ER04-230-033; ER01-3155-023; ER01-1385-032; EL01-
45-031.
    Applicants: New York Independent System Operator, Inc.
    Description: NYISO's 13th quarterly report regarding progress to
resolve the issue of penalty exemptions for grouped generating
facilities whose output is metered at a single location during start-up
and shutdown periods.
    Filed Date: 02/29/2008.
    Accession Number: 20080229-5018.
    Comment Date: 5 p.m. Eastern Time on Friday, March 21, 2008.

    Docket Numbers: ER07-1071-004; ER07-1072-004.
    Applicants: PJM Interconnection L.L.C.
    Description: Refund Report of PJM Interconnection, L.L.C. and
Virginia Electric and Power Company.
    Filed Date: 03/10/2008.
    Accession Number: 20080310-5041.
    Comment Date: 5 p.m. Eastern Time on Monday, March 31, 2008.

    Docket Numbers: ER08-649-000.
    Applicants: EFS Parlin Holdings LLC.
    Description: EFS Parlin Holdings LLC's application for Market-Based
Rate Authority Request for Waivers and Pre-Approvals, and Request for
Finding of Qualifications as Category 1 Seller.
    Filed Date: 03/10/2008.
    Accession Number: 20080311-0399.
    Comment Date: 5 p.m. Eastern Time on Monday, March 31, 2008.

    Take notice that the Commission received the following electric
securities filings:
    Docket Numbers: ES08-29-001.
    Applicants: Entergy Services, Inc.
    Description: Supplement to Joint Application of Entergy Services,
Inc., et al.
    Filed Date: 03/12/2008.
    Accession Number: 20080312-5023.
    Comment Date: 5 p.m. Eastern Time on Friday, March 21, 2008.
    Any person desiring to intervene or to protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure (18 CFR 385.211 and
385.214) on or before 5 p.m. Eastern time on the specified comment
date. It is not necessary to separately intervene again in a subdocket
related to a compliance filing if you have previously intervened in the
same docket. Protests will be considered by the Commission in
determining the appropriate action to be taken, but will not serve to
make protestants parties to the proceeding. Anyone filing a motion to
intervene or protest must serve a copy of that document on the
Applicant. In reference to filings initiating a new proceeding,
interventions or protests submitted on or before the comment deadline
need not be served on persons other than the Applicant.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://
www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically should submit an original and
14 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First St. NE., Washington, DC 20426.
    The filings in the above proceedings are accessible in the
Commission's eLibrary system by clicking on the appropriate link in the
above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive e-mail notification
when a document is added to a subscribed docket(s). For assistance with
any FERC Online service, please e-mail<EMAIL_ADDRESS>or
call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. E8-5535 Filed 3-18-08; 8:45 am]

BILLING CODE 6717-01-P