[Federal Register Volume 87, Number 246 (Friday, December 23, 2022)]
[Notices]
[Pages 79015-79023]
[FR Doc No: 2022-27912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96533; File No. SR-OCC-2022-012)]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change by The Options Clearing
Corporation Concerning Collateral Haircuts and Standards for Clearing
Banks and Letters of Credit

December 19, 2022.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on December 5, 2022, The Options Clearing
Corporation (``OCC'' or ``Corporation'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by OCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    This proposed rule change would concern proposed changes to OCC's
Rules, Collateral Risk Management Policy (``CRM Policy''), Margin
Policy, and System for Theoretical Analysis and Numerical Simulation
(STANS) Methodology Description (``STANS Methodology Description'').
The proposed changes are designed to (i) provide that OCC will value
Government securities and GSE debt securities deposited as margin or
Clearing Fund collateral using a fixed haircut schedule that OCC would
set and adjust pursuant to OCC's CRM Policy, rather than as codified in
OCC's Rules as the schedule is today; (ii) adopt new OCC Rules
concerning minimum standards for OCC's Clearing Bank relationships; and
(iii) revise certain OCC Rules regarding the acceptability of letters
of credit as margin assets.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    As the sole clearing agency for standardized equity options listed
on a national securities exchange registered with the Commission
(``listed options''), OCC is exposed to certain risks, including credit
risk arising from its relationships with (i) the Clearing Members for
which OCC becomes the buyer to every seller and the seller to ever
buyer with respect to listed options, and (ii) other financial
institutions such as banks, including the settlement banks (``Clearing
Banks'') that support OCC's clearance and settlement services. OCC
manages these risks through financial safeguards that include rigorous
admission standards, member surveillance activities, collection of
high-quality margin collateral and a mutualized Clearing Fund. OCC also
maintains standards for third-party relationships, including for
Clearing Banks and banks that issue letters of credit that Clearing
Members may deposit as margin collateral. One aspect of OCC's processes
for managing margin collateral is to acknowledge that such collateral
could be worth less in the future than when it is pledged to OCC (a
``collateral haircut'').
    OCC has identified opportunities to enhance its rules and risk
management processes concerning collateral haircuts and concentration
limits for specific collateral types and third-party standards for
banks. First, OCC is proposing to eliminate existing authority to value
Government securities using Monte Carlo simulations as part of its
STANS margin methodology (commonly referred to as ``Collateral in
Margin'' or ``CiM'') in favor of applying fixed collateral haircuts
that OCC would set and adjust pursuant to OCC's CRM Policy in order to
better incorporate stressed market periods (the ``procedure-based
approach''), rather than according to the fixed haircut schedule
codified in OCC's Rules today. OCC does not expect these changes to
have a significant impact on Clearing Members based on an impact
assessment of eliminating the CiM approach and because it expects the
fixed haircut schedule under the procedure-based approach would
initially be the same as those currently defined in OCC's Rules.
Second, OCC is proposing to codify additional standards for Clearing
Banks in OCC's Rules to provide greater clarity and transparency
regarding minimum standards for banking relationships that are critical
to OCC's clearance and settlement services. Third, OCC is proposing to
make conforming changes to the standards for letter-of-credit issuers
to the proposed Clearing Bank standards to ensure internal consistency
within OCC's Rules and establish OCC's authority to set more
restrictive concentration limits for letters of credit than those
currently codified in OCC's Rules. These standard changes are not
expected to have a significant impact on Clearing Members because the
institutions currently approved as Clearing Banks and letter-of-credit
issuers meet these standards.
(1) Purpose
    There are three primary components of this proposed rule change.
First, OCC proposes to amend its Rules, CRM Policy, Margin Policy, and
STANS Methodology Description to eliminate existing authority to value
Government securities using Monte Carlo simulations as part of its
STANS margin methodology in favor of applying fixed collateral haircuts
that OCC would set and adjust pursuant to OCC's CRM Policy, rather than
according to the fixed haircut schedule codified in OCC's Rules today.
Second, OCC proposes to amend OCC Rules 101 and 203 to codify minimum
capital and operational requirements and the governance process for
approving OCC's Clearing Banks, which the Rules do not currently
address. Third, OCC proposes to revise OCC Rule 604 regarding the
acceptability of letters of credit as margin assets to, among other
things, standardize requirements for letter-of-credit issuers with the
requirements for OCC's other banking relationships, including the
proposed standards for Clearing Banks, and allow OCC to set
concentration limits with respect to letters of credit that are more
restrictive than those currently codified in OCC's Rules, which would
be retained as minimum standards.

Haircuts for Government Securities and GSE Debt Securities
    OCC accepts Government securities \3\ from Clearing Members as
contributions to the Clearing Fund.\4\ OCC also accepts Government
securities and GSE debt securities \5\ from Clearing Members as margin
assets.\6\ The collateral valuation haircuts for Government securities
and GSE debt securities that a Clearing Member may deposit as margin
collateral are specified in OCC Rule 604(b). The collateral valuation
haircuts for Government securities that a Clearing Member contributes
to the Clearing Fund are specified in OCC Rule 1002(a)(ii). As
discussed below, OCC proposes several changes regarding this structure,
including to: (a) eliminate the use of OCC's STANS margin methodology
to value Government securities in favor of applying fixed collateral
haircuts; (b) remove the fixed collateral haircut schedule for
Government securities and GSE debt securities from OCC's Rulebook; (c)
amend the CRM Policy to establish a procedures-based approach for
setting the haircut schedule; \7\ (d) conform OCC's Rules with respect
to valuation of such securities to the CRM Policy, which allows OCC to
revalue collateral on a more frequent basis than daily; and (e) make
other conforming changes to OCC's policies.
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    \3\ Art. I., Section 1.G.(5) of OCC's By-Laws defines the term
``Government securities'' to mean ``securities issued or guaranteed
by the United States or Canadian Government, or by any other foreign
government acceptable to [OCC], except Separate Trading of
Registered Interest and Principal Securities issued on Treasury
Inflation Protected Securities (commonly called TIP-STRIPS). The
term `short term Government securities' means Government securities
maturing within one year. The term `long-term Government securities'
means all other Government securities.''
    \4\ See OCC Rule 1002(a).
    \5\ Art. I., Section 1.G.(6) of OCC's By-Laws defines the term
``GSE debt securities'' to mean ``such debt securities issued by
Congressionally chartered corporations as the [OCC] Risk Committee
may from time to time approve for deposit as margin.''
    \6\ See OCC Rule 604(b)(1), (2).
    \7\ The CRM Policy is filed with the Commission as a rule of
OCC. See, e.g., Exchange Act Release No. 82311 (Dec. 13, 2017), 82
FR 60252 (Dec. 19, 2017) (SR-OCC-2017-008).
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a. Removing Collateral in Margin Treatment
    First, OCC would remove the Rules concerning the valuation of
Government securities and GSE debt securities through OCC's STANS
margin methodology. OCC currently has authority pursuant to
Interpretation and Policy (``I&P'') .06 to OCC Rule 601 and OCC Rule
604(f) to determine the collateral value of any Government securities
or GSE debt securities that are pledged by Clearing Members as margin
assets either by: (1) the CiM method of including them in Monte Carlo
simulations as part of OCC's STANS margin methodology,\8\ or (2) by
applying the fixed haircuts that are specified in OCC Rule 604(b).
OCC's model validation analyses and regulatory examination findings
have identified certain weaknesses related to its current CiM
methodology for valuing Government securities and GSE debt securities,
including that the current CiM methodology may not adequately consider
relevant stressed market conditions for such collateral.\9\
Accordingly, OCC is proposing to eliminate I&P .06 to OCC Rule 601 and
OCC Rule 604(f), thereby removing CiM treatment for Government
securities. Instead, all Government securities pledged by Clearing
Members as margin assets would be subject to a fixed haircut schedule
that OCC would set in accordance with the CRM Policy, as discussed
below.
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    \8\ See OCC Rule 601, I&P .06; OCC Rule 604(f).
    \9\ OCC has included information related to these issues in
confidential Exhibit 3A to SR-OCC-2022-012.
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    In general, the fixed haircut approach would be less procyclical.
While it may be more conservative in periods of low market volatility,
it would prevent spikes in margin requirements during periods of
heightened volatility that may take place under the existing CiM
approach. Upon implementation of the proposed change, Government
security deposits currently valued using STANS would shift from margin
balances to collateral balances and would be valued using the fixed
haircuts schedule as described under the proposed OCC Rule 604(e) and
amendments to the CRM Policy, as discussed below.\10\ OCC's preliminary
analysis shows the average impact as a percentage of the value of
Government securities and GSE debt securities is typically under 1
percent and that the impact to the Clearing Fund is negligible.\11\ OCC
intends to provide parallel reporting to its Clearing Members for a
period of at least four consecutive weeks prior to implementing the
change.
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    \10\ Specifically, the value of CiM eligible government
securities would no longer be included in margin calculations and
thus would no longer be included on margin reports. The Net Asset
Value (``NAV'') portion of the margin calculation would decrease by
the market value of CiM eligible government security deposits (i.e.,
the NAV credit created by these deposits will be removed from the
margin calculation), slightly offset by a reduction in risk charges
(i.e., the Risk Charge debit balance generated by the CiM haircut on
these deposits would be removed from the margin calculation).
Following implementation of the proposed changes, the value of the
previously CiM eligible government securities would be found in
collateral reports.
    \11\ OCC has provided this analysis in confidential Exhibit 3B
to SR-OCC-2022-012.
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b. Removing the Fixed Haircut Schedule From OCC's Rules
    Second, OCC would remove the fixed haircut schedules for Government
securities and GSE debt securities as margin collateral under OCC Rule
604(b) and for Government securities deposited in respect of the
Clearing Fund under OCC Rule 1002(a)(ii), which pre-date the
Commission's adoption of the Standards for Covered Clearing
Agencies.\12\ Instead, OCC would establish, implement, maintain and
enforce written policies and procedures reasonably designed to set
appropriately conservative haircuts for such collateral. OCC believes
that establishing policies and procedures that would allow OCC to set
haircuts for Government securities and GSE debt securities based on
changing market conditions will help to ensure that the haircuts remain
appropriately conservative. The remainder of this section discusses the
proposed changes to OCC's Rules. Proposed changes to the CRM Policy to
establish the new procedures-based approach for the haircut schedule is
discussed further below.
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    \12\ In 2016, the SEC adopted Rule 17Ad-22(e)(5), which the SEC
intended to help ensure that covered clearing agencies are resilient
in times of market stress by requiring the agencies to establish
written policies and procedures that, among other things, set and
enforce appropriately conservative haircuts. See Exchange Act
Release No. 78961 (Sept. 28, 2016), 81 FR 70786, 70812 (Oct. 13,
2016) (S7-03-14).
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    In place of the existing Rules providing for fixed haircut
schedules, OCC proposes to introduce a new OCC Rule 604(e) \13\
regarding the valuation of and haircuts for Government securities and
GSE debt securities that are margin assets and make similar amendments
to OCC Rule 1002(a)(ii) regarding the valuation of and haircuts for
Government securities contributed to the Clearing Fund. These proposed
Rules would provide that OCC generally will apply a schedule of
haircuts that OCC would specify from time to time upon prior notice to
Clearing Members. Under the amended CRM Policy, OCC would provide
Clearing Members at least one full day's notice prior to implementing a
change to the schedule and would post the haircut schedule to OCC's
public website.\14\
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    \13\ Existing OCC Rule 604(e) and each subsequent paragraph of
that Rule would be renumbered accordingly.
    \14\ The schedule of haircuts would be made available through
the Operations Manual and on the OCC website, and OCC would
generally issue an Information Memo whenever the schedule is
modified to inform Clearing Members of the changes.

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    OCC would also have conditional authority to apply more
conservative haircuts to Government securities and GSE debt securities.
Specifically, OCC would have authority, in its discretion, to use
greater haircuts or, in unusual or unforeseen circumstances, assign no
value or partial value to Government securities, in each case with
prior notice to Clearing Members and with prior approval by the
Management Committee and/or its delegates, to the extent it deems
appropriate for its protection or the protection of Clearing Members or
the general public based on factors such as (i) volatility and
liquidity, (ii) elevated sovereign credit risk,\15\ and (iii) any other
factors OCC determines are relevant. For example, OCC might reduce or
assign no value to specific Government securities if there was an
elevated risk that the U.S. Government would reach its statutory
borrowing limit and default on payment obligations. OCC already has
authority under I&P .15 to OCC Rule 604 to determine that Government
securities and GSE debt securities that otherwise meet the requirements
for margin collateral are nevertheless disapproved as margin collateral
based on such factors.\16\ The proposed amendments would allow OCC to
take steps short of outright refusal to grant collateral value to a
particular Government security or GSE debt security and would extend
such authority to the valuation of such securities deposited in respect
of the Clearing Fund. The CRM Policy, in turn, currently provides that
mitigating actions with respect to elevated sovereign credit risk or
country risk are approved by OCC's Management Committee or its delegate
prior to implementation. OCC proposes to add that such actions will
also be communicated to Clearing Members prior to implementation.
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    \15\ In this context, sovereign credit risk refers primarily to
the risk associated with accepting a country's debt as collateral.
    \16\ Specifically, I&P .15 to OCC Rule 604 provides that OCC may
disapprove a security as margin collateral with respect to all
Clearing Members, and therefore not grant margin credit, based on
factors such as (i) trading volume, (ii) number of outstanding
shareholders, (iii) number of outstanding shares, (iv) volatility
and liquidity and (v) any other factors OCC determines are relevant.
While factors (i) through (iii) are not relevant to Government
securities haircuts, OCC is proposing to enumerate sovereign credit
risk as a factor in the CRM Policy for haircuts on Government
securities because of the animating concern for this authority in
that context. OCC is also proposing to include ``any other factors
the Corporation determines are relevant'' for consistency with I&P
.15 to OCC Rule 604 and because such a catch-all is designed to
capture unforeseen circumstances that might not previously have been
considered possible, as once was the case with respect to the
possible default of the U.S. Government on its payment obligations.
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c. Establishing a Procedures-Based Approach To Setting Haircuts
    Third, OCC would replace its Rules codifying the fixed haircut
schedule for Government securities and GSE debt securities with a
procedures-based approach to setting the fixed haircut schedule.
Specifically, OCC would amend the CRM Policy to provide that its
Pricing and Margins team within OCC's Financial Risk Management
(``FRM'') department will monitor the adequacy of the haircuts using a
Historical Value-at-Risk approach (``H-VaR'') \17\ with multiple look-
back periods (e.g., 2-year, 5-year, and 10-year), updated at least
monthly. Each look-back period would be comprised of a synthetic time
series of the greatest daily negative return observed for each
combination of security type and maturity bucket (e.g., Government
securities maturing in more than 10 years). The longest look-back
period under the proposed H-VaR approach would include defined periods
of market stress.\18\ Accordingly, this H-VaR approach would consider
stressed market conditions. The delineation of look-back periods,
periods of stressed market volatility included in the longest-term
look-back period, and the type and maturity buckets would be defined in
procedures maintained by Pricing and Margins.\19\ The CRM Policy would
further provide that the fixed haircut schedule must be maintained at a
level at least equal to a 99% confidence interval of the most
conservative look-back period. Changes to the haircut rate would be
communicated to Clearing Members at least one full day in advance and
the schedule would be maintained on OCC's public website.
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    \17\ H-VaR is a common risk management method employed by
financial services firms. See, e.g., Exchange Act Release No. 67650
(Aug. 14, 2012), 77 FR 50730 (Aug. 22, 2012) (SR-CME-2012-22) (``[H-
VaR] is a standard, well understood model and is easily
replicable.'').
    \18\ Currently, OCC employs a parametric VaR approach with a
Student's t distribution to monitor the adequacy of its haircuts for
Government securities and GSE debt securities. However, OCC is
proposing to move to an H-VaR approach because appending time series
to the longest look-back period when necessary to incorporate
stressed market conditions effectively ignores the normal
distribution inherent in Student's t.
    \19\ OCC has provided anticipated changes to these internal
procedures in confidential Exhibit 3C to SR-OCC-2022-012.
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    OCC anticipates that upon implementation of these changes, the
haircuts OCC would announce would initially be identical to those
already specified in OCC Rule 604(b) and OCC Rule 1002(a). However,
following implementation of the new procedures-based approach, OCC
plans to separate out Separate Trading of Registered Interest and
Principal Securities (``STRIPS'') and Treasury Inflation Protected
Securities (``TIPS'') into their own schedule, which will be more
conservative for longer maturities than the current haircut rate for
U.S. Government securities.
d. Valuation Frequency
    Fourth, OCC Rules 604(e) and 1002(a)(ii) would replace or modify
provisions concerning the valuation of Government securities currently
found elsewhere in OCC's Rules. Specifically, OCC would determine the
value for Government securities and GSE debt securities not less than
daily based on the quoted price supplied by a price source designated
by OCC. Currently, OCC Rules 604(b)(1) and (2) provide that the Risk
Committee of the Board may determine from time to time the interval at
which such collateral will be valued, but not less than daily. OCC Rule
1002(a)(ii) currently provides the same with respect to such collateral
deposited with respect to the Clearing Fund, except that Rule
1002(a)(ii) provides that the minimum interval shall be not less than
monthly. However, because frequent revaluation is critical to ensure
OCC's valuations reflect the most currently available market
information, OCC's CRM Policy, approved by the Risk Committee, provides
that valuation shall be ``at least daily'' and that Pricing and Margins
shall ``[a]t a minimum update the value of its collateral on a daily
basis and in instances where that collateral is providing margin
offset, pricing shall also be updated on an intraday basis.'' This
language was intended so that the designation of minimum valuation
intervals was not a limiting factor to more frequent valuation when
warranted. Accordingly, proposed OCC Rules 604(e) and 1002(a)(ii) would
provide that OCC would determine the market value of Government
securities and GSE debt securities at such intervals as OCC may from
time to time prescribe, but not less than daily, on the basis of the
quoted price supplied by a source designated by OCC.
    Conforming the Rules to the CRM Policy so that Pricing and Margins
may revalue Government securities and GSE debt securities more
frequently than the minimum interval would promote the ability to more
quickly adjust the valuation intervals in response to changing market
conditions. Under the CRM Policy, Pricing and Margins monitors haircuts
daily for ``breaches''

(i.e., an erosion in value exceeding the relevant haircut) and
adequacy, with any issues being promptly reported to appropriate
decisionmakers at OCC. As the business unit responsible for such
monitoring, OCC believes that Pricing and Margins is well positioned to
make the determination about more frequent valuation intervals
consistent with the directive of the CRM Policy approved by the Risk
Committee. The proposed rule change would allow OCC to react more
quickly to adjust haircuts or take other mitigating actions in response
to breaches. Changes to OCC's Rules and the CRM Policy, including the
minimum valuation interval, would remain subject to Risk Committee
approval and the Risk Committee would retain oversight over OCC's risk
management determinations.\20\
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    \20\ See Exchange Act Release No. 94988 (May 26, 2022), 87 FR
33535, 33536, n.19 (Jun. 2, 2022) (SR-OCC-2022-002) (discussing the
proposed governance process for amending OCC's risk management
policies, among other governance arrangements).
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e. Policy Changes
    To implement the changes described above, OCC also proposes to make
other conforming changes to its CRM Policy, Margin Policy, and STANS
Methodology Description. Under the proposed rule change, the CRM Policy
would be the relevant OCC policy governing OCC's process for valuing
Government securities and GSE debt securities. OCC would therefore
delete from the CRM Policy those descriptions that indicate that
Government securities and GSE debt securities pledged as margin assets
may be valued using Monte Carlo simulations as part of OCC's STANS
margin methodology. OCC would make a similar conforming change to the
Margin Policy, which currently indicates that Government securities may
be valued using the CiM approach. OCC also proposes to conform
capitalization of terms in the CRM Policy with how those terms are
defined in OCC's By-Laws.
    Regarding the STANS Methodology Description, OCC proposes to delete
certain portions of the document that exist to support the valuation of
Government securities and GSE debt securities that are pledged as
margin assets using Monte Carlo simulations. As part of the proposed
rule change, OCC would remove Treasuries from the model currently used
for generating yield curve distributions to form theoretical price
distributions for US Government securities and for modeling Treasury
rates within STANS joint distribution of risk factors. These securities
would instead be valued under the CRM Policy as discussed above.\21\
The STANS Methodology Description would also be revised to reflect the
fact that the Liquidation Cost Add-on charge \22\ would no longer be
assessed to Government security collateral deposits. Based on an
analysis of the average daily Liquidation Cost charge across all
accounts, the Liquidation Cost charge for such collateral is currently,
and is expected to remain, immaterial. As described above, OCC is
proposing to incorporate stressed market periods in the H-VaR approach
for setting and adjusting the haircuts for such collateral, which is
comparable to the approach for incorporating stressed markets into the
Liquidation Cost Add-on.
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    \21\ OCC notes that it would ultimately decommission the model
currently used for generating yield curve distributions to form
theoretical price distributions for US Government securities and
modeling Treasury rates within STANS's joint distribution of risk
factors.
    \22\ The STANS methodology includes a model to estimate the
liquidation cost for all options and futures, as well as cash
instruments that are part of margin collateral. See Securities
Exchange Act Release No. 86119 (June 17, 2019), 84 FR 29267 (June
21, 2019) (SR-OCC-2019-004).
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Clearing Bank Standards
    OCC Rule 203 requires that every Clearing Member establish and
maintain a bank account at a Clearing Bank for each account maintained
by it with OCC. The only eligibility requirement for a Clearing Bank
currently expressed in OCC's Rules is that the Clearing Bank be a bank
or trust company that has entered into an agreement with OCC in respect
of settlement of confirmed trades on behalf of Clearing Members.\23\
OCC's Clearing Bank standards, including financial and operational
capability requirements and the governance process for approving
Clearing Banks, are currently maintained in internal OCC procedures.
Those procedures align standards for Clearing Banks with those codified
in I&P .01 to OCC Rule 604 with respect to banks or trust companies
that OCC may approve to issue letters of credit as margin collateral,
including, among other things, a Tier 1 Capital requirement of $100
million for U.S. banks and $200 million for non-U.S. banks.\24\ Due to
the critical role Clearing Banks play in OCC's clearance and settlement
of options, OCC proposes to amend its By-Laws and Rules to codify
minimum requirements for Clearing Banks in a new Rule 203(b). OCC
believes that amending its By-Laws and Rules to reflect these
requirements will provide Clearing Members and other market
participants greater clarity and transparency concerning OCC's Clearing
Bank relationships.
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    \23\ See OCC Rule 101.C.(1).
    \24\ See OCC Rule 604, I&P .01.
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    Currently, OCC's By-Laws and Rules are silent on the internal
governance process for approving Clearing Bank relationships. Proposed
OCC Rule 203(b) would provide that the Risk Committee may approve a
bank or trust company as a Clearing Bank if it meets the minimum
requirements set out in that paragraph. In addition, OCC would amend
the definition of ``Clearing Bank'' in OCC Rule 101 to reflect that
such Clearing Bank relationships are approved by the Risk Committee.
OCC believes that the Risk Committee is the appropriate governing body
to approve such relationships because of the nature of the risks
presented by OCC's Clearing Bank relationships, including the risk that
OCC would need to borrow from or satisfy a loss using Clearing Fund
assets in order to meet its liquidity needs as a result of the failure
of a Clearing Bank to achieve daily settlement.\25\
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    \25\ See OCC Rule 1006(c), (f).
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    Proposed OCC Rule 203(b)(1) would provide that any Clearing Bank,
whether domiciled in the U.S. or outside the U.S., maintain at least
$500 million (U.S.) in Tier 1 Capital.\26\ This requirement represents
an increase to the current Tier 1 Capital requirement for letter-of-
credit issuers in I&P .01 to OCC Rule 604. OCC believes that increasing
the required Tier 1 Capital standard for any bank or trust company
would reduce the risks associated with establishing and maintaining a
Clearing Bank relationship with an institution with lesser Tier 1
Capital. In reviewing its existing Clearing Banks, OCC found that a
$500 million (U.S.) Tier 1 Capital standard was more representative of
these institutions.
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    \26\ As defined in proposed Rule 203(c), ``Tier 1 Capital''
would mean the amount reported by a bank or trust company to its
regulatory authority. The same would be true for the other capital
measures and ratios identified in Rule 203(b) (i.e., ``Common Equity
Tier 1 Capital (CET1),'' ``total risk-based capital,'' and
``Liquidity Coverage Ratio'').
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    In addition, proposed OCC Rule 203(b)(2) and (4) would codify
certain requirements currently maintained in OCC's procedures that
Clearing Banks maintain (i) common equity tier 1 capital (CET1) of
4.5%, (ii) minimum Tier 1 capital of 6%, and (iii) total risk-based
capital of 8% and a Liquidity Coverage Ratio of at least 100%, unless
the Clearing Bank is not required to compute such ratio. Additionally,
proposed OCC Rule 203(b)(3) would provide that non-U.S. Clearing Banks
must be domiciled in a country that has a sovereign rating considered
to be ``low

credit risk'' (e.g., A- by Standard & Poor's, A3 by Moody's, A- by
Fitch, or equivalent). OCC believes that these ratings better reflect
current understanding of those sovereign credit ratings considered to
be ``low credit risk'' than the AAA ratings currently required of non-
U.S. letter-of-credit issuers under I&P .01 to OCC Rule 604, which OCC
believes is now too conservative. The current AAA rating requirement
effectively limits non-U.S. eligible issuers to those domiciled in
Canada and Australia. The proposed change would, for example, allow for
issuers from France with which OCC previously had relationships before
France's sovereign credit rating fell below AAA.
    Proposed OCC Rule 203(b)(5) would codify certain minimum
requirements currently maintained in OCC's procedures associated with
the agreements that a Clearing Bank must execute with OCC, including
that the Clearing Bank: (A) maintain the ability to utilize the Society
for Worldwide Interbank Financial Telecommunication (``SWIFT'') as the
primary messaging protocol, (B) maintain access to the Federal Reserve
Bank's Fedwire Funds Service, and (C) provide its quarterly and annual
financial statements to OCC and promptly notify OCC of material changes
to its operations, financial condition, and ownership.\27\ However,
consistent with OCC's current internal procedures and practices,
proposed OCC Rule 203(b)(5)(A) would also allow for the use of such
other messaging protocol, apart from SWIFT, as approved by the Risk
Committee. For example, the Risk Committee may elect to temporarily
accommodate a Clearing Bank that does not meet these requirements if it
is actively implementing such capabilities.
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    \27\ See Securities Exchange Act Release No. 82221 (Dec. 5,
2017), 82 FR 58230 (Dec. 11, 2017) (SR-OCC-2017-805) (advance notice
concerning execution of agreements with Clearing Banks that would
provide for a transition to SWIFT messaging as the primary messaging
protocol for OCC's then-existing Clearing Bank relationships).
---------------------------------------------------------------------------

    The Clearing Bank requirements set forth in proposed OCC Rule
203(b) would be the minimum standards for the Risk Committee to approve
a Clearing Bank relationship. Accordingly, proposed OCC Rule 203(b)(6)
would provide that in addition to the articulated minimum standards, a
Clearing Bank must meet such other eligibility criteria as OCC may
determine from time to time. This provision reflects that even under
OCC's current Rules, OCC is not obligated to enter into a Clearing Bank
relationship merely because a bank or trust company meets OCC's minimum
standards.
Letter-of-Credit Issuer Standards and Concentration Limits
    OCC intends that proposed OCC Rule 203(b) generally would serve as
the minimum requirements for all OCC's bank relationships, including
with respect to banks and trust companies authorized to issue letters
of credit. Accordingly, OCC proposes to make conforming changes to OCC
Rule 604, which governs the treatment of letters of credit as margin
collateral. In addition, OCC would make other amendments to OCC Rule
604 intended to allow OCC to control exposures by imposing more
stringent concentration limits and eliminating wrong-way risk.
a. Letter-of-Credit Issuer Standards
    I&P .01 to OCC Rule 604 currently sets forth minimum standards for
the types of U.S. and non-U.S. institutions that OCC may approve as an
issuer of letters of credit, including minimum Tier 1 Capital
requirements, and for non-U.S. institutions, the ultimate sovereign
credit rating for the country of domicile for non-U.S. institutions,
credit ratings for the institution's commercial paper or other short-
term obligations, and standards that apply if there is no credit rating
on the institution's commercial paper or other short-term obligations.
OCC proposes the following amendments to I&P .01:
     OCC would combine under paragraph (a) the current
standards for the types of institutions that OCC may approve. In
addition, the capitalized terms ``U.S. Institutions'' and ``Non-U.S.
Institutions'' would be deleted because those are not defined terms. In
any event, the terms would not be necessary as courtesy titles now that
the standards are combined under the same paragraph. OCC would also
modify the capitalization of certain terms to conform to how those
terms appear in the International Bank Act of 1978,\28\ to which the
Rule refers, and would note that the meaning of those terms would apply
generally throughout the Rules, including use of those terms in I&P .03
to OCC Rule 604 (as amended).
---------------------------------------------------------------------------

    \28\ See 12 U.S.C. 3101(5)-(6), (11)-(12).
---------------------------------------------------------------------------

     OCC would delete the current Tier 1 Capital requirements.
Instead, paragraph (b) would incorporate the new minimum Tier 1 Capital
requirement for Clearing Banks under OCC Rule 203(b)(1), which would be
the same for both U.S. and non-U.S. issuers. New paragraph (b) would
also incorporate the minimum capital ratio requirements in OCC Rule
203(b)(2), which would align standards across OCC's banking
relationships. As discussed above, the minimum Tier 1 Capital
requirement would be greater than those presently found in I&P .01 to
OCC Rule 604. However, as with Clearing Banks, OCC believes that
increasing the required Tier 1 Capital standard for any bank or trust
company would reduce the risks associated with letters of credit that
may be issued by institutions with lesser Tier 1 Capital. In addition,
the $500 million (U.S.) Tier 1 Capital standard is more representative
of the institutions currently approved as letter-of-credit issuers.
     New paragraph (b) would also replace the domicile
sovereign credit ratings for non-U.S. institutions by incorporating the
minimum for Clearing Banks in OCC Rule 203(b)(3). As noted above, the
current standards in I&P .01(b)(3) to OCC Rule 604 are considered too
conservative; the new minimum standards better align with those
considered to be low risk. By eliminating I&P .01(b)(3), OCC would also
remove the subjective process for determining a ``AAA'' equivalent
country based on consultation with entities experienced in
international banking and finance matters satisfactory to the Risk
Committee, in favor of the more objective standards in proposed OCC
Rule 203(b)(3).
     OCC would delete the external credit rating standards for
a non-U.S. institution's commercial paper, other short-term obligations
or long-term obligations in current I&P .01(b)(4). OCC has had to
terminate several letter-of-credit issuer relationships pursuant to
these external credit rating standards even though the institutions
otherwise met OCC's requirements and were not reporting elevated
internal credit risk metrics. Consistent with industry best practice,
OCC would instead rely on its Watch Level and Internal Credit Rating
surveillance processes under its Third-Party Risk Management Framework
(``TPRMF'') to determine creditworthiness of institutions.\29\
---------------------------------------------------------------------------

    \29\ The TPRMF is filed with the Commission as a rule of OCC.
See Securities Exchange Act Release No. 90797 (Dec. 23, 2020), 85 FR
86592 (Dec. 30, 2020) (SR-OCC-2020-014). The TPRMF can also be found
on OCC's public website.
---------------------------------------------------------------------------

     Proposed paragraph (c) would provide that an institution
must meet such other standards as OCC may determine from time to time.
Like proposed OCC Rule 203(b), I&P .01 to OCC Rule 604 would specify
the minimum standards for issuers of letters of credit. Under OCC's
current Rules, OCC ``may in its discretion approve a bank or trust
company'' as a letter-of-credit issuer if the issuer meets the

minimum standards. OCC is not obligated to accept a letter-of-credit
issuer simply because an issuer meets the minimum standards.
Accordingly, proposed paragraph (c) would clarify that articulation of
these minimum standards would not limit OCC's discretion to approve or
disapprove an institution based on other factors, including based on
OCC's Watch Level and Internal Credit Rating surveillance, as discussed
above.
    In addition to the above changes, OCC also proposes to amend I&P
.03 and .09 concerning the domicile of the issuer's branch at which
letters of credit must be issued. I&P .03 to OCC Rule 604 requires any
letter of credit issued by a Non-U.S. institution be payable at a
Federal or State branch or agency thereof. In addition, I&P .09 to OCC
Rule 604 provides that a letter of credit may be issued by a Non-U.S.
branch of a U.S. institution provided that it otherwise conforms with
Rule 604 and the Interpretations and Policies thereunder and is payable
at a U.S. office of such institution. OCC is proposing to delete the
current text of I&P .09. Instead, I&P .03 would be amended so that
letters of credit used as margin assets would be required to be payable
at an issuer's ``domestic branch,'' as that term is defined in the
Federal Deposit Insurance Act,\30\ or at the issuer's Federal or State
branch or agency, as those terms are defined in I&P .01 by reference to
the International Banking Act of 1978.\31\ As amended, I&P .03 would
address both U.S. and Non-U.S. institutions.
---------------------------------------------------------------------------

    \30\ See 12 U.S.C. 1813(o).
    \31\ See 12 U.S.C. 3101(5)-(6), (11)-(12).
---------------------------------------------------------------------------

b. Letter-of-Credit Concentration Limits
    The proposed changes would also establish OCC's authority to
establish more restrictive concentration limits for letters of credit
than those currently codified in OCC's Rules and eliminate wrong-way
risk.\32\ OCC Rules currently codify certain concentration limits for
letters of credit. I&P .02 to OCC Rule 604 provides that ``[n]o more
than 50% of a Clearing Member's margin on deposit at any given time may
include letters of credit in the aggregate, and no more than 20% may
include letters of credit issued by any one institution.'' In addition,
I&P .04 to OCC Rule 604 limits the total amount of letters of credit
issued for the account of any one Clearing Member by a U.S. or Non-U.S.
institution to a maximum of 15% of such institution's Tier 1 Capital.
While OCC proposes to retain these concentration limits as minimum
standards, OCC is proposing to establish authority to set more
conservative concentration limits under the CRM Policy, consistent with
OCC's regulatory obligation to establish, implement, maintain and
enforce written policies and procedures reasonably designed to, among
other things, set and enforce appropriately conservative concentration
limits.
---------------------------------------------------------------------------

    \32\ Wrong-way risk occurs when exposure to a counterparty is
adversely correlated with the credit quality of that counterparty.
---------------------------------------------------------------------------

    In order to establish such authority, OCC proposes to amend I&P
.09--the current content of which would be deleted as part of the
changes to I&P .03 and .09 discussed above--to provide that OCC may
from time to time specify more restrictive limits for the amount of
letters of credit a Clearing Member may deposit in the aggregate or
from any one institution than those specified in the Rules based on
factors such as market conditions, the financial condition of approved
issuers, and any other factors the Corporation determines are relevant.
The Rule would also provide that any such limit would be applicable to
all Clearing Members. In this way, the Rule would provide OCC similar
authority to disapprove letters of credit based on risk-based criteria
as OCC has to disapprove specific securities as margin collateral under
current I&P .15 to OCC Rule 604.
    Under proposed changes to the CRM Policy, OCC's Credit and
Liquidity Risk Working Group (``CLRWG''), a cross-functional group
comprised of representatives from relevant OCC business units including
Pricing and Margins, Collateral Services and Credit Risk Management,
would be responsible for setting and adjusting more restrictive
concentration limits. Similar to collateral haircuts, the CRM Policy
would provide that OCC will maintain the concentration limits on its
website and will provide prior notice of any changes to the limits. As
under the current CRM Policy, the CLRWG would review the performance
and adequacy of the CRM Policy on at least an annual basis, including
but not limited to a review of concentration limits. OCC's Model Risk
Management would also continue to review the concentration limits on at
least an annual basis. Any changes to the CRM Policy would continue to
be presented to the Management Committee and, if approved, then the
Risk Committee.
    Among other things, OCC anticipates that it would use the proposed
authority to establish an absolute dollar limit for letters of credit,
which would be more restrictive than the current percentage thresholds
for OCC Clearing Members with larger margin requirements. In addition,
OCC expects to specify more stringent limits on the amount of letters
of credit a Clearing Member may maintain from a single issuer--not to
exceed 5% of the issuing institution's Tier 1 Capital. OCC believes
that lowering this limit will reduce the risks associated with having
too great of a proportion of an institution's Tier 1 Capital in letters
of credit for any one Clearing Member Organization. These changes are
not expected to have any impact on Clearing Members because use of
letters of credit as margin collateral is currently low. While
utilization is low, OCC continues to support letters of credit based on
their acceptability as collateral under Commodity Futures Trading
Commission (``CFTC'') regulations.\33\
---------------------------------------------------------------------------

    \33\ See 17 CFR 39.13(g)(10).
---------------------------------------------------------------------------

    Finally, OCC would also make changes to the letter-of-credit
concentration limits articulated in the Rules to eliminate wrong-way
risk. I&P .08 to OCC Rule 604 provides that OCC will not accept a
letter of credit issued pursuant to Rule 604(c) for the account of a
Clearing Member in which the issuing institution, a parent, or an
affiliate has an equity interest in the amount of 20% or more of such
Clearing Member's total capital. The proposed rule change would tighten
this requirement to prohibit acceptance of a letter of credit for the
account of a Clearing Member in which the issuing institution, a
parent, or an affiliate has any equity interest in such Clearing
Member's total capital. Although the current rule seeks to limit the
amount of wrong-way risk in these types of affiliated relationships,
OCC believes this proposed change should eliminate wrong-way risk
associated with allowing the issuing institution of a letter of credit
to have an equity interest in the Clearing Member's total capital.
Implementation Timeframe
    As discussed above, OCC intends to provide parallel reporting to
its Clearing Members for a period of at least four consecutive weeks
prior to implementing the change. If this parallel reporting does not
commence at least four weeks prior to the date OCC obtains all
necessary regulatory approvals for the proposed change, OCC will
announce the implementation date of the proposed change by an
Information Memorandum posted to its public website at least two (2)
weeks prior to implementation.
(2) Statutory Basis
    For the following reasons, OCC believes that the proposed rule
change

is consistent with section 17A(b)(3)(F) of the Act \34\ and Rule 17Ad-
22(e)(5),\35\ Rule 17Ad-22(e)(9),\36\ Rule 17Ad-22(e)(22),\37\ and Rule
17Ad-22(e)(23) \38\ thereunder.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(F).
    \35\ 17 CFR 240.17Ad-22(e)(5).
    \36\ 17 CFR 240.17Ad-22(e)(9).
    \37\ 17 CFR 240.17Ad-22(e)(22).
    \38\ 17 CFR 240.17Ad-22(e)(23).
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Section 17A(b)(3)(F) of the Act
    Section 17A(b)(3)(F) of the Act \39\ requires, among other things,
that the rules of a 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 the clearing agency or for which it is
responsible, and, in general, to protect investors and the public
interest. As discussed above, there are three primary components of
this proposed rule change. First, the proposed rule change would
transition away from the current CiM approach to valuing Government
securities and GSE debt securities deposited as collateral in favor of
applying fixed collateral haircuts that OCC would set and adjust
pursuant to OCC's CRM Policy, which would allow OCC to more quickly
respond to changing market conditions than possible when the fixed
haircut schedule is codified in OCC's Rules, as it is today. Second,
the proposed rule change would codify standards designed to ensure that
OCC's Clearing Banks are adequately capitalized and meet certain
minimum operational capability requirements. Third, the proposed rule
change would improve OCC's credit and collateral risk management
processes by aligning the standards for issuers of letters of credit
with the new Clearing Bank standards and applying other changes
intended to allow OCC to control exposures by imposing more stringent
concentration limits and eliminating wrong-way risks.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Taken together, these changes would help ensure that OCC requires
Clearing Members to maintain sufficient collateral, in form and amount,
and maintain adequate Clearing Bank arrangements to facilitate the
prompt and accurate clearance and settlement of securities transactions
in the markets served by OCC. OCC would use the margin it has collected
from a defaulting Clearing Member to protect other Clearing Members and
their customers from default losses and ensure that OCC can continue
the prompt and accurate clearance and settlement of its cleared
products. In addition, maintaining adequate Clearing Bank arrangements
helps protect Clearing Members and their customers from losses or
liquidity shortfalls that might result from a Clearing Bank's
failure.\40\ For these reasons, the proposed changes to OCC's rules are
reasonably designed to promote the prompt and accurate clearance and
settlement of securities transactions, to assure the safeguarding of
securities and funds in OCC's custody or control, and, in general, to
protect investors and the public interest in accordance with section
17A(b)(3)(F) of the Act.\41\
---------------------------------------------------------------------------

    \40\ See OCC Rule 1006(c), (f) (authorizing OCC to borrow from
or charge the Clearing Fund in the event of a bank's insolvency or
failure to perform an obligation to OCC when due).
    \41\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

Rule 17Ad-22(e)(5)
    Rule 17Ad-22(e)(5) \42\ under the Act requires a covered clearing
agency in relevant part to establish, implement, maintain and enforce
written policies and procedures reasonably designed to limit the assets
it accepts as collateral to those with low credit, liquidity and market
risks, and set and enforce appropriately conservative haircuts and
concentration limits if the covered clearing agency requires collateral
to manage its or its participants' credit exposures. In addition, Rule
17Ad-22(e)(5) requires a covered clearing agency to review the
sufficiency of its collateral haircuts and concentration limits to be
performed not less than annually. OCC requires collateral to manage
credit exposures between OCC and its Clearing Members, and OCC believes
that the proposed rule change furthers these requirements in the
following ways.
---------------------------------------------------------------------------

    \42\ 17 CFR 240.17Ad-22(e)(5).
---------------------------------------------------------------------------

    First, the proposed changes would remove Government securities and
GSE debt securities deposited as margin from the CiM valuation approach
under OCC's STANS margin methodology in favor of a procedures-based
approach for valuing such collateral and determining haircuts under
OCC's CRM Policy. OCC has identified certain weaknesses related to its
current model for valuing Government securities as part of OCC's STANS
margin methodology, including that the current CiM method may not
adequately consider relevant stressed market conditions. OCC would
address these weaknesses by setting a fixed haircut schedule in
accordance with proposed changes to its CRM Policy, as opposed to the
current schedule codified in OCC's Rules. Specifically, the CRM Policy
would adopt an H-VaR approach to monitoring the continued adequacy of
haircuts for Government Securities and GSE debt securities, which is a
well understood financial services risk management method that OCC
would utilize to incorporate periods of market stress into its
analysis. The proposed change would require OCC to maintain its haircut
levels for such collateral at a level at least equal to a 99%
confidence interval of the most conservative look-back period under
this H-VaR approach. OCC believes the proposed approach would result in
more conservative collateral requirements for those Government
securities currently valued using STANS and would have a minimal impact
on the Clearing Fund. This procedures-based approach would involve
review of the sufficiency of OCC's haircuts for Government securities
and GSE debt securities on an at-least monthly basis. In addition, OCC
would continue to review the haircuts as part of the annual review of
the CRM Policy. Accordingly, OCC believes these changes are consistent
with SEC Rule 17Ad-22(e)(5) \43\ because they would establish written
policies and procedures reasonably designed to set and enforce
appropriately conservative collateral haircuts and to review the
sufficiency of such haircuts not less than annually.
---------------------------------------------------------------------------

    \43\ 17 CFR 240.17Ad-22(e)(5).
---------------------------------------------------------------------------

    The proposed changes would also establish the authority of the
Management Committee or its delegate to take mitigating actions in the
form of applying greater haircuts or, in unusual or unforeseen
circumstances, assigning no value or partial value to Government
securities or GSE debt securities, as may be the case if there was an
elevated risk of an imminent default by the sovereign that issued the
securities. This authority would be similar to OCC's present authority
to disapprove securities deposited to satisfy margin requirements under
I&P .15 to OCC Rule 604, but would allow OCC to take less restrictive
action if warranted and would also apply with respect to the Government
securities deposited to satisfy Clearing Fund requirements. OCC
believes this change would help to limit the assets it accepts as
collateral to those with low credit, liquidity, and market risks,
consistent with SEC Rule 17Ad-22(e)(5).\44\
---------------------------------------------------------------------------

    \44\ Id.
---------------------------------------------------------------------------

    Second, the proposal would specify that the concentration limits
for letters of credit currently identified in OCC's Rules are minimum
standards. The proposed changes would establish OCC's authority to set
more restrictive concentration limits for letters of credit based on
factors such as market

conditions, the financial condition of approved issuers, and any other
factors OCC determines are relevant. OCC believes these changes would
help ensure OCC has authority under its policies and procedures to set
appropriately conservative concentration limits for letters of credit.
OCC would continue to review the concentration limits on at least an
annual basis, including as part of the annual review of the CRM Policy.
Accordingly, OCC believes these changes are consistent with SEC Rule
17Ad-22(e)(5) \45\ because they establish written policies and
procedures reasonably designed to set and enforce appropriately
conservative concentration limits and to review the sufficiency of
those concentration limits not less than annually.
---------------------------------------------------------------------------

    \45\ Id.
---------------------------------------------------------------------------

    Third, the proposed rule change would strengthen other standards
applicable to letter-of-credit issuers, including by (1) increasing the
minimum capital requirements for institutions that can issue letters of
credit from $100 million in the case of U.S. institutions, and $200
million for non-U.S. institutions, to a required $500 million for any
institution; (2) requiring that all letters of credit, regardless of
issuer, be payable at a branch within the United States; (3)
prohibiting the use of letters of credit for the account of a Clearing
Member in which the issuing institution, a parent, or an affiliate has
an equity interest in such Clearing Member's total capital, and (4)
eliminating reliance on credit ratings for commercial paper, other
short term obligations and long term obligations in favor of OCC's
internal credit ratings. OCC believes these changes would also serve to
reduce the risks associated with letters of credit by ensuring that
letters of credit used as margin assets are issued by established banks
with sufficient Tier 1 capital and will thus reduce credit risks
associated with those letters of credit, including the elimination of
wrong-way risk arising from an issuer of a letter of credit having an
equity interest in the Clearing Member. Taken together, OCC believes
the amendments in the proposed rule change would enhance OCC's credit
and collateral risk management process by strengthening OCC's
requirements regarding the use of letters of credit as margin assets.
Accordingly, OCC believes the proposed changes are consistent with SEC
Rule 17Ad-22(e)(5) \46\ by helping to limit the assets OCC accepts as
collateral to those with low credit, liquidity, and market risk.
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    Fourth, OCC would remove or amend certain letter-of-credit
standards that are no longer appropriately conservative. For example,
OCC would conform the sovereign credit rating for a non-U.S. issuer's
country of domicile to the standard proposed for Clearing Banks in
proposed OCC Rule 203(b)(3). While these standards would be less
restrictive than those currently codified in I&P .01 to OCC Rule 604
with respect to letter-of-credit issuers, OCC believes that the current
standards are too conservative. The proposed standards better align
with sovereign credit ratings considered to be low risk.
    For the foregoing reasons, OCC believes the proposed rule changes
would establish policies and procedures reasonably designed to limit
the assets that OCC accepts as collateral to those with low credit,
liquidity and market risks and to set and enforce appropriately
conservative haircuts and concentration limits to manage its or its
Clearing Members credit exposures, consistent with the requirements of
Rule 17Ad-22(e)(5).\47\
---------------------------------------------------------------------------

    \47\ Id.
---------------------------------------------------------------------------

Rule 17Ad-22(e)(9)
    Rule 17Ad-22(e)(9) \48\ requires a covered clearing agency in
relevant part to establish, implement, maintain and enforce written
policies and procedures reasonably designed to minimize and manage
credit and liquidity risk arising from conducting its money settlements
in commercial bank money if central bank money is not used by the
covered clearing agency. The proposed Clearing Bank standards would
help ensure that OCC's Clearing Banks are adequately capitalized and
meet certain minimum operational capability and reporting requirements.
The proposed rule change would therefore help ensure OCC's ability to
monitor and manage the financial and operational risks that may be
presented by its Clearing Banks. The proposed rule change would also
require that OCC's Risk Committee approve any new Clearing Banks prior
to onboarding. OCC believes the proposed change is therefore reasonably
designed to minimize and manage the credit and liquidity risk arising
from conducting its money settlements in commercial bank money
consistent with Rule 17Ad-22(e)(9).\49\
---------------------------------------------------------------------------

    \48\ 17 CFR 240.17Ad-22(e)(9).
    \49\ Id.
---------------------------------------------------------------------------

Rule 17Ad-22(e)(22)
    Rule 17Ad-22(e)(22) \50\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to use, or at a minimum, accommodate,
relevant internationally accepted communication procedures and
standards in order to facilitate efficient payment, clearing, and
settlement. OCC believes that by codifying OCC's expectation that
Clearing Banks use the SWIFT messaging network when possible, the
proposed rule change would mitigate risks by ensuring the use of
internationally accepted communication procedures and standards by
OCC's Clearing Banks to facilitate efficient payment, clearing, and
settlement. OCC believes the proposed rule change is therefore
consistent with Rule 17Ad-22(e)(22).\51\
---------------------------------------------------------------------------

    \50\ 17 CFR 240.17Ad-22(e)(22).
    \51\ Id.
---------------------------------------------------------------------------

Rule 17Ad-22(e)(23)
    Finally, Rule 17Ad-22(e)(23) \52\ requires each covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to, among other things, publicly
disclose all relevant rules and material procedures, provide sufficient
information to enable participants to identify and evaluate the risks,
fees, and other material costs they incur by participating in the
covered clearing agency, and provide for a comprehensive public
disclosure that describes its material rules, policies, and procedures
regarding, among other things, its risk management framework. OCC
believes that codifying its minimum standards for Clearing Banks and
letter-of-credit issuers will provide Clearing Members and other market
participants greater clarity and transparency concerning these
relationships while preserving OCC's authority to disapprove specific
relationships on other grounds, as warranted by individual facts and
circumstances.
---------------------------------------------------------------------------

    \52\ 17 CFR 240.17Ad-22(e)(23).
---------------------------------------------------------------------------

    In addition, the proposed changes would provide for public
disclosure of information related to the collateral haircuts for
Government securities and GSE debt securities and concentration limits
for letters of credit. OCC's CRM Policy would provide that OCC would
make such collateral haircut schedule and concentration limits
available on OCC's website and provide Clearing Members with a full
day's notice prior to implementing a change. OCC would generally issue
an Information Memo

whenever the schedule of haircuts or concentration limits are modified
to inform Clearing Members of the changes and would update its
Operations Manual. Information Memos are available on OCC's public
website. In addition, OCC would disclose information concerning how it
sets and enforces these collateral haircuts and concentration limits,
including use of the H-VaR approach for determining the adequacy of
collateral haircuts, in its responses to the Disclosure Framework for
Financial Market Infrastructures issued by the Committee on Payments
and Market Infrastructures and the Board of the International
Organization of Securities Commissions.\53\ OCC believes the proposed
rule change is therefore consistent with Rule 17Ad-22(e)(23).\54\
---------------------------------------------------------------------------

    \53\ See The Options Clearing Corporation Disclosure Framework
for Financial Market Infrastructures, available at https://www.theocc.com/Risk-Management/PFMI-Disclosures.
    \54\ 17 CFR 240.17Ad-22(e)(23).
---------------------------------------------------------------------------

    For these reasons, OCC believes that the proposed rule change is
consistent with applicable provisions of section 17A of the Exchange
Act and Rule 17Ad-22 thereunder.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \55\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule changes concerning collateral haircuts
or letters of credit would impact or impose any burden on competition.
The proposed rule change is designed to modify OCC's rules so that the
Government securities and GSE debt securities that are pledged as
margin or Clearing Fund collateral would be value based on a fixed
schedule of haircuts that would be set and enforced pursuant to OCC's
CRM Policy, codify certain Clearing Bank standards currently maintained
in OCC's internal procedures, and revise certain I&Ps to OCC Rule 604
regarding the acceptability of letters of credit as margin assets. None
of these changes would inhibit access to OCC's services or disadvantage
or favor any particular user in relationship to another, and all of the
changes would be applied uniformly to all Clearing Members. In
addition, the changes to Clearing Bank and letter-of-credit issuer
standards are not expected to have any impact on Clearing Members
because the Clearing Banks and issuers with which Clearing Members have
established relationships meet the proposed standards.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    For the foregoing reasons, OCC believes the proposed rule change is
in the public interest, would be consistent with the requirements of
the Act applicable to clearing agencies and would not impact or impose
a burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with
respect to the proposed rule change and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the selfregulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.
    The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-OCC-2022-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2022-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC- 2022-012 and
should be submitted on or before January 13, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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    \56\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27912 Filed 12-22-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: April 8, 2009 (Volume 74, Number 66)]
[Notices]
[Page 16015]
[DOCID:fr08ap09-109]

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SECURITIES AND EXCHANGE COMMISSION

Sunshine Act Meeting

    Notice is hereby given, pursuant to the provisions of the
Government in the Sunshine Act, Public Law 94-409, that the Securities
and Exchange Commission will hold a closed meeting on Thursday, April
9, 2009 at 2 p.m.
    Commissioners, Counsel to the Commissioners, the Secretary to the
Commission, and recording secretaries will attend the closed meeting.
Certain staff members who have an interest in the matters also may be
present.
    The General Counsel of the Commission, or his designee, has
certified that, in his opinion, one or more of the exemptions set forth
in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR
200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the
scheduled matters at the closed meeting.
    Commissioner Walter, as duty officer, voted to consider the items
listed for the closed meeting in closed session and determined that no
earlier notice thereof was possible.
    The subject matter of the closed meeting scheduled for Thursday,
April 9, 2009 will be:
    Institution and settlement of an injunctive action
    Institution and settlement of administrative proceedings of an
enforcement nature; and
    Other matters relating to enforcement proceedings.
    At times, changes in Commission priorities require alterations in
the scheduling of meeting items.
    For further information and to ascertain what, if any, matters have
been added, deleted or postponed, please contact:
    The Office of the Secretary at<PHONE_NUMBER>.

    Dated: April 3, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-7929 Filed 4-7-09; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: April 15, 2010 (Volume 75, Number 72)]
[Notices]
[Page 19671-19672]
[DOCID:fr15ap10-89]

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DEPARTMENT OF TRANSPORTATION

Pipeline and Hazardous Materials Safety Administration

International Standards on the Transport of Dangerous Goods;
Public Meeting

AGENCY: Pipeline and Hazardous Materials Safety Administration (PHMSA),
Department of Transportation.

ACTION: Notice of public meeting.

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SUMMARY: This notice is to advise interested persons that PHMSA will
conduct a public meeting in preparation for the 37th session of the
United Nations Sub-Committee of Experts on the Transport of Dangerous
Goods (UNSCOE TDG) to be held June 21-30, 2010 in Geneva, Switzerland.
During this meeting, PHMSA is also soliciting comments relative to
potential new work items which may be considered for inclusion in its
international agenda.
    Information Regarding The UNSCOE TDG Meeting:

DATES: Wednesday, June 9, 2010; 9:30 a.m.-12:30 p.m.

ADDRESSES: The meeting will be held at the DOT Headquarters, West
Building, 1200 New Jersey Avenue, SE., Washington, DC 20590.
    Conference Call Capability/Live Meeting Information: Conference
call-in and ``live meeting'' capability will be provided for this
meeting. Specific information on call-in and live meeting access will
be posted when available at http://www.phmsa.dot.gov/hazrnat/regs/
international.

FOR FURTHER INFORMATION CONTACT: Mr. Duane Pfund, Acting Director,
Office of Hazardous Materials Technology or Mr. Shane Kelley,
International Transportation Specialist, Office of Hazardous Materials
Safety, Department of Transportation, Washington, DC 20590; (202) 366-
0656.

SUPPLEMENTARY INFORMATION: The primary purpose of this meeting will be
to prepare for the 37th session of the UNSCOE TDG. The 37th session of
the UNSCOE TDG is the third of four meetings scheduled for the current
2009-2010 biennium. The UNSCOE will consider proposals for the 17th
Revised Edition of the United Nations Recommendations on the Transport
of Dangerous Goods Model Regulations which will come into force in the
international regulations from January 1, 2013. Topics on the agenda
for the UNSCOE TDG meeting include:
    [cir] Explosives and related matters.
    [cir] Listing, classification and packing.
    [cir] Electric storage systems.
    [cir] Miscellaneous proposals of amendments to the Model
Regulations on the Transport of Dangerous Goods.
    [cir] Electronic data interchange (EDI) for documentation purposes.
    [cir] Cooperation with the International Atomic Energy Agency
(IAEA).
    [cir] Global harmonization of transport of dangerous goods
regulations with the Model Regulations.
    [cir] Guiding principles for the Model Regulations.
    [cir] Issues relating to the Globally Harmonized System of
Classification and Labelling of Chemicals (GHS).
    [cir] Other business.
    In addition, PHMSA is soliciting comments on how to further enhance
harmonization for international transport of hazardous materials. PHMSA
has finalized a broad international strategic plan and welcomes input
on items which stakeholders believe should be included as specific
initiatives within this plan. PHMSA's Office of International Standards
Strategic Plan can be accessed at: http://www.phmsa.dot.gov/hazmat/
regs/international.
    The public is invited to attend without prior notification. Due to
the heightened security measures participants are encouraged to arrive
early to allow time for security checks necessary to obtain access to
the building. Following the 37th session of the UNSCOE TDG, PHMSA will
place a copy of the Sub-Committee's report and a summary of the results
on PHMSA's Hazardous Materials Safety Homepage

at http://www.phmsa.dot.gov/hazmat/regs/international.

Documents

    Copies of documents for the UNSCOE TDG meeting and the meeting
agenda may be obtained from the United Nations Transport Division's Web
site at: http://www.unece.org/trans/main/dgdb/dgsubc/c30.html. PHMSA's
international standards Website at http: //www.phmsa.dot.gov/hazmat/
regs/international also provides additional information regarding the
UNSCOE TDG and related matters such as summaries of decisions taken at
previous sessions of the UNSCOE TDG.

Magdy El-Sibaie,
Associate Administrator for Hazardous Materials Safety.
[FR Doc. 2010-8446 Filed 4-14-10; 8:45 am]
BILLING CODE 4910-60-M


[Federal Register Volume 78, Number 10 (Tuesday, January 15, 2013)]
[Notices]
[Page 2991]
[FR Doc No: 2013-00649]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP13-33-000]

Southern Natural Gas Company, L.L.C.; Notice of Request Under
Blanket Authorization

    Take notice that on December 21, 2012, Southern Natural Gas
Company, L.L.C. (Southern), P.O. Box 2563, Birmingham, AL 35202-2563,
filed in Docket No. CP13-33-000, an application pursuant to sections
157.205, 157.208, 157.210 and 157.216 of the Commission's Regulations
under the Natural Gas Act (NGA) as amended, to relocate one of its
existing 10,350 horsepower compressor units from its Lacombe Compressor
Station in St. Tammany Parish Louisiana downstream to its Enterprise
Compressor Station in Clarke County Mississippi. In addition, Southern
requests to perform other modifications to improve gas quality and
increase the amount of available receipt point capacity and supply
diversity on Southern's system, all as more fully set forth in the
application which is on file with the Commission and open to public
inspection. The filing may also be viewed on the Web at http://www.ferc.gov using the ``eLibrary'' link. Enter the docket number
excluding the last three digits in the docket number field to access
the document. For assistance, please contact FERC Online Support at
<EMAIL_ADDRESS>or toll free at<PHONE_NUMBER>, or TTY,
contact<PHONE_NUMBER>.
    Any questions concerning this application may be directed to Glenn
A. Sheffield, Director, Rates & Regulatory Department, P.O. Box 2563,
Birmingham, AL 35202-2563 at telephone<PHONE_NUMBER> or email<EMAIL_ADDRESS>Patricia S. Francis, Assistant General
Counsel, P.O. Box 2563, Birmingham, AL 35202-2563 at telephone (205)
325-7696 or email<EMAIL_ADDRESS>or Tina S. Hardy,
Regulatory Manager, P.O. Box 2563, Birmingham, AL 35202-2563 at
telephone<PHONE_NUMBER> or email<EMAIL_ADDRESS>    Any person or the Commission's staff may, within 60 days after
issuance of the instant notice by the Commission, file pursuant to Rule
214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to
intervene or notice of intervention and pursuant to Section 157.205 of
the regulations under the NGA (18 CFR 157.205), a protest to the
request. If no protest is filed within the time allowed therefore, the
proposed activity shall be deemed to be authorized effective the day
after the time allowed for filing a protest. If a protest is filed and
not withdrawn within 30 days after the allowed time for filing a
protest, the instant request shall be treated as an application for
authorization pursuant to Section 7 of the NGA.
    Persons who wish to comment only on the environmental review of
this project should submit an original and two copies of their comments
to the Secretary of the Commission. Environmental commenter's will be
placed on the Commission's environmental mailing list, will receive
copies of the environmental documents, and will be notified of meetings
associated with the Commission's environmental review process.
Environmental commenter's will not be required to serve copies of filed
documents on all other parties. However, the non-party commentary, will
not receive copies of all documents filed by other parties or issued by
the Commission (except for the mailing of environmental documents
issued by the Commission) and will not have the right to seek court
review of the Commission's final order.
    The Commission strongly encourages electronic filings of comments,
protests and interventions in lieu of paper using the ``eFiling'' link
at http://www.ferc.gov. Persons unable to file electronically should
submit an original and 7 copies of the protest or intervention to the
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426.

    Dated: January 7, 2013.
Kimberly D. Bose,
Secretary.
[FR Doc. 2013-00649 Filed 1-14-13; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 88, Number 71 (Thursday, April 13, 2023)]
[Notices]
[Pages 22444-22445]
[FR Doc No: 2023-07809]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP22-466-000]

WBI Energy Transmission, Inc.; Notice of Availability of the
Final Environmental Impact Statement for the Proposed Wahpeton
Expansion Project

    The staff of the Federal Energy Regulatory Commission (FERC or
Commission) has prepared a final environmental impact statement (EIS)
for the Wahpeton Expansion Project, proposed by WBI Energy
Transmission, Inc. (WBI Energy) in the above-referenced docket. WBI
Energy requests

authorization to construct and operate the Wahpeton Expansion Project
to provide firm transportation service for about 20,600 equivalent
dekatherms of natural gas per day to meet a growing demand for natural
gas in southeastern North Dakota. The project is supported by a binding
Precent Agreement with Montana-Dakota Utilities (MDU) for 20,000
equivalent dekatherms of natural gas per day from the existing Mapleton
Compressor Station to the proposed MDU-Kindred and MDU-Wahpeton Border
Stations to provide natural gas services to the communities of Kindred
and Wahpeton, North Dakota.
    The final EIS assesses the potential environmental effects of the
construction and operation of the Wahpeton Expansion Project in
accordance with the requirements of the National Environmental Policy
Act (NEPA). The FERC staff concludes that approval of the proposed
project, with the mitigation measures recommended in the EIS, would
result in some adverse environmental impacts. Most of these impacts
would be temporary and occur during construction (e.g., impacts on
wetlands, land use, traffic, and noise). With the exception of climate
change impacts, that are not characterized in the EIS as significant or
insignificant, staff conclude that project effects would not be
significant. As part of the analysis, Commission staff developed
specific mitigation measures (included in the final EIS as
recommendations). Staff recommend that these mitigation measures be
attached as conditions to any authorization issued by the Commission.
    No agencies elected to participate as a cooperating agency in the
preparation of the EIS.
    The final EIS addresses the potential environmental effects of the
construction and operation of the following project facilities:
     a new 60.2-mile-long, 12-inch-diameter natural gas
pipeline;
     minor modifications to WBI Energy's existing Mapleton
Compressor Station;
     a new MDU-Wahpeton Border Station;
     a new MDU-Kindred Border Station:
     seven new block valve settings:
     four new pig launcher/receiver settings; and
     ancillary facilities.
    The Commission mailed a copy of the Notice of Availability to
federal, state, and local government representatives and agencies;
elected officials; environmental and public interest groups; Native
American tribes; potentially affected landowners and other interested
individuals and groups; and newspapers and libraries in the project
area. The final EIS is only available in electronic format. It may be
viewed and downloaded from the FERC's website (www.ferc.gov), on the
natural gas environmental documents page (https://www.ferc.gov/industries-data/natural-gas/environment/environmental-documents). In
addition, the final EIS may be accessed by using the eLibrary link on
the FERC's website. Click on the eLibrary link (https://elibrary.ferc.gov/eLibrary/search), select ``General Search,'' and
enter the docket number in the ``Docket Number'' field, excluding the
last three digits (i.e., CP22-466). Be sure you have selected an
appropriate date range. For assistance, please contact FERC Online
Support at [email protected] or toll free at<PHONE_NUMBER>,
or for TTY, contact<PHONE_NUMBER>.
    Additional information about the project is available from the
Commission's Office of External Affairs, at (866) 208-FERC, or on the
FERC website (www.ferc.gov) using the eLibrary link. The eLibrary link
also provides access to the texts of all formal documents issued by the
Commission, such as orders, notices, and rulemakings.
    In addition, the Commission offers a free service called
eSubscription which allows you to keep track of all formal issuances
and submittals in specific dockets. This can reduce the amount of time
you spend researching proceedings by automatically providing you with
notification of these filings, document summaries, and direct links to
the documents. Go to https://www.ferc.gov/ferc-online/overview to
register for eSubscription.

    Dated: April 7, 2023.
Kimberly D. Bose,
Secretary.
[FR Doc. 2023-07809 Filed 4-12-23; 8:45 am]
BILLING CODE 6717-01-P