[Federal Register Volume 82, Number 62 (Monday, April 3, 2017)]
[Notices]
[Pages 16260-16268]
[FR Doc No: 2017-06443]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80323; File No. SR-OCC-2017-802]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice Concerning Enhancements to OCC's
Stock Loan Programs

March 28, 2017.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, entitled Payment, Clearing
and Settlement Supervision Act of 2010 (``Payment, Clearing and
Settlement Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the
Securities Exchange Act of 1934 (``Act''),\2\ notice is hereby given
that on February 28, 2017, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') an
advance notice as described in Items I and II below, which Items have
been prepared by OCC. The Commission is publishing this notice to
solicit comments on the advance notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice

    This advance notice concerns a number of proposed enhancements to
OCC's Stock Loan/Hedge Program (``Hedge Program'') and Market Loan
Program (collectively, the ``Stock Loan Programs''). The proposed
changes would, among other things: (1) Require Clearing Members to have
robust processes in place to reconcile open interest in the Stock Loan
Programs at least once per stock loan business day; (2) provide further
clarity and certainty regarding the formal record of stock loan
positions being guaranteed by OCC at any given time (``golden copy''
rules); (3) further clarify that stock loan positions at OCC are not
terminated until the records of OCC reflect the termination of such
stock loan; (4) provide a specific timeframe in which Clearing Members
in the Stock Loan Programs must buy-in or sell-out of stock loan
positions in the event of another Hedge or Market Loan Clearing Member
suspension (as applicable); (5) provide OCC with the authority to
withdraw from a Clearing Member's account the value of any difference
between the price reported by a Clearing Member instructed to execute a
buy-in or sell-out of loaned stock as a result of another Clearing
Member suspension and the price that OCC determines to be reasonable;
and (6) allow OCC to close out the Matched-Book Positions of suspended
Hedge Clearing Members through the termination by offset and ``re-
matching'' of such positions without requiring the transfer of
securities against the payment of settlement prices as currently
required under OCC's rules.
    All terms with initial capitalization not defined herein have the
same meaning as set forth in OCC's By-Laws and Rules.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's public Web
site: http://optionsclearing.com/about/publications/bylaws.jsp.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

    In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the advance notice and
discussed any comments it received on the advance notice. 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 and B below,
of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with
respect to the proposed changes and none have been received. OCC has,
however, discussed the re-matching in suspension proposal with its
Clearing Members at numerous member outreach forums and meetings. While
members were generally supportive of the proposal, some members did
raise concerns over the possibility of being re-matched with a
counterparty with which the Clearing Member does not have an existing
securities lending relationship. For example, some Clearing Members
noted that they could be re-matched with counterparties with which they
do not have an existing Master Securities Lending Agreement
(``MSLA''),\4\ which dictates all of the terms of the stock loan not
governed by OCC's By-Laws and Rules (e.g., Mark-to-Market percentage
and rounding preferences). In addition, re-matched counterparties that
do not have an existing securities lending relationship would need to
make operational changes in order to make deliveries to their new
counterparty in the event of a termination or buy-in to close out the
loan.
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    \4\ Commission Staff received OCC's consent to insert ``Master
Securities Lending Agreement'' before the acronym ``MSLA'' pursuant
to a telephone conversation on March [6], 2017.
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    OCC carefully considered this member feedback in the development of
its proposal, and in order to mitigate these concerns, the proposed re-
matching in suspension rules would require OCC to make reasonable
efforts to re-match Hedge Clearing Members that maintain between them
current executed MSLAs. Specifically, under the proposed changes, OCC
would use a matching algorithm to re-match stock loan and stock borrow
positions in order of priority based on the largest available stock
borrow or stock loan positions, as applicable, for the selected
Eligible Stock for which a MSLA exists between the Borrowing and
Lending Clearing Members to ensure that members with existing
securities lending relationships are re-matched to the greatest extent
possible. Even in light of these concerns, however, Clearing Members
generally agreed that it is preferable to maintain a stock loan with
another counterparty rather than attempting to close out stock loan
positions in the event of a Hedge Clearing Member suspension as in many
cases (and particularly in stressed market conditions) it could be
difficult for the borrower to return the securities to the lender since
the securities would likely be being used for other purposes.

(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment,
Clearing, and Settlement Supervision Act

Purpose of the Proposed Change
    OCC proposes a number of amendments to its By-Laws and Rules
designed to enhance the overall resilience of its Stock Loan/Hedge
Program (``Hedge Program'') and Market Loan Program (collectively, the
``Stock Loan Programs''). Specifically, the proposed changes would
improve risk management in the Stock Loan Programs by, among other
things: (1) Requiring Clearing Members to have robust processes in
place to reconcile open interest in the Stock Loan Programs at least
once per stock loan business day; (2) providing further clarity and
certainty regarding the formal record of stock loan positions being
guaranteed by OCC at any given time (``golden copy'' rules); (3)
further

clarifying that stock loan positions at OCC are not terminated until
the records of OCC reflect the termination of such stock loan; (4)
providing a specific timeframe in which Clearing Members in the Stock
Loan Programs must buy-in or sell-out of stock loan positions in the
event of another Hedge or Market Loan Clearing Member suspension as
applicable); (5) providing OCC with the authority to withdraw from a
Clearing Member's account the value of any difference between the price
reported by a Clearing Member instructed to execute a buy-in or sell-
out of loaned stock as a result of another Clearing Member suspension
and the price that OCC determines to be reasonable; and (6) allowing
OCC to close out the Matched-Book Positions of suspended Hedge Clearing
Members through the termination by offset and re-matching of such
positions without requiring the transfer of securities against the
payment of settlement prices as currently required under OCC's rules.
    The proposed amendments to the By-Laws and Rules are discussed in
more detail below.
Background
    OCC currently operates two Stock Loan Programs: The Hedge Program
and the Market Loan Program. In the Hedge Program, OCC acts as the
principal counterparty for stock loans that are executed bilaterally
outside of OCC and sent to OCC for clearance and settlement. In the
case of a Hedge Loan, prospective Lending and Borrowing Clearing
Members identify each other (independent of OCC), agree to bilaterally
negotiated terms of the Hedge Loan, and then send the details of the
stock loan to the Depository with a certain ``reason code,'' \5\ which
designates the stock loan as a Hedge Loan for guaranty and clearance at
OCC. The Lending Clearing Member then instructs the Depository to
transfer a specified number of shares of Eligible Stock to the account
of the Borrowing Clearing Member, and the Borrowing Clearing Member
instructs the Depository to transfer the appropriate amount of cash
collateral to the account of the Lending Clearing Member.
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    \5\ Unique reason codes were created by the Depository for
Clearing Members to designate stock loan transactions intended to be
sent to OCC for novation and guarantee.
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    In the Market Loan Program, stock loans are initiated through the
matching of bids and offers that are either agreed upon by the Market
Loan Clearing Members or matched anonymously through a Loan Market. In
order to initiate a Market Loan, the Loan Market sends a matched
transaction to OCC, which in turn sends two separate but linked
settlement instructions to the Depository to effect the movement of
Eligible Stock and cash collateral between the accounts of the Market
Loan Clearing Members through OCC's account at the Depository.
    Regardless of whether a transaction is initiated under the Hedge
Program or Market Loan Program, OCC novates the transaction and becomes
the lender to the Borrowing Clearing Member and the borrower to the
Lending Clearing Member after it accepts an end-of-day report from the
Depository showing completed Stock Loans.\6\ As the principal
counterparty to the Borrowing and Lending Clearing Members, OCC
guarantees the return of the full value of cash collateral to a
Borrowing Clearing Member and guarantees the return of the Loaned Stock
(or value of that Loaned Stock) to the Lending Clearing Member.\7\
After novation, as part of the guaranty, OCC makes Mark-to-Market
Payments for all cleared stock loans on a daily basis to collateralize
all loans to the negotiated levels.\8\ Settlements generally are
combined and netted against other OCC settlement obligations in a
Clearing Member's account, including trade premiums and margin
deficits. Clearing Member open positions in the Stock Loan Programs are
factored into the Clearing Member's overall Margin \9\ and Clearing
Fund contribution requirements.\10\
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    \6\ See OCC Rules 2202(b) and 2202A(b).
    \7\ Under the Market Loan Program, OCC also provides a limited
guaranty of dividend and rebate payments.
    \8\ Mark-to-Market Payments are based on the value of the loaned
securities and made between Clearing Members using OCC's cash
settlement system. In the Hedge Program, the percentage of the value
of the loaned securities, either 100% or 102%, as well as the
preferred Mark-to-Market rounding, are dependent upon the terms of
the Master Securities Loan Agreement (``MSLA'') between the two
Hedge Clearing Member parties to the transaction. In the Market Loan
Program, all Market Loans are collateralized to 102%.
    \9\ See OCC Rules 601 and 2203.
    \10\ See OCC Rule 1001.
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Stock Loan Position Records
    OCC's Rules currently provide that termination of a Hedge Loan is
not complete until either: (1) The Depository makes final entries on
its records reflecting that the stock loan position has been unwound
and OCC receives notice thereof; or (2) the counterparties to the
transaction certify to OCC that the stock loan is terminated and the
settlement price has been transferred between them.\11\ Under this
process, it is possible for a Hedge Clearing Member to close an open
Hedge Loan but fail to submit the necessary reason codes to the
Depository to effect the termination of the stock loan position at OCC,
resulting in conflicting records between OCC and its Clearing Members.
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    \11\ See OCC Rule 2209(a) which describes the requirements for
the termination of a stock loan transaction.
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    Market Loans are typically terminated by a Market Loan Clearing
Member providing notice to the relevant Loan Market calling for the
recall or return of a specified quantity of the Loaned Stock. The Loan
Market then sends details of the matched return/recall transaction to
OCC, which validates the transaction and sends a pair of delivery
orders to the Depository in connection with the recall/return. However,
in certain circumstances where a Market Loan Clearing Member fails to
return the specified quantity of Loaned Stock or to pay the applicable
settlement price for a Loaned Stock, the counterparty Clearing Member
may choose to execute a buy-in or sell-out of the Loaned Stock on its
own.\12\ The Market Loan Clearing Member is then required to provide
notice to the Loan Market of the buy-in or sell-out after execution is
complete. This limited scenario could also give rise to the risk that a
Market Loan Clearing Member has terminated a stock loan transaction but
failed to provide the necessary report to the Loan Market for
notification to OCC.
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    \12\ See OCC Rule 2209A(b)-(c).
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    When either of the above scenarios occur, the Clearing Member
remains obligated to effect the required settlements, including, for
example, making the associated Mark-to-Market Payments, until the stock
loan position is terminated at OCC. Moreover, in these scenarios, a
Clearing Member may continue to receive margin benefits on the closed
stock loan until the appropriate trade corrections are made at OCC.
Such scenarios could give rise to operational and/or credit risk if a
Clearing Member's expectations of its obligations for certain stock
loan positions are inconsistent with the Clearing Member's formal
obligations for such positions on the records of OCC (e.g.,
requirements to post margin or make mark-to-market settlements for
positions that have already been closed).
Default Management in the Stock Loan Programs
    Currently, in the event a Stock Loan Program Clearing Member is
suspended, the suspended Clearing Member's open stock loan positions
are closed by instructing the respective non-suspended Clearing Member
counterparties (within either the Hedge

Program or Market Loan Program, as applicable) to buy-in or sell-out
the Eligible Stock.\13\ The reported execution price of the buy-in or
sell-out is used as the settlement price to facilitate the final
marking price between the non-suspended Clearing Member and the
liquidating settlement account of the suspended Clearing Member. This
process has significant benefits as it distributes the liquidity
demands across multiple counterparties and aligns the liquidity demands
necessary to facilitate an unwind with the Clearing Member currently in
possession of the Collateral. However, this approach effectively
utilizes each counterparty to the suspended Clearing Member as
independent ``liquidating agents,'' making the process prone to greater
execution risk due to the number of counterparties effecting the buy-
in/sell-out transactions, which is further compounded by the manually-
intensive nature of the process. In the event a large Hedge or Market
Loan Clearing Member is suspended, the process could become more
susceptible to errors given the numerous manual steps and the quantity
of positions that must be closed. Moreover, any delay in the buy-in/
sell-out process could result in increased credit risk to OCC as the
close out process for stock loans could fail to align with OCC's margin
and liquidation period assumptions of a two-day close out process
(which is applicable to all products without differentiation). For
example, OCC may be exposed to credit risk if the price paid or
received for the buy-in or sell-out of the Eligible Stock varies from
the price at which OCC last collected a Mark-to-Market Payment from the
defaulter and that price differential exceeds the amount of margin on
deposit for such positions.
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    \13\ See OCC Rules 2211 and 2211A.
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    Furthermore, and as described in more detail below, because OCC
maintains inventory in the Hedge Program on a bilateral basis (i.e.,
maintains the borrower and lender to a given transaction) if a
suspended Hedge Clearing Member maintains Matched-Book Positions,\14\
logistically OCC would be required to recall the loan and return the
borrowed shares to unwind the Matched-Book positions. This results in a
potential exposure to OCC, not accounted for by its margin model,\15\
related to the potential price dislocation between the recall and
return transactions.
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    \14\ Matched-Book Positions are Hedge Loan positions in which a
single Hedge Clearing Member borrows Eligible Stock from a Lending
Clearing Member and lends an equal or lesser amount of the same
Eligible Stock to a Borrowing Clearing Member. Previously, OCC
adopted a proposed rule change to allow for the voluntary
termination by offset and re-matching of Matched-Book Positions,
outside of the suspension scenario, subject to the agreement of all
affected Hedge Clearing Members. See Securities Exchange Act Release
No. 34-77415 (March 22, 2016), 81 FR 17231 (March 28, 2016) (SR-OCC-
2016-006).
    \15\ With Matched-Book Positions, a member is simultaneously
borrowing and lending the same securities (and quantity), which are
marked to the same price. OCC's margin process recognizes this and
currently nets loans and borrows in the same security prior to
calculating exposure, resulting in no margin on a perfectly matched
positions.
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Proposed Changes to the By-Laws and Rules
    OCC is proposing a number of rule changes to provide more clarity,
transparency, and certainty around the status of stock loan positions
being cleared and guaranteed at OCC. In addition, OCC is proposing
enhancements to its default management process for the Stock Loan
Programs to mitigate the risks associated with the buy-in/sell-out and
recall/return processes as described above. The proposed changes are
discussed in more detail below.
1. Trade Balancing
    A key attribute of managing risk in the Stock Loan Programs is
ensuring that OCC and its Clearing Members have identical records of
open and closed positions to ensure all parties are aware of their
obligations with respect to those positions. As described above, a
stock loan transaction may be terminated by a Hedge Clearing Member
(and, in more limited circumstances, a Market Loan Clearing Member)
without OCC being made aware of the termination if the correct reason
codes are not used in connection with stock loan activity at the
Depository.\16\ Such a discrepancy between the records of OCC and its
Clearing Members could give rise to operational and/or credit risk if a
Clearing Member's expectations of its obligations for certain stock
loan positions are inconsistent with the Clearing Member's formal
obligations for such positions on the records of OCC (see discussion of
the proposed ``golden copy'' rules below).
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    \16\ See supra note 5.
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    In order to minimize the potential dislocation between the records
of OCC and its Clearing Members and mitigate the risks that may arise
from such out trades, OCC is proposing to amend Rules 2205 and 2205A to
require that Hedge and Market Loan Clearing Members, respectively, have
adequate policies and procedures in place to perform a reconciliation
of stock loan position balances between the records of the Clearing
Member and any report or reports provided by OCC at least once per
stock loan business day and resolve any discrepancies based on such
report(s) for a given stock loan business day by 9:30 a.m. Central Time
on the following stock loan business day. The proposed change would
therefore ensure that OCC and its Clearing Members have an accurate and
consistent understanding of each member's open stock loan positions at
OCC and the obligations associated therewith.
2. Golden Copy Rules
    OCC also proposes clarifying amendments to Articles XXI and XXIA of
its By-Laws to emphasize that the records of OCC are the official
record of open and closed stock loan transactions in the Stock Loan
Programs and that Clearing Members remain liable for all obligations
related to open stock loan positions as reflected in the records of
OCC. In particular, OCC proposes to amend Article XXI, Sections 3 and 4
(relating to the agreements of Borrowing and Lending Clearing Members
in the Hedge Program) and Article XXIA, Sections 3 and 4 (relating to
the agreements of Borrowing and Lending Clearing Members in the Market
Loan Program) to explicitly state that, in the event of a conflict
between the records of OCC and any records generated by Borrowing or
Lending Clearing Members regarding stock borrow or stock loan
positions, the records generated by OCC will prevail and the Borrowing
or Lending Clearing Member shall remain liable for all obligations
associated with such stock borrow or stock loan positions maintained on
the records of OCC. The proposed amendment would provide additional
transparency and certainty to Clearing Members regarding OCC's
treatment of its own records as the formal ``golden copy'' record of
stock loan positions at OCC.
3. Termination Rules
    OCC also proposes amendments to Rules 2209 and 2209A to provide
that the termination of Hedge Loans and Market Loans, respectively,
shall be deemed to be complete when the records of OCC reflect the
termination of such stock loans. The proposed change is intended to
clarify and reinforce that OCC's records of stock loan positions, and
in particular, the termination of stock loan positions, are the formal
record of cleared stock loan positions at OCC. OCC believes the
proposed change will provide additional clarity and transparency around
the obligations of OCC and its Clearing Members in the Stock Loan
Programs, particularly

where discrepancies may arise between the records of OCC and its
Clearing Members concerning terminated stock loans.
4. Buy-In and Sell-Out Timeframe in Suspension
    In order to mitigate the risks involved in the existing buy-in/
sell-out process, as described in detail above, and enhance the
resiliency of the Stock Loan Programs, OCC proposes to amend Rules 2211
and 2211A to require Lending Clearing Members or Borrowing Clearing
Members that are instructed to buy-in or sell-out in connection with a
Hedge or Market Loan Clearing Member suspension to execute such
transactions by the close of the stock loan business day after the
receipt of such instruction by OCC.\17\ If the instructed Clearing
Member fails to execute the buy-in or sell-out transaction within this
timeframe, OCC would terminate the Stock Loan and effect Settlement
based upon the Marking Price used at the close of business on the stock
loan business day after the original instruction was made by OCC.
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    \17\ In the situation of a buy-in, the Lending Clearing Member
would be required to use the cash collateral to buy-in the
securities. OCC would not be responsible for funding the buy-in.
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    Additionally, OCC proposes a conforming change to Rules 2211 and
2211A to eliminate the requirement that Hedge or Market Loan Clearing
Members executing a buy-in or sell-out must be prepared to defend the
reasonableness of the timing of such transaction as all instructed
Clearing Members would be required to execute the buy-in/sell-out
within the newly specified two business day timeframe or be subject to
automatic termination and settlement under the proposed changes. OCC
also proposes conforming changes to delete language stating that OCC,
in its discretion and upon notice to the Lending Clearing Member or the
independent broker, may fix a cash settlement value for the quantity of
the Loaned Stock not returned to the Lending Clearing Member as this
rule text would no longer be necessary under the proposed two-day buy-
in/sell-out rules described above.
    OCC believes the proposed changes will help to mitigate potential
credit risks that may be associated with a delay in a Hedge or Market
Loan Clearing Member effecting buy-in or sell-out transactions as it
would ensure that positions are closed out--either through the buy-in/
sell-out of stock loans by the instructed Hedge or Market Loan Clearing
Members or by the automatic termination and settlement of stock loans
by OCC--in a time period consistent with OCC's margin assumptions and
thereby reducing the risk that the price paid or received for the buy-
in or sell-out of the Eligible Stock varies greatly from the price at
which OCC last collected a Mark-to-Market Payment from the defaulter.
5. Authority To Enforce Reasonable Prices in the Buy-In/Sell-Out
Process
    Under existing Rules 2211 and 2211A, after a buy-in or sell-out
occurs in a Clearing Member suspension scenario, OCC validates the
prices reported by the Clearing Members to determine whether or not the
price utilized to buy-in or sell-out is reasonable given the market
prices during the two stock loan business day window. Clearing Members
executing the buy-in or sell-out must be prepared to defend the
reasonableness of the price, transactional costs, or cash settlement
value of the transaction. OCC is proposing to amend Rules 2211 and
2211A to provide OCC with the authority to withdraw from the Clearing
Member's account the value of any difference between the price reported
by the Clearing Member executing the buy-in or sell-out, as applicable,
and the price that OCC, in its sole discretion, determines to be
reasonable. In addition, OCC proposes to amend Rules 2211 and 2211A to
provide further clarity that a Clearing Member may defend the
reasonableness of a reported price or cash settlement value of a buy-in
or sell-out by demonstrating that it fell within the trading range of
the Eligible Stock on that day. OCC believes this proposed change will
further incentivize Clearing Members to execute a buy-in or sell-out at
a reasonable price in accordance with the newly implemented two-day
close out timeframe.
6. Hedge Program Re-Matching in Suspension
    A significant portion of the activity in OCC's Hedge Program
relates to what is often referred to as matched-book activity where a
Hedge Clearing Member maintains in an account a stock loan position for
a specified number of shares of an Eligible Stock reflecting a stock
lending transaction with one Hedge Clearing Member (the Borrowing
Clearing Member) and also maintains in that same account a stock borrow
position for the same number, or lesser number, of shares of the same
Eligible Stock with another Hedge Clearing Member (the Lending Clearing
Member) (such positions being Matched-Book Positions). From a daily
mark-to-market settlement perspective, there are typically no
obligations related to Matched-Book Positions because the member is
simultaneously borrowing and lending the same securities (and
quantity), which are marked to the same price. OCC's margin process
recognizes this and currently nets loans and borrows in the same
security prior to calculating exposure, resulting in no margin on a
perfectly matched position.
    As discussed above, in the event of a Hedge Clearing Member
suspension, OCC terminates the suspended Hedge Clearing Member's stock
loans in accordance with the buy-in and sell-out process described in
Rule 2211.\18\ Due to the nature of Matched-Book Positions, OCC would
be required to both recall the loan and return the borrowed shares to
completely unwind the Matched-Book Positions. In addition to potential
delays in the buy-in/sell-out process, this process also exposes OCC to
potential price dislocation between the buy-in and sell-out
transactions.
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    \18\ Rule 2211 also allows OCC, at its discretion, to instruct
an independent broker, to buy in or sell out, as applicable, the
Loaned Stock. In the case where the Lending Clearing Member or the
independent broker fails to execute a buy-in or if, for any reason,
effecting a buy-in is not permitted, OCC, in its discretion and upon
notice to the Lending Clearing Member or the independent broker, may
fix a cash settlement value for the quantity of the Loaned Stock not
returned to the Lending Clearing Member. See OCC Rule 2211.
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    In addition, to the extent Borrowing and Lending Clearing Member
counterparties to the suspended Hedge Clearing Member's Matched-Book
Positions wish to maintain equivalent stock loan positions at OCC,
those Borrowing and Lending Clearing Members would be required to
initiate new stock loans to replace the closed out positions.
Throughout this process of terminating and reestablishing stock loan
positions, a number of operational steps are required to facilitate and
settle those transactions, which introduce the potential for market
disruption. The successful initiation of new replacement stock loans
for the Borrowing or Lending Clearing Members could be subject to
disruption by operational or execution risks with the result that one
``leg'' of the initiating transaction would fail, resulting in a
temporary imbalance of the previously ``matched-book'' position.
Moreover, the Borrowing and Lending Clearing Members lose the
protections afforded by OCC's guaranty of their stock loan positions
until the newly initiated stock loan transactions have been accepted,
novated, and guaranteed by OCC.
    OCC is proposing new Rule 2212 to allow OCC to perform an orderly
close out of a suspended Hedge Clearing

Member's Matched-Book Positions through the termination by offset and
re-matching \19\ of such positions, without requiring the transfer of
securities against the payment of settlement prices as currently
required under OCC Rule 2211. OCC believes the proposed changes will
strengthen the risk management processes in place at OCC by mitigating
the risks involved in the buy-in/sell-out of Matched-Book Positions as
well as provide the overall marketplace served by the Hedge Program
with more stability.\20\
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    \19\ In order to effect the re-matching of stock loan and borrow
positions at OCC, OCC would simultaneously close out the existing
positions of the Matched-Book Lending and Borrowing Clearing Members
and create new stock loan and borrow positions between the re-
matched members and OCC. As a result, the re-matched positions would
maintain the benefits of OCC's guaranty throughout the re-matching
process and would not require the re-matched Hedge Clearing Members
to issue instructions to the Depository to terminate or initiate
Stock Loans and transfer securities against the payment of
Collateral.
    \20\ As further described in Item 5, OCC discussed the re-
matching in suspension proposal with its Clearing Members at
numerous member outreach forums and meetings. While members were
generally supportive of the proposal, some members did raise
concerns over the possibility of being re-matched with a
counterparty with which the Clearing Member does not have an
existing securities lending relationship. Specifically, Clearing
Members noted that the proposal could result in a Hedge Clearing
Member being re-matched with a counterparty with which it does not
have an existing MSLA, which dictates all of the terms of the stock
loan not governed by OCC's By-Laws and Rules (e.g., Mark-to-Market
percentage and rounding preferences), and could require operational
changes in order to make deliveries to their new counterparty in the
event of a termination or buy-in to close out the loan. OCC would
mitigate these concerns by prioritizing the re-matching of Hedge
Clearing Members that maintain between them current executed MSLAs,
as discussed in more detail below. Moreover, even in light of these
concerns, Clearing Members generally agreed that it is preferable to
maintain a stock loan with another counterparty rather than
attempting to close out stock loan positions in the event of a Hedge
Clearing Member suspension as in many cases (and particularly in
stressed market conditions) it could be difficult for the borrower
to return the securities to the lender since the securities would
likely be being used for other purposes.
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    Proposed Rule 2212(a) would provide that, in the event that a
suspended Hedge Clearing Member has Matched-Book Positions within the
Hedge Program, OCC will, upon notice to affected Hedge Clearing
Members, close out the suspended Hedge Clearing Member's Matched-Book
Positions to the greatest extent possible by (i) the termination by
offset of stock loan and stock borrow positions that are Matched-Book
Positions in the suspended Hedge Clearing Member's account(s) and (ii)
OCC's re-matching of stock borrow positions for the same number of
shares in the same Eligible Stock maintained in a designated account of
a Matched-Book Borrowing Clearing Member against a stock lending
position for the same number of shares in the same Eligible Stock
maintained in a designated account of a Matched-Book Lending Clearing
Member.
    Under proposed Rule 2212(b), the Matched-Book Borrowing Clearing
Member and Matched-Book Lending Clearing Member would not be required
to issue instructions to the Depository in accordance with Rules
2202(a) and 2208(a) to terminate the relevant stock loan and stock
borrow positions or to initiate new stock loan transactions to
reestablish such positions, as the affected positions would be re-
matched without requiring the transfer of securities against the
payment of settlement prices.
    Proposed Rule 2212(c) provides that OCC shall make reasonable
efforts to re-match Matched-Book Borrowing Clearing Members with
Matched-Book Lending Clearing Members that maintain between them
current executed MSLAs based on information provided by Hedge Clearing
Members to the Corporation on an ongoing basis. In connection with the
proposed changes, OCC will add functionality to its ENCORE clearing
system to allow Hedge Clearing Members to add and remove records of
MSLA agreements between themselves and other Hedge Clearing Members.
OCC would be entitled to rely on, and would have no responsibility to
verify, the MSLA records provided by Hedge Clearing Members and on
record as of the time of re-matching.
    Under proposed Rule 2212(d), the termination by offset and re-
matching of positions would be done using a matching algorithm in which
the Matched-Book Positions of the suspended Hedge Clearing Member are
first terminated by offset and then affected Matched-Book Borrowing
Clearing Members and Matched-Book Lending Clearing Members are re-
matched in order of priority based first upon whether the re-matched
Clearing Members have an existing MSLA between them. Specifically,
under the re-matching algorithm, OCC would first select the largest
stock loan or stock borrow position in a given Eligible Stock from the
suspended Hedge Clearing Member's Matched-Book Positions. The selected
positions would then be re-matched with the largest available stock
borrow or stock loan positions, as applicable, for the selected
Eligible Stock for which a MSLA exists between a Matched-Book Borrowing
Clearing Member and a Matched-Book Lending Clearing Member. OCC would
repeat this process until all potential re-matching between Matched-
Book Borrowing Clearing Members and Matched-Book Lending Clearing
Members with MSLAs is completed. After re-matching among lenders and
borrowers with existing MSLAs, the re-matching process would then be
repeated for all remaining Matched-Book Positions for which MSLAs do
not exist between the lenders and borrowers. During this stage,
positions would be selected for re-matching in order of priority based
on largest outstanding position size.
    Under proposed Rule 2212(e), in the event Borrowing and Lending
Clearing Members are re-matched through this process, the re-matched
positions would be governed by the pre-defined terms and instructions
established by the Lending Clearing Member pursuant to Rule 2201. In
this case, the re-matched Hedge Clearing Members may choose to execute
an MSLA or close-out the re-matched positions in accordance with
existing Rule 2208. Any change in Collateral requirements arising from
a change in the terms of stock loan or stock borrow positions between a
Lending Clearing Member and Borrowing Clearing Member with re-matched
positions would be included in the calculation of the Mark-to-Market
Payment obligations as provided in Rule 2204 on the stock loan business
day following the completion of the positions adjustments as set forth
in proposed Rule 2212(f).
    Under proposed Rule 2212(f), the termination by offset and re-
matching of positions would be complete upon OCC completing all
position adjustments in the accounts of the suspended Hedge Clearing
Member and the Borrowing Clearing Members and Lending Clearing Members
with re-matched positions and the applicable systems reports are
produced and provided to the Clearing Members reflecting the
transaction.
    Under proposed Rules 2212(g)-(i), from and after the time OCC has
completed the position adjustments as set forth in OCC Rule 2212(f),
the suspended Hedge Clearing Member would have no further obligations
under the By-Laws and Rules with respect to such positions; however, a
Borrowing Clearing Member with re-matched stock borrow positions would
remain obligated as a Borrowing Clearing Member and a Lending Clearing
Member with re-matched stock loan positions would remain obligated as a
Lending Clearing Member as specified in the By-Laws and Rules
applicable to the Hedge Program. Moreover, upon notification that OCC
has completed the termination by offset and re-matching of stock loan
and borrow positions, the suspended Hedge Clearing Member and

Borrowing Clearing Members and Lending Clearing Members with re-matched
positions would be required to promptly make any necessary bookkeeping
entries at the Depository necessitated by the re-matching to ensure the
accuracy and efficacy of those stock loan terms not governed by OCC's
By-Laws and Rules.
    Finally, under proposed Rule 2212(j), Borrowing Clearing Members
and Lending Clearing Members that have been re-matched would be
required to work in good faith to either (i) reestablish any terms,
representations, warranties and covenants not governed by the By-Laws
and Rules (e.g., establish an MSLA) or (ii) terminate the re-matched
stock loan or borrow positions in the ordinary course pursuant to Rule
2208, as soon as reasonably practicable.
    OCC also proposes a number of conforming changes to Article XXI,
Sections 2-4 of the By-Laws and to Rule 2210 to reflect the proposed
adoption of new Rule 2212. In particular, OCC would amend Rule 2210(b),
which concerns the treatment of open stock loan and borrow positions
resulting from Stock Loans of a suspended Hedge Clearing Member, to
provide that such positions may now also be closed out using the re-
match in suspension authority under proposed Rule 2212. Under the
default management rules and procedures for stock loan positions in the
Hedge Program, OCC would first attempt to close out any Matched-Book
Positions of the suspended Hedge Clearing Member to the greatest extent
possible using the re-match in suspension authority under proposed Rule
2212. After executing the re-matching process, OCC would generally look
to close out the remaining stock loan positions of the suspended
Clearing Member, to the extent that the defaulting member was the
borrower of loans that were not matched, by using any stock pledged to
OCC as margin collateral that is the same as the Eligible Stock in
question to deliver to its counterparty lenders via the Depository.
Finally, all remaining open stock loan positions would be closed out
pursuant to the buy-in/sell-out process under Rule 2211, and in
accordance with the proposed enhancements to that process as described
herein.
Expected Effect on and Management of Risks to the Clearing Agency, Its
Participants, and the Market
    OCC believes that the proposed changes would reduce the nature and
level of risk presented by OCC because they would enhance the overall
resilience of OCC's Stock Loan Programs by: (i) Providing more clarity
and certainty regarding the stock loan positions at OCC and the
obligations associated therewith and (ii) enhancing the default
management processes for the Stock Loan Programs to mitigate the risks
associated with the buy-in/sell-out and recall/return processes
described above.
Trade Balancing, Golden Copy, and Termination Rules
    As described in detail above, OCC is proposing a number of
improvements in the area of trade balancing and recordkeeping of stock
loan positions at OCC. Specifically, the proposed changes would require
Clearing Members in the Stock Loan Programs to have adequate policies
and procedures in place to perform reconciliations of open and closed
stock loan and stock borrow positions to OCC's records at least once
each stock loan business day and resolve any discrepancies based on
such report(s) for a given stock loan business day by 9:30 a.m. Central
Time on the following stock loan business day to minimize the risk
inaccurate records may present. OCC is also proposing a number of
clarifying amendments to its By-Laws and Rules to emphasize that the
records of OCC are the official record of open and closed stock loan
transactions in the Stock Loan Programs, including for terminations of
stock loan positions, and that Clearing Members remain liable for all
obligations related to open stock loan positions as reflected in the
records of OCC. OCC believes the proposed changes will provide more
certainty regarding the formal record of the open stock loan positions
guaranteed by OCC and provide additional clarity and transparency
around the obligations of OCC and its Clearing Members in the Stock
Loan Programs, particularly where differences may arise between the
records of OCC and its Clearing Members. OCC believes the changes would
therefore reduce the likelihood of credit or operational risks arising
due to discrepancies between the records of OCC and its Clearing
Members.
Timeframe for Buy-In and Sell-Out in Suspension
    OCC Rules 2211 and 2211A describe the buy-in and sell-out process
in the event of a Hedge Clearing Member and Market Loan Clearing Member
suspension, respectively, but the rules do not currently require that
such actions be taken within a specified period of time. As described
in detail above, OCC's margin and liquidation period assumptions
contemplate a two-day close out process, which is applicable to all
products without differentiation. Any delay in the buy-in/sell-out
process could result in increased credit risk to OCC as the close out
process for stock loans could fail to align with such margin and
liquidation period assumptions. As a result, OCC may be exposed to
credit risk if the price paid or received for the buy-in or sell-out of
the Eligible Stock varies from the price at which OCC last collected a
Mark-to-Market Payment from the defaulter and that price differential
exceeds the amount of margin on deposit for such positions.
    OCC proposes to amend Rules 2211 and 2211A to require Lending
Clearing Members or Borrowing Clearing Members that are instructed to
buy-in or sell-out in connection with a Hedge or Market Loan Clearing
Member suspension to execute such transactions by the close of the
stock loan business day after the receipt of such instruction by
OCC.\21\ If the instructed Clearing Member fails to execute the buy-in
or sell-out transaction within this timeframe, OCC would terminate the
Stock Loan and effect Settlement based upon the Marking Price used at
the close of business on the stock loan business day after the original
instruction was made by OCC. OCC believes the proposed changes will
help to mitigate the potential credit risk that may be associated with
a delay in a Hedge or Market Loan Clearing Member effecting buy-in or
sell-out transactions by ensuring that positions are closed out--either
through the buy-in/sell-out of stock loans by the Hedge Clearing
Members or by the automatic termination and settlement of stock loans
by OCC--in a time period consistent with OCC's margin assumptions.
---------------------------------------------------------------------------

    \21\ In the situation of a buy-in, the Lending Clearing Member
would be required to use the cash collateral to buy-in the
securities. OCC would not be responsible for funding the buy-in.
---------------------------------------------------------------------------

Authority To Enforce Reasonable Prices in Buy-In/Sell-Out Process
    OCC also proposes changes to provide it with the authority to
withdraw from a Clearing Member's account the value of any difference
between the price reported by the Clearing Member for a buy-in or sell-
out under Rule 2211 and Rule 2211A, as applicable, and the price that
OCC, in its sole discretion, determines to be reasonable (if OCC
determines that the Clearing Member's reported price was unreasonable
based on whether the reported price fell within the trading range of
the Eligible Stock on that day). The proposed changes are designed to
incentivize Clearing Members to execute a buy-in or

sell-out at a reasonable price in accordance with the newly implemented
two-day close out timeframe and would allow OCC to withdraw the
difference for any buy-in or sell-out reported outside of the trading
range of the Eligible Stock, thereby helping to ensure that the buy-in/
sell-out is executed at a price that falls within OCC's margin and
liquidation assumptions.
Re-Matching in Suspension
    As noted above, a significant portion of the activity in OCC's
Hedge Program relates to matched-book activity. Under OCC's existing
rules, OCC would terminate a suspended Hedge Clearing Member's Matched-
Book Positions in accordance with the buy-in and sell-out process
contained in Rule 2211. Logistically, this requires OCC to both recall
the loan and return the borrowed shares to completely unwind the
Matched-Book positions, which exposes OCC to potential price
dislocation between the buy-in and sell-out transactions. Moreover, as
noted above, the buy-in/sell-out process effectively utilizes each
counterparty to the suspended Hedge Clearing Member's Matched-Book
Positions as independent ``liquidating agents,'' making the process
prone to greater operational and execution risk due to the number of
counterparties effecting the buy-in/sell-out transactions, and thereby
posing risks to the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and funds
associated therewith. In addition, to the extent Borrowing and Lending
Clearing Member counterparties to the Matched-Book Positions wish to
maintain equivalent stock loan positions at OCC, those Clearing Members
would be required to initiate new stock loans to replace the closed out
positions and would lose the protections afforded by OCC's guaranty of
their stock loan positions until the newly initiated stock loan
positions have been accepted, novated, and guaranteed by OCC.
    Proposed Rule 2212 would allow OCC to perform an orderly close out
of a suspended Hedge Clearing Member's Matched-Book Positions through
the termination by offset and re-matching of such positions without
requiring the transfer of securities against the payment of settlement
prices as currently required under OCC Rule 2211. As a result, the
proposed changes would minimize the potential for operational and
execution risks and eliminate any risk resulting from potential price
dislocation between recall and return transactions. OCC believes the
proposed changes will strengthen the risk management processes in place
at OCC by mitigating the risks involved in the buy-in/sell-out of
Matched-Book Positions as well as provide the overall marketplace with
more stability with respect to the Hedge Program.
    In addition, OCC would use a matching algorithm to re-match stock
loan and stock borrow positions in order of priority based on the
largest available stock borrow or stock loan positions, as applicable,
for the selected Eligible Stock for which a MSLA exists between the
Borrowing and Lending Clearing Members. In the event Hedge Clearing
Members are re-matched that do not have existing securities lending
relationships, those members may choose to either work in good faith to
reestablish any terms, representations, warranties and covenants not
governed by the By-Laws and Rules (e.g., MSLA) or to terminate the re-
matched stock loan or borrow positions in the ordinary course pursuant
to Rule 2208, as soon as reasonably practicable. The proposed changes
therefore provide for an objective process for re-matching stock loan
and borrow positions and ensures that members with existing securities
lending relationships are re-matched to the greatest extent possible
and would still allow for Hedge Clearing Members that are re-matched
but that do not have existing securities lending relationships to
terminate such positions in the ordinary course pursuant to Rule 2208.
Consistency With Clearing Supervision Act
    The stated purpose of the Clearing Supervision Act is to mitigate
systemic risk in the financial system and promote financial stability
by, among other things, promoting uniform risk management standards for
systemically important financial market utilities and strengthening the
liquidity of systemically important financial market utilities.\22\
Section 805(a)(2) of the Clearing Supervision Act \23\ also authorizes
the Commission to prescribe risk management standards for the payment,
clearing and settlement activities of designated clearing entities,
like OCC, for which the Commission is the supervisory agency. Section
805(b) of the Clearing Supervision Act \24\ states that the objectives
and principles for risk management standards prescribed under Section
805(a) shall be to:
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 5461(b).
    \23\ 12 U.S.C. 5464(a)(2).
    \24\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and the Act.\25\ In
particular, Rule 17Ad-22(d)(11) \26\ requires registered clearing
agencies to establish, implement, maintain and enforce written policies
and procedures reasonably designed to make key aspects of the clearing
agency's default procedures publicly available and establish default
procedures that ensure that the clearing agency can take timely action
to contain losses and liquidity pressures and to continue meeting its
obligations in the event of a participant default. In addition,
recently adopted Rule 17Ad-22(e)(13) \27\ requires covered clearing
agencies to establish, implement, maintain and enforce written policies
and procedures reasonably designed to, in part, ensure the covered
clearing agency has the authority and operational capacity to take
timely action to contain losses and liquidity demands and continue to
meet its obligations in the event of a Clearing Member default.
Moreover, recently adopted Rule 17Ad-22(e)(23) \28\ requires covered
clearing agencies to maintain written policies and procedures
reasonably designed to, among other things, provide for publicly
disclosing all relevant rules and material procedures, including key
aspects of its default rules and procedures.
---------------------------------------------------------------------------

    \25\ 17 CFR 240. 17Ad-22. See Securities Exchange Act Release
Nos. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-
08-11) (``Clearing Agency Standards''); 78961 (September 28, 2016),
81 FR 70786 (October 13, 2016) (S7-03-14) (``Standards for Covered
Clearing Agencies''). The Standards for Covered Clearing Agencies
became effective on December 12, 2016. OCC is a ``covered clearing
agency'' as defined in Rule 17Ad-22(a)(5) and therefore OCC must
comply with new section (e) of Rule 17Ad-22 by April 11, 2017.
    \26\ 17 CFR 240.17Ad-22(d)(11).
    \27\ 17 CFR 240.17Ad-22(e)(13).
    \28\ 17 CFR 240.17Ad-22(e)(23).
---------------------------------------------------------------------------

    OCC believes that the proposed changes are consistent with the
principles of the Clearing Supervision Act and the risk management
standards adopted thereunder because the proposed changes would promote
robust risk management and safety and soundness for OCC's Stock Loan
Programs for the reasons set forth below.
Trade Balancing, Golden Copy, and Termination Rules
    OCC is proposing changes to require Clearing Members in the Stock
Loan Programs to have adequate policies and procedures in place to
perform reconciliations of open and closed stock

loan and stock borrow positions to OCC's records at least once each
stock loan business and resolve any discrepancies based on such
report(s) for a given stock loan business day by 9:30 a.m. Central Time
on the following stock loan business day to minimize the risk
inaccurate records may present. OCC is also proposing a number
amendments to its By-Laws and Rules to emphasize that the records of
OCC are the official record of open and closed stock loan transactions
in the Stock Loan Programs, including for terminations of stock loan
positions, and that Clearing Members remain liable for all obligations
related to open stock loan positions as reflected in the records of
OCC. OCC believes the proposed changes will provide more certainty
regarding the formal record of the open stock loan positions guaranteed
by OCC and the obligations associated therewith. The proposed changes
are intended to reduce the likelihood of credit or operational risks
arising due to discrepancies between the records of OCC and its
Clearing Members and are thereby designed to promote the safety and
soundness of OCC.
Timeframe for Buy-In and Sell-Out in Suspension
    OCC proposes to amend Rules 2211 and 2211A to require Lending
Clearing Members or Borrowing Clearing Members that are instructed to
buy-in or sell-out in connection with a Hedge or Market Loan Clearing
Member suspension to execute such transactions by the close of the
stock loan business day after the receipt of such instruction by
OCC.\29\ If the instructed Clearing Member fails to execute the buy-in
or sell-out transaction within this timeframe, OCC would terminate the
Stock Loan and effect Settlement based upon the Marking Price used at
the close of business on the stock loan business day after the original
instruction was made by OCC.
---------------------------------------------------------------------------

    \29\ In the situation of a buy-in, the Lending Clearing Member
would be required to use the cash collateral to buy-in the
securities. OCC would not be responsible for funding the buy-in.
---------------------------------------------------------------------------

    OCC believes the proposed changes to its Rules will help to
mitigate the potential credit risk that may be associated with a delay
in a Hedge or Market Loan Clearing Member effecting buy-in or sell-out
transactions by ensuring that positions are closed out--either through
the buy-in/sell-out of stock loans by the Hedge Clearing Members or by
the automatic termination and settlement of stock loans by OCC--in a
time period consistent with OCC's margin assumptions. As a result, the
proposed changes would make key aspects of OCC's default rules and
procedures for the Stock Loan Programs publicly available (particularly
with respect to the buy-in/sell-out process) and would establish
default procedures for the Stock Loan Programs that ensure that OCC can
take timely action to contain losses and liquidity demands and continue
meeting its obligations in the event of a participant default in
accordance with Rules 17Ad-22(d)(11), (e)(13), and (e)(23).\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17Ad-22(d)(11), (e)(13), and (e)(23).
---------------------------------------------------------------------------

Authority To Enforce Reasonable Prices in Buy-In/Sell-Out Process
    OCC also proposes changes to provide it with the authority to
withdraw from a Clearing Member's account the value of any difference
between the price reported by the Clearing Member for a buy-in or sell-
out under Rule 2211 and Rule 2211A, as applicable, and the price that
OCC, in its sole discretion, determines to be reasonable (if OCC
determines that the Clearing Member's reported price was unreasonable
based on whether the reported price fell within the trading range of
the Eligible Stock on that day). The proposed changes are designed to
incentivize Clearing Members to execute a buy-in or sell-out at a
reasonable price in accordance with the newly implemented two-day close
out timeframe and would allow OCC to withdraw the difference for any
buy-in or sell-out reported outside of the trading range of the
Eligible Stock, thereby helping to ensure that the buy-in/sell-out is
executed at a price that falls within OCC's margin and liquidation
assumptions. Accordingly, OCC believes the proposed change to its Rules
would make key aspects of OCC's default rules and procedures for the
Stock Loan Programs publicly available (particularly with respect to
the buy-in/sell-out process) and would establish default procedures for
the Stock Loan Programs that ensure that OCC can take timely action to
contain losses and liquidity pressures and continue meeting its
obligations in the event of a participant default in accordance with
Rules 17Ad-22(d)(11), (e)(13), and (e)(23).\31\
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

Re-Matching in Suspension
    OCC proposes to adopt new Rule 2212, which would allow OCC to
perform an orderly close out of a suspended Hedge Clearing Member's
Matched-Book Positions through the termination by offset and re-
matching of such positions without requiring the transfer of securities
against the payment of settlement prices as currently required under
OCC Rule 2211. As a result, the proposed changes would minimize the
potential for operational and execution risks and eliminate any risk
resulting from potential price dislocation between recall and return
transactions, as described in detail above. OCC believes the proposed
changes will strengthen the risk management processes in place at OCC
by mitigating the risks involved in the buy-in/sell-out of Matched-Book
Positions as well as provide the overall marketplace with more
stability with respect to the Hedge Program.
    In addition, OCC would use a matching algorithm to re-match stock
loan and stock borrow positions in order of priority based on the
largest available stock borrow or stock loan positions, as applicable,
for the selected Eligible Stock for which a MSLA exists between the
Borrowing and Lending Clearing Members. In the event Hedge Clearing
Members are re-matched that do not have existing securities lending
relationships, those members may choose to either work in good faith to
reestablish any terms, representations, warranties and covenants not
governed by the By-Laws and Rules (e.g., MSLA) or to terminate the re-
matched stock loan or borrow positions in the ordinary course pursuant
to Rule 2208, as soon as reasonably practicable. The proposed changes
therefore provide for an objective process for re-matching stock loan
and borrow positions and ensures that members with existing securities
lending relationships are re-matched to the greatest extent possible
and would still allow for Hedge Clearing Members that are re-matched
but that do not have existing securities lending relationships to
terminate such positions in the ordinary course pursuant to Rule 2208.
    OCC believes the proposed changes to its Rules to provide for the
termination by offset and re-matching of Matched-Book Positions would
make key aspects of OCC's default procedures for the Stock Loan Program
publicly available and would establish default procedures for the Stock
Loan Programs that ensure that OCC can take timely action to contain
losses and liquidity demands and continue meeting its obligations in
the event of a participant default in accordance with Rules 17Ad-
22(d)(11), (e)(13), and (e)(23).\32\
---------------------------------------------------------------------------

    \32\ Id.

---------------------------------------------------------------------------

III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action

    The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date the proposed change was filed with the Commission or (ii) the date
any additional information requested by the Commission is received. OCC
shall not implement the proposed change if the Commission has any
objection to the proposed change.
    The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an earlier date, subject to any conditions imposed
by the Commission.
    OCC shall post notice on its Web site of proposed changes that are
implemented.
    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 advance
notice 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_ADDRESS>Please include
File Number SR-OCC-2017-802 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2017-802. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the advance notice that are filed
with the Commission, and all written communications relating to the
advance notice between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of OCC and on OCC's Web site at
http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_802.pdf.
    All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.
    All submissions should refer to File Number SR-OCC-2017-802 and
should be submitted on or before April 24, 2017.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06443 Filed 3-31-17; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: November 6, 2008 (Volume 73, Number 216)]
[Notices]
[Page 66096-66098]
[DOCID:fr06no08-89]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

Notice of Funding Availability and Solicitation of Applications
for Grants under the Railroad Rehabilitation and Repair Grant Program

AGENCY: Federal Railroad Administration (FRA), Department of
Transportation (DOT).

ACTION: Notice of funding availability; solicitation of applications.

-----------------------------------------------------------------------

SUMMARY: Under this Notice, the FRA encourages interested State
departments of transportation to submit applications for grants to
repair and rehabilitate Class II and Class III railroad infrastructure
damaged by hurricanes, floods, and other natural disasters in areas for
which the President declared a major disaster after January 1, 2008,
under Title IV of the Robert T. Stafford Disaster Relief and Emergency
Assistance Act of 1974.

DATES: FRA will begin accepting grant applications 10 days after
publication of this Notice of Funding Availability in the Federal
Register. Applications may be submitted until January 16, 2009.

ADDRESSES: Applications for grants under this Program must be submitted
electronically to ``Grants.gov'' at http://www.grants.gov. Grants.Gov
allows organizations to find and apply electronically for competitive
grant opportunities from all Federal grant-making agencies. Any State
wishing to submit an application pursuant to this notice should
immediately initiate the process of registering with Grants.Gov. Please
confirm all Grants.gov submissions by sending an e-mail to
<EMAIL_ADDRESS>    For application materials that an applicant is unable to submit via
Grants.Gov (such as oversized engineering drawings), applicants may
submit an original and two (2) copies to the Federal Railroad
Administration at the following address: Federal Railroad
Administration, Attention: Alice Alexander, Office of Railroad
Development, 1200 New Jersey Avenue, SE., Mail Stop 20,Washington, DC
20590.
    Due to delays caused by enhanced screening of mail delivered via
the U.S. Postal Service, applicants are encouraged to use other means
to assure timely receipt of materials.

FOR FURTHER INFORMATION CONTACT: Alice Alexander, Office of Railroad
Development, Federal Railroad Administration, 1200 New Jersey Avenue,
SE., Mail Stop 20, Washington,

DC 20590; Phone:<PHONE_NUMBER>; Fax:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Railroad Rehabilitation and Repair Grant
Program (Catalog of Federal Domestic Assistance (CFDA) Program Number
20.314) will be supported with up to $20,000,000 of Federal funds
provided to FRA as part of the Consolidated Security, Disaster
Assistance, and Continuing Appropriations Act, 2009 (Pub. L. 110-329,
September 30, 2008.) Of this $20,000,000, one-half of 1 percent of the
funds, $100,000, may be retained by the FRA to fund oversight of the
design and implementation of projects funded by this Program.
    Funds provided under this Program may constitute no more than 80
percent of the total cost of a selected project, with the remaining
cost funded from other non-Federal sources. FRA anticipates awarding
grants to multiple eligible participants. Eligible projects include
repairs and rehabilitation to Class II and Class III railroad
infrastructure damaged by hurricanes, floods, and natural disasters
that are located in counties that have been identified in a Disaster
Declaration for Public Assistance issued by the President (http://
www.fema.gov/news/disasters.fema#sev1) in calendar year 2008.\1\
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    \1\ Counties in thirty-two states are eligible to apply under
this program. The states are: Alabama, Alaska, Arkansas, Colorado,
Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi,
Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico,
North Carolina, Oklahoma, South Dakota, Tennessee, Texas, Vermont,
West Virginia, and Wisconsin.
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    Class II and Class III railroad infrastructure eligible for repair
and rehabilitation consists of railroad rights-of-way, bridges, signals
and other infrastructure which are part of the general railroad system
of transportation and primarily used by railroads to move freight
traffic. Section 24312 (Labor Standards) of Title 49, United States
Code, applies to grantees assisted under this Program. The grantees
must exhaust all other Federal and State resources prior to seeking
assistance under this Program. FRA anticipates that no further public
notification will be made with respect to soliciting grant applications
and selecting grantees under this Program.
    Purpose: In 2008, the President made over sixty major disaster
declarations which were related to hurricanes, floods, and other
natural disasters. Funds provided under this Program will assist Class
II and Class III railroads rebound from these disasters declared in
2008.\2\
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    \2\ Inclusive dates for eligibility are January 1, 2008, through
the publication date of this notice of funding availability.
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    Authority: The Consolidated Security, Disaster Assistance, and
Continuing Appropriations Act, 2009 (Pub. L. 110-329, September 30,
2008).
    Funding: The Consolidated Security, Disaster Assistance, and
Continuing Appropriations Act, 2009 (the Act) provides $20,000,000,
that remains available until expended, and directs the Secretary of
Transportation to competitively award grants covering up to 80 percent
of project costs, with the remaining project costs provided in non-
Federal cash, equipment, or supplies. In addition, the Act allows the
Secretary to retain up to one-half of 1 percent of the funds to fund
the oversight by the Administrator of the Federal Railroad
Administration of the design and implementation of projects funded by
these grants. (The maximum that can be retained is $100,000.) The
funding provided for these grants will be made available to the
grantee(s) on a reimbursable basis. It is anticipated that the
available funding could support projects proposed by multiple
applicants. FRA may choose to award a grant or grants in any amount
within the limit of the available funds.
    Schedule for Rehabilitation and Repair Grant Program: FRA will
begin accepting grant applications 10 days after publication of this
Notice of Funding Availability in the Federal Register. All
applications must be received by the January 16, 2009, deadline.
    Eligible Participants: The department of transportation of any
eligible State may apply for funding under this notice, provided that
the applicant State has an eligible project and has exhausted all other
Federal and State resources prior to seeking assistance under this
Program.
    Eligible Projects: To be eligible for funding under this Program, a
project must include the rehabilitation and repair of Class II or Class
III railroad infrastructure damaged by hurricanes, floods, and other
natural disasters in counties for which the President declared a major
disaster in calendar year 2008 under Title IV of the Robert T. Stafford
Disaster Relief and Emergency Assistance Act of 1974. Rehabilitation or
repairs must be made to rights-of-way, bridges, signals, and other
infrastructure which are part of the general railroad system of
transportation. In addition, the railroad infrastructure replaced or
rehabilitated must be primarily used to move freight traffic.
    Funding Period: Funds will be available under this program only for
the reimbursement of costs incurred after a major disaster declaration
in calendar year 2008 in the counties covered by such a declaration.
    Selection Criteria: FRA will consider the following selection
factors in evaluating applications for grants under this Program:
    1. The inability of the Class II or Class III railroad to fund the
project without Federal grant funding.
    2. The effects on rail operations, specifically the movement of
freight, of the proposed rehabilitation or repair.
    3. The likelihood of continued operation of the railroad operations
on the track that is proposed to be repaired or rehabilitated for more
than three years after project work is complete.
    Requirements for Grant Applications: The following points describe
the minimum content which will be required in grant applications. These
requirements may be satisfied through a narrative statement submitted
by the applicant and supported by spreadsheet documents, tables,
drawings, and other materials, as appropriate. Each grant application
must:
    1. Designate a point of contact for the applicant and provide his
or her name, title, and contact information, including phone number,
mailing address and e-mail address. The point of contact must be an
employee of the applicant.
    2. Include an explanation of why the project is an eligible project
and a thorough discussion of how the project meets all of the selection
criteria.
    3. Identify all funds (including amounts) received from other
Federal and/or State disaster relief programs that directly benefited
the project(s) for which funds are being sought under this Program, or
demonstrate that all such efforts at procuring such funding have failed
or been exhausted. This demonstration should include a recitation of
specific Federal and State disaster relief programs investigated by the
applicant. Among the Federal programs which the applicant might
investigate are those administered by the Federal Emergency Management
Administration, the Small Business Administration, the Federal Highway
Administration, and the U.S. Department of Agriculture.
    4. Include a complete Standard Form 424, ``Application for Federal
Assistance,'' Standard Form 424D, ``Assurances--Construction
Programs,'' and the most recent audit performed in compliance with OMB
Circular A-133, if available. Information on Circular A-

133 can be found at http://www.whitehouse.gov/omb/circulars/a133/
a133.html. Also include signed copies of FRA's Additional Assurances
and Certifications, available at http://www.fra.dot.gov/downloads/
admin/assurancesandcertifications.pdf.
    5. Define the scope of work, budget and schedule for the proposed
project. Describe the proposed project's physical location, mile-post
limits, and include any drawings, plans, or schematics that have been
prepared relating to the proposed project.
    If funding requested under this Program is only going to support a
portion of the overall rehabilitation and repair of the applicant's
project, describe the complete project and specify which portion will
involve Federal funding. In addition, FRA strongly encourages
applicants to estimate complete project costs and the future financial
viability of the Class II and Class III railroad on whose property the
project is located.
    6. The budget for the cost of the project should, to the extent
possible, be separated into the following categories: (1)
Administrative; (2) Engineering fees; (3) Demolition and removal; (4)
Construction labor, supervision, and management; (5) Equipment; (6)
Materials, by type (e.g., ties, rail, ballast, signals, and switches);
(7) Contingencies; and (8) Inspection fees. Costs may be reimbursed as
long as expenditures were incurred after the date of the natural
disaster.
    7. Describe the source and amount of non-Federal funds, broken down
by cash, equipment, or supplies.
    8. Describe proposed project implementation and an overview of
project management arrangements.
    9. For the railroad(s) operating on the infrastructure proposed to
be rehabilitated or repaired, describe the frequency of service, axle-
load limits, and estimated railroad gross ton miles per mile for the
first full year after completion of the project.
    10. Provide an overview of all work done to date to rehabilitate
and repair damage caused by the natural disaster.
    11. Describe the status or progress toward completing any
environmental documentation or clearance for the proposed project under
the National Environmental Policy Act, the National Historic
Preservation Act, section 4(f) of the DOT Act, or other applicable
federal or state environmental impact assessment laws. FRA's Procedures
for Considering Environmental Impacts (64 Fed. Reg. 28545) (May 26,
1999) (http://www.fra.dot.gov/us/content/166) describe FRA's process
for the assessment of environmental impacts and the preparation and
processing of appropriate documents. For projects that may be
categorically exempt from detailed environmental review, as discussed
in FRA's Procedures, categorical exclusion worksheets are available at:
http://www.fra.dot.gov/us/content/1606. Applicants are encouraged to
contact FRA as early as possible in the environmental/historic
preservation review process to discuss the environmental review.
    Format: Excluding spreadsheets, drawings, and tables, the narrative
statement for grant applications may not exceed twenty-five pages in
length. With the exclusion of oversized engineering drawings (which may
be submitted in hard copy to the FRA at the address indicated above),
all application materials should be submitted as attachments through
Grants.Gov. Spreadsheets consisting of budget or financial information
should be submitted via Grants.Gov as Microsoft Excel (or compatible)
documents.

    Issued in Washington, DC, on November 3, 2008.
Mark E. Yachmetz,
Associate Administrator for Railroad Development.
 [FR Doc. E8-26478 Filed 11-5-08; 8:45 am]

BILLING CODE 4910-06-P


[Federal Register Volume 78, Number 72 (Monday, April 15, 2013)]
[Rules and Regulations]
[Page 22198]
[FR Doc No: 2013-08694]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R04-OAR-2012-0961; FRL-9802-8]

Approval and Promulgation of Air Quality Implementation Plans;
Charlotte, Raleigh/Durham and Winston Salem Carbon Monoxide Limited
Maintenance Plan

AGENCY: Environmental Protection Agency (EPA).

ACTION: Withdrawal of direct final rule.

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SUMMARY: Due to the receipt of a comment, EPA is voluntarily
withdrawing the February 22, 2013, direct final rule to approve North
Carolina's August 2, 2012, state implementation plan (SIP) submission
for the limited maintenance plan showing continued attainment of the 8-
hour carbon monoxide (CO) National Ambient Air Quality Standard (NAAQS)
for the Charlotte, Raleigh/Durham and Winston-Salem Areas. EPA will
consider this comment and will address the comment as appropriate and
take final action at a later time. EPA will not institute a second
comment period on this action.

DATES: The direct final rule published at 78 FR 12238 on February 22,
2013, is withdrawn as of April 15, 2013.

FOR FURTHER INFORMATION CONTACT: Richard Wong, Regulatory Development
Section, Air Planning Branch, Air, Pesticides and Toxics Management
Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth
Street SW., Atlanta, Georgia 30303-8960. The telephone number is (404)
562-8726. Mr. Wong can be reached via electronic mail at
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: On February 22, 2013 (78 FR 12238), EPA
proposed to approve North Carolina's August 2, 2012, SIP submission.
The limited maintenance plan update is for the maintenance areas
showing continued attainment of the 8-hour CO NAAQS for the Charlotte,
Raleigh/Durham and Winston-Salem Areas. In the direct final rule, EPA
stated that if adverse comments were received by March 25, 2013, the
rule would be withdrawn and not take effect. On March 25, 2013, EPA
received a comment. The comment could be interpreted as adverse and,
therefore, EPA is withdrawing the direct final rule. EPA will address
the comment, as appropriate, in a subsequent final action based upon
the proposed rulemaking action, also published on February 22, 2013 (78
FR 12267). EPA will not institute a second comment period on this
action.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Reporting and recordkeeping
requirements, Volatile organic compounds.

    Dated: April 3, 2013.
A. Stanley Meiburg,
Acting Regional Administrator, Region 4.

0
Accordingly, the amendment to 40 CFR 52.1770 which published in the
Federal Register on February 22, 2013, at 78 FR 12243 is withdrawn as
of April 15, 2013.

[FR Doc. 2013-08694 Filed 4-12-13; 8:45 am]
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