[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61072-61082]
[FR Doc No: 2017-27692]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82352; File No. SR-OCC-2017-021]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Concerning Updates to and
Formalization of OCC's Recovery and Orderly Wind-Down Plan

December 19, 2017
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that
on December 8, 2017, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by OCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    This proposed rule change by the OCC would formalize and update
OCC's Recovery and Orderly Wind-Down Plan

(``RWD Plan'' or ``Plan'') consistent with the requirement applicable
to OCC in Rule 17Ad-22(e)(3)(ii).\3\ Pursuant to a temporary exemption
issued by the Commission in April 2017, the compliance date for Rule
17Ad-22(e)(3)(ii) has been extended until December 31, 2017.\4\
---------------------------------------------------------------------------

    \3\ 17 CFR 240.17Ad-22(e)(3)(ii). The Commission's approval of
this proposed rule change is contingent upon the prior approval of
filings currently pending for certain of OCC's Enhanced Risk
Management Tools and OCC's Recovery Tools. See SR-OCC-2017-016; SR-
OCC-2017-017; SR-OCC-2017-018; SR-OCC-2017-019; SR-OCC-2017-020.
    \4\ See Exchange Act Release No. 34-80378 (April 5, 2017).
---------------------------------------------------------------------------

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

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

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

1. Purpose
Background
    On September 28, 2016 the Commission adopted amendments to Rule
17Ad-22 \5\ and added new Rule 17Ab2-2 \6\ pursuant to Section 17A of
the Securities Exchange Act of 1934 \7\ and the Payment, Clearing, and
Settlement Supervision Act of 2010 (``Payment, Clearing and Settlement
Supervision Act'') \8\ to establish enhanced standards for the
operation and governance of those clearing agencies registered with the
Commission that meet the definition of a ``covered clearing agency,''
as defined by Rule 17Ad-22(a)(5) \9\ (collectively, the new and amended
rules are herein referred to as ``CCA'' rules). The CCA rules require
that covered clearing agencies, among other things:
---------------------------------------------------------------------------

    \5\ 17 CFR 240.17Ad-22.
    \6\ 17 CFR 240.17Ab2-2.
    \7\ 15 U.S.C. 78q-1.
    \8\ 12 U.S.C. 5461 et. seq.
    \9\ 17 CFR 240.17Ad-22(a)(5).

    ``[E]stablish, implement, maintain and enforce written policies
and procedures reasonably designed to . . . [m]aintain a sound risk
management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by the [CCA], which . . .
[i]ncludes plans for the recovery and orderly wind-down of the [CCA]
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.'' \10\
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22(e)(3)(ii).

    OCC is defined as a covered clearing agency under the CCA rules,
and therefore is subject to the requirements of the CCA rules,
including Rule 17Ad-22(e)(3).\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

Proposed RWD Plan
    OCC is proposing to update, formalize and adopt its RWD Plan.\12\
Consistent with the Commission's guidance concerning the requirements
of Rule 17Ad-22(e)(3)(ii), the purpose of the proposed RWD Plan is to
(i) demonstrate that OCC has considered the scenarios which may
potentially prevent it from being able to provide its ``Critical
Services'' (defined below) as a going-concern,\13\ (ii) provide
appropriate plans for OCC's recovery or orderly wind-down based on the
results of such consideration; \14\ and (iii) impart to relevant
authorities the information reasonably anticipated to be necessary for
purposes of recovery and orderly wind-down planning.\15\
---------------------------------------------------------------------------

    \12\ OCC maintains a recovery and orderly wind-down plan that
was prepared in response to evolving international standards for
CCPs. The existing version of OCC's recovery and orderly wind-down
plan was prepared in advance of the adoption of the CCA rules.
    \13\ As defined by Rule 17Ad-22(e)(3)(ii), those scenarios are:
``credit losses, liquidity shortfalls, losses from general business
risks and other losses.'' 17 CFR 240.17Ad-22(e)(3)(ii).
    \14\ See Standards for Covered Clearing Agencies, 81 FR 70786,
70810 (Oct. 13, 2016).
    \15\ Id.
---------------------------------------------------------------------------

    As discussed in greater detail below, in preparing the proposed
Plan, OCC was informed by relevant guidance from not only from OCC's
regulators, but also from certain international organizations. Within
the framework of this guidance, OCC has drafted the proposed Plan to
reflect OCC's specific characteristics, including its ownership,
organizational, and operational structures, as well as OCC's size and
systemic importance relative to the products that its clears.\16\
---------------------------------------------------------------------------

    \16\ See 81 FR at 70808.
---------------------------------------------------------------------------

    The proposed RWD Plan consists of eight chapters. A description of
each of the first seven chapters of the proposed Plan is provided below
(Chapter 8 of the proposed plan consists of a series of appendices
containing supporting material).
Chapter 1: Executive Summary
    Chapter 1 of the RWD Plan would provide an executive summary and
overview of the proposed Plan. Chapter 1 would begin by acknowledging
OCC's status as a designated Systemically Important Financial Market
Utility (``SIFMU'') \17\ and would recognize that the proposed Plan is
designed to satisfy OCC's regulatory requirements under Rule 17Ad-
22(e)(3)(ii). Chapter 1 would include a list of relevant guidance that
was considered by OCC in drafting the proposed Plan; the guidance
considered by OCC includes, but is not limited to, the materials listed
below:
---------------------------------------------------------------------------

    \17\ The Financial Stability Oversight Council designated OCC a
SIFMU on July 18, 2012 pursuant to the Payment, Clearing and
Settlement Supervision Act. See 12 U.S.C. 5463.
---------------------------------------------------------------------------

     The sections of the preamble to the Commission's adopting
release for its CCA rules that address topics relating to recovery and
orderly wind-down of a CCA; \18\
---------------------------------------------------------------------------

    \18\ See 81 FR 70786.
---------------------------------------------------------------------------

     Principles for Financial Market Infrastructures
(``PFMI''), published by the Bank for International Settlements
Committee on Payment and Settlement Services and the Board of the
International Organization of Securities Commissions (``CPSS-IOSCO'');
\19\
---------------------------------------------------------------------------

    \19\ CPSS-IOSCO, Principles for financial market infrastructures
(Apr. 16, 2012), available at http://www.bis.org/publ/cpss101a.pdf.
---------------------------------------------------------------------------

     Recovery and Resolution Planning for Systemically
Important Financial Institutions: Guidance on Identification of
Critical Functions and Critical Shared Services, published by the
Financial Stability Board (``FSB''); \20\
---------------------------------------------------------------------------

    \20\ FSB, Recovery and Resolution Planning for Systemically
Important Financial Institutions: Guidance on Identification of
Critical Functions and Critical Shared Services.
---------------------------------------------------------------------------

     Recovery of Financial Market Infrastructures, published by
the Bank for International Settlements Committee on Payments and Market
Infrastructures and the Board of the International Organization of
Securities Commissions (``CPMI-IOSCO''); \21\
---------------------------------------------------------------------------

    \21\ CPMI-IOSCO, Recovery of financial market infrastructures
(published as revised on July 5, 2017), available at: http://www.bis.org/cpmi/publ/d162.pdf (``Recovery Report'').
---------------------------------------------------------------------------

     Commodity Futures Trading Commission (``CFTC'') Staff
Letter 16-61, published by the Division of Clearing and Risk of the
CFTC; \22\
---------------------------------------------------------------------------

    \22\ CFTC Staff Letter 16-61, available at<EMAIL_ADDRESS>---------------------------------------------------------------------------

     Essential Aspects of CCP Resolution Planning, published by
the FSB; \23\
---------------------------------------------------------------------------

    \23\ FSB, Essential Aspects of CCP Resolution Planning, (Aug.
16, 2016), available at: http://www.fsb.org/wp-content/uploads/Essential-Aspects-of-CCP-Resolution-Planning.pdf.
---------------------------------------------------------------------------

     Guidance on Central Counterparty Resolution and Resolution
Planning, published by the FSB; \24\ and
---------------------------------------------------------------------------

    \24\ FSB, Guidance on Central Counterparty Resolution and
Resolution Planning, (July 5, 2017), available at: http://www.fsb.org/wp-content/uploads/P050717-1.pdf. (``CCP Resolution
Report'').

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

     Resilience of Central Counterparties: Further Guidance on
the PFMI, published by CPMI-IOSCO.\25\
---------------------------------------------------------------------------

    \25\ CPMI-IOSCO, Resilience of central counterparties: Further
guidance on the PFMI (published on July 5, 2017), available at:
http://www.bis.org/cpmi/publ/d163.pdf.
---------------------------------------------------------------------------

    Chapter 1 would highlight OCC's designated Critical Services and
would summarize the approach OCC used in preparing its ``Stress
Scenarios,'' which are six detailed storyline scenarios that address
OCC's possible response to one or more of the following stresses:
Individual Clearing Member default, multiple successive Clearing Member
defaults, disruption or failure of a bank or liquidity facility
provider, inability to access another financial market infrastructure
and general business and operational risks. The Stress Scenarios would
be included in Appendix H of the Plan. Chapter 1 would restate each of
the five qualitative ``Recovery Trigger Events'' that are identified in
Chapter 5 of the RWD Plan (which constitutes OCC's ``Recovery Plan'')
and explain that the timeframe for OCC's recovery, based on the Stress
Scenarios, could range from intraday to several months. Chapter 1 also
would restate each of the six qualitative ``W[ind -]D[own ]P[lan]
Trigger Events,'' which, if occurring during OCC's recovery efforts,
could likely jeopardize the viability of OCC's recovery and signal that
initiation of OCC's Wind-Down Plan (``WDP'') should be considered.
Chapter 1 would explain that, given OCC's critical role as the sole
clearing organization for all securities options exchanges in the U.S.,
OCC would seek to focus primarily on recovering from any severe stress
scenario; however, in the extremely remote circumstance that that OCC
experienced a stress severe enough to initiate the WDP, the ultimate
goal of OCC's resolution would be to transfer ownership of OCC itself
by the consummation of a consensual sale or similar transaction, in a
manner ensuring the ongoing provision of OCC's Critical Services.
Chapter 1 would conclude by summarizing OCC's assumptions for the
duration of its resolution process and the estimated amount of
operating capital needed to fund OCC's resolution.
Chapter 2: OCC Overview
    Chapter 2 of the proposed RWD Plan is designed to impart
information that OCC believes would be essential to relevant
authorities for purposes of recovery and orderly wind-down planning, as
well as to provide readers of the Plan with necessary context for the
subsequent discussion and analysis of OCC's ``Critical Services'' and
``Critical Support Functions'' in Chapter 4 (discussed below) and of
OCC's resolution process in Chapter 6 (discussed below). To accomplish
this, Chapter 2 would provide a detailed description of OCC's business,
summarizing the role that OCC plays in the options market and the
services and products it provides to its clearing members and market
participants. Chapter 2 also would describe the regulatory oversight to
which OCC is subject, and give details on the basic structure and
organization of OCC's Board of Directors and management. Chapter 2 also
would provide OCC's financial statements and summarize the services OCC
provides to its clearing members and other financial market utilities
(``FMUs''). Chapter 2 would include details about OCC's internal and
external interconnectedness, distinguishing as appropriate between
financial, operational and external forms of interconnectedness.
Chapter 2 would further provide an explanation of each of OCC's three
lines of defense, which are employed to mitigate the various risks to
which OCC is exposed,\26\ and the internal controls framework used to
implement OCC's three lines of defense model. Chapter 2 would also
discuss the participation and role of OCC's internal Management
Committee and the Board of Directors and its various committees in
OCC's risk management process. Finally, Chapter 2 would provide a
discussion of OCC's budgeting process, pricing decisions, refund
pricing, retirement plan obligations, other material financial
obligations and sources of funds relevant to OCC's critical
operations.\27\
---------------------------------------------------------------------------

    \26\ The three lines of defense are discussed in greater detail
in a proposed rule change regarding OCC's ``Risk Management
Framework.'' See Securities Exchange Act Release No. 34-81909 (Oct.
19, 2017), 82 FR 49456 (Oct. 25, 2017) (SR-OCC-2017-005).
    \27\ Each of the items listed is discussed in the ``Subsequent
Events'' section of OCC's 2016 Annual Report, available at: https://www.theocc.com/components/docs/about/annual-reports/occ-2016-annual-report.pdf.
---------------------------------------------------------------------------

Chapter 3: Support Functions
    In Chapter 3 of the proposed RWD Plan, OCC would identify each of
its fourteen different internal support functions and provide a brief
description of the activities performed by each such support function.
Together, Chapters 2 and 3 of the proposed Plan are designed to provide
foundational information about the organization and operation of OCC
that might be essential to relevant authorities in the event of an
orderly wind-down planning. Like Chapter 2, the information provided in
Chapter 3 also would provide readers of the RWD Plan with necessary
context for the subsequent discussion and analysis in Chapters 4 and 6.
Chapter 4: Critical Services and Critical Support Functions
    The primary purpose of Chapter 4 of the proposed RWD Plan would be
to identify OCC's ``Critical Services'' and ``Critical Support
Functions.'' A ``Critical Service,'' as defined in the proposed Plan,
is a service provided by OCC that, if interrupted, would likely have a
material negative impact on participants or significant third parties,
give rise to contagion, or undermine the general confidence of markets
the FMU serves.\28\ Similarly, a ``Critical Support Function,'' as
defined in the proposed Plan, is a function within OCC that must
continue in some capacity in order for OCC to be able to continue
providing its Critical Services.
---------------------------------------------------------------------------

    \28\ See Recovery Report, p. 8.
---------------------------------------------------------------------------

    Chapter 4 of the proposed Plan sets forth the framework that OCC
has used to designate its ``Critical Services'' and provides the
analysis that OCC employed such designation. As proposed, the framework
for designating OCC's ``Critical Services'' enlists the following
criteria to determine if failure or discontinuation of a particular its
services would adversely impact financial and operational capabilities
of OCC's clearing members, other FMUs, and/or the broader financial
system:
     Market Dominance: This criterion considers OCC's market
share in the relevant service and evaluation of importance of relevant
service to clearing members and to the overall economy.
     Substitutability: This criterion considers the existence
of service providers other than OCC that could replicate the
functionality of OCC's Critical Service if such Critical Service failed
or was discontinued and the ability to transfer customers and
transactions to other providers in a short timeframe.
     Interconnectedness: This criterion considers the depth and
breadth of connections between OCC and other market participants that
increase the likelihood of contagion if the service failed or was
discontinued.
     Barriers to Entry: This criterion considers the business,
structural, and/or operational complexity of OCC's services that may
increase barriers to entry to other service providers.\29\
---------------------------------------------------------------------------

    \29\ The criteria OCC selected align with criteria set forth in
the Recovery Report to identify services as ``critical'' based upon
``the importance to the service to the FMI's participants and other
FMIs, and to the smooth functioning of the markets the FMI serves
and, in particular, the maintenance of financial stability.'' See
Recovery Report, p. 8.

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

In proposed Chapter 4, OCC further reduces each criterion to between
one and three ``measurable indicators.'' Each measureable indicator is
assigned a ``high,'' ``medium'' or ``low'' rating relative to each of
the services evaluated, and each rating assigned to a measurable
indicator is given equal weight in OCC's designation analysis. OCC
evaluated eight discreet services, five of which were assigned a
``high'' rating for at least one of the measurable indicators in each
of the four selected criteria. In proposed Chapter 4, certain
qualitative and quantitative characteristics of each of those five
discreet services is further discussed in order to reach a conclusion
about the service's criticality. In proposed Chapter 4, OCC designates
several of its services as Critical Services on the basis of this final
discussion; the services designated as Critical Services would include,
but not be limited to, clearance services for listed options and
clearance services for futures.
    Proposed Chapter 4 derives OCC's Critical Support Functions from
the Critical Services designations. In proposed Chapter 4, OCC
inventories each of the fourteen support functions discussed in Chapter
3 and determines which are minimally necessary for the continued and
orderly operation each of the services identified as Critical Services.
On the basis of this identification process, proposed Chapter 4
identifies the eleven support functions as ``Critical Support
Functions.''
    The final sections of Chapter 4 would discuss the critical vendors
for each of the Critical Support Functions, as well as the critical
external interconnections that OCC maintains with other FMUs, exchanges
(including designated contract markets), clearing and settlement banks,
custodian banks, letter of credit banks, clearing members and credit
facility lenders. These sections would be supported by the materials in
Appendix B (which identifies OCC's clearing members), Appendix C (which
identifies OCC's settlement banks), Appendix D (which identifies OCC's
custodial banks), Appendix E (which identifies OCC's letter of credit
banks), Appendix F (which identifies OCC's key vendors and service
providers) and Appendix G (which identifies key agreements to be
maintained).
Chapter 5: Recovery Plan
    Chapter 5 of OCC's proposed Plan would constitute OCC's Recovery
Plan. Consistent with the above-stated purpose of a recovery and
orderly wind-down plan, the purpose of Chapter 5 would be to
demonstrate that OCC has considered scenarios which may potentially
prevent it from being able to provide its Critical Services as a going-
concern and that, based on the scenarios considered, OCC has prepared
appropriate plans for its recovery.\30\
---------------------------------------------------------------------------

    \30\ For the purposes of the RWD Plan, OCC would define
``recovery'' consistent with the definition advanced by CPMI-IOSCO,
which is ``the actions of an FMI, consistent with its rules,
procedures, and other ex-ante contractual arrangements, to address
any uncovered credit loss, liquidity shortfall, capital inadequacy,
or business, operational or other structural weakness, including the
replenishment of any depleted pre-funded financial resources and
liquidity arrangements, as necessary to maintain the FMI's viability
as a going concern.'' See Recovery Report, p. 3.
---------------------------------------------------------------------------

    The Recovery Plan would begin by describing the approach OCC
initially took in developing the stress scenarios and recovery
scenarios in OCC's existing orderly recovery and wind-down plan.
Proposed Chapter 5 would then describe the approach OCC took in
refining existing scenarios and adding new scenarios to arrive at the
six storyline Stress Scenarios in Appendix H of the proposed RWD
Plan.\31\
---------------------------------------------------------------------------

    \31\ As stated above, the Stress Scenarios are six detailed
storyline scenarios that address OCC's possible response to one or
more of the following stresses: Individual Clearing Member default,
multiple successive Clearing Member defaults, disruption or failure
of a bank or liquidity facility provider, inability to access
another financial market infrastructure and general business and
operational risks.
---------------------------------------------------------------------------

    The Recovery Plan would next identify and discuss each of OCC's
``Enhanced Risk Management Tools'' and ``Recovery Tools,'' which
together would form the tool set that OCC could deploy, as applicable
facts and circumstances might warrant, in a stress scenario. With
respect to the Enhanced Risk Management Tools and Recovery Tools, the
Recovery Plan would provide an overview of the tool, and as appropriate
for each tool, the Recovery Plan would include a discussion of the
implementation of the tool (including the estimated time frame for
implementation of the tool), the key risks associated with the tool,
and the expected impact and incentives associated with use of the tool.
Enhanced Risk Management Tools
    Proposed Chapter 5 would explain that OCC's Enhanced Risk
Management Tools are designed to supplement OCC's existing processes
and other existing tools in scenarios where OCC faces heightened
stresses. Contrary to the Recovery Tools (which are described in
greater detail below), the use of OCC's Enhanced Risk Management Tools
would not be intended to be limited strictly to situations in which a
Recovery Trigger Event has occurred. Rather, OCCs Enhanced Risk
Management Tools have been designed such that they could be used prior
to the occurrence of a Recovery Trigger Event (and preferably, the
Enhanced Risk Management Tools would be used prophylactically in an
effort to prevent the occurrence of a Recovery Trigger Event). As
proposed, OCC would not anticipate there being a rigid order or timing
for the deployment of its Enhanced Risk Management Tools, subject to
one caveat--``Cash Settlement of Physically Delivered Options and
Single Stock Futures'' would only be deployed in very narrow
circumstances where a correspondent clearing organization has rejected
the settlement obligations of an OCC Clearing Member and OCC does not
believe it has sufficient liquid resources immediately available to
facilitate settlement through a substitute broker.
    Descriptions of each of the Enhanced Risk Management Tools
contained in the proposed Recovery Plan are provided below:
    Use of Current/Retained Earnings. Section 5(d) of Article VIII of
OCC's By-Laws provides OCC with the authority to use current and/or
retained earnings to discharge a loss that would be chargeable against
the Clearing Fund. The Recovery Plan would identify this existing
authority as one of OCC's Enhanced Risk Management Tools.
    As stated in Section 5(d) of Article VIII of the By-Laws, use of
OCC's current and/or retained earnings would require prior unanimous
consent from the holders of OCC's Class A common stock and Class B
common stock. Accordingly, the Recovery Plan would acknowledge that the
utility of this particular tool is limited by the fact that the tool is
dependent upon receipt of unanimous consent from OCC's existing
stockholders (and therefore, the availability of the tool cannot be
known in advance). The Recovery Plan would further acknowledge that
because OCC's retained earnings presently amount to only a small
fraction of OCC's existing prefunded Clearing Fund resources, the
maximum utility of this particular tool may be realized in specific
circumstances at either the beginning of OCC's loss waterfall (i.e., by
attempting to fully extinguish the liabilities and obligations arising
from a Clearing Member's default without charging the Clearing Fund
whatsoever) or toward the end of OCC's loss waterfall (i.e., by
attempting to contribute additional resources that may be necessary for
OCC

to fully extinguish its liabilities and obligations through tear-up).
    Minimum Clearing Fund Cash Contribution. OCC is in the process of
proposing a requirement that Clearing Members collectively contribute
$3 billion in cash to the Clearing Fund and that OCC would have
discretionary authority, in certain limited circumstances, to increase
that minimum cash requirement from $3 billion up to the then-minimum
size of the Clearing Fund (``Cash Clearing Fund Requirement'').\32\ The
Cash Clearing Fund Requirement would be included in the Recovery Plan
as one of OCC's Enhanced Risk Management Tools.
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release No. 34-82156 (Nov. 27,
2017), 82 FR 57015 (Dec. 1, 2017) (SR-OCC-2017-019).
---------------------------------------------------------------------------

    With respect to OCC's discretionary authority to increase the
minimum cash requirement, the proposal would allow OCC's Executive
Chairman, Chief Administrative Officer (``CAO''), or Chief Operating
Officer (``COO''), upon providing notice to the Risk Committee of OCC's
Board of Directors (``Risk Committee''), to temporarily increase the
amount of cash required to be maintained in the Clearing Fund up to an
amount that includes the size of the Clearing Fund for the protection
of OCC, clearing members or the general public. Any determination by
the Executive Chairman, CAO and/or COO to implement a temporary
increase in Clearing Fund size would (i) be based upon then-existing
facts and circumstances, (ii) be in furtherance of the integrity of OCC
and the stability of the financial system, and (iii) take into
consideration the legitimate interests of Clearing Members and market
participants. The proposal would require that any such temporary
increase be reviewed by the Risk Committee as soon as practicable, but
in any event within 20 calendar days of the increase. Clearing Members
would be required to satisfy any such increase in their required cash
contributions no later than one hour before the close of the Fedwire
(i.e., 5:30 p.m. Central Time) on the business day following OCC's
issuance of an instruction to increase cash contributions.
    OCC's Recovery Plan would acknowledge that the process for
initiating any increase to the minimum cash requirement would be driven
by the preparation of a ``Close-Out Action Plan,'' which is an internal
document prepared in accordance with OCC's Default Management Policy
and Default Management Procedures that, among other things, takes into
consideration the projected liquidity demands for successful management
of a defaulted Clearing Member. The Recovery Plan recognizes that the
expected impact of any increase to the minimum Clearing fund cash
requirement could be the exacerbation of any ongoing liquidity
constraints facing OCC's Clearing Members.
    Borrowing Against Clearing Fund. Presently, Article VIII, Section
5(e) of OCC's By-Laws provides OCC with the authority to borrow against
the Clearing Fund in two circumstances. First, Article VIII, Section
5(e) of OCC's By-Laws provides OCC the authority to borrow where OCC
``deems it necessary or advisable to borrow or otherwise obtain funds
from third parties in order to meet obligations arising out of the
default or suspension of a Clearing Member or any action taken by the
Corporation in connection therewith pursuant to Chapter XI of the Rules
or otherwise.'' Second, Article VIII, Section 5(e) of OCC's By-Laws
provides OCC the authority to borrow against the Clearing Fund where
OCC ``sustains a loss reimbursable out of the Clearing Fund pursuant to
[Article VIII, Section 5(b) of OCC's By-Laws] but [OCC] elects to
borrow or otherwise obtain funds from third parties in lieu of
immediately charging such loss to the Clearing Fund.'' In order for a
loss to be reimbursable out of the Clearing Fund under Article VIII,
Section 5(b) of OCC's By-Laws, it must arise from a situation in which
any bank or securities or commodities clearing organization has failed
``to perform any obligation to [OCC] when due because of its
bankruptcy, insolvency, receivership, suspension of operations, or
because of any similar event.'' \33\ OCC has proposed to extend this
borrowing authority to include a third scenario, whereby OCC could
borrow (or otherwise obtain funds through any means determined to be
reasonable by the Executive Chairman, COO or CAO) against the Clearing
Fund if it reasonably believes such borrowing is necessary to meet its
liquidity needs for same-day settlement as a result of the failure of
any bank or securities or commodities clearing organization to achieve
daily settlement.\34\ This borrowing authority, as expanded by the
proposed rule change, would be included in the Recovery Plan as one of
OCC's Enhanced Risk Management Tools.
---------------------------------------------------------------------------

    \33\ To the extent that a loss resulting from any of the events
referred to in Article VIII, Section 5(b) is recoverable out of the
Clearing Fund pursuant to Article VIII, Section 5(a), the provisions
of Article VIII, Section 5(a) control and render the provisions of
Article VIII, Section 5(b) inapplicable.
    \34\ OCC has filed a proposed rule change with the Commission in
connection with the authority to borrow against the Clearing Fund to
address liquidity needs for same-day settlement. See Securities
Exchange Act Release No. 34-81058 (Jun. 30, 2017), 82 FR 31371 (July
6, 2017) (SR-OCC-2017-803).
---------------------------------------------------------------------------

    The Recovery Plan would acknowledge that the process for initiating
any borrowing against the Clearing Fund would be driven by the
preparation of a ``Close-Out Action Plan'' (in the event of a Clearing
Member default), in accordance with the execution of OCC's ``Settlement
Bank Failure Procedure'' (in the event of a disruption to or failure of
a settlement bank), in accordance with the execution of OCC's ``Linked
FMI Disruption Procedure'' (in the event of a disruption to a linked
financial market infrastructure). The Recovery Plan would further
acknowledge that a borrowing pursuant to a recommendation in a Close-
Out Action Plan or under either of the Settlement Bank Failure
Procedures or Linked FMI Disruption Procedures would occur in
accordance with OCC's ``Syndicated Credit Facility Procedure.'' The
Recovery Plan recognizes that a key risk of this particular tool would
be that in a heightened stress scenario OCC's primary liquidity
facilities already may be fully or partially utilized (and therefore,
the availability of the tool cannot be known in advance).
    OCC's Credit Facility. OCC maintains a $2.0 billion senior secured
364-day revolving credit facility with a syndicate of lenders.\35\ The
purpose of the facility is to provide OCC with liquidity to meet
settlement obligations as a central counterparty. The Recovery Plan
would include the facility among OCC's Enhanced Risk Management Tools.
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 34-81956 (Oct. 26,
2017) (SR-OCC-2017-017).
---------------------------------------------------------------------------

    The Recovery Plan would recognize that borrowings under the
facility would occur in accordance with OCC's Syndicated Credit
Facility Procedure. The Recovery Plan would further recognize that the
key risk associated with the use of the facility is that a portion of
the syndicate may not timely fund OCC's draw.
    OCC's Non-Bank Facility. OCC maintains a $1.0 billion secured non-
bank liquidity facility.\36\ The purpose of the non-bank facility is to
provide OCC with a non-bank liquidity resource to meet settlement
obligations as a central counterparty. The Recovery Plan would include
the non-bank facility among OCC's Enhanced Risk Management Tools.
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 34-76821 (Jan 4,
2016), 81 FR 3208 (Jan. 4, 2016) (SR-OCC-2016-805).
---------------------------------------------------------------------------

    The Recovery Plan would recognize that borrowings under the
facility would

occur in accordance with OCC's ``Non-Bank Facility Procedure.'' The
Recovery Plan would further recognize that the key risk associated with
the use of the non-bank facility is that OCC's counterparty may not
timely execute the transaction.
    Cash Settlement of Physically Delivered Options and Single Stock
Futures. OCC is in the process of proposing a new Rule 913,\37\ which
would provide OCC the ability to require cash settlement of otherwise
physically-settled delivery obligations arising from exercised or
assigned stock options and/or physically-settled matured stock futures
in the event that a correspondent clearing corporation \38\ rejects the
settlement obligations for such stock options and/or stock futures
(such rejected stock options and/or stock futures hereinafter,
``Rejected Cleared Securities'') and either of the two following
necessary conditions exists: (i) The liquidity demand on OCC to fund an
alternative form of settlement for such Rejected Cleared Securities
(i.e., settlement through the use of a ``substitute broker'') \39\
would exceed the amount of liquid resources immediately available to
OCC, or (ii) no agent is available to serve as substitute broker to
facilitate alternative settlement for OCC.\40\ In these extremely
limited circumstances, fixing cash settlement amounts pursuant to
proposed Rule 913 would provide OCC with the ability to substantially
reduce the liquidity demands that it might otherwise face if required
to fund an alternative form of settlement to effect physical delivery.
The Recovery Plan would include cash settlement of otherwise
physically-delivered options and single-stock futures pursuant to
proposed Rule 913 among OCC's Enhanced Risk Management Tools.
---------------------------------------------------------------------------

    \37\ OCC will be filing a proposed rule change with the
Commission in connection with this proposal. See SR-OCC-2017-018.
    \38\ Under Article I of OCC's By-Laws, the term ``correspondent
clearing corporation'' means the National Securities Clearing
Corporation or any successor thereto which, by agreement with the
OCC, provides facilities for settlements in respect of exercised
option contracts or BOUNDs or in respect of delivery obligations
arising from physically-settled stock futures.
    \39\ ``Substitute broker'' refers to the use of another OCC
clearing member that remains in good standing at the correspondent
clearing corporation and that, on OCC's behalf, will facilitate
settlement of OCC's delivery obligations of the Rejected Cleared
Securities through the correspondent clearing corporation.
    \40\ To avoid the retroactive application of Rule 913, OCC's
ability to require cash settlement of cleared securities would only
apply where the relevant cleared securities were issued by OCC after
regulatory approval is received for this proposed rule change and
the change has been implemented by OCC. As of the date of this
filing, OCC lists standard equity options through November 25, 2024
and flexible style equity options through December 18, 2026.
---------------------------------------------------------------------------

    The Recovery Plan would acknowledge that, assuming one of the two
necessary conditions exists, the process for initiating cash settlement
would be driven by the preparation of a ``Close-Out Action Plan,''
which would recommend impacted options and single-stock futures be cash
settled in lieu of physical delivery. The Recovery Plan would also
acknowledge that execution of cash settlement would occur in accordance
with OCC's ``Alternative Cash Settlement of Cleared Contracts
Procedure.'' The Recovery Plan recognizes that a key risk of this
particular tool would be the potentially detrimental impacts on
Clearing Members and their customers, who would receive a cash
settlement amount when they had anticipated receiving physical
securities.
Recovery Tools
    Proposed Chapter 5 would explain that OCC's Recovery Tools differ
from OCC's Enhanced Risk Management Tools in that the use of each
Recovery Tool is generally limited to a scenario in which a Recovery
Trigger Event has occurred, and as discussed below, the sequence and
timing of the deployment of each Recovery Tool is more structured than
the sequence and timing for the deployment of the Enhanced Risk
Management Tools. As noted below, each of the Recovery Tools is
discussed in greater detail in a proposed rule change that has been
filed with the Commission.
    Descriptions of each of the Recovery Tools contained in the
proposed Recovery Plan are provided below:
    Assessment Powers. OCC is in the process of amending its By-Laws to
revise its assessment powers such that OCC would have the authority to
assess non-defaulting Clearing Members during any ``cooling-off
period'' (explained below) in an aggregate amount equal to 200% of each
such Clearing Member's required contribution as of the time immediately
preceding the start of the applicable cooling-off period (hereinafter,
``Assessment Powers'').\41\ Under the proposed Assessment Powers, an
automatic minimum fifteen calendar day cooling-off period would begin
whenever a proportionate charge is assessed by OCC against Clearing
Members' Clearing Fund contributions. While the cooling-off period
would continue for a minimum of fifteen consecutive calendar days, if
one or more of the events described in clauses (i) through (iv) of
Article VIII, Section 5(a) of OCC's By-Laws occur(s) during that
fifteen calendar day period and result(s) in one or more proportionate
charges against the Clearing Fund, the cooling-off period would be
extended through either (i) the fifteenth calendar day from the date of
the most recent proportionate charge resulting from the subsequent
event, or (i) the twentieth day from the date of the proportionate
charge that initiated the cooling-off period, whichever is sooner.
During such cooling-off period, the proposed Assessment Powers would
cap each Clearing Member's aggregate liability to replenish the
Clearing Fund at 200% of the Clearing Member's then-required
contribution to the Clearing Fund. Once the cooling-off period ends
each remaining Clearing Member would be required to replenish the
Clearing Fund in the amount necessary to meet its then-required
contribution.\42\ The Recovery Plan would include the proposed
Assessment Powers among OCC's Recovery Tools.
---------------------------------------------------------------------------

    \41\ OCC has filed a proposed rule change with the Commission in
connection with this proposal. See SR-OCC-2017-020.
    \42\ Under the proposed Assessment Powers, the time frame within
which a Clearing Member may provide a termination notice to OCC to
avoid liability for replenishment of the Clearing Fund after the
cooling-off period would be extended and the obligations of such a
terminating Clearing Member for closing-out and transferring its
remaining open positions would be modified. Specifically, to
effectively terminate its status as a Clearing Member and not be
liable replenishing the Clearing Fund after the cooling-off period,
a Clearing Member would be required to: (i) Notify OCC in writing of
its intent to terminate not later than the last day of the cooling-
off period, (ii) not initiate any opening purchase or opening
writing transaction, and, if the Clearing Member is a Market Loan
Clearing Member or a Hedge Clearing Member, not initiate any Stock
Loan transaction, through any of its accounts, and (iii) close-out
or transfer all of its open positions by no later than the last day
of the cooling-off period. If a Clearing Member failed to satisfy
all of these conditions by the end of a given cooling-off period, it
would not have completed all of the requirements necessary to
terminate its status as a Clearing Member and therefore it would
remain subject to the obligation to replenish the Clearing Fund
after the end of the cooling-off period.
---------------------------------------------------------------------------

    The Recovery Plan would discuss the mechanics for replenishment of
the Clearing Fund, which is the mechanism by which assessments would be
collected from Clearing Members.\43\ The Recovery Plan would
acknowledge that one of the key risks associated with OCC's assessment
powers is that utilization of assessment powers (or even prefunded
Clearing Fund

resources) may incentivize Clearing Members to withdraw from membership
(to avoid replenishing the Clearing Fund following the cooling-off
period), thereby potentially reducing the size of the future Clearing
Fund as well as OCC's future assessment powers.
---------------------------------------------------------------------------

    \43\ Article 6 of OCC's By-Laws states that Clearing Members are
required to promptly make good any deficiency in their required
contribution that results from a charge against the Clearing Fund,
and Clearing Members must make good any such deficiencies by 9:00
a.m. Central Time on the first business day following the day on
which OCC notifies Clearing Members of such deficiency.
---------------------------------------------------------------------------

    Voluntary Payments. OCC is in the process of proposing new Rule
1009, which would provide a framework by which OCC could receive
voluntary payments in a circumstance where a Clearing Member has
defaulted and OCC has determined that, notwithstanding the availability
of any remaining resources under OCC Rules 707, 1001, 1104 through
1107, 2210 and 2211,\44\ OCC may not have sufficient resources to
satisfy its obligations and liabilities resulting from such
default.\45\ Under proposed Rule 1009, non-defaulting Clearing Members
would be invited to make voluntary payments to the Clearing Fund, in
addition to any amounts they are otherwise required to contribute. If
OCC subsequently recovers from the estate(s) of the defaulted Clearing
Member(s), all non-defaulting Clearing Members that made voluntary
payments would be repaid from such recovery (and if the amount
recovered the defaulted Clearing Member(s) is less than the aggregate
amount of voluntary payments, non-defaulting Clearing Members that made
voluntary payments each would receive a percentage of the recovery that
corresponds to that Clearing Member's percentage of the total amount of
voluntary payments received). The Recovery Plan would include proposed
Rule 1009 among OCC's Recovery Tools.
---------------------------------------------------------------------------

    \44\ Rule 707 addresses the treatment of funds in a Clearing
Member's X-M accounts. Rule 1001 addresses the size of OCC's
Clearing Fund and the amount of a Clearing Member's contribution.
Rules 1104 through 1107 concern the treatment of the portfolio of a
defaulted Clearing Member. Rules 2210 and 2211 concern the treatment
of Stock Loan positions of a defaulted Clearing Member.
    \45\ OCC has filed a proposed rule change with the Commission in
connection with this proposal. See SR-OCC-2017-020.
---------------------------------------------------------------------------

    The Recovery Plan would discuss the mechanics for voluntary
payments and the estimated time frame for issuing a ``Voluntary Payment
Notice'' and collecting voluntary payments (from several hours to
overnight, depending on the timing of the event driving OCC's
determination to call for voluntary payments).\46\ The Recovery Plan
would acknowledge that the key risk associated with the ability to call
for voluntary payments is that non-defaulting Clearing Members would be
unwilling, or unable, to participate.
---------------------------------------------------------------------------

    \46\ Article 6 of OCC's By-Laws states that Clearing Members are
required to promptly make good any deficiency in their required
contribution that results from a charge against the Clearing Fund,
and Clearing Members must make good any such deficiencies by 9:00
a.m. Central Time on the first business day following the day on
which OCC notifies Clearing Members of such deficiency.
---------------------------------------------------------------------------

    Voluntary Tear-Up. OCC is in the process of proposing new Rule
1111, which, in relevant part, would establish a framework by which
non-defaulting Clearing Members and non-defaulting customers of
Clearing Members could be given an opportunity to voluntarily
extinguish (i.e., voluntarily tear-up) their open positions at OCC in a
circumstance where a Clearing Member has defaulted and OCC has
determined that, notwithstanding the availability of any remaining
resources under OCC Rules 707, 1001, 1104 through 1107, 2210 and 2211,
OCC may not have sufficient resources to satisfy its obligations and
liabilities resulting from such default.\47\ OCC presumes that the
scope of any voluntary tear-up would be dictated by the cleared
contracts remaining in the portfolio(s) of the defaulted Clearing
Member(s); however, to ensure OCC retains sufficient flexibility to
effectively deploy this tool in an extreme stress event, proposed Rule
1111(c) would provide the Risk Committee with discretion to determine
the appropriate scope of each voluntary tear-up. New Rule 1111(c) also
would impose standards designed to circumscribe the Risk Committee's
discretion, requiring that any determination regarding the scope of a
voluntary tear-up would (i) be based on then-existing facts and
circumstances, (ii) be in furtherance of the integrity of OCC and the
stability of the financial system, and (iii) take into consideration
the legitimate interests of Clearing Members and market participants.
The Recovery Plan would include this proposed authority to call for
voluntary tear-ups among OCC's Recovery Tools.
---------------------------------------------------------------------------

    \47\ OCC has filed a proposed rule change with the Commission in
connection with this proposal. See SR-OCC-2017-020.
---------------------------------------------------------------------------

    The Recovery Plan anticipates that OCC's tear-up process--for both
voluntary tear-ups as well as partial tear-ups--would be initiated on a
date sufficiently in advance of the exhaustion of OCC's financial
resources such that OCC would be expected to have adequate remaining
resources to cover the amount it must pay to extinguish the positions
of Clearing Members and customers without haircutting gains.\48\ The
Recovery Plan contemplates that, if tear-up becomes necessary, OCC
likely would initiate its tear-up process after the market closes on
the date on which OCC has determined that the amount of its remaining
financial resources measured against the estimated stressed exposure of
the unauctioned positions in the portfolio(s) of the defaulted Clearing
Member(s) warrants the initiation of OCC's tear-up process (for
purposes of this example, Day T). The Recovery Plan anticipates that
notice of tear-up (both voluntary tear-up and partial tear-up) would be
published no later than the morning of the following trading day prior
to the market opening (for purposes of this example, Day T+1) and that
the call for voluntary tear-ups would remain open throughout the
duration of the trading on Day T+1. The Recovery Plan anticipates that
voluntarily tendered positions would be extinguished either after the
close on Day T+1 or prior to the opening of the markets on Day T+2
(where Day T+2 is a trading day), and that such positions would be
extinguished at their last established end-of-day settlement price, in
accordance with OCC's existing practices concerning pricing and
valuation (i.e., the closing price on Day T+1).
---------------------------------------------------------------------------

    \48\ OCC is not proposing a tear-up process that would require
the imposition of ``gains haircutting'' (i.e., the reduction of
unpaid gains) on a portion of OCC's cleared contracts. In general,
OCC believes that forced gains haircutting is a tool that can be
more easily applied to products whose gains are settled at least
daily, like futures through an exchange of variation margin, and by
central counterparties with comparatively large daily settlement
flows. Listed options, which constitute the vast majority of the
contracts cleared by OCC, do not have daily settlement flows and any
attempt to reduce the ``unrealized gains'' of a listed options
contract would require the reduction of the option premium that is
embedded within the required margin (such a process would
effectively require haircutting the listed option's initial margin).
In OCC's proposed tear-up process, the holders of torn-up positions
would be assigned a Tear-Up Price and OCC would draw on its
remaining financial resources in order to extinguish the torn-up
positions at the assigned Tear-Up Price without forcing a reduction
in the amount unpaid gains on such positions.
---------------------------------------------------------------------------

    After OCC has completed its tear-up process and re-established a
matched book, OCC expects that holders of both voluntarily torn-up and
mandatorily torn-up positions would be provided with a limited
opportunity to re-establish positions in the contracts that were
voluntarily or mandatorily extinguished. For the losses, costs or
expenses imposed upon the holders of torn-up positions, proposed Rule
1111 would provide OCC with two separate and non-exclusive means of
equitably re-allocating such losses costs or expenses.\49\
---------------------------------------------------------------------------

    \49\ Proposed Rule 1111 would provide OCC discretion to use
remaining Clearing Fund contributions to re-allocate losses imposed
on non-defaulting Clearing Members and customers from such tear-
up(s). Further, proposed Rule 1111(a) also would provide that if OCC
subsequently recovers from the estate(s) of the defaulted Clearing
Member(s) and the amount of such recovery exceeds the amount OCC
received in voluntary payments, then non-defaulting Clearing Members
and non-defaulting customers that voluntarily tore-up open positions
and incurred losses from such tear-ups would be repaid from the
amount of the recovery in excess of the amount OCC received in
voluntary payments (if the amount recovered is less than the
aggregate amount of voluntary tear-up, each non-defaulting Clearing
Member and non-defaulting customer that incurred losses from
voluntarily torn-up positions would be repaid in an amount
proportionate to the percentage of its total amount of losses, costs
and fees imposed on Clearing Members or customers as a result of the
voluntary tear-ups).

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

    In addition to discussing the above mechanics for voluntary tear-up
and the estimated time frame for initiating and completing OCC's tear-
up process, the Recovery Plan would acknowledge that the key risk
associated with the ability to call for voluntary tear-ups is that non-
defaulting Clearing Members and nonwould be unwilling, or unable, to
participate.
    Partial Tear-Up. Proposed Rule 1111 also would provide the Board
with discretion to extinguish the remaining (i.e., mandatorily
extinguish) open positions of any defaulted Clearing Member or customer
of such defaulted Clearing Member(s) (such positions, ``remaining open
positions''), as well as any related open positions as necessary to
mitigate further disruptions to the markets affected by the Remaining
Open Positions (such positions, ``related open positions''), in a
circumstance where a Clearing Member has defaulted and OCC has
determined that, notwithstanding the availability of any remaining
resources under OCC Rules 707, 1001, 1104 through 1107, 2210 and 2211,
OCC may not have sufficient resources to satisfy its obligations and
liabilities resulting from such default (such tear-ups, ``partial tear-
ups''). Like the determination for voluntary tear-ups, OCC presumes
that the scope of any partial tear-up would be dictated by the cleared
contracts remaining in the portfolio(s) of the defaulted Clearing
Member(s); however, to ensure OCC retains sufficient flexibility to
effectively deploy this tool in an extreme stress event, proposed Rule
111(c) would provide the Risk Committee with discretion to determine
the appropriate scope for each partial tear-up. Proposed Rule 1111(c)
would impose the same standards designed to circumscribe the Risk
Committee's discretion as would be imposed with respect to voluntary
tear-ups: Partial tear-ups would (i) be based on then-existing facts
and circumstances, (ii) be in furtherance of the integrity of OCC and
the stability of the financial system, and (iii) take into
consideration the legitimate interests of Clearing Members and market
participants. The Recovery Plan would include this proposed authority
to impose mandatory tear-ups among OCC's Recovery Tools.
    As explained above, the Recovery Plan would anticipate that the
process for implementing a partial tear-up would be intertwined with
the process for implementing a voluntary tear-up. The Recovery Plan
would also make clear that partially torn-up positions would be
allocated to non-defaulting Clearing Members' accounts (and further
allocated by Clearing Members to their non-defaulting customers'
accounts) on a pro rata basis.
    Replenishment Capital. In 2015 OCC adopted a capital plan
(``Capital Plan'') under which OCC's stockholder exchanges made an
additional capital contribution and, in the event that total
shareholder's equity falls below a certain threshold, committed to
replenishing OCC's capital up to an amount determined as OCC's
``Baseline Capital Requirement.'' \50\ The Recovery Plan would include
the replenishment capital that OCC's stockholder exchanges would be
required to provide under the Capital Plan among OCC's Recovery Tools.
---------------------------------------------------------------------------

    \50\ See Securities Exchange Act Release No. 34-74387 (Feb. 26,
2015), 80 FR 12215 (Mar. 6, 2015) (SR-OCC-2014-813). As stated in
the advance notice, OCC's Baseline Capital Requirement for 2015 was
$117,000,000.
---------------------------------------------------------------------------

    In addition to generally discussing each of the Enhanced Risk
Management Tools and Recovery Tools as described above, the Recovery
Plan also would provide a mapping of OCC's Enhanced Risk Management
Tools and Recovery Tools against the types of financial market
infrastructure (``FMI'') risk exposures identified in the Recovery
Report.\51\ The general mapping of tools to risk exposures is presented
below:
---------------------------------------------------------------------------

    \51\ The Recovery Report recognizes the following risk exposures
for an FMI: Legal risk, credit risk, liquidity risk, general
business risk, custody risk, investment risk and operational risk.
See Recovery Report, p. 12.
---------------------------------------------------------------------------

     Tools to address uncovered credit losses from a Clearing
Member default: Use of current/retained earnings, proposed voluntary
payments and proposed Assessment Powers.
     Tools to address liquidity shortfalls: Minimum Clearing
Fund cash contribution, borrowing against Clearing Fund, OCC's credit
facility, OCC's non-bank facility and cash settlement of physically
delivered options and single stock futures.
     Tools to replenish financial resources: Replenishment
capital.
     Tools to address losses related to business, operational
or other structural weaknesses (i.e., losses not caused by Clearing
Member Default): Borrowing against Clearing Fund and replenishment
capital.
     Tools to re-establish a matched book: Voluntary tear-up
and partial tear-up.

The Recovery Plan would include a short discussion of how the Enhanced
Risk Management Tools and Recovery Tools would apply to each of the
risk categories and failure scenarios identified in the Recovery
Report.\52\ The discussion of each risk category would reference the
appropriate Stress Scenarios in Appendix H that demonstrate the use of
applicable Enhanced Risk Management Tools and Recovery Tools. The
Recovery Plan also would discuss the Enhanced Risk Management Tools and
Recovery Tools in the context of the characteristics of recovery tools
enumerated in the CPMI-IOSCO Recovery Report.\53\
---------------------------------------------------------------------------

    \52\ The Recovery Report identifies the following purposes for
an FMI's recovery tools: (i) Tools to allocate uncovered credit
losses caused by a participant default, (ii) tools to address
uncovered liquidity shortfalls, (iii) tools to replenish financial
resources, (iv) tools for CCPs to re-establish a matched book
following a participant default, and (v) tools to allocate losses
not caused by participant default. See Recovery Report, p. 17.
    \53\ The Recovery Report states that a financial market
infrastructure's recovery tools should (i) be comprehensive, (ii) be
effective, (iii) be transparent, measurable, manageable and
controllable, (iv) create appropriate incentives, and (v) minimize
negative impact. See Recovery Report, p. 13.
---------------------------------------------------------------------------

    After discussing the Enhanced Risk Management Tools and Recovery
Tools, the Recovery Plan would identify five qualitative ``Recovery
Trigger Events'' (events that--if occurring during OCC's risk
management efforts--would indicate that OCC is facing an extreme stress
event that potentially threatens OCC's viability). The Recovery Plan
would specify that the occurrence of a Recovery Trigger Event shall
require OCC personnel to notify the Commission and the CFTC (and the
Federal Deposit Insurance Corporation, to the extent applicable), and
such notice shall apprise the regulator(s) of the specific Recovery
Trigger Event that has occurred and sufficient information to enable
the regulator(s) to understand the nature of the occurrence of the
Recovery Trigger Event. The Recovery Plan would further outline an
escalation process for the occurrence of a Recovery Trigger Event. The
escalation process would start with individual support function leads,
who would be responsible for communicating the possible occurrence of a
Recovery Trigger Event to other support functions within OCC. The
escalation process would require OCC's Enterprise Risk Management and
Financial Risk

Management groups to be responsible for assessing the situation and
providing recommendations regarding the potential use of Enhanced Risk
Management Tools and Recovery Tools. The escalation process would
identify that the Chief Executive Officer and Executive Chairman would
be responsible for providing necessary approvals for the implementation
of Enhanced Risk Management Tools and Recovery Tools, and that the
Chief Risk Officer and the Management Committee would be responsible
for overseeing the deployment of any Enhanced Risk Management Tools or
Recovery Tools. The escalation process would identify OCC's Board and
the Risk Committee of the Board as being responsible for generally
overseeing OCC's recovery efforts.
    Finally, the Recovery Plan would provide general descriptions of
how OCC would anticipate deploying its Enhanced Risk Management and
Recovery Tools in response to each of the six Stress Scenarios detailed
in Appendix H. As described above, the six detailed Stress Scenarios
would be grouped into the following categories of stresses: Individual
Clearing Member default, multiple successive Clearing Member defaults,
disruption or failure of a bank or liquidity facility provider,
inability to access another financial market infrastructure and general
business and operational risks.
Chapter 6: Wind-Down Plan
    Chapter 6 of OCC's proposed RWD Plan would constitute OCC's WDP.
Consistent with the above-stated purpose of an orderly wind-down plan,
Chapter 6 would demonstrate that OCC has considered scenarios which may
potentially prevent it from being able to provide its Critical Services
as a going-concern and that OCC has adequately evaluated plans for its
orderly wind-down.\54\
---------------------------------------------------------------------------

    \54\ For the purposes of the RWD Plan, OCC would frame its wind-
down objective consistent with the objective advanced by the FSB for
CCP resolution: ``CCP resolution should have as its objective the
pursuit of financial stability and ensure the continuity of critical
CCP functions in all jurisdictions where those functions are
critical and without exposing taxpayers to risk of loss. . . . The
objectives of CCP resolution can be achieved either by: (i)
Restoring the ability of the CCP to continue to perform its critical
functions as a going concern; or (ii) ensuring continued performance
of those functions by another entity or arrangement (including a
bridge entity established by the resolution authority) coupled with
the orderly wind-down of the residual CCP in resolution.'' See CCP
Resolution Report, p. 2.
---------------------------------------------------------------------------

    The WDP would state OCC's basic assumptions concerning the
resolution process, including assumptions about the duration of the
resolution process, the cost of the resolution process, OCC's
capitalization through the resolution process, the maintenance of
Critical Services and Critical Support Functions and the retention of
personnel and contractual relationships. The WDP would further identify
six ``WDP Trigger Events'' that--if occurring during OCC's recovery
efforts--could likely jeopardize the viability of OCC's recovery and
signal that initiation of the WDP should be considered. Upon the
occurrence of any WDP Trigger Event, the WDP would require OCC
personnel to notify the Commission and the CFTC (and the Federal
Deposit Insurance Corporation, to the extent applicable), and such
notice must apprise the regulator(s) of the specific WDP Trigger Event
that has occurred and sufficient information to enable the regulator(s)
to understand the nature of the occurrence of the WDP Trigger Event.
Additionally, the WDP would prescribe for each WDP Trigger Event more
tailored internal notification requirements. These more tailored
notification requirements would designate OCC personnel in specific
support functions (generally, the function whose area is most closely
related to, or impacted by, the specific WDP Trigger Event) as
responsible for identifying such WDP Trigger Event and for notifying
OCC's senior management.
    The WDP also would reference the importance of the critical
external interconnections (discussed in Chapter 4) to the resolution
process and highlight the key agreements that would be necessary to
maintain throughout OCC's resolution (such agreements would be listed
in Appendix G). The WDP would provide a discussion of the key actions
that OCC (or a resolution authority) could take during the resolution
process. The key actions discussed in the WDP would include the
following: The decision by OCC's Board (informed by senior management)
to abandon recovery and initiate OCC's resolution process; the
potential institution of new or heightened requirements on clearing
membership; the potential imposition of heightened capital requirements
on clearing members (consistent with the existing requirements in Rule
301); the imposition of increased margin requirements for Clearing
Members (pursuant to the existing authority under Rule 603); ceasing
OCC's investment activities; instituting new operational practices (to
address any operation weaknesses that caused, or contributed to, the
events resulting in the initiation of the resolution process), and;
targeted reductions in force (by each of the fourteen support functions
discussed in Chapter 3).
    The WDP also would identify potential transactions that could be
entered to accomplish the objectives of wind-down (``WDP
Transactions''), as well as discuss the possibility of ceasing
operation of OCC's Critical Services. The WDP would state that the goal
of OCC's resolution--and thusly of any WDP Transaction--would be to
transfer ownership of OCC itself by the consummation or a consensual
sale or similar transaction, in a manner that ensures the continuation
of OCC's Critical Services. The WDP would examine the structure of
three potential WDP Transactions, with a focus on the corporate,
transactions, governance and regulatory issues relating to each
structure. In order of preference based on OCC's examination, the first
structure would be a ``Stock Transaction,'' meaning a sale by OCC's
stockholder exchanges of all of their shares of stock to one or more
new owners; the second structure would be a ``Merger Transaction,''
meaning a merger or consolidation of OCC with another entity (with the
aim of OCC remaining as the surviving entity), and; the third structure
would be an ``Asset Transaction,'' meaning that substantially all of
OCC's assets and some or all of OCC's liabilities, including open
positions in OCC-cleared contracts along with related Clearing Fund
deposits and margin collateral, would be transferred to a third party.
    With respect to the possibility of ceasing OCC's Critical Services,
the WDP would consider taking a corporate action to consider
institution of a bankruptcy or insolvency proceeding, which would have
the effect of triggering the existing close-out netting provisions in
Article VI, Section 27 of OCC's By-Laws.
Chapter 7: RWD Plan Governance
    Chapter 7 of OCC's proposed Plan would memorialize the prior
governance for approval of the earlier drafts of OCC's recovery and
orderly wind-down plan and would establish an internal governance
process for the maintenance, review and approval of the proposed RWD
Plan. The internal governance process for the approval of subsequent
changes to OCC's proposed RWD Plan would initiate with an RWD Working
Group, which would recommend any changes to OCC's Management Committee.
OCC's Management Committee, in turn, would review and, as appropriate,
approve and recommend any changes to OCC's Risk Committee. OCC's Risk
Committee, in

turn, would review and, as appropriate, approve and recommend any
changes to OCC's Board. OCC's Board would have final responsibility for
review and approval of subsequent changes to OCC's proposed RWD Plan.
2. Statutory Basis
    OCC believes that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \55\ because the proposed change to
update and formalize OCC's RWD Plan ultimately would protect investors
and the public interest. The Recovery Plan is designed to enhance OCC's
ability to address extreme stresses or crises by establishing a
framework that OCC could use to navigate the use its Enhanced Risk
Management Tools and Recovery Tools, with the aim of maintaining OCC's
viability as a going concern. In the event that OCC's recovery efforts
are not successful, the WDP would seek to improve the possibility that
a resolution of OCC's operations can be conducted in an orderly manner,
thereby minimizing the disruption to Clearing Members and market
participants and improving the likelihood of minimizing the risk of
contagion to the broader financial system. Accordingly, OCC believes
its proposed RWD Plan improves the possibility of maintaining market
and public confidence during a time of unprecedented stress. In this
regard, OCC believes the proposed rule change ultimately would protect
investors and the public interest in a manner consistent with Section
17A(b)(3)(F) of the Act.\56\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78q-1(b)(3)(F).
    \56\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    OCC believes that the proposed rule change is also consistent with
Rule 17Ad-22(e)(3)(ii).\57\ As stated above, the RWD Plan would
describe OCC's plans to recover from, or orderly resolve its operations
as a result of, severe stress brought about by credit losses, liquidity
shortfalls, losses from general business risk or other losses.\58\
Consistent with the Commission's guidance, the proposed RWD Plan would
consider scenarios which may potentially prevent OCC from providing its
Critical Services as a going-concern and provide appropriate plans for
OCC's recovery or orderly wind-down based on the results of such
considerations. Further, OCC's proposed Plan would seek to provide the
information that a resolution authority may reasonably anticipate as
necessary for purposes of recovery and orderly wind-down planning.\59\
In this regard, OCC believes its proposed rule change is consistent
with Rule 17Ad-22(e)(3)(ii).\60\
---------------------------------------------------------------------------

    \57\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \58\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \59\ See 81 FR at 70810.
    \60\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    The proposed rule change is not inconsistent with the existing
rules of OCC, including any other rules proposed to be amended.

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

    Section 17A(b)(3)(I) of the Act \61\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would impact or impose any burden
on competition.\62\ The proposed rule change would update and
memorialize OCC's RWD Plan. The RWD Plan would only be used in extreme
stress scenarios, and the Plan is designed to be used only internally
(or by a resolution authority). The proposed rule change would not
affect Clearing Members' access to OCC's services or impose any direct
burdens on Clearing Members. Accordingly, the proposed rule change
would not unfairly inhibit access to OCC's services or disadvantage or
favor any particular user in relationship to another user.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78q-1(b)(3)(I).
    \62\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    For the foregoing reasons, OCC believes that 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.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self- regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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 Commissions internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-OCC-2017-021 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2017-021. 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/components/docs/legal/rules_and_bylaws/sr_occ_17_021.pdf.
    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-2017-021 and
should be submitted on or before January 16, 2018.

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27692 Filed 12-22-17; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 71 (Friday, April 14, 2017)]
[Notices]
[Page 17989]
[FR Doc No: 2017-07546]

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

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No., 2305-059]

Sabine River Authority of Texas; Sabine River Authority, State of
Louisiana: Notice of Application Accepted for Filing and Soliciting
Comments, Motions To Intervene, and Protests

    Take notice that the following hydroelectric application has been
filed with the Commission and is available for public inspection:
    a. Application Type: Non-Project Use of Project Lands.
    b. Project No: 2305-059.
    c. Date Filed: March 3, 2017 and supplemented on March 31, 2017.
    d. Applicant: Sabine River Authority of Texas and Sabine River
Authority, State of Louisiana.
    e. Name of Project: Toledo Bend Project.
    f. Location: The project is located on the Sabine River on the
Texas-Louisiana border in Panola, Shelby, Sabine, and Newton Counties
in Texas and DeSoto, Sabine, and Vernon Parishes in Louisiana.
    g. Filed Pursuant to: Federal Power Act, 16 U.S.C. 791a-825r.
    h. Applicant Contact: Charles R. Sensiba;<PHONE_NUMBER>, Sharon L.
White;<PHONE_NUMBER>, Van Ness Feldman, LLP, 1050 Thomas Jefferson St.
NW., Washington DC 20007.
    Carl L. Chance;<PHONE_NUMBER>, Sabine River Authority, State of
Louisiana, 15091 Texas Hwy, Many, LA 71449.
    i. FERC Contact: Holly Frank,<PHONE_NUMBER><EMAIL_ADDRESS>    j. Deadline for filing comments, motions to intervene, and protests
is 30 days from the issuance of this notice by the Commission. All
documents may be filed electronically via the Internet. See, 18 CFR
385.2001(a)(1)(iii) and the instructions on the Commission's Web site
at http://www.ferc.gov/docs-filing/efiling.asp. If unable to be filed
electronically, documents may be paper-filed. To paper-file, an
original and seven copies should be mailed to: Secretary, Federal
Energy Regulatory Commission, 888 First Street NE., Washington, DC
20426. Commenters can submit brief comments up to 6,000 characters,
without prior registration, using the eComment system at http://www.ferc.gov/docs-filing/ecomment.asp. You must include your name and
contact information at the end of your comments. For assistance, please
contact FERC Online Support at<EMAIL_ADDRESS>(866) 208-
3676 (toll free), or<PHONE_NUMBER> (TTY). In lieu of electronic
filing, please send a paper copy to: Secretary, Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426. The
first page of any filing should include docket number P-2305-059.
    The Commission's Rules of Practice and Procedure require all
intervenors filing documents with the Commission to serve a copy of
that document on each person whose name appears on the official service
list for the project. Further, if an intervenor files comments or
documents with the Commission relating to the merits of an issue that
may affect the responsibilities of a particular resource agency, they
must also serve a copy of the document on that resource agency.
    k. Description of Request: Sabine River Authority of Texas and
Sabine River Authority, State of Louisiana request Commission approval
to grant M5 Midstream LLC a permit to use project lands and waters
within the project boundary on the Sabine River for the construction of
a water withdrawal intake to withdraw up to 6.3 million gallons of
water per day from the Sabine River for the purpose of creating an
impoundment outside the project boundary to provide a freshwater source
for nearby natural gas development. The water withdrawal is anticipated
to occur full-time for the first month to create the impoundment and
intermittently as needed afterwards for refill purposes. To facilitate
the withdrawal, the water intake facility, an access road easement, and
a combined water pipeline and overhead powerline easement would be
constructed within the project boundary.
    l. Locations of the Application: A copy of the application is
available for inspection and reproduction at the Commission's Public
Reference Room, located at 888 First Street NE., Room 2A, Washington,
DC 20426, or by calling<PHONE_NUMBER>. This filing may also be viewed
on the Commission's Web site 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. You may also
register online at http://www.ferc.gov/docs-filing/esubscription.asp to
be notified via email of new filings and issuances related to this or
other pending projects. For assistance, call 1-866-208-3676 or email
<EMAIL_ADDRESS>for TTY, call<PHONE_NUMBER>. A copy is
also available for inspection and reproduction at the address in item
(h) above. Agencies may obtain copies of the application directly from
the applicant.
    m. Individuals desiring to be included on the Commission's mailing
list should so indicate by writing to the Secretary of the Commission.
    n. Comments, Protests, or Motions to Intervene: Anyone may submit
comments, a protest, or a motion to intervene in accordance with the
requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211,
.214, respectively. In determining the appropriate action to take, the
Commission will consider all protests or other comments filed, but only
those who file a motion to intervene in accordance with the
Commission's Rules may become a party to the proceeding. Any comments,
protests, or motions to intervene must be received on or before the
specified comment date for the particular application.
    o. Filing and Service of Documents: Any filing must (1) bear in all
capital letters the title ``COMMENTS'', ``PROTEST'', or ``MOTION TO
INTERVENE'' as applicable; (2) set forth in the heading the name of the
applicant and the project number of the application to which the filing
responds; (3) furnish the name, address, and telephone number of the
person commenting, protesting or intervening; and (4) otherwise comply
with the requirements of 18 CFR 385.2001 through 385.2005. All
comments, motions to intervene, or protests must set forth their
evidentiary basis. Any filing made by an intervenor must be accompanied
by proof of service on all persons listed in the service list prepared
by the Commission in this proceeding, in accordance with 18 CFR
385.2010.

    Dated: April 6, 2017.
Kimberly D. Bose,
Secretary.
[FR Doc. 2017-07546 Filed 4-13-17; 8:45 am]
 BILLING CODE 6717-01-P


[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Page 88061]
[FR Doc No: 2023-27882]

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

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 2570-000]

Eagle Creek Racine Hydro, LLC; Notice of Authorization for
Continued Project Operation

    The license for the Racine Hydroelectric Project No. 2570 was
issued for a period ending November 30, 2023.
    Section 15(a)(1) of the FPA, 16 U.S.C. 808(a)(1), requires the
Commission, at the expiration of a license term, to issue from year-to-
year an annual license to the then licensee(s) under the terms and
conditions of the prior license until a new license is issued, or the
project is otherwise disposed of as provided in section 15 or any other
applicable section of the FPA. If the project's prior license waived
the applicability of section 15 of the FPA, then, based on section 9(b)
of the Administrative Procedure Act, 5 U.S.C. 558(c), and as set forth
at 18 CFR 16.21(a), if the licensee of such project has filed an
application for a subsequent license, the licensee may continue to
operate the project in accordance with the terms and conditions of the
license after the minor or minor part license expires, until the
Commission acts on its application. If the licensee of such a project
has not filed an application for a subsequent license, then it may be
required, pursuant to 18 CFR 16.21(b), to continue project operations
until the Commission issues someone else a license for the project or
otherwise orders disposition of the project.
    If the project is subject to section 15 of the FPA, notice is
hereby given that an annual license for Project No. 2570 is issued to
Eagle Creek Racine Hydro, LLC for a period effective December 1, 2023,
through November 30, 2024, or until the issuance of a new license for
the project or other disposition under the FPA, whichever comes first.
If issuance of a new license (or other disposition) does not take place
on or before November 30, 2024, notice is hereby given that, pursuant
to 18 CFR 16.18(c), an annual license under section 15(a)(1) of the FPA
is renewed automatically without further order or notice by the
Commission, unless the Commission orders otherwise.
    If the project is not subject to section 15 of the FPA, notice is
hereby given that Eagle Creek Racine Hydro, LLC is authorized to
continue operation of the Racine Hydroelectric Project under the terms
and conditions of the prior license until the issuance of a subsequent
license for the project or other disposition under the FPA, whichever
comes first.

    Dated: December 13, 2023.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2023-27882 Filed 12-19-23; 8:45 am]
BILLING CODE 6717-01-P