[Federal Register Volume 83, Number 175 (Monday, September 10, 2018)]
[Notices]
[Pages 45706-45720]
[FR Doc No: 2018-19501]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84021; File No. SR-OCC-2018-012]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Related to The Options
Clearing Corporation's Board of Directors and Board Committee Charters

September 4, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
August 24, 2018, The Options Clearing Corporation (``OCC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared primarily 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

    The proposed rule change by OCC concerns changes to its (1) Audit
Committee Charter, (2) Compensation and Performance Committee Charter,
(3) Governance and Nominating Committee Charter, (4) Risk Committee
Charter, (5) Technology Committee Charter and (6) Board of Directors
Charter in connection with requirements applicable to OCC under Rules
17Ad-22(e)(2) (Governance) and (3) (Framework for the Comprehensive
Management of Risks).\3\
---------------------------------------------------------------------------

    \3\ 17 CFR 240.17Ad-22(e)(2) and (3).
---------------------------------------------------------------------------

    The charters are attached as Exhibits 5A through F to the filing
[sic]. Material proposed to be added to the charters as currently in
effect is marked by double underlining and material proposed to be
deleted is marked by strikethrough text. The proposed rule change,
including Exhibits 5A through F, is available on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp. The proposed rule
change does not require any changes to the text of OCC's By-Laws or
Rules. All terms with initial capitalization that are not otherwise
defined herein have the same meaning as set forth in the OCC By-Laws
and Rules.\4\
---------------------------------------------------------------------------

    \4\ OCC's By-Laws and Rules can be found on OCC's public
website: http://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------

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

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

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

(1) Purpose
    The purpose of the proposed rule change is to make certain changes
to OCC's (1) Audit Committee (``AC'') Charter (``AC Charter''), (2)
Compensation and Performance Committee (``CPC'') Charter (``CPC
Charter''), (3) Governance and Nominating Committee (``GNC'') Charter
(``GNC Charter''), (4) Risk Committee (``RC'') Charter (``RC
Charter''), (5) Technology Committee (``TC'') Charter

(``TC Charter'') and (6) Board of Directors (``Board'') Charter
(``Board Charter'') \5\ for consistency with requirements that are
applicable to OCC under Rules 17Ad-22(e)(2) (Governance) and (3)
(Framework for the Comprehensive Management of Risks).\6\ As described
in greater detail below, the proposed changes are designed, in general,
to clarify and assign certain responsibilities for the governance and
oversight of OCC among the Board and its respective committees in order
to provide for governance arrangements that are clear and transparent
and that specify clear and direct lines of responsibility. In turn,
these changes would help ensure that OCC has governance arrangements
that are organized to support its ability to promptly and accurately
serve Clearing Members and the markets for which it clears and
effectively manage the range of risks that arise in the course of
providing such clearance and settlement services.
---------------------------------------------------------------------------

    \5\ As discussed below, the changes to the Board Charter would
involve incorporating provisions from OCC's Corporate Governance
Principles (``CGP'') and changing the title of the document to the
Board Charter and Corporate Governance Principles.
    \6\ 17 CFR 240.17Ad-22(e)(2) and (3).
---------------------------------------------------------------------------

Background
    On September 28, 2016, the Commission adopted amendments to Rule
17Ad-22 \7\ and added new Rule 17Ab2-2 \8\ pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended (``Exchange Act'' or
``Act''),\9\ and the Payment, Clearing, and Settlement Supervision Act
of 2010 \10\ 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) \11\ (collectively, the new and amended rules are
herein referred to as the ``CCA rules''). OCC meets the definition of a
covered clearing agency and is therefore subject to the requirements of
the CCA rules.\12\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786, 70812 (October 13, 2016) (``CCA Adopting
Release''); see also 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ab2-2.
    \9\ 15 U.S.C. 78q-1.
    \10\ 12 U.S.C. 5461 et seq.
    \11\ 17 CFR 240.17Ad-22(a)(5).
    \12\ Id.
---------------------------------------------------------------------------

Relevance of CCA Rules Regarding OCC Charters
    Certain of the CCA rules impose requirements regarding governance
arrangements and OCC's risk management framework that relate to its (1)
AC Charter, (2) CPC Charter, (3) GNC Charter, (4) RC Charter, (5) TC
Charter and (6) Board Charter. Specifically, Rules 17Ad-22(e)(2) and
(3) require OCC to, among other things, establish, implement, maintain,
and enforce written policies and procedures reasonably designed to, as
applicable:
     Provide for governance arrangements that are clear and
transparent; clearly prioritize safety and efficiency of the covered
clearing agency; support the public interest requirements in Section
17A of the Act \13\ and the objectives of owners and participants;
establish that the board of directors and senior management have
appropriate experience and skills to discharge their duties and
responsibilities; specify clear and direct lines of responsibility;
consider the interests of enumerated stakeholders;\14\ and
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(2). The public interest requirements
in Section 17A of the Act include that the ``prompt and accurate
clearance and settlement of securities transactions, including the
transfer of record ownership and the safeguarding of securities and
funds related thereto, are necessary for the protection of investors
and persons facilitating and acting on behalf of investors.'' See 15
U.S.C. 78q-1(a)(1)(A).
    \14\ See 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

     maintain 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 covered clearing agency.\15\
---------------------------------------------------------------------------

    \15\ See 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    OCC is proposing changes to its Board and Board committee charters
to better align its governance and risk management processes with these
requirements, including by shifting responsibility to the Board for
enterprise risk management and aligning committee responsibilities
accordingly. These changes are described below regarding each charter
and key aspects of the proposed changes are noted by bullets at the
beginning of each section. Many of the proposed changes are intended
only to reduce redundancy and better organize the content of the
charters and in some cases would remove provisions for readability in
light of the fact that they are not required. Therefore, OCC proposes
to relocate existing content and change word choices for readability
and to more clearly state what a committee is authorized to do or must
do, which OCC believes would not substantively alter the
responsibilities or activities of the relevant committee.\16\ Because
such changes would not change the operation or meaning of the charter
provisions, they are not further described herein. OCC also notes that
the Board Charter and committee charters are intended to set forth key
responsibilities, procedures, and guiding principles for the Board and
the committees. The charters therefore do not enumerate every action
that may be taken by the Board or committees, and OCC notes that its
By-Laws, Rules and policies also set forth certain duties and
responsibilities of the Board and committees (e.g., Sections 4
(Committees) and 8 (Power of the Board of Directors) of Article III of
OCC's By-Laws).
---------------------------------------------------------------------------

    \16\ The following are examples of such changes. All of the
charters would be amended to state that the Board or the relevant
committee will review the charter ``at least once every twelve
months'' instead of ``annually'' to provide further clarity around
the intended frequency. The statement in the TC Charter that the TC
``shall also have the authority to perform any other duties''
consistent with the TC Charter would be revised to provide that the
TC ``is authorized to perform any other duties'' consistent with the
TC Charter. The statement in the AC Charter that the committee shall
``approve material changes in accounting principles and practices''
would instead state that it ``is authorized to approve material
changes in accounting principles and practices.'' Consistent with
this change, where a charter currently states that the Board or a
committee ``shall approve'' a particular matter, certain changes are
proposed, as appropriate, to state instead that the Board or a
committee is ``authorized to approve.'' OCC believes such changes
properly clarify the oversight role of the Board and the committees
and that approval is not mandatory.
---------------------------------------------------------------------------

Common Changes
    Certain of the proposed changes represent common changes that would
be made in all or most of the charters.\17\ For instance, OCC proposes
to amend the charters to provide that in carrying out their
responsibilities the Board and the committees shall prioritize the
safety and efficiency of OCC, generally support the stability of the
broader financial system and consider legitimate interests of Clearing
Members, customers of Clearing Members and other relevant stakeholders,
including its Exchange Shareholders and other participant exchanges,
taking into account prudent risk management standards (including
systemic risk mitigation) and industry best practices, as is consistent
with Rules 17Ad-22(e)(2)(ii), (iii) and (vi).\18\ OCC also

proposes to amend the committee charters to address committee member
vacancies to provide that in the event of a vacancy, the applicable
committee will continue to undertake its responsibilities, so long as
the remaining committee members are capable of satisfying the quorum
requirement.\19\ In addition, to promote compliance with the
requirement in Rule 17Ad-22(e)(2)(v) \20\ that governance arrangements
provide for clear and direct lines of responsibility, OCC proposes to
amend all of the charters to specify that the Board and each committee
may delegate authority to one or more designated officers of OCC or may
refer a risk under its oversight to another committee or the Board as
advisable or appropriate. The proposed revisions would further provide,
however, that the Board or the committee would retain the obligation to
oversee any such delegation or referral and assure itself that
delegation and reliance on the work of any delegate is reasonable. OCC
also proposes amendments to acknowledge, where relevant, that its
Executive Chairman (``EC'') also serves as its Chief Executive Officer
(``CEO'') and therefore certain responsibilities and considerations
that currently apply to the EC would also apply regarding the CEO. All
charters would also be revised to state that a role of the Board or the
committee, as applicable, is to advise management. In addition,
committees would be required to submit their charters to the GNC for
potential approval in addition to submitting them to the Board in
connection with a required review once every twelve months of committee
charters, consistent with Rule 17Ad-22(e)(3)(i).\21\ Moreover,
consistent with Rules 17Ad-22(e)(2)(i) and (v) regarding the
establishment of governance arrangements that are clear and transparent
and that specify clear and direct lines of responsibility,\22\ changes
would be made to clarify that where the Board or a committee has
authority to approve reports or other proposals in its business
judgment, such as materials provided by management, it is not obligated
to approve, and related modifications would articulate a clear means of
recourse for the committee or the Board if it does not approve.\23\
---------------------------------------------------------------------------

    \17\ Certain variations on some of these changes that are
specific to the Board Charter are also described below in the
section addressing the Board Charter.
    \18\ See 17 CFR 240.17Ad-22(e)(2)(ii) (requiring governance
arrangements that prioritize the covered clearing agency's ``safety
and efficiency''), (e)(2)(iii) (requiring governance arrangements
that support the ``public interest requirements'' applicable to
covered clearing agencies), and (e)(2)(vi) (requiring governance
arrangements that consider the interests of all ``relevant
stakeholders'').
    \19\ This same change would not be added to the Board charter.
It would also not be added to the GNC Charter because it is already
addressed.
    \20\ 17 CFR 240.17Ad-22(e)(2)(v).
    \21\ See 17 CFR 240.17Ad-22(e)(3)(i) (requiring periodic review
and annual Board approval of the CCA's risk management framework).
    \22\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \23\ The purpose of these changes is to promote governance
arrangements that clearly prioritize the safety and efficiency of
OCC and specify clear and direct lines of responsibility in its
governance arrangements. See 17 CFR 240.17Ad-22(e)(2)(ii) and (v).
---------------------------------------------------------------------------

    The committee charters would also be amended to provide that each
committee shall perform and is authorized to perform such other
responsibilities and functions as shall from time to time be assigned
to it under the By-Laws and Rules, other policies, or delegated to it
by the Board.\24\ OCC also proposes to amend the committee charters to
provide that each committee shall perform any other duties consistent
with their respective charters as the committee deems necessary or
appropriate, or as the Board shall further delegate to the particular
committee.\25\ OCC believes that these changes will provide for
flexibility for each committee to supervise and account for matters
naturally within the scope of their responsibility or that may be
assigned to them by the Board. OCC believes these changes also promote
compliance with Rule 17Ad-22(e)(3) \26\ by establishing a sound risk
management framework to comprehensively manage the varying risks and
other matters each committee must manage and to effectively identify
new risks that may arise.
---------------------------------------------------------------------------

    \24\ OCC notes that a comparable provision to this exists in the
RC Charter.
    \25\ OCC notes that comparable language currently appears in the
AC Charter, GNC Charter, and TC Charter.
    \26\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    Finally, in order to the promote compliance with the requirement in
Rule 17Ad-22(e)(2)(i) \27\ that OCC's governance arrangements be clear
and transparent, OCC proposes to make a number of changes to its Board
committee charters to clarify that, where certain actions were required
to be performed ``annually'' under the charters, those actions would
now be required to occur ``each calendar year.'' OCC believes that it
is appropriate to make clear it in its rules actions which the Board or
a committee may be required to perform on an every twelve months-basis,
particularly in cases where a regulatory requirement exists (e.g., Risk
Committee requirement to review and have the authority to approve at
least once every twelve months the adequacy of OCC's Recovery and
Orderly Wind-Down Plan and recommend approval thereof to the Board) and
those which they would only be required to perform on a calendar year
basis. These changes include amending the committee charters to provide
that the following activities must occur on a calendar year basis: (i)
The appointment of directors to particular committees; (ii) that
committees meet regularly, and no less than once per calendar year,
with certain members of management in separate executive sessions;
(iii) that each committee must provide reports to the Board summarizing
its activities for the prior year; (iv) that each committee confirm to
the Board that all responsibilities outlined in its Charter have been
carried out; and (v) that each committee assess its and its individual
members' performance and provide results of such assessment to the GNC
\28\ for review.
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(2)(i).
    \28\ The GNC is required to provide the results of its own
assessment to the Board.
---------------------------------------------------------------------------

AC Charter
    OCC proposes modifications to its AC Charter. Key aspects of the
proposed changes regarding the AC Charter include:
     New responsibility for oversight of legal risks, including
existing, pending and threatened litigation;
     Transfer of the oversight of Clearing Member
investigations and enforcement matters to the RC;
     Increased oversight of OCC's compliance department,
including its structure, resources and budget; and
     Introduction of mandatory periodic reporting from OCC's
Chief Audit Executive (``CAE''), Chief Compliance Officer (``CCO'') and
General Counsel (``GC'').
    OCC proposes to amend the AC Charter to establish new
responsibilities for the AC that include reviewing the impact of
litigation and other legal matters that may have a material impact on
OCC's financial statements and overseeing the structure, independence
and objectivity, staffing, resources, and budget of OCC's compliance
and audit departments. OCC believes that it is appropriate to extend
these responsibilities to the AC since they are highly germane to its
current functions (e.g., assisting the Board in overseeing OCC's
financial reporting process, OCC's system of internal control, OCC's
auditing process, and OCC's process for monitoring compliance with
applicable laws and regulation) and would promote compliance with Rule
17Ad-22(e)(2)(v) \29\ by specifying clear and direct lines of
responsibility. In addition, the responsibility for the oversight of
Clearing Member investigations and enforcement would be transferred to
the RC as the RC has the required expertise to properly oversee the
process (as discussed further below). The AC Charter would also be

amended to clarify that the AC shall oversee the independence and
objectivity of the internal audit department, consistent with OCC's
obligations under Rules 17Ad-22(e)(3)(iii) and (iv) \30\ to provide
internal audit personnel with sufficient authority, resources,
independence from management, and access to the board of directors and
provide for oversight of internal audit personnel by an independent
audit committee of the board of directors. Under the proposed rule
change, the AC Charter would also be amended to provide that the AC is
authorized to approve deviations to the audit plan that may arise over
the course of an audit, which OCC believes is a natural extension of
the AC's role and responsibilities. In addition, OCC proposes to amend
the AC Charter to provide that the AC shall identify risk issues
relating to the areas that the committee oversees that should be
escalated to the Board for its review and consideration, which OCC
believes promotes compliance with Rule 17Ad-22(e)(2)(v) \31\ by
specifying clear and direct lines of responsibility.
---------------------------------------------------------------------------

    \29\ 17 CFR 240.17Ad-22(e)(2)(v).
    \30\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \31\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    OCC also proposes to amend the AC Charter to provide that certain
mandatory reports be sent to the AC for review, including quarterly
reports from the CAE regarding the internal audit plan and the GC
regarding existing, pending, or threatened litigation.\32\ OCC notes
that either the AC or another committee already has responsibilities in
these areas and OCC believes that such quarterly reports will help
provide the AC with the necessary information to appropriately
discharge its duties and responsibilities.\33\
---------------------------------------------------------------------------

    \32\ OCC proposes certain other streamlining changes to the AC
Charter, such as providing that the AC will review OCC's Reporting
Concerns and Whistleblower Policy (and specifying that such review
will occur each calendar year) rather than providing a more detailed
description of what the reporting concerns and whistleblower
procedures under the relevant policy entail.
    \33\ OCC also believes that these quarterly reports to the AC
help specify clear and direct lines of responsibility in OCC's
governance arrangements by ensuring that these officers keep the AC
apprised of OCC's ongoing performance or handling of these matters,
which in turn will allow the AC to more effectively carry out its
oversight functions and the responsibilities associated therewith.
See 17 CFR 240.17Ad-22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

    OCC also proposes to streamline its description of the AC's
responsibility with respect to its compliance department by providing
more generally that the AC shall review ongoing compliance monitoring
activities by reviewing reports and other communications prepared by
the CCO and inquire of management regarding steps taken to deal with
items raised. As a result of this change, the AC Charter would no
longer specify that the AC is responsible for approving the annual
Compliance Testing Plan, monitoring progress against the annual
Compliance Testing Plan, and approving any recommendations by the CCO
relating to that plan. The purpose of this change is to shift OCC's
compliance department to a monitoring role and away from its historic
role of creating a specific plan to follow. This change would also help
facilitate the transition of validation responsibilities to OCC's
internal audit department, over which the compliance department would
have monitoring responsibilities. OCC believes that this change
promotes governance arrangements that are clear and transparent in
accordance with Rule 17Ad-22(e)(2)(i).\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------

    In a number of instances, OCC proposes to amend the AC charter to
provide that the AC is authorized to perform certain functions. For
example, OCC proposes to amend the AC charter to provide that the AC is
authorized to approve management's recommendation to appoint or replace
the CCO or CAE, which is a governance arrangement that OCC believes is
consistent with Rules 17Ad-22(e)(3)(iii) and (iv) \35\ in that it
furthers the AC's oversight of the CCO and CAE and their independence
from management.\36\ OCC believes that framing the AC's
responsibilities in this manner would provide appropriate flexibility
for the committee to carry out its oversight and advisory
responsibilities using its business judgment. OCC also proposes to
amend the AC Charter (and the RC Charter) to transfer responsibility
for reviewing the investigation and enforcement outcomes of
disciplinary actions taken by OCC against Clearing Members from the AC
to the RC. OCC believes that the RC is appropriately situated to review
disciplinary actions against Clearing Members given its broader role in
overseeing OCC's management of third party risks, (which includes OCC
counterparties such as Clearing Members).
---------------------------------------------------------------------------

    \35\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \36\ OCC similarly proposes to amend the AC charter to provide
that the AC is authorized to approve OCC's audited financial
statements after review, is authorized to oversee the timing and
process for implementing a rotation of the engagement partner of the
external auditor, and is authorized to discuss certain significant
issues with the external auditor.
---------------------------------------------------------------------------

    OCC proposes to further amend the AC Charter to provide that the AC
shall review the effectiveness of the internal audit function,
including conformance with the Institute of Internal Auditor's Code of
Ethics and the International Standards for Professional Practice of
Internal Auditing. OCC believes that this is a natural extension of the
AC's role and responsibility to help ensure the integrity of OCC's
audits and is consistent with the public interest and the protection of
investors.\37\
---------------------------------------------------------------------------

    \37\ See 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    In addition, the AC Charter currently provides that the AC is
authorized to determine appropriate compensation for audit services and
pre-approve all audit services, subject to annual approval by the
Board. As proposed, the AC charter would no longer expressly require
annual Board approval regarding these items. However, under the AC
Charter the committee would still be required to confirm annually to
the Board that all of its responsibilities have been carried out and
provide an annual report to the Board summarizing its activities during
the previous year, consistent with Rules 17Ad-22(e)(2)(v) and 17Ad-
22(e)(3)(i) and (iii).\38\ OCC also proposes to amend the AC Charter to
provide that, in addition to the CAE and CCO, the Chief Financial
Officer (``CFO'') also would be authorized to communicate directly with
the Chair of the AC with respect to any of the responsibilities of the
AC between meetings of the AC given the CFO's role as part of OCC's
executive team and his/her responsibility for OCC finances.\39\
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.17Ad-22(e)(2)(v) (requiring governance
arrangements with clear and direct lines of responsibility),
(e)(3)(i) (requiring periodic review and annual Board approval of
risk management policies, procedures and systems) and (e)(3)(iii)
(requiring a risk management framework that provides internal audit
personnel with sufficient authority, but also access to the Board).
    \39\ As described below, OCC also proposes certain other non-
substantive changes to the AC Charter to provide additional clarity.
For example, OCC proposes to replace reference to ``financial and
senior management'' to OCC's ``Corporate Finance Department'' in
describing the AC's responsibility to facilitate open communication
between external auditors and certain groups within OCC. As an
additional example, the AC Charter would be amended to provide that
the AC is authorized to approve the ``issuance of the annual
financial'' statements after its review of such statements.
Similarly, OCC proposes to enhance certain descriptions of the AC's
responsibilities. For example, OCC proposes to revise text
describing the role of the AC, along with external auditors, as
responsible for ``planning and carrying out audit work, as
appropriate'' rather than ``planning and carrying out a proper
audit.'' OCC's description of the AC's power to delegate to the CAE
``within the external audit limits'' would be changed for accuracy
to read ``within the co-sourced audit hour limits.'' This change is
meant to reflect the fact that OCC co-sources its internal audit
function through a partnership between OCC's in-house internal audit
department and a third party internal audit service provider.

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

CPC Charter
    OCC proposes a number of revisions to its CPC Charter, the key
aspects of which would include:
     New responsibility to oversee and monitor certain
activities of OCC's Administrative Committee, including the approval of
the Administrative Committee's charter and changes thereto, and
approval of the members of the Administrative Committee;
     Introduction of mandatory quarterly reporting on OCC's
corporate plan, corporate budget and capital plan; and
     Annual requirement to review succession planning
activities regarding OCC's Management Committee (``Management
Committee'').
    OCC proposes to amend the CPC Charter to state that the CPC assists
the Board in overseeing risks related to OCC's general business,
regulatory capital, investments, corporate planning, compensation and
human capital in addition to assisting the Board in executive
management succession planning and performance assessments. The
existing CPC Charter already addresses these aspects of the committee's
responsibilities generally. The proposed revisions are designed to
emphasize the committee's responsibility to help the Board oversee such
risks and to clarify that the committee has an oversight role while it
remains OCC management's responsibility to identify, manage, monitor
and report the associated risks, as is consistent with the Rule 17Ad-
22(e)(3)(i) requirement that risk management policies, procedures and
systems be subject to periodic review and annual approval by the Board
\40\ and the Rule 17Ad-22(e)(2)(v) requirement that governance
arrangement ``specify clear and direct lines of responsibility.'' \41\
---------------------------------------------------------------------------

    \40\ 17 CFR 240.17Ad-22(e)(3)(i).
    \41\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    The CPC Charter would continue to provide that the committee
oversees the corporate plan and corporate budget and makes
recommendations to the Board regarding their approval. However, the
proposed changes would clarify that the corporate plan and budget are
annual arrangements and that the committee oversees their alignment
with OCC's business strategy. In addition, a new provision would
require management to provide a quarterly report to the committee that
contains information on OCC's performance against the corporate plan
and the budget.\42\
---------------------------------------------------------------------------

    \42\ OCC believes that quarterly reporting by management to the
CPC, as described in this discussion of the CPC Charter, helps
specify clear and direct lines of responsibility in OCC's governance
arrangements by ensuring that management keeps the CPC apprised of
OCC's ongoing performance on these matters, which in turn will allow
the CPC to more effectively carry out its oversight functions and
the responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

    The CPC Charter would continue to provide that the committee
oversees OCC's capital plan and would be revised to clarify that this
oversight includes the written policies adopted thereunder, which
include OCC's fee, dividend and refund policies (which are existing
responsibilities of the CPC). Revisions also would clarify that the
committee must review the capital plan at least once every twelve
months and that the committee makes recommendations to the Board
concerning capital requirements, refund payments, and dividend
payments. In addition, a provision would be added to require management
to provide a quarterly performance report to the committee against the
capital plan.
    OCC proposes to revise the CPC Charter to provide that the
Committee would oversee and monitor the activities of OCC's
Administrative Committee, including the approval of the Administrative
Committee's charter and changes thereto and of the members of the
Administrative Committee. OCC believes that these allocations of
responsibility are appropriate given the CPC's current oversight of the
Administrative Committee, whereby the CPC is responsible for, among
other things, appointing members of the Administrative Committee and
overseeing and monitoring the activities of the Administrative
Committee with respect to retirement and retirement savings plans.
    In addition, OCC proposes changes to clarify the role that the
committee plays in oversight of succession planning regarding OCC's
Management Committee. A new provision would also provide that the
committee must review the results of Management Committee succession
planning activities at least once every twelve months.
    Regarding the committee's review of Public Director compensation
and the recommendations that it provides to the Board related thereto,
a requirement would be added to the CPC Charter for the committee to
engage in these activities not less than once every two years. OCC
believes that a two year period is appropriate for such a review
because the overall trends in industry compensation generally do not
change dramatically from year to year. The CPC would continue to look
at overall Public Director compensation each year for informational
purposes, but it would not be required to perform a full review of each
of the components of Public Director compensation packages and
recommend adjustments to the Board on a yearly basis.
    The CPC Charter would also be amended to clarify that that
committee is not authorized to adopt or amend compensation, retirement
and welfare benefit plans that require Board approval and to add a new
requirement that the committee must review OCC's insurance program at
least once every twelve months.
    Certain specific responsibilities stated in the CPC Charter would
be removed in favor of a more general statement that the committee is
required to perform activities consistent with the CPC Charter as it
deems necessary or appropriate or as are delegated to the committee by
the Board, furthering the purposes of the Rule 17Ad-22(e)(2)(v)
requirement that a covered clearing agency's governance arrangements
specify clear and direct lines of responsibility.\43\ For example, an
existing provision would be removed that states that the committee
reviews special financial matters as requested by the Board. Provisions
would also be removed that specifically address the committee's review
and approval of policies and programs regarding salary compensation and
incentive compensation and its review of material changes to executive
management benefits.
---------------------------------------------------------------------------

    \43\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

GNC Charter

    OCC also proposes changes to its GNC Charter. The key aspects of
the proposed changes regarding the GNC Charter include:
     New responsibility for review and approval of related
party transactions; and
     New responsibility for advising on matters pertaining to
director leadership development and succession planning.
    OCC proposes to amend the GNC Charter to establish new
responsibilities for the GNC to approve all material changes to written
policies concerning related party transactions and recommend such
changes to the Board for approval. The GNC Charter would also be
amended to provide that the GNC shall review and, if appropriate,
approve or ratify any related party transactions involving OCC in
accordance with the written policy governing such transactions. Because
the GNC is already responsible for the review of conflicts of interests
of directors and the manner in which such conflicts will be monitored
and

resolved, OCC believes that it is appropriate for the GNC to assume the
additional responsibility of reviewing related party transactions. OCC
also believes that it would be appropriate for the GNC to advise the
Board on matters pertaining to director leadership and development to
promote compliance with the Rule 17Ad-22(e)(2)(iv) \44\ requirement
that OCC's governance arrangements establish that Board directors have
appropriate experience and skills to discharge their duties and
responsibilities.\45\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \45\ OCC also proposes to reframe the introductory paragraph of
the GNC charter to explicitly reference relevant provisions of Rule
17Ad-22(e)(2) and specify that the GNC is responsible for assessing
the clarity and transparency of OCC's governance arrangements,
consistent with Rule 17Ad-22(e)(2)(i). See 17 CFR 240.17Ad-
22(e)(2)(i).
---------------------------------------------------------------------------

    OCC also proposes a number of other changes to the GNC charter,
which include: (i) Reframing the GNC's responsibilities with respect to
ensuring that directors are appropriately qualified,\46\ (ii) removing
the ability for a designee of the chair of the GNC to call an
additional meeting beyond the four times per year that the GNC will
meet,\47\ (iii) specifying that the GNC shall review the composition of
the Board for consistency with public interest and regulatory
requirements at least every three years rather than periodically,\48\
(iv) expanding the GNC's yearly review of the Board Charter for
consistency with the public interest and other regulatory requirements
to also include a review of the charters of the Board committees,\49\
(v) specifying that the GNC shall identify risk issues that should be
escalated to the Board for its review and consideration, and (vi)
providing that the GNC shall annually review and advise the Board with
regard to whether directors are independent as defined by the Board. In
addition, OCC proposes to revise the GNC charter to no longer provide
that the GNC is responsible for recommending to the Board candidates
for nomination for election or re-election by the stockholders and any
Board vacancies that are to be filled by the Board. The requirement
that the GNC nominate candidates is provided explicitly in the By-Laws,
and OCC further believes that this responsibility is adequately
captured in OCC's revised description of the GNC's role to identify,
screen, and review individuals qualified to be elected or appointed to
serve as Member Directors or Public Directors.\50\
---------------------------------------------------------------------------

    \46\ For example, rather than providing that the GNC would work
toward developing a Board with a broad spectrum of experience and
expertise, OCC proposes to provide that the GNC shall identify, for
purposes of making recommendations to the Board, the criteria,
skills, experience, expertise, attributes and professional
backgrounds (collectively, the ``Standards'') desirable in directors
to ensure the Board is able to discharge its duties and
responsibilities. In this same vein, OCC proposes to delete language
providing that the GNC is responsible for recommending to the Board
for approval and overseeing the implementation and effectiveness of
OCC's policies and procedures for identifying and reviewing Board
nominee candidates, including the criteria for Board nominees. OCC
believes that this deletion is appropriate because it is adequately
covered by the other provisions in the GNC charter regarding
directors' qualifications, as revised, and contemplates that the
Standards are approved by the Board. These changes are designed to
be consistent with Rule 17Ad-22(e)(2)(iv) (regarding the
establishment of governance arrangements that ensure ``board of
directors and senior management have appropriate experience and
skills to discharge their duties and responsibilities''). See 17 CFR
240.17Ad-22(e)(2)(iv).
    \47\ OCC believes this change would help ensure that the
committee's time and resources would be utilized appropriately,
furthering the purpose of Rule 17Ad-22(e)(2)(ii) requiring that a
covered clearing agency's governance arrangements prioritize the
``efficiency'' of the covered clearing agency. See 17 CFR 240.17Ad-
22(e)(2)(ii).
    \48\ This is intended to be consistent with 17 CFR 17Ad-
22(e)(2)(iii) (requiring governance arrangements that support the
``public interest requirements'' in 17 U.S.C. 78q-1).
    \49\ Id.
    \50\ See OCC By-Law Article III, Sections 5 and 6A. OCC proposes
to specify in the GNC Charter that the GNC's role in this context
applies specifically to Public Directors and Member Directors to
promote consistency with the By-Laws.
---------------------------------------------------------------------------

RC Charter
    OCC also proposes a number of changes to its RC Charter. The key
aspects of the proposed changes regarding the RC Charter include:
     Transition of responsibilities regarding Enterprise Risk
Management (``ERM'') to the Board;
     Increased responsibilities with respect to OCC's risk
management related to credit, collateral, liquidity and third party
risks;
     Transfer of the oversight of Clearing Member
investigations and enforcement matters to the RC; and
     Introduction of mandatory periodic reporting on the
effectiveness of OCC's management of risks.
    OCC proposes to amend the RC Charter's statement of the committee's
responsibilities. First, the RC Charter currently provides that the RC
assists the Board in overseeing OCC's policies and processes for
identifying and addressing strategic, operational and financial (e.g.,
credit, market, liquidity and systemic) risks. This would be replaced
by a narrower and more specific statement that the RC would have
responsibility for assisting the Board in its oversight of financial,
collateral, risk model and third party risk management processes.\51\
In addition, the oversight of responsibility for Clearing Member
investigations and enforcement outcomes of disciplinary actions would
be transferred from the AC to the RC as the RC has the required
expertise to properly oversee the process given its current
responsibility for overseeing the framework for Clearing Membership,
including (i) periodically reviewing and revising, as appropriate,
OCC's initial and ongoing requirements for Clearing Membership, (ii)
overseeing the processes established for reviewing and monitoring
Clearing Membership (including in respect of the continuance of
potentially problematic members), and (iii) making recommendations to
the Board, as applicable, for final determinations in respect of the
foregoing.
---------------------------------------------------------------------------

    \51\ The RC Charter currently provides that the committee is
responsible for overseeing OCC's overall ERM framework, including
``reviewing material policies and processes relating to (i)
membership criteria and financial safeguards, (ii) member and other
counterparty risk exposure assessments, (iii) liquidity requirements
and maintenance of financial resources, (iv) risk modeling and
assessments, (v) default management planning, and (vi) risks related
to new initiatives.'' As described in greater detail below, the
revised descriptions in the RC Charter regarding its oversight of
these areas would continue to involve responsibilities related to
credit, market, liquidity and systemic risk but would no longer
include responsibility for overseeing those aspects related to the
ERM program. The committee would also continue to be responsible for
identifying risks associated with its responsibilities that should
be escalated to the Board for its review and consideration.
---------------------------------------------------------------------------

    The committee would also continue to be responsible for functions
delegated to it under the By-Laws and Rules and as may be delegated to
it by the Board. A removal of continued responsibility for strategic
and operational risks would be consistent with additional changes to
the RC Charter that provide that the RC would no longer have
responsibilities related to the ERM program and such responsibilities
would be transitioned to the Board (which is discussed in further
detail below). OCC believes that these changes are appropriate because
issues regarding enterprise risk management are central to OCC's
comprehensive management of risk and would therefore benefit from the
experience and attention of the full Board.
    Corresponding changes would also be made to clarify that the
committee has an oversight role regarding its responsibilities and that
it remains OCC management's responsibility to identify, manage, monitor
and report risks in these areas.
    A clarifying statement would also be added to the RC Charter to
state that the RC is required to perform its responsibilities in
accordance with the provisions of the RC Charter and applicable
regulatory requirements. A

new provision would provide that, from time to time, the committee may
receive reports and guidance relating to financial risk issues from,
among others, OCC's Financial Risk Advisory Council (``FRAC''). The
committee would consider and discuss such reports in respect of
financial risk issues that may impact the options and futures
industries. The committee would take such guidance into account in the
exercise of its fiduciary judgment and the performance of its functions
and responsibilities.
    Regarding meetings of the RC, a change would be made to the RC
Charter to specify that joint meetings with other Board committees
count toward the requirement to meet at least six times a year. A
change would also clarify that in-person attendance of meetings is
preferred.
    In connection with the RC no longer having responsibilities
regarding the ERM program, several related provisions would be removed
from the RC Charter. For example, the committee would no longer have
responsibility to oversee the structure, staffing and resources of the
ERM program or approve its goals and objectives on an annual basis.
Additionally, it would no longer be responsible for reviewing OCC's
risk appetite statements and risk tolerances because the Board would
assume responsibility for approval of these matters.
    As noted, the proposed changes to the RC Charter would clarify the
RC's broad responsibilities for overseeing credit, collateral,
liquidity and third party risks in a manner consistent with the Rule
17Ad-22(e)(3)(iii) and (iv) requirements that risk management personnel
be provided with sufficient authority, resources, independence, and
access to the board of directors, as well as a direct reporting line to
and oversight by the RC, and with the Rule 17 Ad-22(e)(2)(v)
requirement that OCC's governance arrangements specify clear and direct
lines of responsibility.\52\ The RC Charter currently contains
provisions that address the responsibility that the committee has for
these areas, but they would be removed in favor of the more specific
provisions described below. At least once every twelve months the
committee would be required to review the adequacy of OCC's management
of credit, collateral, liquidity, and third party risks. In connection
with these responsibilities, the RC would receive monthly reports from
OCC management regarding the effectiveness of OCC's management of
credit exposures \53\ and liquidity risks.\54\ Management would also
provide the committee with quarterly reports regarding the
effectiveness of OCC's management of collateral and third party
risks.\55\ And, the RC would also be responsible for approval of all
material changes to written policies regarding risk management in these
areas and recommending such changes to the Board, consistent with the
Rule 17Ad-22(e)(3)(i) requirement that a covered clearing agency's risk
management policies, procedures and systems be subject to periodic
review and annual approval by the Board.\56\
---------------------------------------------------------------------------

    \52\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(iii) and (iv).
    \53\ For example, the report regarding the effectiveness of the
management of credit exposures would include the results of: (i) A
comprehensive analysis of OCC's existing stress testing scenarios,
models and underlying parameters and assumptions, and (ii) a
sensitivity analysis of OCC's margin models and a review of the
associated parameters and assumptions for back testing.
    \54\ The committee would also be required to review the adequacy
of OCC's secured committed liquidity facilities at least once every
twelve months and recommend the size and composition of such
facilities to the Board for approval.
    \55\ OCC believes that this quarterly reporting helps specify
clear and direct lines of responsibility in OCC's governance
arrangements by ensuring that management keeps the RC apprised of
OCC's ongoing performance on these matters, which in turn will allow
the RC to more effectively carry out its oversight functions and the
responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
    \56\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    The RC Charter would continue to provide that the committee has
responsibility regarding OCC's risk models, including margin models,
but it would be revised to more specifically identify the committee's
oversight role regarding model validations,\57\ its responsibility for
approving any material changes to written policies regarding model risk
management, and for recommending any such change to the Board,
consistent with the Rule 17Ad-22(e)(3)(i) requirement that a covered
clearing agency's risk management policies, procedures and systems be
subject to periodic review and annual approval by the Board.\58\
---------------------------------------------------------------------------

    \57\ This would include the review and approval of OCC's risk
model validation plan, plan deviations, and related reports and
recommendations by OCC's Chief Risk Officer (``CRO'').
    \58\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    Responsibilities would also be made explicit in connection with the
review and approval of any new products that materially impact OCC's
established risk profile or introduce novel or unique financial, risk
model and third party risks. The RC would refer any such new products
that it approves to the Board for its potential approval.
    The RC Charter would also be amended to codify the committee's
existing responsibility to oversee OCC's Recovery and Orderly Wind-down
Plan, consistent with the requirement in Rule 17Ad-22(e)(3)(ii).\59\ At
least once every twelve months, this would include reviewing the
adequacy of the plan. If the committee approves the plan, it would next
recommend the plan to the Board for potential Board approval. The
committee would also have responsibility for reviewing and approving
any material changes to the plan; however, in the event the committee
approves any such changes, it would in turn recommend the changes to
the Board for its potential approval.\60\
---------------------------------------------------------------------------

    \59\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \60\ In relevant part, the RC Charter states the following.
``The Committee shall review and have the authority to approve at
least once every twelve months the adequacy of OCC's Recovery and
Orderly Wind-Down Plan and recommend approval thereof to the Board.
The Committee shall have the authority to approve all material
changes to the Recovery and Orderly Wind-Down Plan and recommend
such changes to the Board.''
---------------------------------------------------------------------------

    The committee would continue to have responsibility regarding the
structure and staffing of OCC's financial risk management group;
however, detail would be added to the RC Charter to clarify the same
responsibility for OCC's corporate risk management functions and that
the RC must review structure and staffing in these areas at least once
every twelve months. A provision would also be added to provide that
the committee would review and approve the CRO's goals and objectives,
and any material changes thereto, at least once every twelve months.
OCC believes these changes are consistent with the Rule 17Ad-
22(e)(3)(iv) requirement that the RC provide oversight of risk
management personnel,\61\ as well as the Rule 17Ad-22(e)(2)(v)
requirement that a covered clearing agency's governance arrangements
provide for clear and direct lines of responsibility.\62\
---------------------------------------------------------------------------

    \61\ 17 CFR 240.17Ad-22(e)(3)(iv).
    \62\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    As noted above, OCC also proposes to amend the RC Charter to
transfer responsibility for reviewing the investigation and enforcement
outcomes of disciplinary actions taken by OCC against Clearing Members
from the AC to the RC. OCC believes that the RC is appropriately
situated to review disciplinary actions against Clearing Members given
the committee's broader role in overseeing OCC's management of third
party risks, which includes OCC counterparties such as Clearing
Members. Finally, the RC Charter would continue to provide that the RC
reviews the results of internal and external audits and regulatory
examinations. However, a statement would be added

to clarify that the committee is responsible for reviewing third party
assessment reports as to financial, collateral, risk model and third
party risk management processes and for reviewing OCC management's
remediation efforts pertaining to any such examination and reports.
TC Charter
    In addition, OCC proposes a number of changes to its TC Charter.
Key aspects of the proposed changes regarding the TC Charter include:
     New responsibility for oversight of material changes to
the operational execution and delivery of core clearing and settlement
services with the authority to recommend approval thereof to the Board;
     New responsibility for OCC's operational initiatives,
including approving major information technology (``IT'') and
operational initiatives, recommending any major capital expenditures to
implement to the Board, and approving the information technology and
operational budget for each calendar year;
     New responsibility to review at least every twelve months
the adequacy of OCC's management of information security risks, approve
all material changes to written polices related to the managing
information security risks and recommend such changes to the Board;
     Introduction of mandatory periodic reporting from
management on major IT initiatives;\63\ and
---------------------------------------------------------------------------

    \63\ OCC proposes that the TC would oversee and receive
quarterly reports from management that provide information on: (i)
Executing on major IT initiatives, technology architecture decisions
(as applicable) and IT priorities as well as overall IT performance;
(ii) the effectiveness of the management of information security
risks; (iii) OCC's Business Continuity and Disaster Recovery
Programs, including the progress on executing the annual test plan
and achieving recovery time objectives; and (iv) major operational
initiatives and metrics on the effectiveness of OCC's operations
with reference to key indicators. OCC believes that such reports
would provide the TC with the necessary information to discharge its
oversight duties and responsibilities appropriately and will
facilitate dialogue between the TC and OCC's senior IT management
team. OCC believes that this reporting also helps specify clear and
direct lines of responsibility in OCC's governance arrangements by
ensuring that management keeps the TC apprised of OCC's ongoing
performance on these matters, which in turn will allow the TC to
more effectively carry out its oversight functions and the
responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

     New responsibility to oversee and receive a quarterly
report from management on OCC's Business Continuity and Disaster
Recovery Programs.
    OCC proposes to amend the TC Charter to specify clear and direct
lines of responsibility that provide that the TC's role is one of
oversight and that it remains the responsibility of OCC management to
identify, manage, monitor and report on IT and other operational risks
arising from OCC's business activities, consistent with Rule 17Ad-
22(e)(2)(v).\64\ In addition, OCC proposes to amend the TC Charter so
that it would no longer require that the TC work with or report to the
AC and RC to monitor the quality and effectiveness of IT systems and
processes that relate to or affect OCC's internal control systems and
risk management systems. As noted above in the discussion of common
changes to the charters, however, the TC and any other committee or the
Board would have certain authority to refer risks under their oversight
to promote the smooth functioning of OCC's governance arrangements. OCC
also proposes to revise the TC Charter to remove specific references to
the committee's oversight of OCC's physical security and instead more
accurately describe the committee's responsibility for overseeing the
adequacy of OCC's management of information security risks (which
generally includes oversight of the confidentiality, integrity, and
availability of OCC data; the security of the information systems used
to process, transmit, and store OCC information; and the physical,
personnel, procedural, administrative, and environment security
disciplines).
---------------------------------------------------------------------------

    \64\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    The TC Charter would continue to provide that the TC is responsible
for assisting the Board in overseeing OCC's IT strategy and other
company-wide operational capabilities. OCC proposes, however, to delete
certain general statements regarding the TC's duty to make
recommendations to the Board with respect to IT-related projects and
investments and critically review the progress of such projects and/or
technology architecture decisions. OCC proposes to replace these
general statements with more specific duties of the TC to, for example,
receive a report on management's progress in executing on major IT
initiatives, technology architecture decisions (as applicable) and IT
priority, and review material changes to the operational execution and
delivery of core clearing and settlement services as well as material
changes to written policies concerning information security risk and to
recommend such changes to the Board for approval.\65\
---------------------------------------------------------------------------

    \65\ OCC proposes similar changes to the TC Charter with respect
to certain responsibilities of the TC. For example, OCC proposes to
reframe the TC's responsibility to monitor and assess OCC's
management of IT-related compliance risks as a responsibility to
monitor and oversee the overall adequacy of OCC's IT and operational
control environment, including the implementation of key controls in
response to regulatory requirements.
---------------------------------------------------------------------------

    OCC also proposes to remove the language stating that the TC will
``periodically review and appraise . . . OCC's crisis management
plans,'' and, instead, add language that the TC will oversee and
receive a quarterly report on ``OCC's Business Continuity and Disaster
Recovery Programs'' as the crisis management plans are incorporated
within its Business Continuity and Disaster Recovery Programs. As such,
the proposed revision will better clarify the full oversight
responsibility of the committee and better align with the internal
practices at OCC.
    In addition, OCC proposes to amend the TC Charter to provide that
the TC shall identify risk issues relating to areas that the TC
oversees that should be escalated to the Board for its review and
consideration. OCC believes that this change promotes compliance with
the Rule 17Ad-22(e)(3) requirement to maintain a sound risk management
framework for comprehensively managing risks that arise in or are borne
by OCC by charging the TC with the task of identifying emerging risks
that may arise over time.\66\
---------------------------------------------------------------------------

    \66\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Board Charter
    As discussed above, OCC would amend its Board Charter by
incorporating its existing CGP and retiring the separate CGP document.
The title of the consolidated document would be changed to reflect that
it represents OCC's ``Board of Directors Charter and Corporate
Governance Principles.'' Both the Board Charter and CGP are publicly
available on OCC's website today.\67\ OCC believes this step is
appropriate to eliminate significant overlap between the contents of
the two existing documents and thereby make the consolidated provisions
in the Board Charter easier for Clearing Members and other OCC
stakeholders to access, use and understand, and thereby further the
purposes of Rule 17Ad-22(e)(2)(i) by improving the clarity and
transparency of OCC's governance arrangements.\68\ For example, the
existing CGP and Board Charter each address aspects of the Board such
as its size and composition. In addition, the Board Charter and CGP
also cross-reference one another, such as regarding

qualification standards for directors, term limitations, the number of
meetings per year and the Board's authority to hire specialists and
advisors, which reduces clarity because it requires a reader to turn
between the two documents to understand the Board's operation. In
incorporating the CGP within the proposed Board Charter, OCC would make
changes to the contents of the CGP, as appropriate, to conform the
existing provisions to the structure and organization of the Board
Charter and related requirements in the By-Laws and Rules.\69\ However,
the majority of the provisions in the CGP would be incorporated in
their existing form and these provisions would address in the Board
Charter, for example, the size of the Board and its composition,
membership criteria, appointment of the GNC, the selection of Member,
Public, Exchange and Management Directors, conduct matters, ethics and
conflicts of interest, compensation, access to senior management, and
Board and Board committee evaluations.
---------------------------------------------------------------------------

    \67\ OCC's CGP and Board Charter are available at http://www.theocc.com/about/corporate-information/what-is-occ.jsp.
    \68\ 17 CFR 240.17Ad-22(e)(2)(i).
    \69\ For example, the CGP provides in one instance that all
materials for Board meetings are made available online by the office
of the secretary. This particular provision in the CGP would not be
imported and the Board Charter would be amended to provide that OCC
operates a portal for the general dissemination of meeting and other
written materials to directors to reflect how OCC actually operates.
In addition, OCC proposes to make clear that Public Directors do not
have term limits, consistent with the requirements in Article III,
Section 6 of the OCC By-Laws.
---------------------------------------------------------------------------

    As a result of these incorporated provisions, OCC proposes to
remove certain existing provisions in the Board Charter that
specifically reference or are duplicative of more comprehensive
descriptions from the CGP or where the imported text from the CGP
otherwise covers the more truncated discussions of these items in the
Board Charter. Specifically, OCC's discussions in the Board Charter
would be supplanted by more detailed explanations drawn from the CGP
with respect to: (i) Board composition; (ii) qualification standards
for directors; (iii) election of directors, resignation and
disqualification; (iv) tenure, term and age limitations; and (v)
calling of Board meetings, selection of agenda items, and attendance.
    OCC also proposes to amend the Board Charter to set forth certain
key considerations and responsibilities in the Board Charter consistent
with Rule 17Ad-22 that include and expand upon those described above in
connection with the discussion of proposed changes that are common to
the charters.\70\ These include providing that the Board shall exercise
its authority to provide for governance arrangements that, among other
things, ``support [applicable] public interest requirements . . . and
the objectives of owners and participants,'' \71\ establish that the
Board and senior management ``have appropriate experience and skills to
discharge their duties and responsibilities,'' \72\ specify ``clear and
direct lines of responsibility'' \73\ and consider the interests of
Clearing Members' customers.\74\ OCC also proposes changes designed to
provide for ``clear and direct lines of responsibility'' \75\ by noting
that the Board has explicitly delegated management of specific risks to
the Board committees and to the extent a specific risk is not retained
by the Board or otherwise assigned to a Board committee, such risk
shall be overseen by the RC.\76\
---------------------------------------------------------------------------

    \70\ See supra notes 16-18 and accompanying text.
    \71\ 17 CFR 240.17Ad-22(e)(2)(iii).
    \72\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \73\ 17 CFR 240.17Ad-22(e)(2)(v).
    \74\ OCC would also provide as a guiding principle that the
Board is, among other things, mindful of the public interest as it
fulfills its duties by complying with the obligations imposed on it
under relevant law and that it discloses major decisions to relevant
stakeholders and the public. 17 CFR 240.17Ad-22(e)(2)(iii).
    \75\ 17 CFR 240.17Ad-22(e)(2)(v).
    \76\ The amended Board Charter would further specify that the
Board may form and delegate authority to committees and may delegate
authority to one or more of its members and to one or more
designated officers of OCC but would note that the Board would
retain the obligation to oversee any such delegation or referral and
assure itself that delegation and reliance on the work of any
delegate is reasonable. Specifying this delegation in the Board
Charter is consistent with the requirement in Rule 17Ad-22(e)(2)(v)
that a covered clearing agency's governance arrangements specify
clear and direct lines of responsibility. See 17 CFR 240.17Ad-
22(e)(2)(v).
---------------------------------------------------------------------------

    Currently, the Board Charter sets forth a number of functions and
responsibilities of the Board. OCC proposes to reorganize this list of
functions and responsibilities in a new section regarding the mission
of the Board and proposes non-substantive changes to some of the
descriptions of the Board's responsibilities. For example, the Board
Charter currently provides that the Board is responsible for advising,
approving, and overseeing OCC's business strategies, including
expansions of clearing and settlement services to new business lines,
as well as monitoring OCC's performance in delivering clearance and
settlement services. OCC proposes to amend the Board Charter to provide
that the Board is responsible for overseeing OCC's business strategies,
including expansions of clearance and settlement services to new
business lines and product types, to ensure they reflect the legitimate
interests of relevant stakeholders and are consistent with the public
interest.\77\ These changes are designed to improve the readability of
the document as well as to specify additional, specific considerations
of the Board with respect to particular responsibilities.\78\ OCC notes
that the Board Charter would provide that the Board is responsible for
the business and affairs of OCC and that the Board would continue to be
responsible for performing such other functions as the Board believes
appropriate or necessary or as otherwise prescribed by rules or
regulations, including OCC's By-Laws and Rules.\79\
---------------------------------------------------------------------------

    \77\ As a further example, OCC proposes to revise the Board's
responsibility to oversee ``OCC's information technology strategy,
infrastructure, resources and risks'' to provide that the Board's
responsibility is to oversee ``OCC's technology infrastructure,
resources, and capabilities to ensure resiliency with regard to
OCC's provision of its clearing, settlement, and risk management
services.'' OCC also proposes to remove oversight of human resources
programs from the Board Charter because that responsibility has been
delegated to the CPC.
    \78\ For example, OCC also proposes to specify that the Board's
authority extends to performing such functions as it believes are
appropriate or necessary, or as otherwise prescribed by rules or
regulation, including OCC's By-Laws and Rules, ``or other
policies.'' This change is intended to clarify that the scope of the
Board's authority extends to all of OCC's policies.
    \79\ Pursuant to this broad responsibility, OCC believes that
the functions and responsibilities of the Board would remain
consistent notwithstanding certain proposed deletions or rephrasing
regarding the existing list of responsibilities. For example, the
Board Charter would no longer specify that the Board would review
committee charters and reports of committee activities; however, it
would nevertheless provide that the Board is responsible for
establishing a written charter for each committee and that each
committee would be responsible for providing an annual report to the
Board regarding its activities.
---------------------------------------------------------------------------

    In addition to the changes described above, OCC proposes to modify
the description of the Board's functions and responsibilities as part
of the description of the mission of the Board to include: (i)
Overseeing OCC's governance structures and processes to ensure that the
Board is positioned to fulfill its responsibilities effectively and
efficiently consistent with applicable requirements and through
performance assessments, consistent with the requirements of Rule 17Ad-
22(e)(3)(i); \80\ (ii) ensuring that risk management, compliance, and
internal audit personnel have sufficient authority, resources,
independence from management, access to the Board, and a direct
reporting line to, and oversight by, certain committees, consistent
with the requirements of Rules 17Ad-22(e)(3)(iii) and (iv); \81\ (iii)
ensuring that the audit committee of the Board is

independent, consistent with the requirements of Rule 17Ad-22(e)(3)(v);
\82\ (iv) transitioning the overall oversight of ERM to the Board; and
(v) assigning responsibility for risk decisions and policies to address
decision-making during a crisis. The Board Charter would also be
amended to codify the Board's existing responsibility for overseeing
and approving OCC's Recovery and Orderly Wind-Down Plan.\83\
---------------------------------------------------------------------------

    \80\ 17 CFR 240.17Ad-22(e)(3)(i).
    \81\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \82\ 17 CFR 240.17Ad-22(e)(3)(v).
    \83\ See supra note 60 and accompanying text.
---------------------------------------------------------------------------

    As noted above, OCC proposes to transfer responsibility for the
oversight of ERM from the RC to the Board. The proposed change would
allow the Board to retain responsibility for the comprehensive
oversight of OCC's overall risk management framework, while retaining
the ability to delegate oversight of specific risks to designated
committees, which would then report to and be subject to oversight by
the Board. Moreover, shifting enterprise risk oversight responsibility
from the RC to the Board would promote even further engagement by and
attention from the Board regarding OCC's risk universe and how such
risks impact OCC's strategic direction and priorities as well as
provide for more meaningful dialogue and discussion at Board meetings.
Moreover, it would alleviate the potential for overburdening the RC and
establish clearer lines of oversight responsibilities for particular
risks across the Board's committees. Additionally, the expertise
represented on the Board collectively would be available to provide
appropriate guidance relative to each key risk within OCC's risk
universe.
    OCC also proposes a number of other changes to the Board Charter,
such as deletion of the provision noting that the Member Vice Chairman
of the Board has the responsibilities set forth in the By-Laws. OCC
believes this is appropriate because the responsibilities of the Member
Vice Chairman are already set forth in OCC's By-Laws. OCC also proposes
to amend the Board Charter to no longer specify that the Board is
responsible for an annual self-evaluation of its performance and the
performance of its committees and individual directors.\84\ Because the
Board has delegated responsibility to the GNC for the annual self-
evaluation of the Board and its committees, which is described in text
that OCC proposes to import from the CGP, OCC believes that it is no
longer necessary to specify that the Board would have this annual self-
evaluation obligation.\85\ Similarly, OCC proposes to amend the Board
Charter to no longer provide that the Board is responsible for
evaluating and fixing the compensation of the Executive Chairman and
certain other officers because the Board has delegated this
responsibility to the CPC.\86\ Finally, OCC proposes to delete the
current footnote one (1) from the Board Charter, which provides an
example of an instance in which certain provisions of the By-Laws
provide that the Board should not take action. The amended Board
Charter would continue to provide that the Board's responsibilities and
duties are subject to any exceptions provided in OCC's Amended and
Restated Certificate of Incorporation or the By-Laws and Rules, but OCC
believes that the footnote providing an example of such an instance is
unnecessary and its deletion would improve readability of the Board
Charter.
---------------------------------------------------------------------------

    \84\ The Board Charter would provide more generally that the
Board is responsible for overseeing OCC's activities through regular
assessments of Board and individual director performance.
    \85\ OCC also proposes to amend the Board Charter to provide
that the annual self-evaluations shall no longer include a focus on
individual directors' performances but will instead focus primarily
on the performance of the Board and each committee as a whole. OCC
has found that because not every director has the opportunity to
work with each other director, focusing the annual self-evaluation
on individual director performance is less effective than focusing
on the performance of each committee as a whole.
    \86\ However, the amended Board Charter would specify that the
Board is responsible for approving the compensation of such
officers.
---------------------------------------------------------------------------

    OCC also proposes to amend the Board Charter to provide that a
number of different activities related to the conduct and functioning
of the Board would involve participation by or input from certain other
officers of OCC that serve functions relevant to the topic being
discussed. For example, with respect to setting the agenda for Board
meetings, the Board Charter currently provides that the Executive
Chairman, in consultation with other directors or officers of OCC, as
well as the Corporate Secretary, will establish an agenda for Board
meetings. OCC proposes to amend this provision to provide that the
Executive Chairman and CEO, in consultation with the COO and CAO, other
directors or officers of OCC, and the Corporate Secretary shall
establish the agenda for Board meetings.\87\ These changes are designed
to help specify clear and direct lines of responsibility and promote
clear and transparent governance arrangements in the public interest
pursuant to Rule 17Ad-22(e)(2) by making clear the roles and authority
of certain officers and ensuring that input from additional officers is
included where appropriate.
---------------------------------------------------------------------------

    \87\ Similarly, OCC proposes to amend the Board Charter to
provide that the CEO, COO and CAO would have the authority to invite
employees to Board meetings, that such officers encourage members of
senior management to respond to questions posed by directors
relating to their areas of expertise, and that directors shall
coordinate access to members of senior management and outside
advisors through such officers. The criteria for Board member
eligibility would also be expanded to ensure that candidates'
experience and expertise are not only adequate to offer advice and
guidance to the Executive Chairman, but also to the CEO, COO, and
CAO.
---------------------------------------------------------------------------

(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section
17A of the Act \88\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(F) of the Act \89\ requires, among other things, that the
rules of a clearing agency be designed, in general, to protect
investors and the public interest. When considered together, the
proposed changes described herein are designed, in general, to clarify
and assign certain responsibilities for the governance and oversight of
OCC among the Board and its respective committees in order to provide
for governance arrangements that are clear and transparent and that
specify clear and direct lines of responsibility. In turn, these
changes would help ensure that OCC has governance arrangements that are
organized to support its ability to promptly and accurately serve
Clearing Members and the markets for which it clears and effectively
manage the range of risks that arise in the course of providing such
clearance and settlement services. OCC therefore believes that the
proposed rule change would provide for governance arrangements that are
designed, in general, to protect investors and the public interest in a
manner consistent with Section 17A(b)(3)(F) of the Act \90\ and that
are consistent with the rules thereunder, as discussed in further
detail below.\91\
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78q-1.
    \89\ 15 U.S.C. 78q-1(b)(3)(F).
    \90\ 15 U.S.C. 78q-1(b)(3)(F).
    \91\ See supra notes 18, 20, 22, 23, 27, 29, 31, 33, 38, 41-48,
52, 55, 62-64, 71-76 and accompanying text for changes related to
Rules 17Ad-22(e)(2). 17 CFR 240.17Ad-22(e)(2). See supra notes 21,
26, 30, 33-35, 38, 40, 42, 52, 55-56, 58-59, 60, 63, 66, 80-83 and
accompanying text for changes related to Rules 17Ad-22(e)(3). 17 CFR
240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Common Changes
    As described in Item II.(A)(1) above, OCC believes that all of the
proposed common changes to the charters are designed to provide for
governance arrangements that clearly prioritize the safety and
efficiency of OCC, support the public interest requirements in

Section 17A of the Act \92\ and the objectives of owners and
participants, and consider the interests of participants' customers,
securities issuers and holders, and other relevant stakeholders of OCC.
First, the proposed rule change would require the Board and the
committees to prioritize the safety and efficiency of OCC in carrying
out their responsibilities.\93\ Second, the charters, as revised, would
require the Board and the committees to carry out their
responsibilities to generally support the stability of the broader
financial system, which OCC believes requires them to act in a manner
that would, in part, also promote the prompt and accurate clearance and
settlement of securities transactions for the protection of investors
and persons facilitating transactions by and acting on behalf of
investors, which is one of the public interest findings in Section 17A
of the Act.\94\ Third, the revised charters would require the Board and
the committees to consider the legitimate interests of Clearing
Members, customers of Clearing Members and other relevant stakeholders,
taking into account prudent risk management standards (including
systemic risk mitigation) and industry best practices, which is
consistent with providing for governance arrangements that consider the
interests of Clearing Member's customers and other relevant
stakeholders of OCC.\95\ Moreover, OCC would amend the committee
charters to provide that in the event of a committee vacancy, the
applicable committee would continue to undertake its responsibilities
(including those enumerated above), so long as the remaining committee
members are capable of satisfying the quorum requirement, to ensure
that the committee can continue to effectively carry out its
responsibilities in such a scenario.\96\ OCC believes the proposed
changes would enhance the clarity of OCC's Board and committee
governance arrangements and help ensure that OCC has governance
arrangements that are organized to support its ability to promptly and
accurately serve Clearing Members and the markets for which it clears
and effectively manage the range of risks that arise in the course of
providing such clearance and settlement services and are therefore
designed, in general, to protect investors and the public interest in a
manner consistent with Section 17A(b)(3)(F) of the Act.\97\ OCC also
believes the proposed changes are reasonably designed to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for governance arrangements that clearly
prioritize the safety and efficiency of OCC, support the public
interest requirements in Section 17A of the Act applicable to clearing
agencies and the objectives of owners and participants, and consider
the interests of participants' customers, securities issuers and
holders, and other relevant stakeholders of a covered clearing agency
consistent with Rules 17Ad-22(e)(2)(ii), (iii) and (vi).\98\
---------------------------------------------------------------------------

    \92\ 15 U.S.C. 78q-1.
    \93\ See supra notes 18, 23, and 47 and accompanying text.
    \94\ See supra notes 18, 48-49, 71, and 74 and accompanying
text.
    \95\ See supra note 18 and accompanying text.
    \96\ This same change would not be added to the Board Charter.
It would also not be added to the GNC Charter because it is already
addressed.
    \97\ 15 U.S.C. 78q-1(b)(3)(F).
    \98\ 17 CFR 240.17Ad-22(e)(2)(ii), (iii), and (vi).
---------------------------------------------------------------------------

    OCC believes the proposed common changes also would help to provide
governance arrangements that are clear and transparent and that specify
clear and direct lines of responsibility. For example, all charters
would be revised to clearly state that a role of the Board or the
committee, as applicable, is to advise management. In addition, all of
the charters would be amended to provide that the Board and the
committees may delegate authority to one or more designated officers of
OCC but that in any such instance the Board or the committee retains
responsibility to oversee the activity and assure itself that the
reliance on the work of any delegate is reasonable.\99\ As a further
example, OCC also proposes amendments to acknowledge, where relevant,
that its EC also serves as the CEO and therefore certain
responsibilities and considerations that currently apply to the EC
would also apply regarding the CEO. The charters would also be amended
to specify clear and direct lines of responsibility by providing that,
in cases where the Board or a committee has authority to approve
reports or other matters that are provided to it, the Board or the
committee is not obligated to approve and has clear means of recourse
if it does not.\100\ In addition, committees would be required to
submit their charters to the GNC for potential approval in addition to
submitting them to the Board. OCC believes the proposed changes would
enhance the clarity of OCC's Board and committee governance
arrangements and help ensure that OCC has governance arrangements that
are organized to support its ability to promptly and accurately serve
Clearing Members and the markets for which it clears and effectively
manage the range of risks that arise in the course of providing such
clearance and settlement services and are therefore designed, in
general, to protect investors and the public interest in a manner
consistent with Section 17A(b)(3)(F) of the Act.\101\ OCC also believes
the proposed changes are reasonably designed to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to provide for governance arrangements that are clear and
transparent and that specify clear and direct lines of responsibility
consistent with the requirements in Rules 17Ad-22(e)(2)(i) \102\ and
(v).\103\
---------------------------------------------------------------------------

    \99\ See supra notes 20, 43, and 75-76 and accompanying text.
    \100\ See supra notes 22-23 and accompanying text.
    \101\ 15 U.S.C. 78q-1(b)(3)(F).
    \102\ 17 CFR 240.17Ad-22(e)(2)(i).
    \103\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    OCC also proposes to make a number of changes to the charters to
clarify that, where certain actions were required to be performed
``annually'' under the charters, those actions would now be required to
occur ``each calendar year.'' \104\ OCC believes that adding more
specificity in its charters regarding the frequency of these activities
would provide for governance arrangements that are clear and
transparent by eliminating ambiguity as to when the Board or a
committee is responsible for taking certain actions. OCC believes the
proposed changes would enhance the clarity of OCC's Board and committee
governance arrangements and the effectiveness of the Board and Board
committees' oversight and are therefore designed, in general, to
protect investors and the public interest in a manner consistent with
Section 17A(b)(3)(F) of the Act.\105\ OCC also believes the proposed
changes are reasonably designed to establish, implement, maintain and
enforce written policies and procedures reasonably designed to provide
for governance arrangements that are clear and transparent consistent
with the requirements in Rule 17Ad-22(e)(2)(i).\106\
---------------------------------------------------------------------------

    \104\ See supra note 27 and accompanying text.
    \105\ 15 U.S.C. 78q-1(b)(3)(F).
    \106\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------

AC Charter Changes
    As described in Item II.(A)(1) above, OCC believes certain of the
proposed changes applicable to the AC Charter are generally designed to
achieve a risk management framework that provides: (i) Risk management
and internal audit personnel with sufficient authority, resources,
independence from management, and access to OCC's

Board; \107\ (ii) risk management and internal audit personnel with a
direct reporting line to, and oversight by, a risk management committee
and an independent audit committee of the Board; \108\ and (iii) an
independent audit committee.\109\ For example, the AC Charter would be
amended to clarify that the AC shall oversee the independence and
objectivity along with the budget and resources of OCC's internal audit
department so that OCC's risk framework provides internal audit
personnel with sufficient authority, resources, independence from
management, and access to the Board and a direct reporting line to, and
oversight by, an independent audit committee of the Board. OCC also
proposes to amend the AC charter to provide that the AC is authorized
to review and approve OCC's audited financial statements, oversee the
timing and process for implementing a rotation of the engagement
partner of the external auditor, and discuss certain significant issues
with the external auditor. OCC believes that framing the AC's
responsibilities in this manner would provide appropriate flexibility
for the committee to carry out its oversight and advisory
responsibilities with respect to OCC's internal audit function. OCC
believes the proposed changes to the AC Charter would provide
additional clarity regarding OCC's governance arrangements and allow
the AC to more effectively carry out its oversight functions concerning
those matters for which it has responsibility and are therefore
designed, in general, to protect investors and the public interest in a
manner consistent with Section 17A(b)(3)(F) of the Act.\110\ OCC
believes the proposed changes are also consistent with the requirements
of Rules 17Ad-22(e)(3)(iii), (iv) and (v) \111\ that OCC's risk
management framework provide: (i) Risk management and internal audit
personnel with sufficient authority, resources, independence from
management, and access to the board of directors; (ii) risk management
and internal audit personnel with a direct reporting line to, and
oversight by, a risk management committee and an independent audit
committee of the board of directors; and (iii) an independent audit
committee.
---------------------------------------------------------------------------

    \107\ See supra notes 35, 38, and accompanying text. See also
supra notes 52 and 81 and accompanying text for similar changes to
other charters.
    \108\ See supra note 35 and accompanying text. See also supra
notes 52, 62, and 81 and accompanying text for similar changes to
other charters.
    \109\ See supra note 82 and accompanying text (describing a
change to the Board Charter to ensure an independent audit
committee).
    \110\ 15 U.S.C. 78q-1(b)(3)(F).
    \111\ 17 CFR 240.17Ad-22(e)(3)(iii), (iv), and (v).
---------------------------------------------------------------------------

    OCC also believes that certain of the proposed amendments to the AC
Charter are designed to provide for governance arrangements that
specify clear and direct lines of responsibility. For example, OCC
proposes to amend the AC Charter to establish the AC's responsibility
for reviewing the impact of litigation and other legal matters that may
have a material impact on OCC's financial statements and overseeing the
staffing, resources, and budget of OCC's compliance and audit
departments.\112\ As an additional example, OCC proposes to amend the
AC Charter to provide that certain mandatory reports must be sent to
the AC for review, which OCC believes would help specify clear and
direct lines of responsibility in OCC's governance arrangements by
ensuring that the AC remains apprised of OCC's ongoing performance in
respect of matters covered by the reports. OCC believes these proposed
changes to the AC Charter would provide additional clarity regarding
OCC's governance arrangements and allow the AC to more effectively
carry out its oversight functions concerning those matters for which it
has responsibility and are therefore designed, in general, to protect
investors and the public interest in a manner consistent with Section
17A(b)(3)(F) of the Act.\113\ OCC believes the proposed changes are
also consistent with Rule 17Ad-22(e)(2)(v),\114\ which requires OCC to
provide for governance arrangements that specify clear and direct lines
of responsibility.
---------------------------------------------------------------------------

    \112\ See supra note 29 and accompanying text.
    \113\ 15 U.S.C. 78q-1(b)(3)(F).
    \114\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

CPC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of
the proposed changes applicable to the CPC Charter are designed to
provide for governance arrangement that specify clear and direct lines
of responsibility. For example, OCC proposes to amend the CPC Charter
to clarify that the CPC assists the Board in overseeing risks related
to OCC's general business, regulatory capital, investments, corporate
planning, compensation, and human capital in addition to assisting the
Board in executive management succession planning and performance
assessments. While the CPC Charter already addresses these aspects of
the committee's responsibilities generally, the proposed revisions are
designed to emphasize the committee's responsibility to help the Board
oversee such risks and to clarify that the committee has an oversight
role while it remains OCC management's responsibility to identify,
manage, monitor and report the associated risks.
    OCC also proposes to remove certain specific responsibilities
stated in the CPC Charter in favor of a more general statement that the
committee is required to perform activities consistent with the CPC
Charter as it deems necessary or appropriate or as are delegated to the
committee by the Board, which OCC believes further specifies clear and
direct lines of responsibility. Changes would be made to clarify the
role that the committee plays in oversight of succession planning
regarding OCC's Management Committee, and a new provision would also
provide that the committee must review the results of Management
Committee succession planning activities at least once every twelve
months. Changes would also be made to clarify the CPC's role with
respect to the oversight of OCC's Administrative Committee, including
the CPC's authority to approve the Administrative Committee charter.
OCC believes that these allocations of responsibility are appropriate
given the CPC's current oversight of the Administrative Committee,
whereby the CPC is responsible for, among other things, appointing
members of the Administrative Committee overseeing and monitoring the
activities of the Administrative Committee with respect to retirement
and retirement savings plans.
    OCC believes these proposed changes to the CPC Charter would
provide clarity regarding the responsibilities of the CPC and allow the
CPC to more effectively carry out its oversight functions concerning
those risks for which it has responsibility and are therefore designed,
in general, to protect investors and the public interest in a manner
consistent with Section 17A(b)(3)(F) of the Act.\115\ Moreover, OCC
believes the proposed changes to the CPC Charter are consistent with,
among other provisions, the Rule 17Ad-22(e)(3)(i) requirement that risk
management policies, procedures, and systems be subject to periodic
review and annual approval by the Board \116\ and the Rule 17Ad-
22(e)(2)(v) requirement that governance arrangement specify clear and
direct lines of responsibility.\117\
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 78q-1(b)(3)(F).
    \116\ 17 CFR 240.17Ad-22(e)(3)(i).
    \117\ 17 CFR 240.17Ad-22(e)(2)(v).

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

GNC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of
the proposed changes applicable to the GNC Charter are designed to
ensure that Board directors have appropriate experience and skills to
discharge their duties and responsibilities and to ensure that OCC's
governance arrangements specify clear and direct lines of
responsibility. For example, OCC proposes to amend the GNC Charter to
reframe the GNC's responsibilities with respect to ensuring that
directors are appropriately qualified,\118\ and to specify that the GNC
shall review the composition of the Board for consistency with public
interest and regulatory requirements at least every three years rather
than periodically. OCC also proposes to expand the GNC's yearly review
of the Board Charter for consistency with the public interest and other
regulatory requirements to also include a review of the charters of the
Board committees, to specify that the GNC shall identify risk issues
that should be escalated to the Board for its review and consideration,
and to provide that the GNC shall annually review and advise the Board
with regard to whether directors are independent as defined by the
Board. Under the proposed rule change, the GNC Charter would also be
amended to assign new responsibility for advising on matters pertaining
to director leadership development and succession planning. OCC
believes that these proposed changes to the GNC Charter would enhance
OCC's governance arrangements by helping to ensure that OCC's directors
are appropriately qualified and would help promote clear and direct
lines of responsibility and are therefore designed, in general, to
protect investors and the public interest in accordance with Section
17A(b)(3)(F) of the Act.\119\ OCC also believes the proposed changes
are consistent with the requirement of Rule 17Ad-22(e)(2)(iv) \120\
that a covered clearing agency's governance arrangements establish that
Board directors have appropriate experience and skills to discharge
their duties and responsibilities and the Rule 17Ad-22(e)(2)(v)
requirement that a covered clearing agency's governance arrangements
specify clear and direct lines of responsibility.\121\
---------------------------------------------------------------------------

    \118\ See supra note 46 and accompanying text.
    \119\ 15 U.S.C. 78q-1(b)(3)(F).
    \120\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \121\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

RC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of
the proposed changes applicable to the RC Charter are designed to
provide for a sound risk management framework for managing legal,
credit, liquidity, operational, general business, investment, custody
and other risks that arise in or are borne by OCC, including risk
management policies, procedures, and systems that are designed to
identify, measure, monitor, and manage such risks and that are subject
to review on a periodic basis and approved annually by the Board.\122\
The RC Charter currently contains provisions that address certain
narrow responsibilities that the committee has for the oversight of
credit, collateral, liquidity and third party risks. These provisions
would be removed in favor of new provisions that more accurately
reflect the RC's broader responsibility to oversee these particular
risks. For example, changes to the RC Charter, including those related
to the committee's general function and responsibilities, would be made
to better align the RC's responsibilities with OCC's regulatory
requirements and would provide that, among other things, the RC would
be required to review OCC's management of credit, collateral,
liquidity, and third party risks at least once every twelve months and
that management would be required to provide the RC with monthly
reports regarding the effectiveness of OCC's management of credit
exposures and liquidity risks and quarterly reports regarding the
effectiveness of OCC's management of collateral and third party
risks.\123\ OCC believes the proposed changes to the RC Charter would
provide additional clarity regarding OCC's governance arrangements and
improve the effectiveness of the RC's oversight, particularly with
respect to OCC's credit, collateral, liquidity and third party risks,
and are therefore designed, in general, to protect investors and the
public interest in accordance with Section 17A(b)(3)(F) of the
Act.\124\ OCC also believes that the proposed changes to the RC Charter
are generally consistent with, among other provisions, the requirements
of Rule 17Ad-22(e)(3)(i) \125\ to establish, implement, maintain and
enforce written policies and procedures reasonably designed to maintain
a sound risk management framework for managing legal, credit,
liquidity, operational, general business, investment, custody and other
risks that arise in or are borne by OCC, including risk management
policies, procedures, and systems that are designed to identify,
measure, monitor, and manage such risks and that are subject to review
on a periodic basis and approved annually by the Board.
---------------------------------------------------------------------------

    \122\ See supra notes 54-55, and 58, and accompanying text. See
also supra notes 21, 33, 38, 40, 42, 63, and 80 and accompanying
text for similar changes with respect to other committee charters.
    \123\ See supra note 55 and accompanying text.
    \124\ 15 U.S.C. 78q-1(b)(3)(F).
    \125\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    OCC also proposes changes to the RC Charter to specify the RC's
responsibilities concerning plans for OCC's recovery and orderly wind-
down (``Recovery and Orderly Wind-down Plan'').\126\ OCC believes the
proposed changes would provide additional clarity regarding OCC's
governance arrangements concerning matters of critical importance and
are therefore designed, in general, to protect investors and the public
interest in accordance with Section 17A(b)(3)(F) of the Act.\127\ OCC
also believes these proposed changes to the RC Charter are consistent
with the requirements in Rule 17Ad-22(e)(3)(ii) that OCC maintain a
sound risk management framework that includes plans for the recovery
and orderly wind-down of the covered clearing agency necessitated by
credit losses, liquidity shortfalls, losses from general business risk,
or any other losses.\128\
---------------------------------------------------------------------------

    \126\ See supra note 59 and accompanying text.
    \127\ 15 U.S.C. 78q-1(b)(3)(F).
    \128\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    Finally, OCC proposes to reassign the oversight of the
investigations and enforcement outcomes of disciplinary actions taken
by OCC against Clearing Members to the RC because OCC believes that the
RC is more appropriately situated to review investigations and
enforcement outcomes of disciplinary actions given its oversight of
OCC's Clearing Membership framework. OCC believes the proposed changes
to the RC Charter would establish clear and direct responsibility for
the oversight of investigations and enforcement outcomes of
disciplinary actions taken by OCC by an appropriate committee of OCC's
Board and are therefore designed, in general, to protect investors and
the public interest in accordance with Section 17A(b)(3)(F) of the Act
\129\ and are consistent with the Rule 17Ad-22(e)(2)(v) requirement
that a covered clearing agency's governance

arrangements specify clear and direct lines of responsibility.\130\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78q-1(b)(3)(F).
    \130\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

TC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of
the proposed changes applicable to the TC Charter are designed to
provide for governance arrangements that specify clear and direct lines
of responsibility and to ensure that OCC maintains a sound risk
management framework for comprehensively managing risks that arise in
or are borne by OCC. For example, OCC proposes to amend the TC Charter
to provide that the TC shall identify risk issues relating to areas
that the TC oversees that should be escalated to the Board for its
review and consideration. As a further example, OCC also proposes to
amend the TC Charter to provide that the TC's role is one of oversight
and that it remains the responsibility of OCC management to identify,
manage, monitor and report on IT and other operational risks arising
from OCC's business activities while the Committee will oversee the
progress in executing on major IT initiatives, technology architecture
decisions and IT priorities. Other language was also revised to more
clearly describe the TC's responsibilities related to the oversight of
internal controls, and review of the crisis management plans as these
topics often fall within other areas (such as Business Continuity and
Disaster Recovery). OCC believes these revisions will strengthen the
transparency and clarity of its governance structure. Finally, OCC
would revise the TC Charter to remove specific references to the
committee's oversight of OCC's physical security and to more accurately
describe the committee's responsibility for overseeing the adequacy of
OCC's management of information security risks (which generally
includes oversight of the confidentiality, integrity, and availability
of OCC data; the security of the information systems used to process,
transmit, and store OCC information; and the physical, personnel,
procedural, administrative, and environment security disciplines). OCC
believes that these changes will promote a sound risk management
framework and add greater clarity to the responsibilities of the TC.
    For the reasons set forth above, OCC believes that the proposed
changes to the TC Charter would provide additional clarity to OCC's
governance arrangements and improve the effectiveness of the TC's
oversight of OCC's IT and other operational risks and are therefore
designed, in general, to protect investors and the public interest in
accordance with Section 17A(b)(3)(F) of the Act.\131\ Moreover, OCC
believes the proposed changes are reasonably designed to meet the
requirements of Rule 17Ad-22(e)(2)(v) \132\ to provide for governance
arrangements that specify clear and direct lines of responsibility and
Rule 17Ad-22(e)(3) \133\ to maintain a sound risk management framework
for comprehensively managing risks that arise in or are borne by OCC.
---------------------------------------------------------------------------

    \131\ 15 U.S.C. 78q-1(b)(3)(F).
    \132\ 17 CFR 240.17Ad-22(e)(2)(v).
    \133\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Board Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of
the proposed changes applicable to the Board Charter are designed to
improve the clarity and transparency of OCC's governance arrangements
and provide for governance structures and processes that are designed
to ensure that the Board is positioned to fulfill its responsibilities
effectively and efficiently consistent with applicable requirements and
through performance assessments. For example, as noted above,
incorporating the CGP within the Board Charter would promote clarity
and transparency by eliminating significant overlap between the two
existing documents and thereby making the consolidated provisions in
the Board Charter easier for Clearing Members and other OCC
stakeholders to access, use and understand.\134\ As a further example,
OCC proposes to amend the Board Charter to provide that the Executive
Chairman and CEO, in consultation with the COO and CAO, other directors
or officers of OCC, and the Corporate Secretary shall establish the
agenda for Board meetings, which is designed to help specify clear and
direct lines of responsibility and promote clear and transparent
governance arrangements by making clear the roles and authority of
certain officers and ensuring that input from additional officers is
included where appropriate. As a further example, OCC believes the
proposed changes to the Board Charter would make clear that the Board
is responsible for ensuring that the AC of the Board is
independent.\135\ OCC believes that the proposed changes to the Board
Charter would enhance the clarity of OCC's governance arrangements and
improve the effectiveness of the Board's oversight and are therefore
designed, in general, to protect investors and the public interest in a
manner consistent with Section 17A(b)(3)(F) of the Act.\136\ Moreover,
OCC believes the proposed changes are generally consistent with, among
other things, the Rule 17Ad-22(e)(2)(i) \137\ requirement to provide
for governance arrangements that are clear and transparent, the Rule
17Ad-22(e)(3) \138\ requirement to maintain 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 covered clearing agency, and the Rule
17Ad-22(e)(3)(iii) \139\ requirement to provide internal audit
personnel with sufficient authority, resources, independence from
management, and access to the board of directors.
---------------------------------------------------------------------------

    \134\ See supra note 68 and accompanying text.
    \135\ See supra note 82 and accompanying text.
    \136\ 15 U.S.C. 78q-1(b)(3)(F).
    \137\ 17 CFR 240.17Ad-22(e)(2)(i).
    \138\ 17 CFR 240.17Ad-22(e)(3).
    \139\ 17 CFR 240.17Ad-22(e)(3)(iii).
---------------------------------------------------------------------------

    In addition, OCC proposes to transfer responsibility for the
oversight of the ERM function from the RC to the Board. The proposed
change would allow the Board to retain responsibility for the
comprehensive oversight of OCC's overall risk management framework,
while retaining the ability to delegate oversight of specific risks to
designated committees, which would then report to and be subject to
oversight by the Board. Moreover, shifting enterprise risk oversight
responsibility from the RC to the Board would promote even greater
director engagement and attention regarding OCC's risk universe (i.e.,
the range of risks to which OCC is exposed) and how such risks impact
OCC's strategic direction and priorities as well as provide for more
meaningful dialogue and discussion at Board meetings. Moreover, it
would alleviate the potential for overburdening the RC and establish
clearer lines of oversight responsibilities for particular risks across
the Board's committees. Additionally, the expertise represented on the
Board collectively would be available to provide appropriate guidance
relative to each key risk within OCC's risk universe. OCC believes that
the proposed changes to the Board Charter would enhance the
effectiveness of the Board's oversight, particularly with respect to
OCC's ERM functions, and are therefore designed, in general, to protect
investors and the public interest in a manner consistent with Section
17A(b)(3)(F) of the Act.\140\ In addition, OCC believes the proposed
change is reasonably designed to provide for 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 OCC
consistent with Rule 17Ad-22(e)(3).\141\
---------------------------------------------------------------------------

    \140\ 15 U.S.C. 78q-1(b)(3)(F).
    \141\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    Finally, OCC notes that 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 \142\ 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. The proposed rule change addresses the charters used in
OCC's governance structure, and all Clearing Members would be equally
subject to these governance arrangements. Consequently, the amended
charters would not provide any Clearing Member with a competitive
advantage over any other Clearing Member. Further, the proposed rule
change would not affect Clearing Member's 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.
---------------------------------------------------------------------------

    \142\ 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.

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

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

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

    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 Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-OCC-2018-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2018-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2018-012 and
should be submitted on or before October 1, 2018.
---------------------------------------------------------------------------

    \143\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\143\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19501 Filed 9-7-18; 8:45 am]
 BILLING CODE 8011-01-P